A commentary by attorney at law, partner at BRACE Roman Shabrov was published in the magazine “Pharmaceutical Bulletin” on the topic of commercial policies of pharmaceutical companies: who needs them and what should be provided for in them.
As Roman noted, according to the recommendations of the FAS of Russia on the development and application of commercial policies by economic entities occupying a dominant position in the markets of medicines and medical devices (approved by the Presidium of the FAS of Russia on June 17, 2015), commercial policies are necessary for pharmaceutical organizations “that are potentially dominant in the market of a certain product and are in the zone of antimonopoly risks”. As the FAS notes, “in order to avoid prosecution by antimonopoly authorities, it is recommended that business entities align their activities with the norms of antimonopoly legislation, identify commodity markets that are potentially non-competitive, develop and implement an internal document (trade policy) on the selection of counterparties, interaction with them, and termination of work with counterparties”.
How can one understand whether a company occupies a dominant position or not? The corresponding assessment is the prerogative of the FAS of Russia in accordance with the established Procedure for Conducting an Analysis of the State of Competition in the Commodity Market, approved by the order of the FAS of Russia dated 28.04.2010 No. 220 and other regulatory legal acts. A dominant position is recognized as the position of an economic entity (group of persons) or several economic entities (groups of persons) in the market of a certain product, which makes it possible to exert a decisive influence on the general conditions of circulation of the product in the relevant product market, and (or) to eliminate other economic entities from this product market, and (or) to hinder access to this product market for other economic entities.
It is also important for the pharmaceutical company itself to determine whether its activities are in the risk zone of violating the prohibitions on a dominant position. To do this, it is necessary to determine the shares of the product markets in which the pharmaceutical company operates. In this case, it is necessary to divide the entire range of products into product markets for a certain product in accordance with the characteristics of the concept of a product market. This means that a pharmaceutical company must determine the product market for each drug and calculate the share it occupies, which in practice is the most difficult task, since the criteria for determining the product market for a drug are quite broad, noted Roman Shabrov.
In 2021, the Supreme Court of the Russian Federation in the Plenum Resolution of 04.03.2021 No. 2 “On Certain Issues Arising in Connection with the Application of Antimonopoly Legislation by Courts” explained that when checking the presence of dominance of an economic entity in a product market, its position is assessed relative to existing competitors in the market (its market share), potential competitors (the possibility of access to the market) and consumers.
In practice, a pharmaceutical company can be recognized as dominant after it has expanded the production of a particular medicinal product to a volume that allows it to be recognized as dominant, or has produced a new drug that has no analogues. Market dominance in itself is not a violation, but it obliges the pharmaceutical company not to abuse its position, which should be reflected in the commercial policy.
What mistakes do pharmaceutical companies make when working on commercial policy?
1. Quite often, companies make mistakes in calculating their share of the product market. Thus, the FAS describes as one example a situation where it was established that a drug has no analogues from other manufacturers. In this regard, representatives of the pharmaceutical company mistakenly calculated the share of the drug based on other drugs, including other manufacturers. Thus, it is of particular importance to determine interchangeable goods, the composition of market participants and determine the shares of each of them (explanation No. 15 of the Federal Antimonopoly Service "On bringing to justice for abuse of dominant position of economic entities recognized as collectively dominant", approved by the protocol of the Presidium of the FAS of Russia dated October 24, 2018 No. 11).
2. Vague criteria for selecting counterparties. If the list of criteria for selecting a potential counterparty is not exhaustive, the criteria are not clearly formulated, then the antimonopoly authority may qualify such actions as abuse of a dominant position. For example, in one of the cases, the FAS of Russia recognized as illegal the refusal to conclude a contract for the supply of drugs due to the presence in the commercial policy of such a criterion for selecting distributors as a turnover of at least 10 billion rubles per year.
3. Unreasonable preferences for some counterparties and infringement of the rights of other counterparties. According to the recommendations of the FAS, the trade policy should include a standard (model) contract with all the essential terms of the contract, which, together with the trade policy and the application for cooperation, must be in the current version, published and available in the public domain. The process of selecting counterparties must be described in detail, with the disclosure of all possible stages of consideration of applications for cooperation and verification of the counterparty.
4. Literally unjustified termination of work of a pharmaceutical company with a counterparty. The procedure and grounds for termination of work with a counterparty must be regulated in detail in the commercial policy, and the list of grounds must be exhaustive and such conditions must not allow discrimination of counterparties.
5. Lack of a documented commercial policy. When implementing a commercial policy, it is important to document each stage of the process, pay attention to the mandatory registration of incoming and outgoing correspondence. Such attention is paid to documenting the process when implementing a commercial policy, since it reflects compliance with objective criteria for selecting partners, interacting with them and making transactions.
In addition, the presence of incoming and outgoing correspondence significantly facilitates proving a violation or its absence. In one of the examples given in the Recommendations, the decision of the CEO of one of the pharmaceutical companies to refuse to cooperate with a potential counterparty was based on discussions with the financial director, the director of legal affairs, the regional adviser on corporate regulation and control of procedures, who gave their recommendations on this issue. At the same time, documents confirming the implementation of each stage of the decision-making procedures, as well as written documents reflecting such recommendations, were not submitted to the FAS.
It is also recommended that responsible employees be familiarized in writing with the commercial policy.
It would be a good idea for a pharmaceutical company’s commercial policy to establish conditions for the availability of a valid license to carry out pharmaceutical activities, as well as requirements for the counterparty, for example, the availability of ownership or other legal right to premises, basic equipment and vehicles necessary for carrying out licensed activities. However, it is fundamentally important that the established criteria are objective, do not discriminate against counterparties and do not lead to abuse during inspections of potential partners.
More detailed information about the article and commentary can be found on the website of the publication: https://pharmvestnik.ru/articles/Polojenie-obyazyvaet-Komu-neobhodima-kommercheskaya-politika-kompanii-i-chto-v-nei-predusmotret.html, as well as in the appendix here.
