Provisions restricting the seller's prices in a purchase contract for disposable medical supplies by Taichung Veterans' General Hospital in violation of the Fair Trade Law

Chinese Taipei


Case:

Provisions restricting the seller's prices in a purchase contract for disposable medical supplies by Taichung Veterans' General Hospital in violation of the Fair Trade Law

Key Words:

medicines, disposable medical supplies, restriction on seller's prices

Reference:

Fair Trade Commission Decision of May 24, 2000 (the 446th Commissioners' Meeting); Disposition (89) Kong Chu Tzu No. 103

Industry:

Hospital Industry (8231)

Relevant Laws:

Article 24 of the Fair Trade Law

Summary:

  1. A complaint was launched against Veterans' General Hospital, of the Vocational Assistance Commission for Retired Servicemen, alleging that it set forth in a purchasing contract provisions such as the following: "any sales made during the term of the contract for which the seller's prices exceed those given to other hospitals or institutions, compensation shall be made and a fine paid for losses due to the price differences." In its 289th meeting of 1997, the Fair Trade Commission (the "Commission") had indicated that in contracts awarded for sales of medical products to hospitals including the Veteran's General Hospital administered by the Vocational Assistance Commission for Retired Servicemen, the National Taiwan University Hospital, the Tri-Service General Hospital, clinics under the Bureau of National Health Insurance and hospitals under the Taipei City Bureau of Health, any attempt to improperly restrict a seller's prices was a violation of Article 19 of the Fair Trade Law. However, contractual provisions of this type were commonly used in the industry. Given this fact, and taking into account of the need to maintain fair market competition for the supply of medical products, to respect the powers and responsibility of the auditing agency and the Department of Defense and the fact that the standard schedule of prices and payment systems for medicines under the national health care plan had not yet been established, the Commission resolved to institute corrective measures for the industry.

  2. The Commission found that the Vocational Assistance Commission for Retired Servicemen had set up a unified purchase bidding system on behalf of its hospitals, under which medical institutes such as Veteran's general or other veteran's hospitals would notify the contracted firm to deliver the needed goods and then make payment. The conduct of awarding contracts to bidders falls into the domain of private law, and the Vocational Assistance Commission for Retired Servicemen did not itself receive any consideration for this nor engage in any actual trading. Rather, it was the various veterans' hospitals under its administration that had made direct orders for medicines or disposable medical products, which in turn would allow them to provide chargeable medical services. Thus the Vocational Assistance Commission for Retired Servicemen itself does not conform to the definition of "enterprise" under article 2(iv) of the Fair Trade Law.

  3. The drafting of such a clause in the purchasing contract by the respondent, Taichung Veteran's General Hospital, seems to have been aimed at suppressing the price of purchased products. While it is unfaultable for a buyer's attempt to purchase at lower prices, it should, however, be made through best-effort price inquiries and negotiations rather than the implementation of general protective clauses which the seller must be obliged to follow. Further, such a clause implies that other hospitals may only buy at the same or even higher rates. It would affect the normal judgments on prices by both buyers and sellers, and would indirectly lead to the convergence of market prices rather than allowing them to reflect the conditions regarding market supply and demand, cost divergences, trading volumes and reliability of sellers. While the Taichung Veteran's General enjoyed only a limited market position in the demand of medical disposable supplies, and the aforesaid clause does not meet the definition of a "threat of restraint of fair competition," in the absence of this clause in other hospitals' contracts, unfair competition among hospitals has obviously existed. It would also be patently unfair for hospitals that follow the rule of fair competition. Accordingly, the Commission made a decision that Article 24 of the Fair Trade Law had in effect been violated in this case.


Appendix:
Tiachung Veteran's General Hospital of the Vocational Assistance Commission for Retired Servicemen's Uniform Invoice Number: 52804958


Summarized by Hung Hsuan
Supervised by Ma Tai-ch'eng


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