29 December 2023

Marketing Agreements in the Pharmaceutical Market

December 29, 2023

BRACE ©

When launching new medicinal products onto the market and increasing sales volumes, manufacturers and distributors require special promotion measures, some of which are structured on the basis of marketing agreements.

It is worth recalling that the term "marketing" (from the English "marketing" – "market activity") is not defined in Russian legislation but is actively used in practice. It is understood as a set of measures aimed at increasing the share of goods/works/services supplied to the market, as well as their recognition, attracting new clients, and increasing sales efficiency.

However, not all promotion methods known to marketers may be used in the pharmaceutical market, where the legal, social, and ethical aspects of the issue are of particular importance. Furthermore, due to the potential impact on the life and health of the consumer, legislation establishes a number of restrictions that must be considered when conducting marketing activities.

To promote their assortment, marketing agreements are concluded by manufacturers and distributors with pharmacy organizations, as well as between manufacturers and distributors. This article analyzes the legal nature and features of these agreements, as well as the prohibitions and restrictions imposed on the participants of such agreements by current legislation.

Marketing Agreements: Legal Nature

Marketing agreements are generally concluded between manufacturers/distributors of medicinal products and dietary supplements (hereinafter also referred to as "pharmaceutical products") and pharmacy organizations selling them to the public.

Typically, marketing agreements include the following obligations for pharmacies:

placement of advertising information materials and advertising equipment within the pharmacy premises;
holding advertising events and promotions in the sales area;
priority display of products in the checkout area and in display cases;
maintaining the assortment and ensuring continuous availability (prevention of stock-outs);
fulfillment of volume-based sales agreements;
demand analysis, reporting, and others.

The Code of Practice of the Association of International Pharmaceutical Manufacturers (hereinafter – the "AIPM Code of Practice"), which is mandatory for members of this Association, also regulates the specifics of interaction between manufacturers and pharmacy chains/pharmacies. Pharmaceutical companies are entitled to conclude service agreements with pharmacy organizations, including for:

implementation of the display of over-the-counter (OTC) pharmaceutical products ordered by the pharmaceutical company;
placement of advertising materials regarding OTC pharmaceutical products within the pharmacy organization and on its website, provided they comply with the requirements of RF legislation and this Code, as well as informational materials dedicated to the prevention and treatment of various diseases;
implementation of joint promotions for OTC pharmaceutical products, including customer surveys;
provision of promotional gifts to customers upon the purchase of a specific product, which may contain the company logo or the logo of the company's OTC pharmaceutical product.

Despite widespread practical application, Russian civil legislation does not provide for such a type of agreement (contract) as a "marketing" agreement. However, in accordance with the principle of freedom of contract proclaimed by Article 421 of the Civil Code of the Russian Federation (CC RF), parties are entitled to conclude contracts both provided for and not provided for by law, as well as contracts containing elements of various contracts provided for by law (mixed contracts).

Depending on the rights and obligations of the parties stipulated in the agreement, courts may qualify a marketing agreement as:

a fee-based service agreement regulated by the norms of Chapter 39 of the CC RF;
a mixed contract containing elements of a supply contract and a service agreement, to which the norms of Chapters 30 and 39 of the CC RF on sales and purchase contracts and fee-based service agreements apply;
an agency agreement regulated by the norms of Chapter 52 of the CC RF;
a framework contract, the terms of the relationship under which may be concretized and clarified by the parties through the conclusion of separate contracts, submission of orders, or otherwise in accordance with Article 429.1 of the CC RF.

The content of such marketing agreements varies. Typically, it establishes the duties and liability of each party and the amount of remuneration for services rendered. It may also establish parameters and goals for marketing activities, deadlines, mechanisms for evaluating their effectiveness, confidentiality provisions, and other terms.

However, in the absence of clear legal regulation, it is important for the parties to a marketing agreement to understand which conditions are safe to include in the contract and which violate legislative norms and may entail adverse consequences. Below, we examine the restrictions established by legislation that must be observed when concluding and executing marketing agreements.

Restrictions on Interaction Between Pharmaceutical Companies and Pharmaceutical/Medical Workers and Pharmacy Heads

In accordance with Part 2 of Article 67.1 of Federal Law No. 61-FZ of April 12, 2010 "On the Circulation of Medicines" (hereinafter – the "Law on Medicines", "Law No. 61-FZ"), organizations engaged in the development, production, and (or) sale of medicinal products for medical use, organizations possessing rights to use the trade name of a medicinal product for medical use, wholesale organizations of medicinal products, and their representatives are prohibited from performing the following actions in relation to pharmaceutical workers and heads of pharmacy organizations:

giving gifts, paying monetary funds, including paying for entertainment, recreation, travel to a place of recreation, and inviting them to participate in entertainment events conducted at their expense;
providing samples of medicinal products for medical use for distribution to the public;
concluding agreements on the proposal of specific medicinal products for medical use to the public;
providing unreliable and (or) incomplete information about medicinal products for medical use, including those having the same international nonproprietary name (INN).

Notably, the restrictions specified in the Law on Medicines formally do not extend directly to pharmacy organizations.

An analysis of the legislation allows for the interesting conclusion that, on the one hand, in accordance with professional standards, the duties of pharmacy workers include pharmaceutical consulting (providing consumers with information about a medicinal product, assistance in selecting an OTC product, providing advisory assistance on application and compatibility of products, etc.). On the other hand, the inclusion in a marketing agreement of obligations to propose the pharmaceutical company's products to consumers or to issue samples constitutes a violation of the Law on Medicines [1].

Furthermore, it should be borne in mind that conducting a marketing promotion in a pharmacy involving the gifting of medicinal products received by the pharmacy under a marketing agreement to customers may be regarded as a violation of the aforementioned legal norm.

The AIPM Code of Practice also provides for restrictions:

Programs aimed at reducing the cost of a pharmaceutical product for the end consumer are permitted. In the event of such programs regarding a prescription pharmaceutical product, pharmaceutical companies are obliged to ensure that the total number of units of the pharmaceutical product under no circumstances exceeds the amount prescribed by the healthcare specialist to the specific patient.
Pharmaceutical companies are not entitled to organize programs under which they provide material prizes to pharmaceutical workers, heads of pharmacy organizations, and pharmacy organizations for achieving certain sales results.

These restrictions are expansive, and when applying the norms of the AIPM Code, all additional restrictions should be taken into account.

Compliance with restrictions is verified by Roszdravnadzor during inspections of pharmaceutical activities. In particular, the control authority checks:

Whether supply contracts for medicinal products contain conditions on prescribing or recommending the proposal of specific medicinal products to the public.
Whether pharmaceutical workers and the pharmacy organization possess souvenir products from manufacturers or distributors of medicinal products.
Whether there are samples of medicinal products in the pharmacy organization for distribution to patients.
Whether there are cases of providing unreliable and (or) incomplete information about the availability of medicinal products in the pharmacy organization, including:
Concealment of information about the availability of medicinal products with a lower price.

Thus, in the Roszdravnadzor report on the implementation of state control (supervision) in the sphere of public health protection in 2020, it is noted that during activity inspections, it was revealed that in 98 cases, the agreement between the pharmacy organization and the company (company representative) for the supply of medicinal products contained a condition on the appointment or recommendation to propose specific products to the public [2].

Since medical workers can also exert significant influence on sales volumes in the pharmaceutical market, similar prohibitions are established regarding the interaction of manufacturers/distributors of medicinal products and medical workers. Thus, in accordance with Part 1 of Article 67.1 of Law No. 61-FZ, organizations engaged in the development, production, and (or) sale of medicinal products for medical use, organizations possessing rights to use the trade name of a medicinal product, wholesale trade organizations, and pharmacy organizations (their representatives, other individuals and legal entities acting on behalf of these organizations) are prohibited from performing the following in relation to medical workers and heads of medical organizations:

giving gifts, paying monetary funds (except for remuneration under contracts for conducting clinical trials, and remuneration related to the medical worker's pedagogical and (or) scientific activity), including paying for entertainment, recreation, travel to a place of recreation, as well as inviting to participate in entertainment events conducted at their expense;
concluding agreements on the prescription or recommendation of medicinal products for medical use to patients (except for contracts on conducting clinical trials of medicinal products);
providing samples of medicinal products for medical use for distribution to patients (except for cases related to conducting clinical trials of medicinal products);
providing unreliable and (or) incomplete information about medicinal products for medical use;
visiting them during working hours at their workplaces, except for cases related to conducting clinical trials of medicinal products, participation in meetings of medical workers and other events aimed at improving their professional level or providing information related to monitoring the safety of medicinal products;
inducing the prescription of medicinal products for medical use on forms containing advertising information, as well as on prescription forms on which the name of the medicinal product for medical use is pre-printed.

There is no direct rule of law establishing liability for violating these prohibitions and restrictions. Typically, Article 6.29 of the Code of Administrative Offenses of the Russian Federation (CAO RF) "Failure to fulfill duties to provide information on a conflict of interest when carrying out medical activity and pharmaceutical activity" is used for such violations. The fine for a pharmaceutical or medical worker ranges from 3,000 to 5,000 rubles. In practice, there are also cases of prosecution under Part 3 of Article 14.1 of the CAO RF "Carrying out entrepreneurial activity in violation of the requirements and conditions provided for by a special permit (license)," where the fine amount is more significant.

Additionally, when pharmaceutical companies and their representatives interact with pharmaceutical and medical workers, it is crucial to avoid any element of corruption. For instance, in 2014, the Investigative Committee initiated a criminal case against a representative of a pharmaceutical company for committing a crime under Part 5 of Article 291 of the Criminal Code of the Russian Federation "Giving a bribe to an official committed on an especially large scale." According to the investigation, the pharmaceutical company employee gave bribes totaling more than 1,000,000 rubles to doctors of medical institutions for prescribing medicines produced by a specific pharmaceutical company [3].

Requirements of Advertising Legislation

Marketing agreements often contain obligations to place information stands and equipment on pharmacy premises, distribute informational materials about the products sold (brochures, leaflets, booklets, etc.) to visitors, or provide souvenir products with logos of the manufacturer of medicinal products or names of medicinal products.

Typically, control authorities qualify this as the distribution of advertising. The main criteria for classifying information as advertising in accordance with Article 3 of Federal Law No. 38-FZ of March 13, 2006 "On Advertising" (hereinafter – the "Law on Advertising", "Law No. 38-FZ") are:

addressing an indefinite circle of persons;
aiming to attract attention to the object of advertising, forming or maintaining interest in it, and promoting it in the market.

Arguments regarding the purely informational character of such materials are rejected by both antimonopoly authorities and courts [4].

Let us illustrate with an example from judicial practice. Upon the complaint of S., the antimonopoly authority revealed that booklets of the Company "Personal Discount Book" containing advertising of medicinal products, including prescription drugs, were located on an information stand in a pharmacy. It recognized the advertising distributed by the business entity in the pharmacy as improper and issued an order to cease its distribution. The business entity attempted to appeal the order in court, arguing that the booklet served to promote the Company's trademark and advertised specifically the trademark, not the medicinal products listed in the booklet. During the consideration of the case, the court established that the Company produces and distributes advertising booklets within pharmacies to form and expand the circle of regular customers. The booklets are freely available to pharmacy visitors and contain information about goods sold by the Company, which falls under the definition of advertising. The court refused to satisfy the application [5].

If such obligations are present in a marketing agreement, the parties must consider the requirements of advertising legislation. Let us analyze the main provisions.

General Advertising Requirements to Consider When Concluding Marketing Agreements

Advertising of medicinal products must comply with the general and special requirements established by the Law on Advertising.

There are two general requirements: advertising must be conscientious (good faith) and reliable. These are detailed in Articles 5–7 of the Law on Advertising. With regard to our topic, we note that the following are not permitted in advertising:

incorrect comparisons of the advertised product with goods in circulation produced by other manufacturers or sold by other sellers. For example: "does not have a negative impact on the cardiovascular system, unlike pharmacy stimulants, which increase the risk of heart attack tenfold" [6];
indication of unreliable information about the advantages of the advertised product over the products of other manufacturers. For example, by using the words "drug No. 1", "best", "the most", etc. [7];
indication of approval by state authorities, local government bodies, or their officials. For example: "People often turn to me, as a deputy of the State Duma, with a request to comment on the situation in the drug market and explain what is happening with pharmacies. Most pharmacies selling counterfeits do not even suspect it! Because they buy them from resellers! 100% quality of medicines is guaranteed only by direct supplies from manufacturing plants!" [8];
use of images of medical and pharmaceutical workers, except in cases where the consumers of such advertising are exclusively medical and pharmaceutical workers [9];
indication of recommendations or approval by individuals or legal entities regarding the object of advertising, for example: "we present to your attention health products TM 'Z' …. All products are approved by expert C" [10];
indication of test and research results, for example: "passed tests at the N.I. Pirogov National Medical and Surgical Center and has certificates confirming its safety and effectiveness" [11].

Special Requirements to Consider When Concluding Marketing Agreements

Special requirements for the advertising of medicinal products are established by Article 24 of the Law on Advertising.

Advertising of medicinal products must not:

be addressed to minors;
contain references to specific cases of cure from diseases or improvement of human health as a result of using the object of advertising;
contain expressions of gratitude by individuals in connection with the use of the object of advertising;
create an idea of the advantages of the object of advertising by referring to the fact of conducting studies required for the state registration of the object of advertising;
contain assertions or assumptions about the presence of certain diseases or health disorders in advertising consumers;
contribute to creating an impression in a healthy person of the necessity to use the object of advertising;
create an impression that consulting a doctor is unnecessary;
guarantee the positive effect of the object of advertising, its safety, effectiveness, and absence of side effects;
present the object of advertising as a dietary supplement and food additive or other product that is not a medicinal product;
contain assertions that the safety and (or) effectiveness of the object of advertising are guaranteed by its natural origin.

Properties and characteristics of medicinal products, including methods of application and use, must be indicated strictly in accordance with the instructions for use.

Advertising must be accompanied by a warning regarding the presence of contraindications to their application and use, the necessity of reading the instructions for use, or obtaining a consultation from specialists [12]. Advertising of medicinal products dispensed by physician's prescription is prohibited on advertising platforms intended for general consumers.

Requirements for the advertising of dietary supplements (BAD) are provided by Article 25 of the Law on Advertising, according to which advertising of dietary supplements must not:

create the impression that they are medicinal products and (or) possess therapeutic properties;
contain references to specific cases of curing people or improving their condition as a result of using such supplements;
contain expressions of gratitude by individuals in connection with the use of such supplements;
induce the rejection of healthy nutrition;
create an impression of the advantages of such supplements by referring to the fact of conducting studies required for state registration of such supplements, or use the results of other studies in the form of a direct recommendation to use such supplements.

Advertising of dietary supplements must be accompanied by a warning that the object of advertising is not a medicinal product.

Violation of the requirements established by advertising legislation for the advertising of medicinal products and dietary supplements entails administrative liability under Part 5 of Article 14.3 of the CAO RF. The fine for officials is from 10,000 to 20,000 rubles; for legal entities – from 200,000 to 500,000 rubles. Considering the significant size of fines for violating advertising legislation, parties to a marketing agreement must thoroughly develop the conditions of marketing agreements.

Restrictions on the Size of Marketing Bonuses

Pharmacies receive remuneration for fulfilling marketing agreements (hereinafter – "marketing bonuses"). There is currently no direct legislative restriction on the size of bonuses for promoting medicinal products.

However, the possibility of limiting their size has been actively discussed in recent years. Back in 2019, the National Pharmaceutical Chamber initiated a proposal to prohibit forcing medicines on pharmacy visitors under marketing contracts with pharmaceutical companies [13]. In parallel, the State Duma discussed a bill limiting payments under marketing contracts to five percent. The bill met with serious resistance from the pharmacy business and manufacturers of medicinal products. Additionally, the Association of Russian Pharmaceutical Manufacturers (ARPM) appealed to the State Duma with comments on the bill. The ARPM argued that there was a possibility of a significant reduction in the share of drugs from the cheap price segment and a lack of understanding among market participants regarding the 5% limitation figure itself [14].

At the same time, restrictions on marketing bonuses have already affected the pharmacy market regarding dietary supplements, which are classified by legislation as food products.

In accordance with Part 4 of Article 9 of Federal Law No. 381-FZ of December 28, 2009 "On the Fundamentals of State Regulation of Trade Activities in the Russian Federation" (hereinafter – the "Law on Trade"), the aggregate amount of remuneration paid to a subject carrying out trading activities in connection with the acquisition of a certain quantity of food products from a business entity supplying food products, and the fee for rendering services for the promotion of goods, logistics services, and services for the preparation, processing, and packaging of these goods, cannot exceed 5 percent of the price of the acquired food products.

It should be noted that restrictions on the size of bonuses apply only to retail chains (two or more trading objects belonging to one business entity or several entities within one group of persons). For other market participants, the amount of remuneration is not regulated.

Attention should also be drawn to the legal position formulated in Letter of the FAS Russia dated July 22, 2016 No. AK/50406/16, according to which the fee for rendering services must be determined not in percentage terms, but in a fixed cost [15].

Furthermore, the Law on Trade contains several more restrictions concerning marketing agreements for the promotion of dietary supplements. Promotion services may be carried out on the basis of fee-based service agreements. Including conditions on performing actions related to rendering services for the promotion of goods in a supply contract is not permitted. Coercing a counterparty to conclude a fee-based service agreement aimed at rendering services for the promotion of goods is prohibited (Parts 11 and 12 of Article 9 of the Law on Trade).

Exceeding the established remuneration size constitutes an administrative offense provided for by Part 1 of Article 14.42 of the CAO RF and entails the imposition of an administrative fine on officials in the amount of 20,000 to 40,000 rubles; on legal entities – from 1,000,000 to 5,000,000 rubles. To avoid the risk of administrative liability, it is necessary to differentiate the remuneration amount in marketing contracts depending on the type of product: medicinal products or dietary supplements, or to conclude separate agreements. Furthermore, taking into account the position of the FAS, we believe it is advisable to establish the fee for rendering services for the promotion of dietary supplements in a fixed amount, which should not exceed 5% of the cost of each batch of dietary supplements.

Summarizing the above, strict Russian legislation imposes a significant number of prohibitions and restrictions that businesses must consider when promoting pharmaceutical products. The complexity also lies in the fact that they are scattered across different branches of law. To avoid negative consequences, we recommend engaging lawyers to draft marketing agreements and conduct checks during the implementation of marketing activities for compliance with the law.

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References

Order of the Ministry of Labor of Russia dated March 09, 2016 No. 91n "On Approval of the Professional Standard 'Pharmacist'".
Roszdravnadzor website.
STADA: Our employee did not receive any instructions contradicting current legislation. May 30, 2014 // Website of the electronic publication "Pharmaceutical Bulletin".
Resolution of the Arbitration Court of the Moscow District dated February 18, 2016 No. F05-18988/2015 in case No. A40-74526/15.
Resolution of the Thirteenth Arbitration Appeal Court dated July 29, 2014 in case No. A56-74059/2013.
Resolution of the Karelian OFAS Russia dated September 01, 2022 in case No. 010/04/14.3-345/2022.
Decision of the Altai Krai OFAS Russia dated July 29, 2022 in case No. 022/05/24-495/2022.
Ruling of the Moscow OFAS Russia dated January 17, 2017 in case No. 3-5-12/77-17.
Ruling of the Moscow OFAS Russia dated December 11, 2023 in case No. 077/05/5-16550/2023.
Decision of the Karelian OFAS Russia dated March 18, 2022 in case No. 010/05/5-724/2021.
Ruling of the Ulyanovsk OFAS Russia dated October 26, 2018 in case No. 15266/05-2018.
Resolution of the Sixth Arbitration Appeal Court dated January 25, 2012 No. 06AP-6024/2011 in case No. A73-8668/2011.
They wanted to punish pharmacists for imposing medicines. Expensive treatment // Website of the electronic publication "Versia".
The new convocation of the State Duma promised to revise the law on limiting marketing bonuses. R. Mavlikhanov // Website of the electronic publication "Pharmaceutical Bulletin".
Letter of the FAS Russia dated July 22, 2016 No. AK/50406/16 "On Amendments to Federal Law No. 381-FZ of December 28, 2009 'On the Fundamentals of State Regulation of Trade Activities in the Russian Federation'".