Turkey: Application Of Competition Law In Turkish Pharmaceutical Industry

Last Updated: 11 September 2007
Article by Arif Esin

Republic of Turkey has put in effect the Act No. 4054 on the Protection of Competition on December 13, 1994 within the scope of adjustment to EU. The Competition Board, established within the framework of Act on the Protection of Competition, began its activities 27 months after the Act has come into effect. The Competition Board, has swiftly formed the Institute of Competition, and hired specialist staff, and effectively began its activities as of November 5, 1997.

The legislation that regulates the Pharmaceutical Industry has conflicts with the Act No. 4054 on the Protection of Competition on some basic issues.

The prices of the medical and pharmaceutical medicament/drugs, the generic drugs and "codex" vials that are manufactured in Turkey are regulated by the Council of the Ministers Resolution No.84/8845 dated December 4, 1984 and the Communique issued by the Ministry of Health dated September 1, 1995, both according to the amended Article No.7 of Act No. 1262 dated May 14, 1928 the amendment of which was made in the Act No. 4348 dated January 4, 1943.

According to the foregoing, pharmaceutical manufacturers submit the sales prices that they have set to the Office of the General Manager for Drugs and Pharmacies of the Ministry of Health in writing, before they begin supplying the drug to the market. The Ministry of Health accepts or rejects this price on condition that it must meet the following profit margins given below. These conditions, specify the profit margins of the manufacturers as well as the profit margins of the distributors and pharmacies.

In this context, the spirit of the Act No.4054 on the Protection of Competition, that is the basic principle providing that "the owner of the goods retains the control over the sales price and the sales conditions down to the level of the first independent buyer" (provided that it will not be misused by the seller who controls the market) has become invalid for the pharmaceutical industry by the direct and indisputable regulating status and the commanding manner of conduct of the Ministry of Health.

The profit margin allowed for the pharmaceutical manufacturers is calculated so as not to exceed the annual sales income of the subject company by more than 15%; and for individual drugs it is calculated so as not to exceed the annual sales volume of the subject drug by more than 20%. The Distributor's sales price is calculated by adding maximum 9% to the manufacturer's sales price, and the retailer's sales price is calculated by adding maximum 25% to the distributor's sales price.

Thus certain articles of the existing legislation that is related to the formation of the pricing policies directed to the distribution system of the pharmaceutical industry is in conflict with the Act No. 4054 on the Protection of Competition.

Furthermore, a series of regulations concerning the payment terms, discounts, free goods, new price application and tenders are contrary to the terms set out in Article 4 of the Act No. 4054 on the Protection of Competition.

The regulation of the promotions are based on Article 27 of the Medical Promotion Regulation for Human pharmaceutical and medical drugs of the Ministry of Health issued on September 7, 1990. The relevant article requires that the promotions be regulated exactly as follows:

"Pharmaceutical distributors may never make any promises of gifts or like to pharmacies to increase their sales.".

The condition of not giving any gifts to the resellers on the basis of their sales volume, regardless of the ethical considerations, is against the law and forbidden, within the scope of Article 4 (a) of the Act No. 4054, from the point of view of setting up the conditions of all types of buying and selling. Ethical consideration does not give any rights for violating the laws.

Article 18 of the Subject Regulation;

"Promotional material of reminding nature prepared with the objective of presentation of the drug should meet the following qualifications.

  1. Such materials should be suitable for medical and professional use and their monetary value should be within modest limits.
  2. They bear the drug's commercial name, and the name(s) of the manufacturer and/or the importer.
  3. The promotional material may not be of type that may be used in locations open to general public".

The condition related to the promotion of drugs also falls within the scope of Article 4 (a) of the Act No. 4054, and by the same considerations is against the law and forbidden.

Traditional sales increasing actions such as offering discounts or free goods, are regulated according to Article 4 of the communique of the Ministry of Health concerning the Drug Prices dated September 1, 1995; The principle that is stated in the communique as "in calculating the profitability, discounts for up to 10% of the gross sales volume are taken into account " and the 10% limitation for the discounts, are against the law and forbidden, within the scope of Articles 4 (a), (c), (e) and (f) of the Act No. 4054.

In conclusion, the laws, resolutions, communiqués and relevant directives and sanction initiatives of the Ministry of Health, clearly contradict the Act on the Protection of Competition, and the industry is placed in a position acting against the law.

If no changes are made in the existing laws, then the members of the industry are left with two options: to act against the Act No.4054 on the Protection of Competition, or to act against the other laws that regulate the industry and the practices of the Ministry of Health which is the responsible authority. There are punitive sanctions involved in both cases.

In this situation, it is necessary for the Office of the Presidency of the Institute of Competition to initiate the necessary actions before other public institutions with the objective of taking regulating measures for our industry as required by Article 30 (f) of the Act.

In the meantime, Pharmaceutical Industry made an enterprise union resolution that became the Resolution 102 in Turkish Competition Law in order to apply the regulations of the Ministry of Health. The said resolution makes the relevant articles of the aforementioned regulations, resolutions of the enterprise union. The object of this resolution is to prevent the unethical practices in the industry. The Office of the General Manager for Drugs and Pharmacies of the Ministry of Health does not issue a price for the drug for the reasons of failing to observe the conditions for promotions, free goods, and promotional expenses that are regulated by the legislature. The enterprise union resolution made on the date 19.12.1997 as a result of the this practice, began to be announced to the Association of (pharmaceutical) Distributors and Cooperatives from the date 27.01.1998. Furthermore, Pharmaceutical Industry Employers Union, signed a protocol similar to the Resolution 102 with Pharmaceutica Industry Association of Türkiye and Domestic Pharmaceutical Industries Association. As a result of this, on 11.02.1998 Aegean Pharmacists Foundation (Ege Ezcacılar Vakfı) and on 13.02.1998 Turkish Pharmacists Association (TEB) 6. District Samsun Chamber of Pharmacists, filed complaints with the Competition Board stating that the sales conditions of the drugs are determined by forces outside the free market. Upon filing of this complaint, the Competition Board has decided a preliminary investigation on the enterprise unions, on 01.04.1998. After the decision was made to carry out a preliminary investigation on the subject, İEİS applied to the Competition Board on 17.04.1998, requesting individual exception for Resolution 102.

During its meeting on 18.06.1998, the Competition Board has decided to start an investigation on İEİS, YİSD and TİSD for violating Articles 4 and 6 of the Act No. 4054 on the Protection of Competition, and furthermore assessed administrative monetary fine to İEİS and its Directors for failing to give notification to the Competition Board within due time about Resolution 102. An opposition is filed with Council of State 10th Chamber on 23.11.1998 for the part of personal fines for the Union and its Directors. Judgement has not been made in this case yet.

The Competition Board ruled BY MAJORITY VOTE on 12.01.2000, that the Resolution No. 102 of İEİS dated 19.12.1997 does not violate Article 6 of the Act No.4054 on the Protection of Competition; however, Resolution 102 is within the scope of Article 4 of Act No. 4054, since it does not meet the conditions of Article 5 of the Act, it cannot be held exempt from the application of the rules of Article 4 of the Act, and therefore, to the rejection of the application of İEİS for individual exemption, and since no resolutions or actions of Pharmaceutical Industry Association of Türkiye (TİSD) and Domestic Pharmaceutical Industries Association (YİSD) against Act No. 4054 are identified, there was no basis for assessing a penalty against these two bodies.

Soon after İEİS has produced Resolution No. 102, Turkish Pharmacists Association (TEB) 6th District Samsun Chamber of Pharmacists circulated a letter to pharmacists stating that a joint meeting was held in Ankara with Turkish Pharmacists Association and Heads of the Chambers of Pharmacists about Resolution 102 produced by the members of İEİS, and that a series of concerted actions were determined as the joint resolution of enterprise union and that it was decided to boycott the Union with the resolutions of the enterprise union.

On the other hand, it was understood from the letter dated 30.03.1998 sent to the pharmacists by Turkish Pharmacists Association (TEB) 6th District Samsun Chamber of Pharmacists, that an "Evaluation Meeting" was held at Mecidiyeköy Cultural Centre with massive participation of the pharmacists, and as a result of this meeting a number of enterprise union resolutions were made. All of the resolutions are related to boycotting the products of the member companies of the Union.

That these enterprise union resolutions in the nature of a boycott made by TEB and the dependent chambers of pharmacists, are applied by the pharmacists has become obvious by the letter sent by Pendik District pharmacists to TEB 1st District Istanbul Chamber of Pharmacists dated 25.03.1998. In the said letter, it is stated that the boycott decision of Istanbul Chamber of Pharmacists is supported by Pendik District pharmacists and a list of resolutions made is given. These resolutions are directed to supporting the boycott resolutions of TEB and Istanbul Chamber of Pharmacists, not accepting the products sent by companies for promotion of the drugs, and removing existing ones from the pharmacies, not participating in campaigns directly made by pharmaceutical companies and not admitting the representatives of the companies to the pharmacies. In this connection, a poster is prepared and placed on the shopwindows of the pharmacies, and the boycott decision is put into effect.

Upon these developments, İEİS, filed a complaint with The Competition Board on 08.05.1998. The Competition Board started a preliminary investigation about Turkish Pharmacists Association on 06.07.1998. Exactly a year later, The Board decided to start an investigation on 06.07.1999, and ruled on 18.09.2000,by majority vote that, the Resolution made during 31st Session of Heads of Chambers Advisory Board and the actions originating from this resolution, which are the subject of the complaint filed by İEİS are violations within the scope of Article 4 of the Act No. 4054 on the Protection of Competition since they are of the nature that determining purchasing conditions by forces outside the free market and bear the objective of eliminating some enterprises from the market or of the nature that may cause the same.

Oppositions may be filed with Council Of State to both of the foregoing two rulings of The Competition Board. İEİS, filed an opposition with Council Of State, to the relevant ruling. Since the legal procedure on the final ruling of the Board, has not yet been completed, I refrain from making any comments on this issue. However, what must be emphasized here is that, when the legislature that regulate an industry, for example the pharmaceutical industry, is in conflict with the Act No. 4054 on the Protection of Competition, as in this case, both İEİS, and TEB have been fined with administrative monetary penalties. However, The Competition Board made a ruling about Belko Ankara Kömür ve Asfalt İşletmeleri (Coal and Asphalt Works of the Municipality of Ankara) long after the foregoing rulings, on 09.04.2001 and The Board made the resolution that by invoking Article 27 (g) the Act No. 4054 on the Protection of Competition, to state the opinion and propositions of The Competition Board for establishing the competition environment in the market to the regulating ministries.

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.

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