The FAS Russia Recommendations on Development and Application of Commercial Poliсies of Business Entities Occupying a Dominant Position in the Pharmaceutical and Medical Devices Markets
The FAS Russia Recommendations on development and application of commercial poliсies of business entities occupying a dominant position in the pharmaceutical and medical devices markets
1. General provisions
The Federal Law № 135-FZ of July 26, 2006 "On Protection of Competition" (hereafter - Law on Protection of Competition) contains a prohibition of abuse by an economic entity of its dominant position.
The concept with characteristic features of dominance are contained in Article 5 of the Law on Protection of Competition. Dominant position is recognized when position of an economic entity (a group of persons) or several economic entities (groups of persons) in the market of certain commodity giving such economic entity (a group of persons) or such economic entities (groups of persons) an opportunity to have a decisive impact on the general conditions of commodity circulation in the relevant goods market and (or) to remove other economic entities from this goods market and (or) to impede access to this goods market for the other economic entities.
The dominance itself does not constitute a breach of the antimonopoly legislation, yet it obliges business entity not to abuse its position.
The abuse of dominant position applies to relations between business entity occupying a dominant position and contractor (potential contractor); it is qualified under Article 10 of the Law on Protection of Competition. The FAS Russia draws attention to the fact that the list of business entity’s actions which can be regarded as abuse is opened.
The risks of business entities occupying dominant position in the relationship with contractors (potential contractors) are written into set of elements of antimonopoly offences stipulated by Article 10 of the Law on Protection of Competition, namely:
- imposing contractual terms upon a contractor which are unprofitable for the latter or not connected with the subject of contract (economically or technologically unjustified and (or) not prescribed directly by the Federal Laws, statutory legal acts of the President of the Russian Federation, statutory legal acts of the Government of the Russian Federation, statutory legal acts of the authorized federal executive authorities or judicial acts, requirements for transferring financial assets, other property, including property rights, as well as consent to conclude a contract on conditions of including provisions, concerning the goods in which the contractor is not interested, and other requirements) (paras. 3);
- economically or technologically unjustified refusal or evasion from concluding a contract with individual purchasers in the case when there are possibilities for production or delivery of the relevant goods as well as if such a refusal or evasion is not prescribed directly by the Federal Laws, statutory legal acts of the President of the Russian Federation, the Government of the Russian Federation, authorized federal executive authorities or judicial acts (paras. 5);
- economically, technologically or otherwise unjustified establishment of different prices (tariffs) for the same goods, unless otherwise stipulated in the law (paras. 6);
- creation of discriminatory conditions (paras. 8);
- creation of barriers for the other economic entities to entry into the goods market or leaving from the goods market (paras. 9).
In order to avoid prosecution by antimonopoly authorities, the FAS Russia recommends business entities to act in conformity with the standards of the antitrust legislation, identify the boundaries of product markets, which are potentially non-competitive, develop and implement an internal document (trade policy) for the selection of contractors, interaction, as well as discontinuing work with them.
Example:
Following the results of court proceedings against Novo Nordisk LLC, the problem of interpretation by foreign pharmaceutical companies of the FAS Russia requirements as contrary to the US legislation on corruption (Foreign Corrupt Practices Act, hereafter - FCPA) and to the UK Bribery Act (hereafter – UBA) has occurred.
At the same time, the FAS Russia considers that FCPA and UBA are part of the antitrust legislation, because they prohibit companies from buying or otherwise affecting actions and decisions of officials or governmental authorities in order to pursue advantages in the market. In the Russian Federation, the prohibition of getting advantages is implemented through the prohibition of corruption (Articles 291 and 291.1 of the Criminal Code of the Russian Federation, Article 19.28 of the Code of Administrative Offences of the Russian Federation) and through the antitrust legislation (Article 10 of the Law on Protection of Competition).
The FAS Russia identified, that individual pharmaceutical companies dominating the Russian market under the pretext of implementation of the FCPA and UBA legislation and prevention of bringing to responsibility for violation of the FCPA and UBA violate the Russian legislation on protection of competition by illegal screening of their contractors. This is reflected in making excessive, inconsistent demands of distributors and their reputation, company’s judgmental decision-making on cooperation with distributors, refusals to conclude or extend distribution contracts with some distributors, etc.
The position of the FAS Russia is the need to provide non-discriminatory access to goods, as well as the need to erase the requirements for buyers (distributors), which are subjective, since such requirements provide business entities occupying a dominant position in the product market with opportunity to unreasonably refuse or avoid conclusion of a contract of purchase with buyers.
2. Product market identification
It is important for business entities to identify if their activity is at risk of breaching the provisions under Article 10 of the Law on Protection of Competition. This requires a determination of shares of product markets operated by business entities.
By carrying out the analysis of the product market competition, the competition authority is governed by the Procedure of Conducting Analysis of the Situation and the Evaluation of Competition Environment in the Product Market approved by the Order of the FAS Russia dated 28 April 2010, No. 220, as well as by the Administrative Regulation of the Federal Antimonopoly Service on executing a state function to recognize a dominant position of an economic entity while investigating cases of antimonopoly law violation and while executing state control over economic concentration approved by the Order No. 5 of the FAS Russia dated 25 May 2012, No. 345.
Under Article 4 of the Law on Protection of Competition, goods market is the area of circulation of a commodity (including commodity of foreign manufacture), which cannot be substituted by another commodity, or substitute goods (further on referred to as a certain commodity), within the frames of which (including geographical frames) due to economic, technical or other possibility, or expediency the purchaser can obtain the commodity, and this possibility or expediency is absent outside its frames.
Business entities often mistakenly calculate their market share on the basis of the amount of goods sold in physical terms or the volume of its proceeds in monetary terms with regard to competitors.
Alongside with that, the FAS Russia draws attention to the need of dividing product market into certain product’s markets in accordance with characteristics of the product market concept. Such characteristics are: area of circulation of a commodity (commodities), market’s boundaries (including geographical), and also opportunity for consumers to purchase goods.
In determining product market, it is necessary to identify availability or unavailability of substitute goods. Under Article 4 of the Law on Protection of Competition substitute goods are goods that can be compared by their functional purpose, application, qualitative and technical characteristics, price and other parameters in such a manner that purchaser actually substitutes or is ready to substitute one commodity with another in the process of consumption (including consumption for production purposes).
Therefore, product market could be consisted of products not only from one manufacturer (distributor), but also of products from rival manufacturers (distributors), if such products are substitute, so they stipulate presence or lack of other market participants.
Examples:
As proclaimed by the FAS Russia, dialysis market (medical products, to be used in hemodialysis process) consists of dialyzers from different manufacturers (Gambro, Fresenius, B. Braun, Belco, Nipro, Asahi, etc.). However, consumer properties of certain dialyzers’ types differ due to the membrane, filling volume, ultrafiltration coefficient, membrane surface area, sterilization. A research revealed that certain types of dialyzers from different manufacturers are substitute and create a common product market.
Conversely, blood tubing is used for artificial kidney in machines from different manufacturers; there are kidney machines with so-called «closed system» whose use is possible only with blood tubing from a particular manufacturer. The latter non-substitute blood tubing creates another product market comprised of a single product from a particular manufacturer (distributor) that according to all indications can occupy a dominant position in the market of blood tubing for particular kidney machines within the geographic boundaries of the Russian Federation.
The pharmaceutical market is also an illustrative example. Pharmaceuticals in the form of fluid from different manufacturers are used in the context of nephrology, namely in vividialysis process. At the same time, as it is identified by the FAS Russia and upheld by the court, the medical drug «Extraneal» (INN Icodextrin) of the Baxter Healthcare, Ireland relates to the category of special fluids for vividialysis, created to improve adequacy of vividialysis, and is unrivalled among manufacturers. Accordingly, in cases when a doctor concludes that it is necessary to use exactly this fluid, replacement of it by drugs from other manufacturers does not seem possible. The distinctive feature of «Extraneal» is its enhanced biocompatibility. The medical drug «Extraneal» instead of glucose contains glucose polymer icodextrin, that almost cannot be absorbed. It is impossible to replace it by drugs from other manufacturers. Along with that, «Baxter» CJSC representatives (the Baker & McKenzie law firm) mistakenlymake proportion of the «Extraneal» medical drug in regard to other medical drugs for vividialysis, as well as other manufacturers.
Therefore, apparently products of Baxter Healthcare production form a separate product market: the «Extraneal» (INN Icodextrin) medical drug market.
The examples provided here underline the importance of identification of product market, in which business entity operates, identification of substitute products, market players and identification of market shares.
3. Selecting and working with contractors
It is extremely important for business entities, which potentially occupy a dominant position in a certain commodity’s market and are at antimonopoly risk, to adopt and implement a document (trade policy) containing criteria for selecting contractors, procedure for conducting audits (process description) affecting decision-making, a list and powers of official bodies, involved in procedures of approval or refusal to have commercial relations, a list of individuals making such decisions, (potential) contractors’ application processing duration and order, as well as conditions of cooperation with contractors determining the cost of a product, volume of deliveries, payment conditions, discounts, rewards, etc.
Besides the criteria listed above, any trade policy should include a standard form contract (frame agreement) with all essential conditions of a contract (boilerplate contract of which is freely accessible in the telecommunication network of Internet to all potential and acting contractors), (potential) contractor’s tender form. However, contract provisions must not be contrary to trade policy conditions.
Example:
During the antimonopoly legislation infringement investigation of the «Novo Nordisk» CJSC case, the FAS Russia determined that a standard form contract is not available on the website of the company, as well as in the appendix to the trade policy. Consequently, a potential contractor of the «Novo Nordisk» CJSC was not able to read through the contract. Furthermore, the standard form contract conditions of the «Novo Nordisk» CJSC are contrary to the trade policy conditions.
3.1. Selection criteria
The selection of a contractor is a process of verification by business entity occupying a dominant position of a (potential) contractor’s compliance with requirements, specified in the document.
The list of such requirements, as well as the list of documents, requested to screen a contractor, should be exhaustive, criteria must be clearly defined, robust and explicit. Requirements to contractors may cover legal, financial and business aspects of contractors’ activity.
Contractor selection criteria may include:
- Registration as a legal entity (individual businessman);
- Absence of tax and dues arrears;
- Absence of liquidation or contractor’s bankruptcy procedure;
- Contractor’s activity is not suspended;
- Required license availability;
- No record of convictions or criminal indictment of individuals holding decision-making positions by contractors or their co-founders;
- No individuals occupying state posts or having a conflict of interests among individuals holding decision-making positions or their family members;
- Other objective criteria.
It is important for business entity occupying a dominant position in the product market itself to adhere to its trade policy with good faith and not to discriminate contractors, not to abuse the rights when screening a (potential) contractor.
In case the list of criteria for selection of (potential) contractors is not exhaustive, criteria are not clearly defined, not robust or explicit, under Article 10 of the Law on Protection of Competition, with the availability of appeal against action of a business entity occupying a dominant position, the antimonopoly authority is in position to treat such actions as abuse of dominant position.
Example:
During the antimonopoly legislation infringement investigation of the «Novo Nordisk» CJSC case under Article 10 (3, 5) paragraph 1 of the Law on Protection of Competition, it was found that, according to the provisions of the Standard form contract, the «Novo Nordisk» CJSC had the right to cease delivery and not to place purchase order of a contractor in case of debt in arrears of distributor, until full cancellation of this debt. However, in 2012 the «Novo Nordisk» CJSC did not exercise the right and extended the earlier concluded with contracting parties contract to 2013, as well as accepted purchase order for pharmaceuticals.
Alongside with that, when the «Novo Nordisk» CJSC decided to refuse the delivery of pharmaceuticals, the strongest argument was debt in arrears of 2012, that was identified as redeemed in 2012. Nevertheless, on February 7, 2014, the «Novo Nordisk» CJSC applied to the court with the claim to exact fines, and that is long after cessation of delivery, the FAS Russia initiation of case proceedings concerning a violation of antimonopoly legislation, as well as after expiration of the contract. However, such measures by the «Novo Nordisk» CJSC against other contractors in a comparable situation were not taken.
In accordance with the trade policy of the «Novo Nordisk» CJSC, in case of emerged information about a potential violation of standards of business conduct by acting commercial partners within the framework of contractual relationships, the «Novo Nordisk» CJSC has the right to take every step reasonable and necessary to confirm details, confirm (deny) information.
The «Novo Nordisk» CJSC in support of cessation of deliveries provided the FAS Russia with information on special investigation activities, conducted by the police, related to contractors. Meanwhile, authorized government bodies, in whose territory a contractor is registered, the Prosecutor’s Office of the Kaliningrad region and the Police Division for the Ozyorsky District of the Intermunicipal Division of the Ministry of Internal Affairs of the Russian Federation «Gusevsky», upon enquiry, provided the FAS Russia with information on absence of initiated criminal proceedings and special investigation activities, related to contractor’s employees.
Sometimes business entities occupying a dominant position in the product market and having a trade policy, while not wishing to cooperate with a particular contractor, abuse its rights. In this regard, the FAS Russia draws attention to the importance of not only having trade policy itself, but also of its content (clear conceptual framework, transparent and fair guidelines for selecting contractors and cooperating with them), accessibility of policy for unlimited range of persons, as well as practices of implementation of such policy by a business entity occupying a dominant position.
Business entities occupying a dominant position in the product market mistakenly find it possible to refuse conclusion of sale and purchase contracts to distributors in case of a suspicion of violation of legislation on corruption by purchaser based on data about contractors available from unofficial sources (web-based media, media reports, making calls, etc.) and unsupported by official decisions of competent public authorities on elicited facts. However, companies do not find it necessary to share their data containing signs of legislation violation, including legislation on corruption, with the bodies competent for that purpose.
The FAS Russia considers that such procedure for decision-making on conclusion of sale and purchase contracts are subjective and corruptive, and the existence of this right can increase dissemination of misleading information about distributors by their competitors, as well as by importing companies itself in case of their unwillingness to cooperate with a particular distributor.
Under Article 9 of the Constitution of the Russian Federation, a criminal defendant is presumed innocent until proven guilty, in accordance with the procedure stipulated by federal law and is confirmed by a court sentence, which has entered into legal force. The FAS Russia notes that, in the assessment of contractor’s goodwill, business entities occupying a dominant position tend to draw conclusions about involvement (noninvolvement) of a (potential) contractor in possible corruption-related offences that were not reviewed by authorized state bodies of the Russian Federation. In case such information is detected, business entities occupying a dominant position may submit their application to the authorized state bodies of the Russian Federation.
Meanwhile, to avoid antimonopoly risks, the FAS Russia recommends business entities occupying a dominant position against cessation of deliveries and refusal to conclude a contract, until the authorized state body of the Russian Federation adopts a relevant act on contractor’s violation of selection criteria that impede cooperation.
2. Description of the process of selecting contractors
The quality of the description of contractors selecting process is an important factor affecting the determination by antimonopoly authorities of signs of violation of antimonopoly legislation.
The contractors selecting process should be explained in complete detail, with the explanation of all possible stages of cooperation requests’ review (conclusion of a contract), disclosure of information relating to individuals (official capacity) affecting decision-making, making decisions and being members of commission on requests’ review (if any), relating to time limits for reviewing such requests, usual response time at each stage of screening, the possible extension of response time at each stage with an explanation of possible reasons.
The existence of a detailed process of reviewing requests on conclusion of a contract and product purchase, as well as adherence of business entity occupying a dominant position to it, significantly reduces the antimonopoly risks.
The FAS Russia recommends business entities occupying a dominant position against neglecting the role of adherence to time limits of requests’ review.
Example:
When considering the «Novo Nordisk» CJSC case, the FAS Russia found that there were no clear procedures and time limits for potential contractor screening to conclude a contract. The trade policy introduced the total time limit for examination of documentation in light of potential contractor’s explanation of issues that should not exceed 3 months. Along with this, in case the time of contractor’s response exceeded 14 calendar days, the total time limit for examination of application form was automatically suspended for the period of 14 calendar days. Сonsequently, the antimonopoly authority came to the conclusion that there were no time limits for contractor screening in the «Novo Nordisk» CJSC trade policy.
3.3. Description of the working process with contractors
The process of working with contractors, as well as commercial conditions, including volume of supply, sales mix, prices, payment conditions, the scope and terms for granting of discounts and bonuses, should be set forth in detail in the relevant document (trade policy) of a business entity occupying a dominant position.
The FAS Russia allows business entities occupying a dominant position to divide operating conditions with contractors, if such conditions make economic sense, for example:
• In the case of high volume of in-kind purchases, the unit price can be lower than the price of small batch;
• During calculation upon prepayment, the product price can be lower than the product price in extension of commercial credit;
• In procurement of goods from stock or non-seller, the price can be lowered.
The FAS Russia recommends business entities occupying a dominant position against incorporation in working conditions with contractors of requirements on providing detailed purchase forecast for pharmaceuticals, meant for participation of contractors in government procurement, referring to regions of expected supply. Firstly, a contractor cannot possess information on results of tender before the tendering process. Secondly, such information can be used for coordinating deliveries by tender and prevention of simultaneous participation of several particular contractors in one tender. The FAS Russia is of the view that business entities occupying a dominant position generally independently plan their activity with regard to information about previous and ex ante overall requirements of contracting authorities on relevant pharmaceuticals and tenders held during the calendar year (including use of information about the number of patients receiving medications).
Example:
In 2010, contracts of the «Novo Nordisk» CJSC with distributors contained requirements on report provision by distributors about remains, shipment with the name of purchaser and region, product description and volume, date and number of waybill, auction documentation, purchase forecast for quarters and adjusted forecast for month with name and volume of products, periods and regions of expected supply. The information provided by distributors prompted the «Novo Nordisk» CJSC to coordinate distributors’ supplies of medicines both in volume and regions of supply, leading to allocation of the product market on territorial principles, absence of competition and maintenance of prices during auctions.
The analysis of results of regional procurement procedure, which subject was the Novo Nordisk insulin, revealed a number of constituent entities of the Russian Federation with the same companies as contractors awarded the contract – the authorized distributors of the «Novo Nordisk» CJSC or their regular customers. This is an indicator of absence of competition by tender in these constituent entities of the Russian Federation; it results in maintenance of prices during auctions.
The FAS Russia do not rule out the possibility of systematical screening by business entities occupying a dominant position of acting contractors concerning compliance with conditions of trade policy.
The existence of detailed working conditions with contractors, as well as adherence of business entity occupying a dominant position to it, significantly reduces the antimonopoly risks.
Example:
One of the arguments in favor of the FAS Russia recognition of the «Baxter» CJSC violation of antimonopoly legislation was that the «Baxter» CJSC had no local documents prescribed by the International anticorruption policy of the «Baxter» CJSC, more specifically the Regional rules, provided for the detailed description of assessment methods and the number of elements required for screening, the list of employees, functional groups responsible for assessment and processing of results, as well as the list of required documents which will influence the decision-making process on all new and existent relations with contractors to ensure compliance with the policy.
Furthermore, the Regional rules should include screening and identification of risk factors (the process of internal approval and screening of third parties, the process of acquiring of the necessary information from third parties for screening, a list of risk factors and red flags, through which screening rules and the process of reference checking would be determined), criteria for the assessment of the screening risks, the contractor’s dependability and approbation evaluation procedure (the process of evaluation standard-setting), the process of approbation and approval. The contractor screening procedures and other documents, supplied by the «Baxter» CJSC, do not set forth criteria for selection and approbation of distributors, tender review duration, arrangements and conditions of work and termination of relations with contractors, criteria for decision-making and duration of decision-making. In this regard, it is not possible for potential contractor to assess the degree of their conformity to requirements of distributors and conditions of work with them.
3.4. Records management
It is important for business entity occupying a dominant position in the performance of provisions described in paragraphs 3.2, 3.3 of the present recommendations, to document every step of the process. Furthermore, it is necessary to pay attention to the mandatory registration of incoming and outgoing correspondence, specifying the recipient, subject, requisite details, and docket.
The process of cooperation request review, as well as decisions after the review at every step should be recorded in relevant documents (enquiries, standard forms, references, reports, and minutes) with signatures and indication of persons involved in management decision-making.
The decision on refusal to conclude or extend a contract in accordance with order and time limits, prescribed in trade policy, should evolve from the analysis by business entity occupying a dominant position of (potential) contractor’s activity for compliance with criteria, set forth in trade policy.
Materials gathered to review requests of (potential) contractors shall be considered and kept for a period of five years after the end of review procedure, resulting in decision-making on cooperation, refusal to cooperate or termination of commercial relations.
Introduction of the relevant record management for registration of correspondence, maintenance of information, included in internal documents of business entity (references, reports and minutes of business entity’s management bodies) testifies of business entity’s integrity and openness, it lowers the antimonopoly risks and can hereafter explain decisions made by business entity in accordance with research conducted by the antimonopoly authority.
Example:
Thus, for instance, in making an assessment of activity and decision on violation of the antimonopoly legislation because of an unjustified refusal by the “Baxter” CJSC to conclude an contract, the FAS Russia made up the following lists of procedures, used by the “Baxter” CJSC during the comprehensive screening, additional comprehensive screening and other types of screening of potential contractor: request and receipt of the resume of the potential business partner; interviewing Director General of the potential contractor; review of information, collected by an independent company (without the company identification); provision of recommendations by the Financial Director, the Chief Legal Officer, the Regional Adviser on corporate regulation and procedure control; making the final decision by the Director General.
Alongside this, apart from the general pointing at the International Anti-Corruption Policy in respect of the third parties and the Global procedure of comprehensive screening, the “Baxter” CJSC did not present the references to the corresponding provisions of the documents that identify and describe these procedures.
The decision of the Director General of the “Baxter” CJSC on the refusal to cooperate with the potential contractor was based on negotiations with the Director General, the Chief Legal Officer, and the Regional Adviser on corporate regulation and procedure control, who gave their recommendations on this subject. Upon that, the documents, which justify every stage of the decision-making procedure, and the written documents, which constitute such-alike recommendations of the “Baxter” CJSC, are not presented.
The duplicated documents, containing the conduct of each stage of the procedure and the results stages of the comprehensive screening, stages of the additional comprehensive screening and other types of screening of the potential contractor (resume for interviewing the candidate, form of standard assessment and rationalization of the third party, requests and answers on standard informational business screening and media research for adverse information about the third party, and also comparative analysis, etc.) as well as the resume of the potential business partner, the summary of the interview with the Director General of the potential contractor and the letter of the “Baxter” CJSC to the potential contractor about the cooperation refusal, were not presented. With that, the form of standard assessment and substantiation of risks of the third party with marks about sufficiency/ insufficiency of the potential cooperation was not presented due to quit of the employees of the “Baxter” CJSC, who could have had such information. The document was not found during the internal search of the “Baxter” CJSC. Alongside this, the “Baxter” CJSC did not present the justification documents on quit of the key employees who had the sought and necessary for the FAS Russia information.
The FAS Russia recommends to forward letters (requests, responses with decisions made) to contractors (potential contractors) with further information detailing on the delivery via notification through electronic communication channels or by courier with a delivery confirmation, or by post with the delivery confirmation.
Thus, for instance, the trade policy of the “Novo Nordisk” CJSC stipulated filing of notification about the decision made to the commercial partner via electronic mail, facsimile or postal communications, which did not guaranty the delivery of the letter to the commercial partner. Within the administration of complaints by the FAS Russia there were cases presented, where the “Novo Nordisk” CJSC had sent the letters to the wrong addresses for delaying the procedure of administration.
4. Cessation of work with contractors
The procedure and grounds for business entities occupying a dominant position to cease the work with contractor should be described in detail in the corresponding document (trade policy). A list of grounds should be clearly defined, robust and explicit.
The grounds for cessation of work with contractor may be:
- Dissolution of a contractor;
- Occurrence of circumstances, due to which a contractor does no longer meet the approved criteria of selection and work with contractors;
- Cessation of economic activity;
- Agreement of the parties;
- Origination of reconciled and confirmed payment debt for products with determination of equal threshold of the debt amount and impossibility (refusal) for contractor to pay the debts.
In case of existence of cooperation agreement, if business entity occupying a dominant position makes decision of technologically unreasonable and economically unsound refusal (evasion) to implement obligations under the agreement, the antimonopoly authority can determine these actions as non-complying with the antitrust legislation.
Example:
The TEVA PHARMACEUTICAL INDUSTRIES Ltd initiated the Framework Agreement with Russian business entity on long-term (quinquennial) cooperation in the area of the “Copaxone” medical product supply in the “in bulk” package. In its turn, contractor takes all necessary actions, intended to participate in tenders/ auctions placed in the Russian Federation where the “Copaxone” medical product may be offered for supply. As determined by the FAS Russia, the parties fulfilled their obligations in good faith from November 2010 to August 2013.
According to the Preamble of the Framework Agreement, this Agreement is a general agreement and a basis for individual agreements between the parties with respect to the “Copaxone” medical product in the “in bulk” package, as well as its purchase, sale and storage.
Along with this, the TEVA PHARMACEUTICAL INDUSTRIES Ltd refused to provide the contractor with the medical product to the advantage of its subsidiary undertaking Teva LLC. Herewith, the Framework Agreement was in force, the parties did not initiate termination of the Agreement in accordance with the terms stipulated in it, including termination on a unilateral basis; the contractor was interested in purchasing goods and sent an offer to the seller repeatedly.
During the legal investigation into the case for violation of the clause 5 part 1 of the article 10 of the Law on Protection of Competition, the Commission of the FAS Russia identified the following:
The TEVA PHARMACEUTICAL INDUSTRIES Ltd explained that the company was ready to continue the cooperation with contractor if the latter passes the complete screening for the purpose of compliance with requirements of the antimonopoly legislation of the foreign country via attraction of foreign specialists. Herewith, passing the screening does not give the contractor any guaranties for the continuation of cooperation, even in case of the successfully passed screening.
Moreover, the TEVA PHARMACEUTICAL INDUSTRIES Ltd did not present any documented instruction from the authorized state body of the Defendant for the cessation of cooperation with contractor. No decisions made by the authorized state body on screening the contractor or bringing him to responsibility for violation of norms of anticorruption or other legislation were pointed out.
The FAS Russia notes that contractor is a society organized and operating on the territory of the Russian Federation in accordance with the legislation of the Russian Federation. In this regard, contractor is responsible for the compliance of Russian legislation, particularly of anticorruption legislation, as well as laws and regulations in the field of realization of pharmaceuticals. There is no contractor’s duty of passing the screening under the anticorruption legislation of other countries, unless otherwise is specified by the Russian legislation.
The Commission of the FAS Russia arrived at the conclusion that the Defendant’s arguments on necessity of unannounced anticorruption screening of contractor do not constitute a valid economically, technologically or otherwise reasonable basis for refusal or evasion to conclude a contract. The fact of realization of goods within a group of persons does not indicate that business entities being part of this group lose their autonomy in civil law relations. This position is confirmed by decision of Presidium of the Supreme Arbitration Court of the Russian Federation of 25 May, 2010 №16678/09.
Within the framework of the Auction, considered by the Commission of the FAS Russia, two applications were made: of contractor and of affiliated company Teva LLC. Alongside this, because of denial by the Defendant of goods supply, the contractor had to withdraw the application off the Auction due to impossibility of the State contract execution and the risk of being included in the suppliers blacklist, in case the contractor is determined as a winning bidder, as well as in case of violation of contract terms.
According to the Commission of the FAS Russia, the TEVA PHARMACEUTICAL INDUSTRIES Ltd prevented potential competition, which within the framework of the Auction for supply of the “Copaxone” medical product held by Ministry of Health of the Russian Federation could arise between its affiliated company Teva LLC, the contractor, and also other business entities expressing intention to participate in the purchase. For an equal access to goods, promotion of competition at the Auction and decrease of the opening (maximum) price of contract, the Defendant had to confirm the delivery of the “Copaxone” medical product on condition precedent to effectiveness (to supply the medical product in case of winning the Auction sale) to all appealed business entities.
Consequently, the Commission of the FAS Russia concluded that actions of the TEVA PHARMACEUTICAL INDUSTRIES Ltd, occupying a dominant position in the market of the “Copaxone” medical product, more specifically the refusal to conclude a contract with the contractor contravene the clause 5 part 1 of the article 10 of the Law on Protection of Competition, and led to impairment of contractor’s interests.
Final clauses
The FAS Russia draws attention to the fact that the document (trade policy) of business entity occupying a dominant position, as well as the standard form contract and request for cooperation should be of official version, published and freely accessible in the telecommunication network of Internet to uncertain number of persons.
Differential application of trade policy and its certain provisions in selection of potential contractors or in work with acting contractors has signs of discriminatory conditions.
The policy framework, elaborated by the foreign company in accordance with the Foreign Corrupt Practices Act (FCPA), the Bribery Act, etc., applicable on the territory of the Russian Federation in relation to business entities being residents of the Russian Federation, shall not contradict requirements of Russian legislation.
The existence of the document (trade policy) does not obviate the possibility the issue of warning by antimonopoly authority under Article 10 of the Law on Protection of Competition with prosecution of business entity occupying a dominant position.
In case business entity occupying a dominant position makes changes to the trade policy or its certain provisions, it may be appropriate to provide for transition period of changes coming in force and inform acting and potential contractors about amendments.