Overview: Pharmaceuticals

In summary

This chapter explores the main developments in competition law enforcement in the pharmaceuticals and medical products sectors in the Asia-Pacific region over the past 18 months, discussing the increasing readiness of Asia-Pacific competition authorities to investigate potential infringements by companies in these sectors and to impose significant sanctions. Looking ahead, it considers enforcement trends and the likely focus of further competition enforcement as it relates to these sectors in the Asia-Pacific region.

Discussion points

• Cartels and anticompetitive agreements relating to the supply and distribution of pharmaceuticals and medical products;
• China, Hong Kong and South Korean competition law authorities have also taken strong action against abuses of dominance;
• competition law authorities in India, Indonesia and the Philippines undertaking studies and monitoring of the pharmaceutical sector;
• competition authorities’ approach to the covid-19 pandemic; and
• cases motivated by concerns about pricing and access to essential medicines and medical products.

Referenced in this article

• Australian Competition and Consumer Commission (ACCC);
• State Administration for Market Regulation (SAMR);
• Hong Kong Competition Commission (HKCC);
• Competition Commission of India (CCI);
• Japan Fair Trade Commission (JFTC);
• Korea Fair Trade Commission (KFTC); and
• New Zealand Commerce Commission (NZCC);

Australia

The ACCC is a highly trusted regulator in Australia and its role continues to expand. Unlike the digital economy to which it has dedicated significant resources, the pharmaceutical and medical products sectors are not currently identified as a priority area for the ACCC. However, it has taken some significant cases against companies in these sectors in recent years.

Cartels continue to be an important priority for the ACCC’s enforcement activity and it has pursued at least two cartel prosecutions against companies in the pharmaceutical and medical products sectors in recent years.

The first penalty for gun-jumping conduct in Australia was imposed in a case involving two companies supplying services for the collection and storage of cord blood and tissue (CBT), Cryosite Limited (Cryosite) and Cell Care Australia Pty Ltd (Cell Care). On 13 February 2019, the Federal Court of Australia ordered Cryosite to pay A$1.05 million in penalties for entering into an asset sale agreement that contained a cartel provision and giving effect to that cartel provision in violation of the Competition and Consumer Act 2010 (CCA). ^[1]

Cryosite had agreed to sell assets used in its CBT banking services to Cell Care and the ACCC raised concerns about cartel conduct during its public merger review of the deal. The sale agreement contained a clause that required Cryosite to refer all customer sales enquiries regarding its CBT banking business to Cell Care in the period between signing and completion. Cryosite admitted that this clause was designed to restrict or limit the supply of CBT banking services by Cryosite and to allocate potential customers to Cell Care. Cryosite also admitted that it gave effect to the cartel provision by ceasing to supply CBT banking services to new customers from the time of deal signing, and that it had set up and implemented a system to refer enquiries from potential customers to Cell Care following deal signing. This resulted in Cyrosite ceasing to compete with Cell Care even though the proposed sale had not been completed.

This case illustrates how important it is for parties involved in a proposed merger to ensure that the planning of the integration of their business ahead of completion and prior to obtaining clearance from the ACCC does not give rise to gun-jumping concerns under the CCA.

On 1 December 2020, the Commonwealth Director of Public Prosecutions (CDPP) filed criminal charges against Alkaloids of Australia Pty Ltd (Alkaloids of Australia) and its former export manager, Christopher Kenneth Joyce, for cartel conduct relating to the supply of active pharmaceutical ingredient scopolamine N-butylbromide (SNBB) in contravention of the CCA, following a criminal investigation by the ACCC. ^[2] This is the eighth criminal cartel prosecution by the CDPP on behalf of the ACCC.

Alkaloids of Australia and Mr Joyce have each been charged with 33 criminal cartel offences spanning a period of almost 10 years from 24 July 2009, relating to allegations that Alkaloids of Australia and other overseas suppliers of SNBB made and gave effect to arrangements to fix prices, restrict supply, allocate customers or geographical markets, or both, or rig bids for the supply of SNBB to manufacturers of generic antispasmodic medications.

At a court hearing on 19 January 2021, Mr Joyce was granted conditional bail and excused from attending further court hearings until the proceedings have progressed to trial. A further hearing has been set for 30 March 2020, with the CDPP to file their brief of evidence on 16 March 2020.

A recent amendment to the CCA means that intellectual property assignments or licensing arrangements between competitors or likely competitors have the potential to constitute cartel conduct. On 13 September 2019, a safe harbour exemption for licensing arrangements in the CCA was repealed so that all licensing arrangements are subject to the full operation of the CCA, including the cartel prohibitions. ^[3] The repealed provision provided a limited exemption for conditional licences or assignments of patents, registered designs, copyrights and protected circuit layouts. However, it did not exempt conduct that contravened the prohibitions on misuse of market power or resale price maintenance. There have been reports of the ACCC’s Cartel Unit initiating investigations in the past year regarding restrictions in distribution, licensing or settlement agreements for pharmaceuticals. However, there is no public information to verify these reports at this stage. If parties to an assignment or licence of intellectual property rights could be competitors, it is important to assess whether there are any conditions that set prices, restrict output or sales, or allocate markets (including disease areas, customers and territories), which could be viewed as cartel provisions. In addition to exposing the parties to prosecution, conditions that contravene the CCA would also be void and unenforceable.

During September and October 2020, in the context of the covid-19 pandemic, the ACCC granted a number of final authorisations to allow members of various pharmaceutical industry associations, pharmaceutical wholesalers, medical oxygen suppliers and suppliers of medical equipment respectively to cooperate to ensure security of supply of essential medicines and related devices, pharmacy products, medical oxygen, medical equipment and related supplies if there are shortages resulting from the pandemic. These authorisations are subject to conditions that allow the ACCC to monitor the authorised conduct. Under the CCA, the ACCC may grant authorisations to provide businesses with legal protection for conduct that might otherwise contravene the CCA but is not harmful to competition or is likely to result in overall public benefits, or both. The ACCC also granted a number of interim authorisations in early 2020, at the beginning of the pandemic, in some cases in extremely short time frames.

An older matter concerning the Australian pharmaceutical sector that retains importance is the ACCC’s case against Pfizer alleging exclusive dealing and misuse of market power in relation to the supply of atorvastatin to pharmacies in violation of the CCA. ^[4] The case focused on life-cycle management (LCM) strategies employed by Pfizer to address the patent expiry for its blockbuster cholesterol-lowering medicine, Lipitor (atorvastatin). The strategies involved the introduction of a direct-to-pharmacy distribution model, establishing an accrual funds scheme with pharmacies, making bundled product offers to pharmacies and offering discounts on the condition pharmacies would not supply generic atorvastatin. The ACCC’s case focused on the language used to express the objective of the LCM strategies within Pfizer’s internal documents.

On 25 February 2015, the Federal Court of Australia dismissed the ACCC’s case. ^[5] Although the court determined that Pfizer had substantial market power prior to patent expiry and Pfizer took advantage of that market power by implementing the LCM strategies, the court did not find that Pfizer had a substantial purpose of deterring or preventing competitors from competing. Instead, the court found that the substantial purpose of Pfizer’s LCM strategies was to ensure that Pfizer remained competitive, and the language in Pfizer’s documents needed to be understood in its context. It also found that Pfizer had not engaged in exclusive dealing conduct. The ACCC appealed.

On 25 May 2018, the Full Court of the Federal Court of Australia rejected the ACCC’s appeal, finding that Pfizer had not misused its substantial market power for an anticompetitive purpose and had not engaged in exclusive dealing conduct when it devised and implemented a strategy with the purpose of protecting its business by reducing the financial impact of patent expiry for Lipitor. ^[6] The High Court of Australia refused the ACCC’s application for special leave to appeal this decision on 19 October 2018.

After the ACCC had initiated its case against Pfizer, changes to strengthen the misuse of market power prohibition were introduced, which removed the requirement that a firm take advantage of its market power, added an effects test and focused the prohibition on conduct that is likely to substantially lessen competition and on conduct that has that purpose. ^[7]

The ACCC’s case against Pfizer is still the only example of enforcement proceedings relating to misuse of market power by a pharmaceutical company. Even if the ACCC could have taken its case under the new market power prohibition, it would have still faced difficulties to prove that the essential purpose of Pfizer’s conduct was to substantially lessen competition instead of ensuring it remained competitive. The ACCC might have also encountered difficulties in proving that the likely effect of Pfizer’s conduct was to substantially lessen competition considering the evidence Pfizer had presented that generics did compete and responded to Pfizer’s strategy by offering increased discounts.

China

In China, SAMR has continued the track record of its three predecessor organisations to strongly enforce competition law in the pharmaceuticals and medical products sectors.

Competition law enforcement under China’s Anti-Monopoly Law 2008 (AML) has been used in conjunction with other regulations and policy reforms to address concerns in these sectors, such as increasing prices and supply shortages. For example, to control pricing and corruption in the procurement process for pharmaceuticals, a ‘two-invoice system’ was adopted at the beginning of 2017 to reduce the number of invoices issued and price markups in the distribution chain for pharmaceuticals. ^[8]

SAMR has focused its AML enforcement activities in the pharmaceutical industry on abusive conduct involving excessive pricing, refusals to supply, imposing unfair trading conditions and tying by domestic suppliers of active pharmaceutical ingredients (APIs). ^[9] The API sector has been the subject of competition law scrutiny for several years.

In the pharmaceuticals and medical products sectors, the AML has in the past also been applied to resale price maintenance ^[10] in agreements with firms at different levels of the supply chain, as well as anticompetitive price-fixing and market-sharing agreements among competing firms. ^[11]

On 18 January 2019, SAMR published a penalty decision against two API suppliers of chlorpheniramine maleate, Hunan Er-Kang and Henan Jiushi, for abuse of collective dominance by engaging in excessive pricing, refusals to supply and tying. SAMR imposed a fine of 8.48 million renminbi on Hunan Er-Kang and 1.56 million renminbi on Henan Jiushi. SAMR also confiscated ‘illegal gains’ of 2.39 million renminbi from Hunan Er-Kang for its leading role in the conduct. Hunan Er-Kang was the sole company authorised to import the API into China. Henan Jiushi was the largest manufacturer of the API in China.

The excessive pricing conduct involved Hunan Er-Kang supplying the API at prices three to four times its average cost of purchasing the API from manufacturers. The refusals to supply were constructive in nature and involved both companies fabricating excuses or imposing unacceptable conditions in response to requests for supply of the API. The tying conduct involved both companies placing conditions on the supply of the API to require customers to also purchase other unrelated medical supplements, including starch capsules and medicinal cane sugar. This was found to prevent customer choice and unfairly extend the companies’ dominance in the market for supply of the API to the market for the supply of the medical supplements.

On 9 April 2020, SAMR imposed record penalties on three API distributors, Shandong Kanghui Medicine Company Limited (Kanghui), Weifang Puyunhui Pharmaceutical Company Limited (Puyunhui) and Weifang Taiyangshen Company Limited Pharmaceutical (Taiyangshen), for abuse of collective dominance by charging excessive prices and imposing unfair trading conditions in the supply of injectable calcium gluconate.

Although there was no equity relationship between the three companies, SAMR determined that they did not operate independently. SAMR found that Kanghui de facto controlled the other two companies on the basis of their close operating relationships, including that Kanghui’s senior management owned Puyunhui, numerous employees simultaneously held positions in both Kanghui and Puyunhui, and Kanghui gave instructions to Puyunhui and Taiyangshen regarding commercial operating decisions, including making transactions with some of its customers through Puyunhui and Taiyangshen. SAMR also determined that Kanghui had set up the other two companies to gradually transfer its API distribution business and evade competition law investigations. SAMR therefore considered the three companies as one group.

The excessive pricing conduct involved the companies supplying the API at sale prices with a markup 9.5 to 27.3 times the cost of purchasing the API from manufacturers, increasing the price to customers by 19 to 54.6 times the historical market price and entering into series of internal transactions to artificially increase pricing. SAMR appears to have considered the sale price excessive on the basis that it was disproportionate to cost compared with the price of the same product over time.

The API was used to make finished injection products that were included on the national essential medicines list. The unfair trading conditions involved the companies requiring their customers sell back the finished injection products or controlling their customers’ transactions to supply the finished injection products, including determining the selling prices and counterparties.

The fines totalled 204.5 million renminbi and SAMR also confiscated illegal gains totalling 121 million renminbi from the three companies. The confiscation of illegal gains has been rarely imposed in the past given disagreements about the calculation of the illegal gains.

For obstruction of the investigation by concealing, destroying and relocating evidence, SAMR also imposed maximum fines of 1 million renminbi each on Kanghui and Puyunhui, and fined 14 individuals working for the two companies between 20,000 and 100,000 renminbi. It has been reported that 13 of the individuals were placed in criminal detention for violently resisting the dawn raids and injuring officials. This was the harshest punishment to date that SAMR has imposed on companies and individuals for obstruction of an investigation.

On 13 April 2020, the National Healthcare Security Administration released draft ‘Guiding Opinions on the Establishment of Creditworthiness System for Pharmaceutical Pricing and Procurement’ for public comment. As an additional deterrence measure, the draft proposes that pharmaceutical and medical products companies that violate the AML will also risk disqualification from participating in government bidding and procurement processes and termination of existing supply arrangements from bids they have won previously. It is unclear when the final document will be released.

On 13 October 2020, SAMR released draft ‘Antitrust Guidelines in the Field of Active Pharmaceutical Ingredients’ for public comment. The draft guidelines provide guidance for the API sector on the types of business practices that might contravene the AML. The guidelines are intended to assist SAMR’s enforcement activities in the API sector and increase compliance with the AML by providing greater legal certainty. The deadline for comments has since closed on 30 October 2020.

On 17 November 2020, SAMR (Zhejiang Province) imposed fines and confiscated illegal gains totalling 2.47 million renminbi on Wanbangde Group Zhejiang Pharmaceutical Sales Company for abuse of dominance by imposing unfair trading conditions in the supply of bromhexine hydrochloride, which required its customer to distribute its finished bromhexine hydrochloride injection products through the Wanbangde Group.

On 18 March 2020, the Nanjing Intermediate People’s Court awarded Yangtze River Pharmaceuticals Group and its subsidiary Hairui Pharmaceutical (collectively, Yangtze) a record amount of 68.8 million renminbi as damages in a private lawsuit alleging abuse of a dominant position in the supply of the API, desloratadine citrate disodium (DCD). Yangtze alleged that Hefei Yigong Pharma and its subsidiary (Yigong) abused its dominance by refusing to supply DCD unless Yangtze agreed to long-term exclusive dealing provisions with volume and price commitments, with the purpose of hindering a potential new entrant in DCD supply. Yangtze also alleged that Yigong charged excessive prices for the supply of DCD. In addition to imposing record damages, the court invalidated the long-term exclusive purchase obligation and volume and price commitments in Yigong’s supply agreement with Yangtze. Yigong is appealing the ruling to the Supreme People’s Court. 

This record private damages award is likely to encourage similar private lawsuits, which adds a further risk for dominant companies engaging in abusive behaviour in China, particularly in the API sector, which is expected to remain an enforcement priority for SAMR.

Hong Kong

The HKCC is a relatively new competition authority in the Asia-Pacific region with just over five years of enforcement experience since the Hong Kong Competition Ordinance came into force in December 2015. Among the key enforcement actions taken by the HKCC in its first five years are a court case against a medical gases supplier and a decision relating to a pharmaceutical sales survey.

On 22 October 2019, the HKCC published a decision rejecting the Hong Kong Association of the Pharmaceutical Industry’s (HKAPI) application under Section 9 of the Competition Ordinance, which sought confirmation from the HKCC that a proposed survey to collect sales data from pharmaceutical companies in Hong Kong and Macau was excluded from the First Conduct Rule on the basis it would enhance economic efficiency. ^[12]

The HKCC considered that competition concerns under the First Conduct Rule were likely to arise from the proposed survey to the extent that it would allow the participating companies to discern product specific sales data. It concluded that HKAPI had not provided convincing evidence to demonstrate the efficiencies claimed to result from the proposed survey or that the inclusion of product level sales data was indispensable to achieve those efficiencies.

The HKCC also communicated some general principles on the exchange of information and cautioned undertakings that competition concerns under the First Conduct Rule might arise if competitors exchange competitively sensitive information with price or price strategies, sales volumes, market shares and sales to particular customers or territories being the most sensitive. The HKCC pointed to high levels of concentration in markets for certain pharmaceutical products in Hong Kong in support of its competition concerns.

In the early stages of the covid-19 pandemic, the HKCC issued a statement on 27 March 2020 that it would continue enforcing the Competition Ordinance during the pandemic. However, in recognition that it might be necessary for temporary cooperation between businesses to maintain supply of essential goods and services to consumers, the HKCC indicated it intended to take a pragmatic approach regarding temporary cooperation that was genuinely necessary and in the interests of consumers. The HKCC also invited businesses to contact the HKCC to discuss the application of the Competition Ordinance to their activities. This approach is consistent with that taken by other competition authorities, such as Australia and India, in the Asia-Pacific region in response to the covid-19 pandemic.

On 21 December 2020, the HKCC initiated proceedings in the Competition Tribunal against Linde HKO Limited and Linde GmbH (collectively, Linde) for abuse of substantial market power in the medical gases supply market in Hong Kong. ^[13] This is the first case pursued by the HKCC in the Competition Tribunal in relation to abuse of substantial market power.

Linde is alleged to have abused its de facto monopoly position in the supply of medical gases to exclude its only potential competitor in the downstream medical gas pipeline system maintenance market for public hospitals by refusing to supply that competitor with medical gases necessary to carry out the maintenance services. Linde is also alleged to have imposed unreasonable trading terms on the competitor to prevent it from performing maintenance services contracts.

The HKCC is seeking declarations and orders for pecuniary penalties against Linde and the general manager of the relevant business for his active involvement in formulating and executing the conduct, as well as a disqualification order against that general manager. The HKCC emphasised that the serious impact of the conduct on public hospitals was an important factor in the decision to bring enforcement action. This case indicates that the HKCC is ready to take strong enforcement action to address abusive conduct by companies with market power in Hong Kong, particularly when the conduct impacts the delivery of health services to patients in Hong Kong.

India

The enforcement activities of the CCI have addressed numerous allegations of anticompetitive practices in the pharmaceutical sector. These investigations have been largely concerned with alleged anticompetitive agreements in the distribution of pharmaceuticals and have particularly scrutinised the practices of industry associations, and the involvement of pharmaceutical companies and their executives in supporting those practices. ^[14]

The CCI continues to be particularly concerned with a practice of district level chemists and druggists associations to require a ‘No-Objection Certificate’ prior to the appointment and supply of pharmaceuticals to distributors. ^[15] The CCI has found this practice results in limiting and controlling the supply of pharmaceuticals in India. Individuals from various pharmaceutical companies have also been held liable for such practices either through active involvement or holding key positions in the respective associations that engaged in the anticompetitive practice. ^[16] Cease and desist orders and substantial monetary penalties have been imposed on the associations, pharmaceutical companies and individuals.

Other practices of chemists and druggists associations that the CCI has previously determined were anticompetitive and continues to investigate include obligations upon pharmaceutical companies to pay these associations compulsory product information service charges to launch their new products. ^[17]

On 19 April 2020, the CCI issued the ‘Advisory to Businesses in Time of Covid-19’, which recognised that businesses may need to coordinate certain activities, such as sharing data on stock levels and sharing distribution and transport infrastructure, to cope with disruptions in supply chains, including for critical healthcare products. In the advisory, the CCI indicated that the presumptions that certain competitor coordination is likely to have an appreciable adverse effect on competition might not apply if such arrangements increase efficiency and are necessary and proportionate to address concerns arising from the pandemic.

In October 2020, the CCI launched a market study of the pharmaceutical sector in India. The study was initiated due to the importance of access to affordable, quality medicines for public health and the numerous competition law cases relating to the pharmaceutical sector in India. Another factor in the CCI’s decision to launch the study was the covid-19 pandemic, which had increased demand and accelerated consumer spending on healthcare in India.

The study will focus on the distribution of pharmaceuticals in India, including discounts and margin policies at different levels of distribution, the role of industry associations and e-pharmacies, the impact of branded generic drugs on competition, and potential barriers to entry for generics and biosimilars in India. The CCI foreshadowed that its enforcement experience in the pharmaceutical sector indicates there are industry practices that prevent effective competition from delivering affordable, quality medicines.

Indonesia

On 27 April 2020, the KPPU in Indonesia launched a study in response to consumer complaints to assess whether hospitals are potentially violating Indonesian competition law ^[18] by offering covid-19 rapid test services packaged with other medical services. The complaints alleged that the bundling practice has resulted in significant price increases. The KPPU expressed concern about competition law violations in the context of the covid-19 crisis, particularly where the conduct could undermine government efforts to fight the virus.

The last significant enforcement action by the KPPU in relation to healthcare was a decision to sanction Pfizer Inc and five of its subsidiaries and PT Dexa Medica for alleged involvement in price-fixing, cartel conduct, a restrictive agreement with a foreign party and abuse of a dominant position in relation to anti-hypertension medicines based on the active substance amlodipine besylate. ^[19] The KPPU’s decision was overturned by a decision of the District Court of Central Jakarta and the Supreme Court upheld that District Court decision. ^[20]

Japan

In 2020, the JFTC made it clear that it would take strong action against collusion between competitors in the pharmaceutical sector in Japan.

On 9 December 2020, the Tokyo District Public Prosecutors Office (public prosecutors) charged three Japanese pharmaceutical wholesalers Alfresa Corporation, Suzuken Corporation and Toho Pharmaceutical Corporation, and seven officials at the three companies, with bid-rigging in relation to the supply of prescription medicines in violation of the Anti-Monopoly Act. ^[21] The public prosecutors pressed charges pursuant to a criminal complaint filed by the JFTC against the companies and officials earlier that day. The defendants are alleged to have fixed the winners of contracts for the supply of prescription medicines to 57 hospitals operated by the Japan Community Health Care Organisation in June 2016 and June 2018. The leading pharmaceutical wholesaler, Mediceo Corporation, was also involved in the alleged conduct but has not been charged by the public prosecutors because it had filed a leniency application before the JFTC opened its investigation. The JFTC had previously imposed administrative sanctions on the defendants for a price cartel in the Miyagi Prefecture in 2002. ^[22] The JFTC noted that it had pursued criminal charges in light of the repeated violations of the Anti-Monopoly Act. It also emphasised that the conduct had a significant impact on consumers and the burden of healthcare costs because it related to pharmaceuticals as essential products.

On 5 March 2020, the JFTC had imposed administrative sanctions in another case relating to the pharmaceutical industry. The JFTC issued a cease-and-desist order and imposed a fine of ¥2.87 million on Torii Pharmaceutical Corporation Limited for violating the Anti-Monopoly Act by agreeing with Nippon Chemiphar Corporation Limited (Nippon Chemiphar) to set a target wholesale price of a branded medicine for high blood pressure. ^[23] The JFTC did not impose sanctions on Nippon Chemiphar because it had filed a leniency application before the JFTC opened its investigation.

These cases illustrate the benefits of cooperation with the JFTC in advance of a cartel investigation being launched, and otherwise the substantial risk of sanctions and even criminal charges.

New Zealand

On 29 May 2020, the High Court of New Zealand ordered Prices Pharmacy 2011 Limited (Prices Pharmacy) to pay a fine of NZ$344,000 and one of its directors to pay a fine of NZ$50,000 for engaging in price-fixing in violation of the Commerce Act 1986. ^[24] The NZCC had filed civil proceedings against Prices Pharmacy and its directors on 26 April 2018 for entering into an agreement to fix the dispensing charge consumers paid for government funded prescription items at a meeting with the owners of 10 pharmacies in the region of Nelson in April 2016. The NZCC did not file proceedings against the owners of the 10 other pharmacies who instead received warning letters from the NZCC. The conduct ended in June 2016 when pharmacy owners received additional funding from the District Health Board responsible for the region of Nelson.

The NZCC noted that, although the defendants did not intend to breach the Commerce Act and were motivated by a belief that prescription medicines were underfunded by the regional Health Board, the penalties were a reminder to health professionals of the risks of discussing prices with competitors. The NZCC also commented on the impact of the conduct on patients who might not collect their medicines when faced with even modest charges. This case illustrates the special considerations of competition authorities relating to the protection of consumers as patients in cases regarding the pharmaceutical and healthcare sector.

Pakistan

On 21 August 2019, the Competition Commission of Pakistan (CCP) set aside a show-cause notice issued to Pharma Bureau, a pharmaceutical industry association, that alleged a number of multinational pharmaceutical companies had exchanged commercially sensitive information and colluded to increase prices of medicines through Pharma Bureau. The show-cause notice was set aside on the basis that the CCP inquiry team was unable to substantiate the allegations. However, the CCP issued a warning to the pharmaceutical sector it would be monitoring the sector and any collusive or anticompetitive activity would be strictly dealt with.  

Philippines

In the context of the covid-19 pandemic, the health and pharmaceutical industry was identified as one of the Philippine Competition Commission’s (PCC) priority sectors for enforcement in 2020, and pharmaceutical companies have been warned by the PCC to expect more scrutiny in the future following the completion of an industry scoping study and publication of an issues paper and policy note identifying key challenges in the Philippine pharmaceutical industry. ^[25] In particular, the Philippine pharmaceutical industry can expect increased monitoring for anticompetitive mergers, agreements and abuse of dominance.

South Korea

As one of the Asia-Pacific’s toughest enforcers, the KFTC has been active in investigating alleged abuses of dominance in connection with pharmaceuticals, medical equipment and devices.

On 17 January 2018, the KFTC decided a case involving alleged interference with business activities in the medical equipment after-sale service market by Siemens Healthineers. ^[26] The KFTC determined that Siemens Healthineers had abused its dominance to foreclose independent service organisations (ISOs) in the medical equipment and service market by charging fees for access to its maintenance and service software (SSW) and imposing different conditions when hospital customers used ISOs to service medical equipment. ^[27] The KFTC found these practices to be discriminatory on the basis that it considered the usual practice or custom in the industry was to grant free access to SSW embedded in medical equipment. The KFTC imposed an administrative fine of 6.2 billion won and issued strong corrective orders against Siemens Healthineers, which included requiring it to provide free access to its SSW and cease its discriminatory practices.

In early 2020, Siemens Healthineers was successful in its appeal to the Seoul High Court for a reversal of the KFTC administrative sanctions on the basis that the KFTC’s decision failed to prove with objective evidence that: free access to SSW was a customary practice; the application of different conditions for access to SSW depending on its intended use was discriminatory; and the practices had an anticompetitive effect. The Court also found the SSW was the intellectual property of Siemens Healthineers protected under copyright law.

Despite the reversal of its administrative sanctions in the Siemens Healthineers case, the KFTC has continued to vigorously pursue suspected abuses of dominance. On 28 June 2020, the KFTC imposed an administrative fine of 270 million won and corrective orders on Medtronic Korea for allegedly abusing its superior bargaining position in relation to the supply of medical devices for minimally invasive treatment to hospitals by imposing restrictive trade conditions requiring its distributors to only supply hospitals in designated territories. ^[28] The restrictions were in the form of contractual terms that allowed Medtronic Korea to terminate distribution agreements or refuse to provide after-sales service to distributors if they supplied devices to hospitals outside their designated territories or in territories allocated to other distributors. The KFTC was concerned that this prevented competition between the distributors.

In addition to abuse of dominance cases, which are expected to remain an enforcement priority for the KFTC, the KFTC also concluded a bid-rigging investigation in early 2020. On 13 March 2020, the KFTC imposed administrative fines totalling 54 million won and corrective orders on Siemens Korea and Canon Medical Systems Korea for bid-rigging in relation to a tender for the supply of computed tomography machines to a local hospital. The companies were found to have agreed that Canon Medical Systems Korea would remain in the bidding process and submit a higher priced bid to support Siemens Korea to win the supply contract. In connection with the decision, the KFTC emphasised that it would enhance its monitoring of the healthcare and medical sectors and impose strict sanctions for competition law violations in those sectors.

Vietnam

One of the Vietnam Competition and Consumer Commission’s (VCCA) ^[29] first cases under the amended provision regarding anticompetitive agreements in the Law on Competition 2018 related to companies in the medical products sector. ^[30] The VCCA highlighted in its most recent Annual Report for 2019 ^[31] a bid-rigging investigation in late 2019 regarding a refusal by B Braun Vietnam Co, Ltd (B Braun) to provide an authorisation letter to An Phu Company (An Phu), the winner of a provincial Department of Health tender. An Phu required the authorisation letter to enable it to meet its obligations under the tender to supply medical device consumables manufactured by B Braun. The reason B Braun gave for refusing to provide the authorisation letter was that it had already provided an authorisation letter to Central Pharmaceutical Company, a competitor of An Phu for the tender. The VCCA initially determined that B Braun and Central Pharmaceutical Company likely engaged in bid-rigging in breach of the Law on Tendering by refusing and hindering the supply of the goods to An Phu, and may have also formed an anticompetitive agreement in violation of the Law on Competition 2018. In response to an information request from the VCCA, B Braun and Central Pharmaceutical Company committed to enable An Phu to meet its obligations under the tender.

Notes