Roman Shabrov, Attorney and Partner at BRACE Law Firm, has published a commentary in Pharmaceutical Vestnik magazine regarding the commercial policies of pharmaceutical companies, detailing which entities require them and what essential provisions should be included.

As Mr. Shabrov noted, pursuant to the Guidelines of the Federal Antimonopoly Service of the Russian Federation (FAS Russia) on the Development and Implementation of Commercial Policies by Economic Entities Holding a Dominant Position in the Medicines and Medical Devices Markets (approved by the FAS Russia Presidium on June 17, 2015), pharmaceutical organizations must implement a commercial policy if they "potentially hold a dominant position in a specific product market and operate within an area of heightened antitrust risks." FAS Russia highlights that "to avoid enforcement actions by antimonopoly authorities, economic entities are advised to align their operations with the requirements of antitrust legislation, identify product markets that are potentially non-competitive, and develop and implement an internal document (a commercial policy) governing the selection of counterparties, interaction with them, and the termination of business relationships."

How can a company determine whether it holds a dominant position? FAS Russia maintains exclusive purview over this assessment, executing it in accordance with the Procedure for Conducting Competition Analysis in Product Markets (approved by FAS Russia Order No. 220 dated April 28, 2010) along with other applicable regulatory acts.

Antimonopoly regulations define a dominant position as the standing of an economic entity (or a group of persons) or several economic entities (or groups of persons) in a specific product market that enables them to exert a decisive influence on the general terms of product circulation in the relevant market, and/or eliminate other economic entities from that market, and/or restrict market access for other economic entities.

It is equally critical for a pharmaceutical company to independently determine whether its activities fall within the risk zone of violating market dominance prohibitions. To achieve this, the company must evaluate its market shares across the product markets where it operates. This process requires segregating the entire product nomenclature into distinct product markets based on statutory definitions. Consequently, a pharmaceutical company must define the specific product market for each drug and calculate its respective share. In practice, this remains an exceptionally complex task because the criteria for defining a drug's product market are highly broad, Roman Shabrov observed.

In its 2021 Resolution of the Plenary Session No. 2, titled "On Certain Issues Arising in Connection with the Application of Antitrust Legislation by Courts," dated March 4, 2021, the Supreme Court of the Russian Federation clarified that when reviewing whether an economic entity holds a dominant market position, courts must assess its standing relative to existing market competitors (its market share), potential competitors (barriers to market entry), and consumers.

In practice, antimonopoly authorities may deem a pharmaceutical company dominant after it scales up the production of a particular medicinal product to a volume that triggers dominance thresholds, or introduces a novel drug with no existing equivalents. Market dominance itself does not constitute a legal violation; however, it imposes a strict obligation on the pharmaceutical company to refrain from abusing its position—a principle that management must meticulously reflect in the company's commercial policy.

What common pitfalls do pharmaceutical companies encounter when developing a commercial policy?

1. Miscalculating market share within the relevant product market. FAS Russia frequently cites instances where an entity assumes a medicinal product has no equivalents from other manufacturers. Consequently, company representatives erroneously calculate the drug's market share by factoring in unrelated medicines or products from other manufacturers. Identifying interchangeable goods, defining market participants, and accurately calculating their respective shares is of paramount importance (Clarification No. 15 of the Federal Antimonopoly Service "On Imposing Liability for Abuse of a Dominant Position by Economic Entities Recognized as Collectively Dominant," approved by the FAS Russia Presidium Minutes No. 11 dated October 24, 2018).

2. Incorporating vague or ambiguous counterparty selection criteria. If the criteria for selecting a potential counterparty are non-exhaustive or poorly defined, the antimonopoly authority may classify such conduct as an abuse of a dominant position. For example, in a notable case, FAS Russia ruled that a pharmaceutical company unlawfully refused to enter into a medicine supply agreement based on a commercial policy criterion requiring distributors to maintain an annual turnover of at least RUB 10 billion.

3. Granting unjustified preferences to certain counterparties while infringing upon the rights of others. Under FAS guidelines, a trade policy must feature a standardized (model) agreement containing all material terms. The pharmaceutical company must publish and maintain current versions of this model agreement, the trade policy itself, and the cooperation application in the public domain. Furthermore, the company must detail the counterparty selection process comprehensively, disclosing every stage of application review and vetting.

4. Terminating counterparty relationships without objective justification. A commercial policy must thoroughly regulate the procedure and grounds for terminating business relationships with a counterparty. The list of grounds must be exhaustive, and the corresponding conditions must prevent any discriminatory treatment of counterparties.

5. Failing to implement a formalized, written commercial policy. When executing a commercial policy, a company must document each stage of the process, ensuring mandatory registration of all incoming and outgoing correspondence. Documenting the process meticulously is vital because it demonstrates compliance with objective partner selection, interaction, and transaction criteria. Zudem, maintaining robust records of correspondence significantly streamlines the burden of proof when establishing compliance or defending against alleged violations.

In one case history cited within the Guidelines, the Chief Executive Officer of a pharmaceutical company based a refusal to cooperate with a potential counterparty on internal discussions with the CFO, Legal Director, and Regional Compliance Officer, who had provided recommendations on the matter. However, the company failed to submit to FAS Russia any documents confirming the execution of each decision-making stage or written records reflecting those recommendations.

Management should also ensure that responsible employees formally acknowledge and sign off on the commercial policy in writing.

It is advisable for a pharmaceutical company's commercial policy to mandate a valid pharmaceutical license and establish counterparty requirements, such as the ownership or lawful possession of premises, core equipment, and transport vehicles necessary for the licensed activities. Crucially, however, the established criteria must remain objective, non-discriminatory, and free from abuse during potential partner audits.

The complete article and commentary are available on the publication’s official website: https://pharmvestnik.ru/articles/Polojenie-obyazyvaet-Komu-neobhodima-kommercheskaya-politika-kompanii-i-chto-v-nei-predusmotret.html, as well as in the attached file here.

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