The Romanian Competition Authority Rejects a Complaint Regarding on Refusal to Supply in the Pharmaceutical Sector (Roche)

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Published in e-Competitions | N° 64976, www.concurrences.com

On 19 May 2013, following the principles established by the European preliminary ruling in GlaxoSmithKline [1], the Romanian Competition Council (“RCC”) held that La Roche (“Roche”) did not abuse its dominant position on the pharmaceuticals distribution market [2].

On 24 September 2010, SC Relad International SRL (“Relad”) submitted a complaint to the RCC, alleging that Roche held a dominant position on the pharmaceuticals distribution market and, by constantly refusing to sell pharmaceutical products and applying a discriminatory supply policy, Roche abused its dominant position.

According to Relad, the potential abuse consisted of:

• the limitation and control of distribution to the disadvantage of consumers, and restriction on exports in the European Union;

• the discrimination against Relad towards other distributors, which benefited of larger amounts of products as compared to their distribution requests and capacities;

• the imposition of unfair trading conditions and refusal to deal;

• the distribution contract termination on the sole ground that Relad had refused to submit to unjustified trading conditions.

Relad complained that, starting 2009, following the approval of the new maximum prices in the National Catalogue of prices of medicinal products for human use authorized for marketing, Roche supply policy has been radically changed. As the new prices were set at a lower level than in the previous year, the products became attractive for export to other Member States, where prices were set at a higher level. According to Relad, this situation led to the introduction of an abusive policy by Roche, designed to control the Romanian distribution market, in order to prevent the exports to Member States with a higher price level. This goal was pursued by Roche through several anticompetitive activities: refusal to supply, monitoring the end-users, limitation of competition between distributors, by discriminatory and arbitrary allocation of its products.

In addition, Relad considered that Roche did not provide a justified explanation for the refusal to comply with the obligation set by the distribution contract, to notify the insufficiency / lack of stock prior to Relad placing the order, so that the distributor could rapidly adapt its strategy. In fact, only after the order was placed did Roche announce that a large part of the order would not be supplied. Moreover, Roche did not accept Relad proposal to implement a mechanism whereby the distributor could provide forecasts on future orders, so that the producer could size the stock.

Relad also alleged that Roche applied a discretionary and discriminatory policy regarding the type of products and volumes supplied to each distributor, without taking account of the requests, the distribution capacity and the distributors’ own efforts to develop the Roche product market.

Relad argued that starting with the second half of 2009, Roche has systematically refused to supply Relad, by reason of lack of stock. However, the potential lack of stock was not applicable to other distributors, as the gradual increase of Roche market share in 2009, while the supplies to Relad fell dramatically, showed that Roche started selling larger quantities to other distributors.

As to the third allegation, Relad affirmed that in 2009 Roche tried to impose an addendum, containing substantial changes in the existing business relationship between the parties: lower discounts, strict and unreasonable payment terms as well as the lack of any certainty with regard to the supplies envisaged in 2010. According to Relad, its refusal to submit to these trading terms determined Roche to definitively cease the supplies starting with 2010 and abusively terminate the distribution contract.

Relad also claimed that starting with the second half of 2009, the supply from Roche was conditioned by the submission of certain information, including the orders placed by the hospitals, and that Roche monitored the end-users of its products.

In 2011, the RCC opened an investigation into Roche alleged business practices.

In its analysis, the RCC started from the general rule that any company must have the right to choose its business partners. However, companies in a dominant position have a special responsibility not to allow their conduct to impair competition on the market. In accordance with the Romanian legislation, a company is presumed to be dominant at market shares above 40%. The investigation revealed that Roche was dominant on 5 relevant markets defined at ATC3 level.

The RCC relied on the established case-law that the refusal by a dominant company to meet the orders of an existing customer constitutes abuse of a dominant position if there is no objective justification for that conduct.

Given the circumstances of the case, the RCC noted that the situation was similar to the dispute between GlaxoSmithKline and a number of Greek wholesalers of prescription medicines, which was brought before the European Court of Justice (“ECJ”) through the preliminary ruling procedure from the Athens Court of Appeals.

As a consequence, the assessment of whether Roche refusal to meet the orders placed by Relad, to stop a potential parallel export, could constitute an abuse of dominant position took into account the principles set by the ECJ in Glaxo:

• the refusal by a dominant pharmaceutical company from a Member State where prices are low to supply wholesalers involved in parallel export to Member States where prices are higher constitutes an abuse of the pharmaceutical company’s dominant position if the distributors’ orders are “ordinary”;

• however, a dominant pharmaceutical company is allowed to protect in a reasonable and proportionate manner its own commercial interests and thus may refuse to supply distributors requesting significant quantities of products that are essentially destined for parallel export to Member States with higher prices;

• in addition, a dominant pharmaceutical company can also protect its own commercial interests if the distributors’ orders are out of the ordinary in terms of quantity, as compared to the usual commercial practice between the parties.

Thus, even if Roche had a dominant position, it could still refuse to supply Relad, as long as the refusal concerned out of the ordinary orders.

The ECJ did not expressly clarify the meaning of “ordinary” and passed on to the national authorities the interpretation of whether or not orders are “ordinary”. However, the ECJ provided guidance, showing that the assessment should made in the light of two aspects: (i) the size of the orders in relation to the requirements of the market and (ii) the previous business relations between the parties.

A set of data were included in the RCC analysis to show whether the orders placed by the distributors were ordinary and therefore, Roche had committed an abuse of its dominant position: data regarding the orders placed by Relad and by other distributors, the supplies made by Roche to Relad and to other distributors, data regarding all the orders and supplies.

Roche defended against Relad allegations of distribution limitation and refusal to supply, arguing that the distributors orders’ in a month exceeded by far the needs of the local market. Thus, it could not supply an oversized and abnormal volume, which exceeded by far the available stock, as this would expose it to the risk of not being able to further supply the market due to stock insufficiency. Given that Roche was legally bound to ensure a continuous supply of medicines covering the needs of the internal market, it had to consider an appropriate degree of fulfilling the distributors’ orders so as to avoid running out of stock.

This argument was confirmed by the RCC analysis. The investigation revealed that during 2008-2010, the distributors’ orders recorded an increase superior to that of the national market and to the funds allocated through the national health programs.

By analyzing the orders placed by distributors and effectively fulfilled by Roche, corroborated with the size of Relad previous orders, as well as with the growth of the relevant markets on which Roche had a dominant position, it resulted that Roche supplies, during 2008-2010, were in line with the market evolution and the funds allocated from the budget. In contrast, the orders placed by the distributors, starting with the second half of 2009, have exceeded by far the market level and the funds allocated from the budget.

Thus, the analysis revealed that both Relad and the other distributors placed out of the ordinary orders as compared to the previous business relation between the parties and to the size of the retail pharmaceutical market. However, Roche fulfilled the ordinary orders placed by all distributors, including Relad.

In addition, no evidence of unfair trading conditions was identified by the RCC in the course of the investigation. The commercial policy applied by Roche towards its distributors, including Relad, did not give rise to any competitive concerns.

With regard to the notification of the insufficiency / lack of stocks, the distribution contract did not contain any provision as to the notification timing. The usual business practice between Roche and its distributors, including Relad, revealed that the notification was performed by Roche after the order was placed. Moreover, the pre-notification obligation would have discriminated against distributors, as this would have allowed the first distributor placing an order in a certain month to purchase all the available stock of a particular medicine.

Neither the allegation regarding the supply conditioning by the submission of the orders received from hospitals, nor the monitoring of the end-users accusation was grounded, as no evidence was found in this respect.

With regard to the last allegation, regarding the termination of the distribution contract, the RCC considered that the matter represented rather a commercial dispute between the two parties which did not fall within the prohibitions of the Competition Law. Although Relad claimed that it did not breach any of its contractual obligations and the termination was abusive, Roche disagreed. At the time of the RCC decision, the case was dealt by the national courts.

In these circumstances, the RCC closed the investigation and rejected the complaint submitted by Relad on the ground that the investigation did not uncover evidence of an abuse of dominance by Roche.

[1] Judgement of the Court (Grand Chamber) of 16 September 2008, in Joined Cases C 468/06 to C 478/06.

[2] http://www.consiliulconcurentei.ro/…

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