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Fighting the Counterfeit Drug Industry

Counterfeit drugs have become a billion dollar business and reach consumers across the globe, affecting a gamut of products, from over-the-counter cough syrup to treatments for malaria and HIV.

Chanel purses and sunglasses from the back of a trailer, Rolex watches from a closet vendor, or a twenty-dollar bill that does not pass the invisible ink test at your local fast food restaurant. Mention the word “counterfeit” to most people and these images are the first to form. Over the past few decades, though, a more lethal form of counterfeiting has emerged. Counterfeit drugs have become a billion dollar business and reach consumers across the globe, affecting a gamut of products, from over-the-counter cough syrup to treatments for malaria and HIV. Counterfeit drugs now reach to every region of the world, but in regions where drug enforcement systems are weak, such as Africa, Asia and Latin America, the number of counterfeit drugs sold to unsuspecting consumers is greatest. Not only are counterfeit medications broad in their geographic scope, but their concentration has increased as well. According to the most recent data from the World Health Organization (WHO), approximately half of all medications purchased from illegal websites with concealed physical addresses are counterfeit. 1 The dangers of this business are apparent — both to the consumer and to the manufacturer. While consumers face the danger of the physical effects of a counterfeit drug, the manufacturer may face claims over a product masquerading under its brand, which the company did not manufacture and, often, did not even know existed.

This article examines the counterfeit drug industry with an eye to both preventative and retaliatory tactics on behalf of pharmaceutical drug manufacturers. Legitimate pharmaceutical manufacturers, armed with these measures, may provide a pivotal force to protect the industry, to combat harm to consumers, and to safeguard their own products and goodwill from future theft. The enormous implications of the counterfeit drug market are in large part a result of the complex nature of this clandestine industry. Thus, the first step in fighting its reach is to understand it.

Identify the Problem

The basic definition of a counterfeit drug is distinct from traditional uses of the term in intellectual property infringement, and the definition may vary from one country to another. To provide a working jargon, the WHO has posted the following definition:

A counterfeit medicine is one which is deliberately and fraudulently mislabeled with respect to identity and/or source. Counterfeiting can apply to both branded and generic products, and counterfeit products may include products with the correct ingredients or with the wrong ingredients, without active ingredients, with insufficient active ingredients or with fake packaging.2

Contrast this definition to drugs that have not received regulatory approval or to generic drugs, both of which are not considered counterfeit. The basic premise is that the counterfeit drug that reaches the hands of consumers is not the same drug as that produced for sale by the legitimate maker, either because it contains different ingredients or because it contains different packaging.

In its most virulent form, a counterfeit medication harms patients because it provides the wrong dosage of active ingredient or contains no active ingredient at all. For example, In January 2010, the U.S. Food and Drug Administration (FDA) warned consumers who purchased GlaxoSmithKline PLC’s over-the-counter weight loss drug Alli® from internet sites that the “fake” Alli did not contain the correct active ingredient. Instead, the counterfeit medication contained sibutramine, the active ingredient in Abbott Laboratories’ Meridia®. Further, the FDA warned that the counterfeit Alli contained concentrations twice as much as the maximum daily dosage of sibutramine, posing a serious health risk to persons taking it. 3 And while buying over-the-counter weight loss medications from internet-based distributors may not conjure the zealous advocacy needed to reverse the counterfeit drug phenomenon, consider the following examples: In 2001, a study in Southeast Asia found approximately 38% of antimalarial drugs sold in pharmacies contained no active ingredients whatsoever; in 1995, 89 deaths occurred in Haiti as a result of cough syrup prepared with a toxic chemical used in antifreeze; and in 2003, the FDA issued warnings of counterfeit Procrit® that potentially did not contain any active ingredient and may have even been tainted with bacteria. 4

Key Stakeholders

The counterfeit drug market was first recognized officially by the international community in 1985 at the Conference of Experts on the Rational Use of Drugs in Nairobi. The result of this meeting was a commission to the WHO to implement programs intended to prevent and detect the importation, exportation, and smuggling of counterfeit drugs.5 By collaborating with key agencies within its member states — such as Interpol, World Customs Organization, and the International Federation of Pharmaceutical Manufacturers and Associations — the WHO created the International Medical Products Anti-Counterfeiting Taskforce (IMPACT), which seeks to improve existing legislative and regulatory infrastructures while also promoting effective technology to prevent counterfeiting as well as more efficient communication mechanisms between trading countries. Since IMPACT’s initiation, it has drafted guidelines for security practices such as sampling suspect products and preparing rapid response plans by the regulatory bodies governing medicine in participating nations. 6

Within the United States, the FDA and the U.S. Department of Homeland Security, Immigration and Customs Enforcement (ICE), have implemented their own programs to help combat the increasing counterfeit drug problem. The FDA has drafted Industry Guidance that proposes a mechanism to increase drug safety. For example, pursuant to Section 505D of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. §155, the FDA has submitted guidance on the use of standardized numerical identifiers (SNIs) on package labeling to promote accurate identification of the product drug through a serialized National Drug Code.7 The FDA has also organized a Counterfeit Alert Network which alerts its participants of confirmed counterfeit cases in the United States or in another part of the world that have the potential to affect United States consumers.8 As discussed below, the FDA has also promulgated draft guidance on the use of technology or additives to identify and tag manufacturers’ products.

ICE has joined with the FDA Office of Criminal Investigations (OCI), along with other law enforcement partners, such as the Computer Crime and Intellectual Property Section of the Department of Justice and the U.S. Postal Inspection Service, to create an investigations and enforcement arm to counter the impact of counterfeiting within the U.S. In October 2007, these groups implemented Operation Guardian, which specifically targets the “importation and distribution of harmful, foreign products imported from all foreign sources.”9 As part of Operation Guardian, these member agencies have created an ongoing investigation initiative called Operation Apothecary (“Apothecary”), tailored to combat the smuggling of commercial counterfeit drugs through the internet, international mail facilities, international courier hubs, and U.S. land borders. Apothecary has been responsible for numerous “surge operations,” including extensive examinations of suspected parcels and ICE investigations, and numerous convictions and seizures of adulterated drugs have resulted.10

Proactive Solutions

1. Pre-market Actions: Anti-counterfeit Technology

With the problem of counterfeit medications growing as quickly as the internet can connect unwary consumers to illegitimate websites, pharmaceutical manufacturers can be left holding the pieces of a broken reputation. Combine this problem with consumer panic and heightened media attention, and pharmaceutical manufacturers immediately face the prospect of rebuilding their good name and hard-earned position in the marketplace. This unwelcomed scenario should cause the manufacturer to consider preventative measures that may be taken beforehand.

Several innovative options have appeared as this growing problem forces stakeholders to take inventory. For example, in 2004, the FDA issued industry guidance for the use of radio frequency identification (RFID) to “label” legitimate pharmaceutical products. RFID uses a small memory chip (RFID tag) which is placed on the drug and emits radio waves. This technology allows manufacturers and drug distributers to track the drug through the market supply chain to create an “electronic pedigree” as the drug moves from the manufacturer to the ultimate dispenser. The goal is to set aside patient fears as to how RFID could threaten individual privacy. In this world of technology and Orwellian fears, the RFID tag does not include information that could link any particular person to a drug, nor can any pharmacy or other drug dispenser add information to the tag once it is in place by the drug manufacturer. The tag’s sole function is to track the medication to ensure that the exact drug that leaves the manufacturer reaches the proper destination.

Several drawbacks to RFID are worth mentioning. RFID adds costs to the pharmaceutical product because it encompasses more than a simple redesign of a package — it includes assimilating new technology both in the design or packaging and in the chain of commerce as the drug moves from manufacturer to distributor to retail sales. That is, those market participants receiving the product must also incorporate technology capable of reading the RFID. Further, RFID cannot logistically curb the harmful effects of tainted medication, as it primarily is available for packaging identification alone and does not “read” the actual drug product to determine if it is the correct chemical composition of that particular drug. But, with a pending FDA regulation, pharmaceutical manufacturers may have no choice but to implement RFID. Section 505D of the Food, Drug, and Cosmetic Act mandates that manufacturers select and implement a method to authenticate and trace their prescription drug products.11 Currently, this mandate is slated to go into effect on December 31, 2010.

For manufacturers of solid oral dose drugs, another proactive option to protect the product is using physical chemical identifiers, including inks, pigments, flavors and molecular taggants. These identifiers are read by holography, laser scanning, fluorescent detection, etc. One of the greatest concerns in using physical chemical identifiers is how they may affect the drug itself as well as the patient. According to a 2009 guidance issued by the FDA,12 these identifiers should be limited to permissible food additives, including those generally recognized as safe by the FDA, or ingredients listed on the FDA Inactive Ingredient Guide. Another consideration is where to insert the identifier into the drug. The FDA guidance provides that the identifier should be inserted in a section that does not control any time-released mechanisms and that it should not be inserted into an area where an active ingredient is contained. The value of this identifier depends on whether it can be adopted systematically, as there must both be a method for inserting the identifier into the medication as well as a method for detecting the identifier before dispensing to patients. This challenge points to a concern mirrored with RFID — cost control. Additionally, in dealing with chemical identifiers, the manufacturer must submit the added identifier to FDA scrutiny for toxicological concerns.

2. Post-market Actions: Using Litigation Solutions to Combat Counterfeiting

Solutions such as anti-counterfeit technology are engineered to prevent infringement and thus save the “pound of cure” spent in litigation. But, with internet sales of illegitimate drugs rampant and on the rise, a manufacturer of pharmaceuticals should understand the remedies available for moving to the offense. While the law may not have evolved to meet the issue head-on, companies are finding there are avenues available to address it.

Under current law, one viable offensive tactic a manufacturer may employ upon identifying the source of counterfeit drugs is a suit to enforce patent and trademark rights. Both patents and trademarks are intended to provide a wall of protection around a company’s valuable intellectual property and, likewise, to provide a weapon of retaliation and restitution when that protection is infringed. Understanding the intrinsic differences between patents and trademarks is crucial for drug manufacturers desiring to maximize protection — as well as their goodwill — before the public and their customers.

Drug manufacturers invest vast quantities of resources and finances to ensure their products have properly registered patents in countries where those products are manufactured or sold. Patents exclude third parties from making, using, importing, selling or offering for sale patented products or methods of manufacture for a limited period of time. To enforce the patent in litigation, the patent holder must allege the counterfeit manufacturer is making or selling a pharmaceutical that is described in the patent. A primary consideration is cost: Patent litigation is an expensive process. Expenses are manifest as the holder frequently must proffer an expert to testify to the technical language and applications included in the registered patent. Further, to enforce patent rights, the holder must prove that the counterfeit infringes the pat­ent in an exact fashion or by close copy. Counterfeits that do not contain the exact same or similar ingredients or formulations of the patented product may not rise to the level of patent infringement.

While patent litigation is an option for those instances where the counterfeit medication is an exact copy of the patented product, manufacturers may find the better path to pursue is trademark litigation. Similar to patents, drug manufacturers generally register trademarks in the countries where the drug is made or distributed. Trademarks provide broader protections for the pharmaceutical than patents, including protections for the pharmaceutical’s name, any symbols used in labeling, as well as designs, colors, logos, or packaging. Because of the flexible nature of the trademark’s protections, a drug manufacturer should seek to apply its registered trademark to as much of the product as possible.

The Lanham Act, 15 U.S.C. §§1501-1141, grants to the holder of a trademark the right to sue those who infringe the mark. The Lanham Act defines “counterfeit” as a “spurious mark which is identical with, or substantially indistinguishable from, a registered mark.”13 If the counterfeit mark is “likely to cause confusion, or to cause mistake, or to deceive” in its use of a mark, a plaintiff may bring an action and immediately petition the court in an ex parte proceeding for injunctive relief.14 Further, the Lanham Act provides that a court shall award treble damages or statutory damages of up to $100,000 per mark at the plaintiff’s option in exceptional cases. The Lanham Act stipulates that, in the absence of extenuating circumstances, the court must award damages to the successful plaintiff. Damages may include “(1) defendant’s profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action” to prevailing plaintiffs.15 This, along with injunctive relief, allows greater restitution for drug manufacturers over the more stringent requirements of patent litigation.

The Lanham Act provides potential actions beyond the basic trademark counter­feiting/infringement scenario. For example, Section 43(a), the unfair competition arm of the Act, provides for a cause of action for false designation of origin, and under Section 43(c), a plaintiff may pursue an action for trademark dilution. Partnering these statutory claims with a variety of common law claims, such as injury to business reputation, the pharmaceutical manufacturer is well-equipped to bring a successful claim against a known maker of counterfeit drugs.

Potential Roadblocks

Of course, even though these remedies sound appealing in light of their favorable awards of both injunctive relief and high damages, a manufacturer must at this point be asking the question, “If we are to sue, who do we sue and how do we serve them with the complaint?”

Because counterfeit drugs are often purchased through the internet and often originate in foreign countries, the process for bringing a suit begins with stringent investigation. Investigation starts with an inquiry to determine that the drug at issue is, in fact, a counterfeit. By simply purchasing the suspected product off the internet and submitting it to inspection and analysis, a manufacturer can determine whether the drug is a fake. Once this is known, the hunt begins for the owner of the website and address, both of which may be found with a search of the domain registrar’s records. Often in the world of counterfeits, though, the name, telephone number and other identifying information provided to the domain registrar are false, and the investigation must then proceed “on the ground,” searching for a viable address for service of process. These efforts may prove fruitless, as the counterfeit web is often covered by elaborate smoke and mirrors.

Procedurally, though, all may not be lost at this point. On the contrary, after learning that the information provided to the domain registrar is false, a pharmaceutical manufacturer may still have the option of instigating proceedings by filing suit under the applicable provisions of the Lanham Act, asking for injunctive relief, money damages, and an assignment of the domain name used by the counterfeiter. A growing trend under Rule 4(f)(3) of the Federal Rules of Civil Procedure is courts’ approving service of process by email. Affidavits and declarations provide proof that the counterfeit manufacturer’s identifying information and address are false. With this proof, a plaintiff may seek permission from the court to serve process via the email address used by the counterfeiter to sell the fake drugs.16 The counterfeiter takes orders and receives payment for the illegal drugs through its website; thus, email service via that same website ensures that the defendant receives notice of the claims against it. Unless a counterfeiter responds to these complaints, which happens only rarely, the manufacturer may be able to obtain a default judgment, along with an award of money damages and injunctive relief. And often the true victory is an assignment of the domain name, which ultimately gives the plaintiff the rights to many of the domain names that could be associated with the pharmaceutical product.

An additional roadblock the manufacturer may face is the role federal and state governments play in conducting their own investigations. Ideally these remedies should work in tandem to create an effective deterrent against counterfeiting, but pharmaceutical manufacturers who find themselves as plaintiffs in litigation to enforce intellectual property rights may find that the parallel proceedings sometimes halt and grind rather than flow.

If a manufacturer is fortunate enough to identify a counterfeiter’s physical location such that traditional service of process is possible, the United States likely will instigate federal criminal proceedings. But, as often is the case, procedural issues immediately arise, some of which may put the progress of the civil suit at odds with criminal investigations. One possibility for which a manufacturer should be prepared is an indefinite stay of litigation pending the outcome of the criminal investigations. Even with this as a possibility, affected manufacturers should still consider private litigation a viable process.

While this path is not perfect and often requires a good measure of patience and perseverance, the roadblocks to successful litigation, assuming the manufacturer’s goals are realistic (injunctive relief, assignment of the domain name used to market the counterfeit product) generally are not insurmountable.

Conclusion

Despite the efforts of agencies working both domestically and globally to identify counterfeiters and effectively reverse their enterprise, pharmaceutical drug counterfeiters remain a serious threat to legitimate markets, affecting manufacturer, consumer, and every step in-between. Manufacturers can take advantage of innovative pre-market technology to secure the product before it debuts in the marketplace. If those measures do not prove a perfect shield, manufacturers may want to, or have to, take aggressive action to stop a counterfeiter who might otherwise elude accountability. This path leads through an obstacle course of investigation and the inevitable starts and stops of litigation, and requires doggedness and creativity on the part of legal counsel.

The counterfeit pharmaceutical industry should not spread unchecked. Government is making strides in combating this “growth industry.” Private manufacturers that want to or need to take up the mantle now have available the means to protect their products and to begin to hold these 21st century charlatans accountable.


[1] World Health Organization, Fact Sheet 275. Available at <http://www.who.int/mediacentre/factsheets/fs275/en>. January 2010. Last accessed April 15, 2010.

[2] Id. For sake of illustration, the United States Federal Food, Drug and Cosmetic Act defines a counterfeit drug as: A drug which, or the container or labeling of which, without authorization, bears the trademark, trade name, or other identifying mark, imprint, or device or any likeness thereof, of a drug manufacturer, processor, packer, or distributor other than the person or persons who in fact manufactured, processed, packed, or distributed such drug and which thereby falsely purports or is represented to be the product of, or to have been packed or distributed by, such other drug manufacturer, processor, packer, or distributor. 21 U.S.C. §321 (g)(2).

[3] See FDA Warning: Counterfeit Alli. Available at <http://www.fda.gov/ForConsumers/ConsumerUpdates/ucm 198557.htm>. 25 January 2010. Last accessed April 15, 2010.

[4] World Health Organization, Substandard and Counterfeit Medicines. Available at <http://www.who.int/mediacentre/factsheets/ 2003/fs275/en>. November 2003. Last accessed April 15, 2010.

[5] International Medical Products Anti-Counterfeiting Taskforce (IMPACT), Counterfeit Drugs Kill! PDF available at <http://www.who.int/impact/resources/en>. May 2008. Last accessed April 15, 2010.

[6] World Health Organization, Secretariat Report on Counterfeit Medical Products: International Medical Products Anti-Counterfeiting Taskforce. PDF available at <http://apps.who.int/gb/e/e_wha62.html> by clicking on A62-14. April 30, 2009. Last accessed April 15, 2010.

[7] U.S. Food and Drug Administration, Draft Guidance: Standards for Securing the Drug Supply Chain — Standardized Numerical Identification for Prescription Drug Packages. January 2009.

[8] See U.S. Food and Drug Administration, Counterfeit Alert Network. Available at <http://www.fda.gov/Drugs/DrugSafety/ucm170315.htm>. July 8, 2009. Last accessed April 15, 2010.

[9] U.S. Immigration and Customs Enforcement, Department of Homeland Security. Statement Regarding a Hearing on Oversight of Trade Functions: Customs and Other Trade Agencies Before the Senate Finance Committee (2008) (statement of Julie L. Myers, Assistant Secretary, U.S. Immigration and Customs Enforcement, Department of Homeland Security). Available at <http://www.ice.gov/pi/news/testimonies/index.htm.>. August 11, 2009. Last accessed April 16, 2010.

[10] Id.

[11] 73 Fed. Reg. 78,371 (Dec. 22, 2008).

[12] See Guidance for Industry Incorporation of Physical-Chemical Identifiers into Solid Oral Dosage Form Drug Products for Anticounterfeiting, U.S. Dept. of Health and Human Servs., Food and Drug Admin., Center for Drug Evaluation and Research. July 2009.

[13] 15 U.S.C. 1127 (2009).

[14] 15 U.S.C. §1114 (1)(a)(2009).

[15] 15 U.S.C. §1117 (2009).

[16] For example, in Rio Props. Inc. v. Rio Intern. Interlink, 284 F.3d 1007 (9th Cir. 2002), the United States Court of Appeals for the Ninth Circuit held that court-directed service by email is proper under Federal Rule of Civil Procedure 4(f)(3) when the plaintiff demonstrates the specific facts and circumstances warranting a court’s intervention such as in the scenario where an elusive international defendant evades service of process. Id. at 1017; see also Chanel, Inc. v. He Zhizhong, No. 09-2818, 2010 WL 985195 (W.D. Tenn. Mar. 16, 2010)(holding service of process by email under Fed. R. Civ. P. 4(f)(3) comports with due process when the defendant conducts a substantial portion of its business over the internet and further communicates with its clients via email); Popular Enters., LLC v. Webcom Media Group, 225 F.R.D. 560 (E.D. Tenn. 2004) (holding that service of process via email was proper under Fed. R. Civ. P. 4(f)(3) because it was the most likely method to reach the foreign defendant as other emails had successfully reached the defendant).

Finis

Citations

  1. World Health Organization, Fact Sheet 275. Available at <http://www.who.int/mediacentre/factsheets/fs275/en>. January 2010. Last accessed April 15, 2010. Jump back to footnote 1 in the text
  2. Id. For sake of illustration, the United States Federal Food, Drug and Cosmetic Act defines a counterfeit drug as: A drug which, or the container or labeling of which, without authorization, bears the trademark, trade name, or other identifying mark, imprint, or device or any likeness thereof, of a drug manufacturer, processor, packer, or distributor other than the person or persons who in fact manufactured, processed, packed, or distributed such drug and which thereby falsely purports or is represented to be the product of, or to have been packed or distributed by, such other drug manufacturer, processor, packer, or distributor. 21 U.S.C. §321 (g)(2). Jump back to footnote 2 in the text
  3. See FDA Warning: Counterfeit Alli. Available at <http://www.fda.gov/ForConsumers/ConsumerUpdates/ucm 198557.htm>. 25 January 2010. Last accessed April 15, 2010. Jump back to footnote 3 in the text
  4. World Health Organization, Substandard and Counterfeit Medicines. Available at <http://www.who.int/mediacentre/factsheets/ 2003/fs275/en>. November 2003. Last accessed April 15, 2010. Jump back to footnote 4 in the text
  5. International Medical Products Anti-Counterfeiting Taskforce (IMPACT), Counterfeit Drugs Kill! PDF available at <http://www.who.int/impact/resources/en>. May 2008. Last accessed April 15, 2010. Jump back to footnote 5 in the text
  6. World Health Organization, Secretariat Report on Counterfeit Medical Products: International Medical Products Anti-Counterfeiting Taskforce. PDF available at <http://apps.who.int/gb/e/e_wha62.html> by clicking on A62-14. April 30, 2009. Last accessed April 15, 2010. Jump back to footnote 6 in the text
  7. U.S. Food and Drug Administration, Draft Guidance: Standards for Securing the Drug Supply Chain — Standardized Numerical Identification for Prescription Drug Packages. January 2009. Jump back to footnote 7 in the text
  8. See U.S. Food and Drug Administration, Counterfeit Alert Network. Available at <http://www.fda.gov/Drugs/DrugSafety/ucm170315.htm>. July 8, 2009. Last accessed April 15, 2010. Jump back to footnote 8 in the text
  9. U.S. Immigration and Customs Enforcement, Department of Homeland Security. Statement Regarding a Hearing on Oversight of Trade Functions: Customs and Other Trade Agencies Before the Senate Finance Committee (2008) (statement of Julie L. Myers, Assistant Secretary, U.S. Immigration and Customs Enforcement, Department of Homeland Security). Available at <http://www.ice.gov/pi/news/testimonies/index.htm.>. August 11, 2009. Last accessed April 16, 2010. Jump back to footnote 9 in the text
  10. Id. Jump back to footnote 10 in the text
  11. 73 Fed. Reg. 78,371 (Dec. 22, 2008). Jump back to footnote 11 in the text
  12. See Guidance for Industry Incorporation of Physical-Chemical Identifiers into Solid Oral Dosage Form Drug Products for Anticounterfeiting, U.S. Dept. of Health and Human Servs., Food and Drug Admin., Center for Drug Evaluation and Research. July 2009. Jump back to footnote 12 in the text
  13. 15 U.S.C. 1127 (2009). Jump back to footnote 13 in the text
  14. 15 U.S.C. §1114 (1)(a)(2009). Jump back to footnote 14 in the text
  15. 15 U.S.C. §1117 (2009). Jump back to footnote 15 in the text
  16. For example, in Rio Props. Inc. v. Rio Intern. Interlink, 284 F.3d 1007 (9th Cir. 2002), the United States Court of Appeals for the Ninth Circuit held that court-directed service by email is proper under Federal Rule of Civil Procedure 4(f)(3) when the plaintiff demonstrates the specific facts and circumstances warranting a court’s intervention such as in the scenario where an elusive international defendant evades service of process. Id. at 1017; see also Chanel, Inc. v. He Zhizhong, No. 09-2818, 2010 WL 985195 (W.D. Tenn. Mar. 16, 2010)(holding service of process by email under Fed. R. Civ. P. 4(f)(3) comports with due process when the defendant conducts a substantial portion of its business over the internet and further communicates with its clients via email); Popular Enters., LLC v. Webcom Media Group, 225 F.R.D. 560 (E.D. Tenn. 2004) (holding that service of process via email was proper under Fed. R. Civ. P. 4(f)(3) because it was the most likely method to reach the foreign defendant as other emails had successfully reached the defendant). Jump back to footnote 16 in the text