Legal Liability of Pharmaceutical Companies in Russia

 

April 28, 2022

 

Pursuant to Part 1, Article 68 of Federal Law No. 61-FZ dated April 12, 2010, On the Circulation of Medicinal Products (the "Law No. 61-FZ", the "Law on Circulation of Medicinal Products"), any violation of Russian Federation legislation during the circulation of medicinal products shall entail liability in accordance with the laws of the Russian Federation. Liability arises at every stage of such circulation: development, preclinical studies, clinical trials, expertise, state registration, standardization and quality control, manufacturing, production, storage, transportation, import into the Russian Federation, export from the Russian Federation, advertising, dispensing, sale, transfer, use, and destruction of medicinal products.

In accordance with Clause 12, Article 2 of Federal Law No. 323-FZ dated November 21, 2011, On the Fundamentals of Health Protection of Citizens in the Russian Federation (the "Law No. 323-FZ", the "Law on Health Protection"), a pharmaceutical organization is a legal entity, regardless of its organizational and legal form, that carries out pharmaceutical activities (wholesale organizations for medicinal products and pharmacy organizations), as well as individual entrepreneurs carrying out pharmaceutical activities. Pharmaceutical activity includes the wholesale trade of medicinal products, their storage, and transportation, as well as the retail trade of medicinal products (including remote sales), their dispensing, storage, transportation, and manufacturing (Clause 33, Article 4 of the Law No. 61-FZ).

The Law No. 323-FZ and the Law No. 61-FZ serve as the primary legislative acts regulating the pharmaceutical industry. Pharmaceutical workers, similar to medical workers, bear liability under Russian law for violating health protection rights or causing harm to life and health when providing medical care to citizens. Simultaneously, the legislation establishes liability for violating the laws of the Russian Federation during the circulation of medicinal products.

In most cases, pharmacy organizations operate as commercial entities focused on generating profit. This approach often leads to violations of pharmaceutical legislation, which in turn creates grounds for legal liability.

Types of Liability for Pharmaceutical Organizations

Depending on the nature of the offense, liability in the pharmaceutical industry is categorized into the following types:

• Disciplinary;
• Administrative;
• Civil;
• Material;

To specify these types of liability, one must distinguish between the direct liability of pharmaceutical workers and the liability of pharmaceutical organizations (or individual entrepreneurs).

Based on Clause 2, Article 98 of the Law No. 323-FZ, pharmaceutical workers are liable under Russian law for violating health protection rights or causing harm to life and health while providing medical care. The norms of the Law No. 323-FZ reflect general liability standards within the health protection sphere, while the Law No. 61-FZ contains specific provisions regarding the circulation of medicinal products.

Russian legislation provides for several types of legal liability for pharmaceutical workers:

• Disciplinary Liability: This arises from violations of labor law, including labor discipline. Liability is established in accordance with the requirements of Article 192 of the Labor Code of the Russian Federation.
• Material Liability: Pharmaceutical employees are often financially responsible persons. If a pharmaceutical company suffers material damage due to the employee's fault, such damage may be recovered from the pharmaceutical worker.
• Administrative Liability: Generally, pharmaceutical workers are not directly subject to this type of liability. Instead, administrative liability usually targets the organization's officials (directors, deputy directors, chief accountants, etc.) or individual entrepreneurs.
• Criminal Liability: This arises when the pharmaceutical worker's actions lead to severe consequences, such as the negligent cause of grave harm to health or death.

Persons guilty of harming the health of citizens must compensate the victims for damages in the volume and manner established by Russian law. However, compensating for harm caused to life and health does not exempt pharmaceutical workers from further liability under the laws of the Russian Federation.

For pharmaceutical organizations, several types of liability also arise. The liability of a pharmaceutical organization often depends on the liability of its pharmaceutical workers and the acts they commit.

Disciplinary Liability for Pharmaceutical Employees

Pursuant to Article 192 of the Labor Code of the Russian Federation, an employer may apply disciplinary sanctions—such as a warning, reprimand, or dismissal on appropriate grounds—for a disciplinary offense, defined as the worker's failure to perform or improper performance of their assigned labor duties through their own fault. This legal norm applies to pharmaceutical workers, who also bear disciplinary liability for the non-performance or improper performance of their professional duties.

Administrative Liability of Pharmaceutical Organizations

Administrative liability is a type of legal liability expressed through administrative penalties imposed on a person who commits acts that are less dangerous to society than crimes.

Engaging in entrepreneurial activity without state registration as an individual entrepreneur or legal entity, or operating without a license, entails specific liability.[1] Since pharmaceutical organizations engage in entrepreneurial activity, such offenses are often governed by Chapter 14 of the CAO RF, Administrative Offenses in the Field of Entrepreneurial Activity and Activities of Self-Regulatory Organizations.

A critical component of any pharmaceutical organization's operations is the possession of a license for pharmaceutical activity. For example, under Clause 4, Article 56 of the Law No. 61-FZ, pharmacy organizations, veterinary pharmacy organizations, and individual entrepreneurs licensed for pharmaceutical activity are liable for non-compliance with the rules for manufacturing and dispensing medicinal products in accordance with Russian legislation.

The list of works and services constituting pharmaceutical activity is defined in the Appendix to the Regulations on Licensing of Pharmaceutical Activity, approved by Government Decree No. 1081 dated December 22, 2011. Furthermore, carrying out pharmaceutical activity with a gross violation of licensing requirements entails liability established by Russian law. A gross violation is defined as a licensee's failure to comply with one of the requirements provided for in Clause 5 of the Regulations on Licensing of Pharmaceutical Activity.

Pursuant to Clause 2, Article 14.1 of the CAO RF, engaging in entrepreneurial activity without a special permit (license), where such a permit (license) is mandatory, entails an administrative fine, with or without the confiscation of manufactured products, production tools, and raw materials.

Cases involving individual entrepreneurs frequently concern the retail sale of veterinary medicinal products without a special permit (license).[2] Generally, in such instances, the individual entrepreneur is held administratively liable under Part 2, Article 14.1 of the CAO RF in the form of a warning.[3]

Compliance with licensing requirements is a vital part of a pharmaceutical organization's activity, and violations lead to administrative liability. These violations can be categorized into several groups, such as:

• Non-compliance with rules for the wholesale trade of medicinal products.[4] For instance, a decision was rendered in favor of the Roszdravnadzor territorial body for the Rostov Region in a claim against Aptekar LLC to impose administrative liability under Part 4, Article 14.1 of the CAO RF.[5]
• Non-compliance with the procedure for the retail trade of medicinal products.[6] For example, Paracelsus LLC was held administratively liable under Part 4, Article 14.1 of the CAO RF following a claim by the Roszdravnadzor territorial body for the Kamchatka Territory.[7]
• Non-compliance with rules for the manufacturing and dispensing of medicinal products for medical use.[8] A case in point is the decision of the Arbitration Court of the Komi Republic, which granted the claim of the Roszdravnadzor territorial body for the Komi Republic against the State Unitary Enterprise State Pharmacies of the Komi Republic to impose administrative liability under Part 4, Article 14.1 of the CAO RF.[9]
• Non-compliance with rules for the storage of medicinal products.[10] An example is the decision of the Arbitration Court of the Krasnoyarsk Territory, where an individual entrepreneur was fined following a claim by the Directorate of the Federal Service for Veterinary and Phytosanitary Surveillance for the Krasnoyarsk Territory.[11]

The following persons are subject to administrative liability for the aforementioned violations:

• Legal entities;
• Officials (responsible persons, such as a pharmacy manager);
• Individuals engaged in entrepreneurial activity as individual entrepreneurs.

In light of the above, violations of licensing legislation and breaches of licensing requirements and conditions are the primary administrative offenses for which entities are held liable. However, these are not the only types of offenses in the pharmaceutical industry that trigger administrative liability.

Persons importing falsified medicinal products, substandard medicinal products, or counterfeit medicinal products into the Russian Federation are liable under the customs legislation of the Customs Union and/or the Russian Federation's legislation on customs.[12] Such actions may also fall under the Criminal Code of the Russian Federation. Nevertheless, cases occur where falsified medicinal products are found in circulation. An example is the claim by the Roszdravnadzor territorial body for the Altai Territory against an individual entrepreneur for administrative liability under Part 1, Article 6.33 of the CAO RF.[13]

Liability for Failure to Provide or Late Provision of Information and Documents

Pursuant to Part 2, Article 68 of the Law No. 61-FZ, Medicinal Product Circulation Entities are liable under Russian law for failing to provide, failing to timely provide, or providing unreliable information and/or documents required by the Law No. 61-FZ.

The reliability of information and documentation regarding medicinal products is of significant social importance because the use of medicinal products directly impacts human life and health. If a medicinal product affects the human body differently than described in its instructions for use, medical and pharmaceutical workers are obligated to report this to the relevant authorities. Generally, the following information must be reported to executive authorities:

• Side effects;
• Adverse reactions (including serious and unexpected ones);
• Individual intolerance;
• Lack of efficacy, etc.
• Failure to report such information results in the following types of liability:
• Disciplinary (for pharmaceutical workers) under Article 192 of the Labor Code of the Russian Federation;
• Administrative under Article 19.7 of the CAO RF;
• Criminal under Article 237 of the Criminal Code of the Russian Federation.

However, information subject to mandatory reporting is not always related to the negative consequences of drug use. For example, potent substances are subject to strict accounting under Government Decree No. 964 dated December 29, 2007. In one instance, a limited liability company was held administratively liable for failing to comply with mandatory licensing requirements and conditions established by the regulations for specific types of activities.[14]

Civil Liability of Pharmaceutical Organizations

Civil liability arises when a person fails to perform or improperly performs duties provided for by civil law. As a result of such an offense, the injured party is compensated for incurred property (material) damage or moral harm.

Property (material) damage refers to harm caused by a pharmaceutical organization (or its employees) that results in material consequences for the injured party.

Moral harm occurs when the actions of a pharmaceutical organization (or its employees) cause a citizen physical or mental suffering, violating their personal non-property rights or infringing upon their intangible assets.

Under the Civil Code of the Russian Federation, the conditions for civil liability are:

• The commission of an offense;
• Harm caused to the patient;
• A causal link between the offense and the harm caused;
• The presence of fault.

Harm caused to the patient includes damage to intangible assets, specifically life and health, privacy, honor, and good name, caused by the pharmaceutical organization or its workers. Notably, civil liability may arise even in the absence of the offender's fault.

The procedure for compensating moral harm is regulated by civil legislation, specifically Part One (Articles 150, 151) and Part Two (Articles 1099–1101) of the Civil Code. The amount of compensation for moral harm is established in a court decision that has entered into legal force. Civil liability primarily consists of imposing an obligation on the offender to compensate the injured party for property and/or moral harm.

Compensation for harm caused to the health of citizens due to the use of medicinal products is carried out in accordance with Article 69 of the Law No. 61-FZ. The manufacturer of a medicinal product must compensate for harm caused to health if it is proven that:

• The medicinal product was used as intended in accordance with its instructions for use, and the harm was caused by the release into civil circulation of a substandard medicinal product;
• The harm to health was caused due to unreliable information contained in the instructions for use issued by the manufacturer.

If harm is caused because a medicinal product became unfit for use due to a violation of storage rules, wholesale trade rules, dispensing rules, or manufacturing rules, the compensation for harm shall be provided by the wholesale organization, pharmacy organization, individual entrepreneur, or medical organization that allowed the sale or dispensing of such a product.

Compensation for harm caused to citizens' health due to the use of medicinal products or the commission of unlawful acts by Medicinal Product Circulation Entities is carried out in accordance with the legislation of the Russian Federation.[15]

For example, in one case, harm caused to a citizen's health by a substandard medicinal product was proven.[16] During the proceedings, an expert examination confirmed a sharp foreign odor in the sample. The primary packaging (the bottle) was identified as the main cause of the defect, as it changed its properties due to improper transportation and storage. The bottles were stored near unidentified organic solvents, which affected the chemical structure of the packaging material. The case reached the Eighth Cassation Court of General Jurisdiction, which concluded that the appellate court had correctly overturned the initial decision and granted the claim for moral harm compensation.

Following the compensation of property damage and moral harm, other types of legal liability may still be applied to the guilty party.

Material Liability of Pharmaceutical Organizations and Their Employees

Material liability is generally viewed within the context of the labor relationship between the employer (pharmaceutical organization) and the employee. In this case, the party to the labor contract guilty of causing damage to the other party is obliged to compensate for it in the amount and manner provided for by the labor legislation of the Russian Federation.

All pharmaceutical workers, like any other employees under labor contracts, are required to treat the employer's property with care (Article 21 of the Labor Code). The material liability of parties to a labor contract is detailed in Chapter 11 of the Labor Code.

Pursuant to Article 238 of the Labor Code, an employee must compensate the employer for direct actual damage caused. Lost profits are not recoverable from the employee. Consequently, an employee's material liability arises only when the following conditions are simultaneously met:

• Direct (actual) damage;
• Unlawful behavior of the employee who caused the damage;
• The employee's fault in causing the damage;
• A causal link between the employee's action (or inaction) and the damage caused.

Direct actual damage is defined as the real decrease in the employer's existing property or the deterioration of said property (including property of third parties held by the employer, if the employer is responsible for its safety), as well as the employer's need to incur costs or excess payments to acquire or restore property or to compensate for damage caused by the employee to third parties.

At the same time, an employee's material liability is excluded if the damage arises from force majeure, normal economic risk, extreme necessity, necessary defense, or the employer's failure to provide adequate storage conditions for the property entrusted to the employee.[17]

Based on Article 243 of the Labor Code, full material liability of an employee is possible in the following cases:

• When the Labor Code or other federal laws impose full material liability for damage caused to the employer during the performance of labor duties;
• A shortage of valuables entrusted to the employee under a special written contract or received under a one-time document;
• Intentional infliction of damage;
• Infliction of damage while in a state of alcoholic, narcotic, or other toxic intoxication;
• Infliction of damage as a result of criminal actions established by a court verdict;
• Infliction of damage as a result of an administrative offense, if established by the relevant state body;
• Disclosure of information constituting a legally protected secret (state, official, commercial, or other) in cases provided for by federal laws;
• Infliction of damage while not performing labor duties.

The legislation also provides for the employer's material liability to the employee. This includes the employer's obligation to compensate the employee for lost earnings in all cases of illegal deprivation of the opportunity to work:

• Illegal suspension from work, dismissal, or transfer to another job;
• The employer's refusal to implement, or delay in implementing, a decision by a labor dispute body or a state labor inspector to reinstate the employee;
• A delay by the employer in issuing the employee's labor book, or entering an incorrect or illegal reason for dismissal.[18]

An employer who causes damage to an employee's property must compensate for such damage in full, calculated at market prices prevailing in the locality on the date of compensation. Moral harm caused to an employee by the employer's unlawful actions or inaction is compensated in an amount determined by the parties' agreement. In the event of a dispute, the fact of moral harm and the amount of compensation are determined by a court, independent of any property damage.

Criminal Liability of Pharmaceutical Organization Officials

In addition to disciplinary, civil, administrative, and material liability, criminal liability may also apply to pharmaceutical organizations and workers. The basis for criminal liability is the commission of an act containing all elements of a crime provided for by the Criminal Code of the Russian Federation.[19] As with any other crime, the primary elements are the object, subject, objective side, and subjective side. In the context of pharmaceuticals:

• Object: The life and health of the patient;
• Subject: The pharmaceutical worker who committed the crime;
• Objective side: The unlawful action of the pharmaceutical worker and its consequences;
• Subjective side: Proven fault (often of a mixed nature), which may take the form of direct or indirect intent.

Criminal liability arises only if all four elements of the crime are present. If even one element is missing, criminal liability does not arise. Furthermore, criminal liability only applies to offenses expressly provided for by the Criminal Code.

The types of criminal punishment are set forth in Article 44 of the Criminal Code. Guilty persons may be subject to:

• A fine;
• Deprivation of the right to hold certain positions or engage in certain activities;
• Compulsory labor;
• Correctional labor;
• Restriction of liberty;
• Forced labor;
• Arrest;
• Deprivation of liberty for a definite term.

The type of punishment depends on the specific elements of the crime and the presence of mitigating or aggravating factors. For example, the illegal exercise of pharmaceutical activity is an intentional act. Specifically, Article 234 of the Criminal Code, Illegal Turnover of Potent or Poisonous Substances for the Purpose of Sale, provides for liability in the form of a fine, forced labor, or deprivation of liberty. In one case, the Shipunovsky District Court of the Altai Territory found a defendant guilty under Part 1, Article 234 of the Criminal Code and sentenced her to a fine.[20]

Human life and health are the ultimate values, and they often depend on the medicinal products used. Pharmacy plays a vital role here; the quality of treatment and medical services depends on the quality of the medicinal products. A violation in the pharmaceutical field can be fatal. Therefore, it is essential to comply with pharmaceutical legislation and maintain a high level of accountability for its violation.

Given that liability can be disciplinary, material, civil, and criminal, state control over this sector remains a crucial factor for ensuring the prosecution of guilty parties and the legal protection of both victims and offenders.

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References

[1] Parts 1 and 2 of Article 14.1 of the CAO RF.

[2] Decision of the Arbitration Court of the Tver Region dated September 15, 2021, in Case No. A66-11107/2021.

[3] Decision of the Arbitration Court of the Altai Republic dated July 26, 2021, in Case No. A02-830/21.

[4] Article 54 of the Law No. 61-FZ.

[5] Decision of the Arbitration Court of the Rostov Region dated January 23, 2020, in Case No. A53-44033/2019.

[6] Article 55 of the Law No. 61-FZ.

[7] Decision of the Arbitration Court of the Kamchatka Territory dated June 4, 2018, in Case No. A24-2191/2018.

[8] Article 56 of the Law No. 61-FZ.

[9] Decision of the Arbitration Court of the Komi Republic dated May 31, 2019, in Case No. A29-4019/2019.

[10] Article 58 of the Law No. 61-FZ.

[11] Decision of the Arbitration Court of the Krasnoyarsk Territory dated October 21, 2021, in Case No. A33-22113/2021.

[12] Clause 7, Article 47 of the Law No. 61-FZ.

[13] Decision of the Arbitration Court of the Altai Territory dated September 24, 2021, in Case No. A03-8434/2021.

[14] Decision of the Arbitration Court of the Novosibirsk Region dated July 26, 2021, in Case No. A45-15382/2021.

[15] Paragraph 2 of the Civil Code of the Russian Federation (Part Two).

[16] Ruling of the Eighth Cassation Court of General Jurisdiction dated May 13, 2021, No. 88-8055/2021 in Case No. 2-108/2020.

[17] Article 239 of the Labor Code of the Russian Federation.

[18] Chapter 38 of the Labor Code of the Russian Federation.

[19] Article 8 of the Criminal Code of the Russian Federation.

[20] Verdict of the Shipunovsky District Court of the Altai Territory in Case No. 1-136/2020.