Legal Alert : The AMCU`s Recommendations regarding the application of discounts in the distribution of medical products

On February 21, 2019, the Antimonopoly Committee of Ukraine (hereinafter – the “AMCU”) adopted Recommendations on the Application of Competition Legislation in Vertical Practices on Supply and Marketing of Medicines (hereinafter – “Recommendations”).

Recommendations determine the specificities of the application of competition legislation, in particular, on the use of discounts, bonuses, and credit notes in the commercial relationship between the producer (the purchaser) and the distributor (the buyer) on the market of medical products.

The AMCU observed that the use of such discounts is a common commercial practice and can have pro-competitive effects.

However, discounts may also have anticompetitive effects, and such cases are demonstrated below:

Discounts can be characterized as an anticompetitive if:

✓Discounts are considered as a mechanism to avoid pricing regulation and overstatement of prices for public procurements;

✓Discounts restrict access to buyers and increase costs of competitors;

✓Discounts set prices that are below production costs and the sale of the products;

✓Discounts restrict access to key resources (e.g. raw materials);

✓Discounts may lead to an increase in the supplier’s market power by giving in one list such discounts for exclusive drugs as well as for substitutable drugs;

✓Discounts have the effect of binding a wider range of products compared to discounts for each drug separately.

According to the Recommendations, mixing several types of discounts simultaneously and applying considerable time periods to achieve discounts increase the risks of an anticompetitive effect.

Moreover, in the Recommendations, the AMCU also focuses on the reporting of distributors.

Distributors reporting to producers may be a cause of additional antitrust risks if: 1) such reporting to producers is intended to establish control over markets; 2) producers and distributors exchange information regarding price policy; 3) the producer provides the distributor with a discount simply for the fact of reporting.

In order to prevent violations of competition law, in the Recommendations, the AMCU advises: 1) to set quantitative targets of sales rather than financial targets for obtaining discounts; 2) not to apply retrospective discounts during the sale of medical products through public procurements; 3) to avoid mixing unique and non-unique drugs in one list for providing a discount; 4) to establish marketing policies separately for unique drugs and for drugs that have substitutes; 5) to avoid conditions under which a discount on the purchase of one drug depends on the purchase of another.

N.B. in the Recommendations, the AMCU does not specify when the use of retrospective discounts (credits note) is allowable. At the same time, retrospective discounts per se are not prohibited by European law, especially if they do not have a negative impact on competition in the relevant markets.

For further information, please contact Serhiy Shershun, email: Serhiy.Shershun@integrites.com