On August 2nd the Antimonopoly Committee of Ukraine delivered a decision in so called pharmaceutical cases. This time fines have also been imposed. The fines have been imposed on Rosh Ukraine LLC (UAH 9,115,817) and distributors BaDM LLC (UAH 5,407,948), Business Center Pharmacy LLC (UAH 3,207,361) and Alba Ukraine PJSC (UAH 339,999).
According to the Antimonopoly Committee of Ukraine, the mentioned entities engaged in anticompetitive concerted actions related to pricing of medicinal products produced by F. Hoffmann-La Roche Ltd. realized through public procurement. Such concerted actions were conducted through conclusion of agreements which introduced non-transparent bonus granting mechanisms which led to unreasonable overstatement of prices for medicinal products produced by F. Hoffmann-La Roche Ltd. within public procurement procedure.
Again bonuses are in the limelight. Lawyers practicing competition law recently have probably used the word “bonuses” more often than it is used in the advertisement of mobile communication on television. Without learning details of the case described in the decision, it can be concluded that according to the Antimonopoly Committee of Ukraine, payment of bonuses to distributors, which in future does not lead to reduction of the cost of the corresponding goods, but rather is a source of additional distributors’ income, attests to the fact that there are anticompetitive concerted actions.
It looks like that according to the Antimonopoly Committee of Ukraine, the very possibility of a seller to grant its buyers (distributors) bonuses attests to overstated prices for goods of this seller. Everything that in this case can save the seller and distributor from investigation is ensuring that bonuses will be included in further pricing of the distributor.
This conclusion of the Antimonopoly Committee of Ukraine cannot be called new. Analogous approach was used by the Antimonopoly Committee of Ukraine in other pharmaceutical cases, in particular, in case Alcon and Servier, in which the corresponding decisions of the Antimonopoly Committee of Ukraine are still being appealed.
It should be noted that in general this is rather a controversial conclusion, since its transformation into a rule will lead both to loss of a stimulation effect of bonuses (or discounts), which makes their granting completely useless, and to possible anticompetitive effects, in particular ability of a supplier to set control over prices of distributors.
Let us imagine, that an agreement between a distributor and supplier provides for bonuses granting and also prescribes an obligation to take them into account at further resale. If the distributor keeps its usual pricing algorithms, in particular mark-up amount, the resale price will become predictable for the supplier. Thus, the supplier will get the opportunity to manipulate the distributor’s resale price, for example, to create barriers for other suppliers to enter the market.
Now let us imagine the situation where the distributor will change its usual pricing algorithms and, in particular, will include all bonuses granted by the supplier in its initial price, but will significantly increase its mark-up while forming the resale price. The price will again become non-predictable for the supplier, which seems good. However, let us put the question again – what increased the distributor’s resale price? You will say - the distributor put bigger mark-up. Not right. The distributor did not transfer the gained bonuses – the Antimonopoly Committee will say.
Thus, we should not break the rule the Antimonopoly Committee repeats in pharmaceutical cases; either bonuses should be rejected, or the distributor’s pricing freedom should be limited. There we should remember that strict vertical limitation (which by default is violation of anticompetitive legislation) is limitation of the buyer’s ability to determine the realization price of a contract good, except for the supplier’s actions on determination of maximum or recommended realization price unless it leads to setting fixed or minimum realization prices. That is, the supplier and distributor may face a worse situation after the previous just bad one.
As we see from the new decision of the Antimonopoly Committee of Ukraine in Rosh Ukraine LLC case, the end in the bonus issue is still very far. The most dramatic in this regard in the Committee’s decision in Rosh Ukraine LLC case is the circumstance that the Antimonopoly Committee of Ukraine has obliged Rosh Ukraine LLC and distributors BaDM LLC, Business Center Pharmacy LLC and Alba Ukraine PJSC to stop the violation within two months from the day of the decision receipt.
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Andrii Gorbatenko, associated partner at Legal Alliance Company, attorney-at-law, gorbatenko@l-a.com.ua
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