A federal judge ruled against two defendants accused of selling counterfeit HIV medications, denying their motions to lift existing asset freezes obtained by pharmaceutical company Gilead Sciences in the ongoing lawsuit. Judge Ann M. Donnelly of the United States District Court for the Eastern District of New York converted the temporary asset freezes into preliminary injunctions, allowing Gilead to preserve funds for a potential award in the still undecided case. The judge had frozen the assets in 2022.
The judge determined that genuine pharmaceutical products with a falsified pedigree are counterfeit. This decision underscores the importance of the pedigree, or provenance, of pharmaceuticals. That is, a false pedigree alone can make a product counterfeit.
Gilead alleges the defendants were part of a counterfeiting ring that sold fake versions of its HIV medications. In the Gilead HIV drug case, the company obtained asset freezes against defendant Scripts Wholesale, a drug distributor and defendant Peter Khaim, a supplier.
Scripts and Khaim moved to lift the freezes. The court denied both motions. On Scripts’ motion, Judge Donnelly found Gilead showed a likelihood of success on its Lanham Act claims that Scripts created and sold fake medication pedigrees. The Lanham Act, also known as the Trademark Act of 1946, is a central federal trademark statute.
The judge found that Gilead showed it would suffer irreparable harm if the asset freeze was lifted, because Scripts’ alleged past fraudulent conduct suggests it may try to dissipate or hide assets if they were no longer frozen. Such an action would prevent Gilead from collecting money if it wins the case. The judge also balanced the equities by limiting the scope of the asset freeze order against Scripts. Rather than freezing all of Scripts’ assets, the order only freezes one savings account. This minimizes the harm to Scripts, while still allowing Gilead to receive the funds if it wins the case.
This new ruling potentially reinforcing Gilead’s claims under the Lanham Act. Gilead’s likelihood of winning the case now that a false pedigree is an indicator of counterfeiting.
The court rejected Khaim’s argument that assets bought before 2019 could not be frozen because Gilead showed later payments were made with proceeds. The court did, however, allow Khaim to renew his motion on one property.
In addition, the court declined to limit the freeze to $22 million, finding Gilead sufficiently linked over $37 million to Khaim. With the assets estimated at $30 million, the court denied Khaim’s motion.
In 2021, the Gilead HIV drug case began when Gilead Sciences announced that it had identified tampered and counterfeit versions of the HIV drugs Biktarvy and Descovy in the U.S. supply chain.
Ultimately, the Gilead case could set a precedent with considerable implications for drug developers. In particular, it signals a more rigorous approach to ensuring the safety and authenticity of drugs. It requires companies to ensure their product’s pedigree, warning of significant penalties for selling counterfeit drugs, even if they are authentic but have a false pedigree.