Restraint of business activities of member pharmacies and joint fixing of pharmaceutical prices by the Tainan Area Association for Scholarship and Fellowship in the Pharmaceuticals Field in violation of Article 14 of the Fair Trade Law
Case:
Restraint of business activities of member pharmacies and joint fixing of pharmaceutical prices by the Tainan Area Association for Scholarship and Fellowship in the Pharmaceuticals Field in violation of Article 14 of the Fair Trade Law
Key Words:
Fellowship association; radio-advertised pharmaceuticals
Reference:
Fair Trade Commission Decision of September 21, 2000 (the 463rd Commissioners' Meeting); Disposition (89) Kung Chu Tzu No. 163
Industry:
Pharmaceutical and medical apparatus wholesaling (5181)
Relevant Laws:
Article 14 of the Fair Trade Law
Summary:
1. This case originated from a complaint alleging that the Tainan Area Association for Scholarship and Fellowship in the Pharmaceuticals Field (the Association) was engaging in concerted action on pharmaceutical products. In brief, the following facts were specifically mentioned: the Association was an organization composed of 40-50 greater-Tainan-area advertiser-designated pharmacies. The Association regularly held bimonthly meetings. Under the provision of its charter, penalties and fines could be imposed on wholesalers who sold pharmaceutical products to non-member pharmacies or on a pharmacy that sold products at prices different from those set by the Association. 2. Results of investigation: (1)Organization: The predecessor of the Association was the Tainan Area Fixed-pricing Fellowship Association, originally established on November 22, 1986 to cope with the government's effort to promote uniform price policy. After the election of a new director on April 20, 1992, and in response to the implementation of the Fair Trade Law, all members agreed to change the name to the Tainan Area Association for Scholarship and Fellowship in the Pharmaceuticals Field. The new Association was composed of 48 members, and had a chairman, vice chairman, supervisor, price negotiators, "decipherers," financial administration personnel, consultants, and section chiefs. (2) Security deposits and membership dues: The Association originally required members to pay an NT$50,000 security deposit, which was later changed to NT$30,000. While most members maintained that the deposit was only for the purpose of banquets and related activities, others admitted that it was a fund from which fines were deducted when members violated the Association's rules and refused to pay. Dues of NT$5,000 were also required mainly to obligate members to attend meetings. An NT $1,000 refund to members would be made for each attendance. (3) Penalty provisions: (i)Tardiness, taking time off, or absence from meetings: Account ledgers show that tardiness was fined NT$200-300; taking time off, NT$500; and absence NT$1,000. (ii)Unauthorized product sales or discounted sales: The Association's inspection team was a central part of the Association. It operated the organization, and enforced its charter to maintain the stability of the market. The Association's charter stipulated that purchases by the team could be made to discern unauthorized or discounted sales, with a fine of NT$10,000 for each bottle or container when violations were detected. The Association also had "decipherers" who judged whether or not goods had been shipped to unauthorized retailers by checking the distribution lot numbers and pharmacy stamps against the information provided by upstream manufacturers. (iii)List of suggested prices: While technically this was only a list of suggested prices, it was in effect the basis on which the inspection team carried out its test purchasing and determined the amount of fines. 3. The members of the Association were pharmacies engaging in the sales of medicines in Tainan City and County, and should be considered as competing enterprises of the same production and sales levels. In order to maintain prices and prevent discounted sales, they negotiated prices for advertised products with upstream pharmaceutical firms. These prices would be announced at the next bi-monthly meeting, and then added to the suggested price list to be distributed to members. Penalties for discount and unauthorized sales, or other promotional methods were included in the Association's charter, and would be deducted from the NT$30,000 security deposit if members refused to pay upon being found in violation of the charter. The account ledgers of the Association include entries showing that members had been constantly fined to enforce the charter. In prohibiting discounted sales, publishing suggested price lists and imposing fines on violators, the acts of the Association were to restrain its members' activities to jointly fix the prices for the products. They not only would impede the operation of competition and price mechanism, but would also indirectly affect consumers' interest and were sufficient to influence normal trading function in violation of Article 14 of the Fair Trade Law. 4. The Fair Trade Commission (the Commission) did take into consideration the fact that the Association was established prior to the promulgation of the Fair Trade Law to promote the implementation of the government's uniform pricing policy; however, after the implementation of the Law, the Association continued to restrain its member's competitive activities on a long-term basis. Nevertheless, the Association's chairman, price negotiators, "decipherers," financial administration personnel, and other principle officers who formed the core management committee and were responsible for supervising and implementing Association activities still denied their activities to be illegal. It is the decision of the Commission that each of them should be fined NT$400,000. Members of the Association, however, were mostly independent operators with low overall revenues; and due to their unfamiliarity with the law and the fact that this being their first violation, each was fined NT$200,000. For those who had jus t jointed the Association or shown a willingness to cooperate with the investigation, each were fined NT$50,000. Summarized by Lin Shan-hong; Supervised by Ma Tay-Cheng