On 17 June 2015, the Praesidium of the Federal Anti-Monopoly Service of the Russian Federation (FAS) approved the 'Recommendations for the Development and Application of Commercial Policy by Business Entities Holding the Dominant Position at the Markets of Medicines and Medical Products'.
The need for such Recommendations emerged long ago and was due to several high profile case, under which leading international companies recognised by the FAS as monopolies at the markets of medicines or medical products in Russia were made liable for the abuse of dominant position in the form of an unjustified refusal to conclude or terminate agreements with certain counterparties.
In general, the Recommendations generalise FAS approaches in considering cases on violations of the provisions of Article 10 of the Federal Law, dated 26 July 2006, No. 135-FZ 'On Protection of Competition' ('Competition Law'), which stipulate the abuse of a dominant position, and although these Recommendations do not constitute a regulatory legal act, compliance therewith in practice will allow minimizing the risks of prosecution in connection with the respective potential violations.
The basic provisions of the Recommendations that are worth to pay attention to are discussed below.
1. Commodity Market Definition
Business entities operating in the pharmaceutical and medical devices markets are recommended first to determine shares held thereby in the respective markets, in order to understand whether their position is dominant in accordance with Article 5 of the Competition Law, and therefore whether there is a risk of abuse of such a dominant position.
In this case, according to FAS, the market share calculation shall not be based on the volume of sold goods in kind or on the amount of proceeds received in cash in relation to competitors. The entire range of goods shall be divided in the commodity markets of certain goods in accordance with the features of the commodity market:
- sphere of circulation of goods, borders (including geographic borders) of the market;
- consumer's capability to purchase goods within the respective borders.
In determining the commodity market, it is also required to establish the presence or absence of interchangeable goods.
Commodity market may consist of both a single product of a certain manufacturer (seller), if such a products have no substitutes (for instance, a medicine with certain therapeutic properties that has no analogues by other manufacturers), and goods of competing manufacturers (suppliers), if such goods are interchangeable (in particular, FAS found that the commodity market of dialysers (medical devices used in hemodialysis) consists of dialysers of different manufacturers, while some types of dialysers are interchangeable and form one commodity market).
2. Content and Publication of the Commercial (Trade) Policy
Business entities, even if they potentially hold a dominant position at the market of a certain product (hereinafter – 'dominant entities'), should accept and apply a trade policy as a document containing:
- criteria for selecting counterparties;
- procedure for screening them (process description);
- conditions for decision-making;
- list of persons and authorities involved in the approval of or refusal in commercial relationships, as well as persons making such decisions;
- terms and procedure for consideration of applications of (potential) counterparties;
- conditions of cooperation with counterparties, which determine the value of goods, shipments volume, payment terms, discounts, bonuses, etc.
Any trade policy shall include a standard agreement with all the essential terms and the application form for a counterparty (potential counterparty). Provisions of a trade policy and terms of the contract shall not contradict each other.
A trade policy of the dominant entity, standard agreement and application for cooperation must be effective, published and available in the public domain in the Internet telecommunications network.
3. Criteria for Selecting Counterparties
The list of requirements that shall be met by a (potential) counterparty being screened by the dominant entity, and a list of documents required for such a screening of the counterparty should be exhaustive, criteria should be well-defined, clear, and unambiguous.
Such requirements may cover the legal, financial and business aspects of the counterparty.
A trade policy developed by a foreign company subject to the provisions of the US Foreign Corrupt Practices Act (FCPA), UK Bribery Act and anti-corruption laws of other foreign countries and applied in Russia in respect of business entities being residents of Russia should not contradict the requirements of Russian legislation.
Dominant entities, according to FAS, cannot refuse distributors to enter into sale-and-purchase agreements in case of a suspected violation by the relevant counterparty of anti-corruption laws reported by unofficial sources (including online publications, media messages) and not supported by official decisions on the revealed facts made by the state competent authorities.
4. Selecting Counterparties
The counterparties selection process must be set out in details in the trade policy with description of all the possible stages of consideration of applications for cooperation (for an agreement), disclosure of information on persons (positions), which influence decision-making, make decisions, are members of the committee for consideration of applications (if any), on a deadline for consideration of such applications, timing for consideration of applications at each stage of the check, on possible extension of screening time testing at each stage justifying causes.
At the same time, as stated by FAS, it is important to set and meet deadlines for consideration of applications in such a way to prevent the endless delaying in making a decision on a particular counterparty.
5. Terms and Process of Work with Counterparties
A dominant entity may set different financial conditions of work with counterparties (including prices, discounts and bonuses), if such conditions are economically sound, for instance:
- at a greater volume of purchases of goods in kind, the unit price may be lower than the price of goods purchased by smaller sets;
- in case of advance payment procedure, the price for the goods may be lower than in case of a commercial loan.
However, t is not recommended to require that detailed forecasts for procurement of medicines be provided by the distributors that intend to participate in public procurement.
FAS recognises the right of dominant entities to conduct a systematic check of the counterparties for compliance with the terms of the trade policy.
6. Paperwork related to the Work with Counterparties
The dominant entity when selecting and working with counterparty is recommended to document every step of the work process: to record processes of consideration of applications as well as decisions made up such consideration at each stage in corresponding documents (questionnaires, standard forms, certificates, reports, protocols) to be signed by persons involved in management decisions.
The analysis by the dominant entity of activity of a (potential) counterparty for compliance with the criteria established by the trade policy shall be finalised by the decision to enter into or refuse to enter into (extend) the agreement according to the procedure and within the timeframe established by the trade policy.
In this case, FAS recommends:
- to send letters (requests, responses with the decision made) to the (potential) counterparty with a further acknowledgement of delivery thereof to the addressee by e-notification or by courier with acknowledgement of receipt or by post with delivery notification;
- to provide for internal registration of incoming and outgoing correspondence with indication of a correspondent, subject and details of the letter, as well as brief summary thereof.
7. Termination of Work with Counterparties
A trade policy should define in details the procedure and grounds for termination of the contractual relationships of the dominant entity with the counterparty, in particular, establish an exhaustive list of grounds, which may include, for instance:
- liquidation of a counterparty;
- circumstances, under which the counterparty does not meet the approved selection and work criteria any more;
- collated and confirmed indebtedness on payment for the goods with determination of a threshold of the debt and inability (or refusal) of the counterparty to repay it.
Finally, FAS notes differentiated application of a trade policy or some of its provisions when selecting potential counterparties or working with existing counterparties is not admissible.
Thereat, the fact of availability of a trade policy does not exclude that FAS may send a warning in accordance with Article 39.1 of the Competition Law and initiate proceedings on violation of anti-monopoly laws on the grounds provided by Article 10 of the Competition Law to bring the dominant entity to liability.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.