Running Head: LEGAL AND ETHICAL CONSIDERATIONS IN MARKETING 1

Title: Legal and Ethical Considerations in Marketing, product safety and Intellectual
Property
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LEGAL AND ETHICAL CONSIDERATIONS IN MARKETING 2

Abstract
This paper explores the importance of ethics in marketing, advertising and product regulation.
Apart from that it also evaluates the ethicality and legality of Pharmacares actions in the
light of intellectual property laws and other laws. The paper examines the legal implications
of the companys act in the light of several deaths. It analyses the federal regulation of
compounding pharmacies. It also examines the effect of intellectual property theft on a
companys image as well as the rights of a whistleblower and the protect ions offered to him
by the government. The paper concludes with an evaluation of the overall importance of
ethics in marketing and product safety.












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Ethically speaking, marketing should create, communicate and deliver value to customers
and manage customer relationships in ways that benefit the organizations and its
stakeholders. The emphasis in marketing should be on delivering value and creating
meaningful relationships. Deceptive marketing is a key ethical concern in the field of
marketing. Direct to consumer marketing has repeatedly come under fire for its deceptive
practices. Deceptive advertising of products gives rise to various ethical concerns. In the field
of product regulation also, honesty and social responsibility are key ethical concerns. Even in
terms of intellectual property, respective for the inventor is a key concern where the original
inventor has to be duly credited for his invention. In fact Pharmacare has violated all the three
ethical issues here. Firstly, it has shunned its social responsibilities in marketing and product
safety also. Its act is not at all socially responsible. While hiding key information regarding
the side effects of the medicine it has put several lives at risk. This also shows to which
extent companies can be irresponsible with their marketing and advertising practices while
chasing profits. Marketing cannot remain divorced from social responsibility (Boundless,
n.d.). Socially responsible marketing involves not hiding information related to the side
effects of the product you are selling. In the current case, Pharmacare has continued to market
its product while not informing people about the side effects of its drug. In case of product
safety also, Pharmacares practices are far from being socially responsible. Despite knowing
that its product is not safe for the users, it has continued to sell it while it should have recalled
the product from the market. Not just this to overcome the difficulties in marketing, it asked
doctors to mail fictitious lists of patients on whose basis it could continue its practices. So,
overall it is easily visible that Pharmacare has kept its ethics aside while marketing and
selling its AD23 drug. Instead of acting responsibly, its marketing strategy is driven only by
profitability. It has engaged in every practice that only maximizes profits and also kept
patient health at bay. It knows well that the product is unsafe for its users and yet continues to
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sell and market it. Once businesses start turning away from their social responsibility, they
start moving far from their business ethics also (Boundless, n.d.). The same has happened in
the case of Pharmacare. Most important among all these concerns is patient safety.
Pharmaceutical companies while trying to satisfy their inventive urges, may also be
ignoring various issues related to Direct-To-Consumer marketing. Direct to consumer
marketing was made legal in USA in 1985 only. However, it really took off in 1997, when
FDA eased a rule that required the companies to make a detailed list of the products side
effects public in their infomercials. Since then this form of marketing has grown popular
among the drug companies and millions of dollars have been poured into it (WHO, 2009).
The only country in the world apart from USA that hallows direct to consumer marketing is
New Zealand. Commonly, it is known that direct to consumers marketing is used to inform
the patients regarding the available treatment options. However, it is not always true, since
after the removal of the detailed side effects information obligation, the companies are no
more bound to make the negative side of their products public. On the other hand, what direct
to consumer marketing does is to drive choice rather than inform the patients. However, it is
not just that DTC marketing is being used to entice the customers to buy specific medicines
but the doctors are also being enticed to prescribe the products. As such overall, the outcomes
of DTC marketing have not been highly beneficial for the patients and the society (WHO,
2009).
Another negative effect of direct to consumer marketing is that it promotes off label uses. The
off label use denotes the uses not approved by the FDA. It is these practices that have
brought this form of promotion under increasing pressure. In January 2008, the democrats
had challenged the use of this practice by the industry. Congress announced the investigation
of a large number of such advertisements including that by Pfizer for its cholesterol lowering
drug Lipitor. In ads like that of Pfizers drug, actors play doctors and try to entice the patents
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to choose their product (WHO, 2009). Ten months later the pharmaceutical industry had
made an announcement that it was going to update its voluntary standards. Why companies
are doing it is just for their short term benefits. This all is being done solely to increase sales
and the result is seen in the form of side effects that customers have not been knowing. It
cannot be said that the direct to consumer marketing practices in the pharmaceutical industry
are not questionable. There is a need for increased regulation of the direct to consumer
marketing practices. However, if we carefully check there are some additional disadvantages
of direct to consumer marketing also. It manufactures diseases and encourages drug
overutilization apart from leading to inappropriate prescription (Ventola, 2011).
The FDA is the main regulating agency with regard to the regulation of the compounding
pharmacies. The compounding pharmacies create new drug combinations or alter drugs to sit
individual patients needs. The Drug Quality and Security Act, signed into law Nov. 27,
2013 by Barack Obama, encourages these pharmacies to register with the FDA (Reinberg,
2013). FDA will then classify them as outsourcing facilities and enable them to sell bulk
drugs hospitals and health care facilities. This Act creates a new section 503B in the FDCA.
Under section 503B, a compounder can become an outsourcing facility (FDA, 2014).
An outsourcing facility :
a. Should comply with the CGMP requirements.
b. FDA will inspect the facility according to a risk based schedule.
c. Should meet certain other conditions like reporting any adverse conditions as well as
provide certain information about the drugs these facilities compound to the FDA.
However, apart from the FDA, there are state authorities also which address the pharmacy
compounding activities. The compounding pharmacies also have to provide key
information to the FDA and label the product with adequate directions for use (FDA,
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2014). An important thing to do is to report any adverse condition. However, in the
current situation it can be see that Compcare has failed to report the adverse conditions
and as such it can face legal exposure over it hiding the side effects. It knows the side
effect of its product but has not reported to the FDA. So, unless Compcare reports as
required, it is bound to face legal action. Moreover, what compounds Compcares liability
is that the side effect in many cases has proved fatal causing fatal heart attacks.
Pharmacare established Compcare to avoid FDAs scrutiny and remain exempt from it.
Compcare is a compounding pharmacy which has been selling AD23 as its own
invention. It continued to pay its executives and managers. Since, Compcare evaded FDA
scrutiny, it is selling a unapproved drug (FDA, 2014). Pharmacare, used the loopholes in
law to further its profit concerns. In case of Johns rights over the invention if he was
employed by the company to invent the product only, the rights belong to the company.
In another case, the rights are shared between the employer and the employee. John has
been on the lead in the team which developed the new combination for treatment of
Alzheimers. However, John has neither been credited for the invention nor provided any
particular compensation for his and his teams invention. John can claim his right over the
invention and will have to be granted the compensation for his invention.
The company can compensate him in some ways for the invention that include :
a. Providing share in the profits earned.
b. Compensating him financially.
c. In the form of a royalty for the sales of AD23.
A recent case of intellectual property theft that came to light in US was by a China
based company called Sinovel which makes wind turbines. The Sinovel wind Group
co. of Beijing was indicted with charges of stealing technology from American
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SuperConductor Co. of Devens. Upon conviction, this charge may mean several years
in probation and hundreds of millions as fine. Such cases of intellectual theft only
result in loss of reputation for companies. In the recent years several Chinese
companies operating in US have come under the scanner for intellectual theft.
However, the current case is only a reminder that Chinese companies operating in US
are not immune from the intellectual property laws while doing business in US. The
indictment stemmed from four of the Sinovels wind turbines operating in
Massachussets (Ailworth, 2013).
These wind turbines, it has been alleged contained software which was stolen from
the American Superconductor which operates as AMSC. In June last year US
prosecutors secured an indictment of the company and two of its executives in Federal
court. This case only intensifies the already heated dispute with China over economic
espionage. This case has resulted in a severe loss of reputation for the company and
in case the indictment is proved, will result in a fine of hundreds of millions as well as
probation for several years. However, another important thing is that such cases do
not only result in loss of reputation for the company that engages in intellectual
Property theft but also for its country of origin (Ailworth, 2013).
AD23 has severe side effects and as such the company may face serious legal action
over its products side effect. The umber of heart attacks suffered by the users of
AD23 is seriously high. It may also result in severe fines and compensation for those
who suffered or a ban on the production of the potentially lethal drug. The drug has
been advertised and marketed by Compcare in a manner that exaggerate its benefits
and suppresses the side effects. There are other issues also including Compcare not
doing enough research on the medications as well as failing to issue a recall of the
product. Jut weeks later than Compcare was sold to Wellco, AD23 was linked to more
LEGAL AND ETHICAL CONSIDERATIONS IN MARKETING 8

than 200 deaths publicly. Johns wife has also died as a result of using the drug. The
pharmaceutical companies are required to create safe drugs responsibly which warn
accurately about the associated risks (WHO, 2009). Apart from it the pharmaceutical
company is also required to accurately advertise a drugs use and risks. Compcare or
rather Pharmacare has downplayed the drugs side effects significantly. A wrongful
death lawsuit can be filed by the potential litigants against Pharmacare as a result of
using AD23. In case of such claims being filed against the company, it will be faced
with severe legal action including product recall.
John can claim to be a whistleblower since he has reported a violation of law as well
as a substantial and specific danger to public health and safety. Ay person who
exposes misconduct, dishonesty or another such illegal activity going on inside an
organization. Such alleged misconduct may include a violation of law or even a direct
threat to public interest, like fraud or health and public safety concerns as well as
corruption. A whistleblower can make an allegation internally by reporting to his
seniors or externally by reporting to a regulatory agency or media group or any other
group concerned with the issue. Most often the whistleblowers are internal who report
misconduct to their superiors with the organization. However, in some cases
whistleblowers also report externally. They report to lawyers, media groups, watch
dog agencies or other federal or state agencies. There are monetary rewards also to
encourage external whistleblowing. Recently, a whistle blower who reported the JP
Morgan mortgage fraud case was rewarded with $ 63.9 million in rewards. JP Morgan
had agreed to settle the case by paying the government $614 million (HG, n.d.).
There are a number of laws in place to protect the whistleblowers in USA from
adverse action. The whistleblower law is related to the wrongful termination law
which includes statutes that protect the employees from wrongful termination. These
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statutes protect the employees from any kind of retaliation against them for
whistleblowing. It protects them from termination as well as any other form of
discrimination for exposing illegal activities at their place of employment. A notable
thing is that some of these statuettes contain provisions for monetary rewards for the
whistleblowers (HG, n.d.).
Another important act is the federal Whistleblower Protection Act that protects the
federal employees working in the executive branch. This act also requires that the
federal agencies take appropriate action over such issues. This act created the Office
of Special Counsel which was tasked with the investigation of the complaints by the
federal employees who had faced retaliation for whistleblowing. The false claims act
also provides protection to the whistleblowers. It protects the employees who do not
work for the government but are alleging fraud against the government by the federal
contractors. This act also provides for monetary reward for the whistleblower by way
of a Qui Tam clam. OSHA administers the provisions of various federal
whistleblower protection acts and regulations. However, apart from it, the states have
also enacted their own whistleblowing laws to protect employees from protection
(HG, n.d.).
In the current case, John is a whsitleblower who has exposed a significant threat to
the public safety. He will be provided protection under the given acts as well as
monetary rewards as applicable. The major arguments that John can make in this
regard is that AD23 is a severe threat to human health and a large number of cardiac
deaths have been reported due to the use of this drug. Apart from this the company
has also withheld the information related to the side effects of the drug intentionally.
He has reported regarding a severe threat to public health and safety and as such is a
whistleblower and liable for whisteblower protection also (HG, n.d.).
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Overall, in the current case, we can see that Pharmacare has engaged in unethical
practices and put public health and safety concerns under grave risk. This only shows
that companies not just put ethics at bay while pursuing their financial interests but
also employ the loopholes in law to garner highest profits. Apart from that a key thing
that comes to light here is that Direct to consumer marketing by drug companies may
give rise to various important concerns and as such require regulation. These practices
entice the consumers to buy and the doctors to prescribe. But apart from doing it these
practices also encourage overutilization. However, the sales and marketing of such
unapproved drugs may result in deaths as it did in the current case. Pharmacare has
not stolen the intellectual property from anyone else but its own employee.
Intellectual theft is a problem which cannot be overlooked. Such cases not just
jeopardize a companys reputation but also cause financial harm and legal action. The
company in question has also hidden key information regarding its product from FDA
which may give rise to legal issues. Apart from that it has also overlooked various
other issues. In such a scenario where companies are ready to put their ethics aside
just to generate maximum profits, it becomes the ethical duty of whistleblowers like
John to report such cases to the right agencies. The government has enacted several
laws for the protection of the whistleblowers against retaliation by the company
against whom they are reporting. Along with these laws there are also financial
incentives in place to encourage whistleblowing. What Pharmacare has done is to put
public health in jeopardy just to earn maximum profits. There are severe legal
implications of Pharmacares act which does not only pose risk to public health but is
violates other laws and is highly unethical. Such cases should be reported to FDA
instantly after receiving information regarding fatal side effects of a drug. What the
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case highlights is a need for stricter regulation of compounding pharmacies and direct
to consumer marketing.























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References:
Ventola, C. L. (2011). Direct-to-Consumer Pharmaceutical Advertising. In PMC.
Retrieved September 4, 2014, from
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3278148/
Direct-to-consumer advertising under fire (2009). In WHO. Retrieved September 4,
2014, from http://www.who.int/bulletin/volumes/87/8/09-040809/en/
Compounding Quality Act (2014). In FDA. Retrieved September 4, 2014, from
http://www.fda.gov/drugs/guidancecomplianceregulatoryinformation/pharmacycompo
unding/default.htm
Reinberg, S. (2013). FDA Starts Regulating Compounding Pharmacies. In WebMD.
Retrieved September 4, 2014, from http://www.webmd.com/news/20131202/fda-
starts-regulating-compounding-pharmacies
Ailworth, E. (2013). Theft case against Chinese firm carries a warning. In Boston
Globe. Retrieved September 4, 2014, from
http://www.bostonglobe.com/business/2013/06/29/sinovel-case-could-protect-
technology/SJzQJI96mTYwOH7LH9Ey2J/story.html
Whistleblower Law (n.d.). In HG. Retrieved September 4, 2014, from
http://www.hg.org/whistleblower.html
Issues in Marketing (n.d.). In Boundless. Retrieved September 4, 2014, from
https://www.boundless.com/marketing/textbooks/boundless-marketing-
textbook/social-responsibility-ethics-in-marketing-16/ethics-in-marketing-102/issues-
in-marketing-502-10770/


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