The recent penalty prosecution of FedEx for shipping pharmaceuticals from online pharmacies that were prescribing drugs illegally has caused a lot of controversy. The operator of the world’s largest cargo service delivered drugs to Internet pharmacies that supplied drugs to consumers who filled out questionnaires on the web but were not examined by doctors.
The Justice Department claims that the company continued delivering prescription drugs and controlled substances for Superior Drugs and the Chhabra-Smoley Organization even though its employees had the knowledge that the online and fulfillment pharmacies affiliated with these two stores were convicted of distributing drugs illegally.
However, FedEx stated that the company asked the government to provide a list of online pharmacies involved in illegal activities. Whenever the Drug Enforcement Administration (DEA) provides such a list, they will stop shipping for the companies. But the government has declined to provide such a list so far.
“The privacy of our customers is essential to the core of our business,” said VP president marketing and communications at FedEx Patrick Fitzgerald. “This privacy is now at risk, based on the charges by the Department of Justice related to the transportation of prescription medications.”
FedEx takes transportation responsibilities of more than 10 million packages a day, and wants to make it clear what is at stake: the government is saying FedEx assumes the criminal responsibility for the millions of packages content picked up and delivered every day. The company has no interest in violating the FedEx consumer privacy, and is ready to support law enforcement. However, it can’t play the role of a law enforcement agency itself.
According to a report by the Wall Street Journal’s Laura Stevens and Andrew Grossman, the charges against FedEx are serious ones:
“In a 15-count indictment filed in San Francisco, federal prosecutors say that beginning in 2004 the company repeatedly ignored warnings from the government it was breaking the law by shipping drugs ordered from online pharmacies that dispensed them to anyone who filled out an online questionnaire. Among the charges included in the indictment are conspiracy to distribute controlled substances, conspiracy to distribute misbranded drugs, distribution of controlled substances and misbranding drugs.”
Moreover, FedEx has been working with law enforcement agencies for years to prevent its network from being used for illegal shipping, but isn’t willing to go as far as breaching customer privacy by opening packages. The persecution or indictment could force FedEx to open packages in future, which means consumer privacy could be at risk.
Illegal online pharmacies in which consumers can have drugs shipped without valid prescriptions is not a new problem in the shipping industry. UPS went through a similar investigation, forfeiting $40 million in payments the company made from the illegal pharmacy companies and taking measures to prevent their services facilitating such a process.
Consumers are using online pharmacies because of the privacy and convenience of purchasing medicines, and as a source of insurance that encourage home delivery for medications, says the US FDA (Food and Drug Administration).
FedEx faces $1.6 billion in a potential fine – which is twice the $820 million amount the company alleged to have profited from shipping the packages. The charges in the prosecution include misbranded prescription drugs and conspiracies to traffic controlled substances.
FedEx says it won’t plead guilty, and law enforcement is responsible for illegal drug sale, not a shipping company.
Morningstar analyst Keith Schoonmacher calls the penalty a little murky. He questions the government about not pursing shippers and holding FedEx solely responsible for illegal prescription drugs trafficking. He also said that the case is not likely to impact FedEx’s competitive advantage negatively, and the financial impact is going to be relatively minor.
“We consider FedEx’ Express and Ground segments to have powerful economic moats fending off new entrants’ intrusions,” he said.
It remains to be seen whether FedEx will be able to hold its ground in a controversial landscape where companies are increasingly willing to forfeit customer privacy. The questioning of the government intrusiveness and stating that consumer privacy is at risk is a valid stance. FedEx said in a statement:
“FedEx is innocent of the charges brought today by the Department of Justice,” the company said. “We will plead not guilty. We will defend against this attack on the integrity and good name of FedEx and its employees.”
The case may be strong as the government says the carrier was warned repeatedly for a decade that shipping drugs to those without prescriptions violates state and federal laws. But issues will apparently be hashed out in court proceedings.
What do you think about FedEx’s privacy statement?