Yong Chien Advertised-Drug Association and Advertised-Drug Manufacturer Association

Case:

Key Words:

Yong Chien Association, manufacturer association, advertised-drug, concerted action

Reference:

Fair Trade Commission Decision of December 31, 2008 (the 895th Commissioners' Meeting), Disposition Kung Ch'u Tzu No. 098021, Disposition Kung Ch'u Tzu No. 098022

Industry:

Drugs and Medicines Manufacturing (2002), Chinese Medicines Manufacturing (2004), Wholesale of Pharmaceutical and Medical Goods (4571), Retail Sale of Pharmaceutical and Medical Goods in Specialized Stores (4751)

Relevant Laws:

Article 7 and 14 of the Fair Trade Law

Summary:

1. In April 2006, a pharmacy in the Kaohsiung-Pingtung area filed a video disk containing the regular meeting of Yong Chien Advertised-Drug Association (hereinafter called YCAA) to complain the following matters: the said association may engage in monopolizing the advertised-drug market in Kaohsiung-Pingtung area and the association also restricted retail price of drugs advertised by local radio stations. In addition, the Commission found that suppliers of the advertised-drugs in Kaohsiung-Pingtung area participated the regular meeting and paid annul fees to the above-mentioned "YCAA." Those suppliers set up an "Advertised-drug Manufacturer Association" (hereinafter referred to as AMA) and may have restricted product resale price or engaged in other violations of the Fair Trade Law. The FTC took the initiative to investigate the matter as well.
2. Investigation and Result:
   (1) YCAA
   i.There is a president for YCAA and the president appoints 16 members, and the 17 people compose a "Committee" which meets once a month to determine core matters for YCAA. A regular meeting of YCAA is convened every 2 months to report, discuss and approve matters resolved in the Committee meeting. YCAA offers transportation fee to encourage members' participation and members are charged a NT$ 30,000 security deposit to ensure their compliance of YCAA's resolutions. YCAA members will be punished or forced to exit YCAA if they fail to comply with the resolution. The president of YCAA also assigns members to form a supervisor team. The team will buy products experimentally from members to avoid price-cut or product leak. If a member was found to engage in product price-cut or resale to non-members, it will get a warning for the first instance, a 3-month supply cut for the second instance, and a 1-year supply cut for the third instance.
   ii.YCAA discussed and resolved the following matters during its regular meeting on March 5, 2006: (1) Tokyo Pharmacy is punished for failing to sell products at the price set by the manufacturer; (2) The manufacturers cut the supply to Dechang Pharmacy for a year for violations; (3) Tiende Pharmacy was fined by YCAA Committee for violations; (4) any product resale to any other branches shall be approved by drug manufacturers, and each branch shall pay the annual fee of NT$ 3,000; (5) the President will convene a Committee meeting to adjust YCAA's 2004 "recommended price list." The modified list will be printed and sent to members afterwards; such list serves as the basis for experimental buying and member's sale price.
   (2) AMA
   AMA is an organization composed of advertised drug suppliers in the Kaohsiung-Pingtung area. Members of AMA usually exchange information and resolve disputes in the advertised-drug market through lunch or dinner meetings. AMA uses YCAA to convey or execute its resolutions. It requests YCAA members to refrain from price competition, product resale and product referral. Pharmacies in the lower-stream market are given a fixed resale margin and constrained in price competition for drugs with different brands. If lower-stream pharmacies engage in price competition, product resale, or product referral, then they will be punished by supply cut or fines. To prevent lower-stream pharmacies from price and brand competition, AMA also reviews the "application form for new YCAA membership recommended by AMA" as well as pharmacies and branches enrollment to YCAA.
3. Grounds for Disposition
   (1)YCAA
   i.Advertised-drugs are usually sold through the way that suppliers interact with consumers through radio programs. Therefore, they create awareness and loyalty in certain consumer groups. In addition, a company needs to be approved and undertake certain obligations in order to become an YCAA member. Some companies even request to reinstate after being punished by the association. It is obvious that YCAA is influential on the retail market of advertised-drugs in the Kaohsiung-Pingtung area.
   ii.In YCAA's regular meeting on March 5, 2006, a consensus among meeting attendees was reached for prices in the "recommended sales price table" printed in 2004. Later, YCAA inspected whether members follow the rules. Those who conduct price competition, "product resale" or "product referral" will be fined or discharged. Other measures were also taken to guarantee compliance with no price cut, no product resale, and no product referral. That is, the Committee and its regular meetings resolved that members shall pay annual fee and security deposit to assure compliance. Pressured by YCAA and prohibited from product resale and product referral, members of YCAA all agreed to restrain from discount promotion and to mutually maintain the product price. Such actions are sufficient to affect demand and supply of advertised-drug market in the Kaohsiung and Pingtung area. It violates Article 14(1) of the Fair Trade Law regarding prohibition on concerted actions.
   (2) AMA
   i.In order to avoid price competition in "designated pharmacies" with overlapped sales scope, AMA members will jointly cut the supply and review the application to YCAA by pharmacies or branches. The purpose is to restrict pharmacies in the lower-stream market from competition in price or brand. In addition, many AMA members promote advertised-drugs in radio stations and items sold through the channel of radio stations by AMA members constitute 43.67% of all advertised-drugs during the survey period. AMA members are indeed influential on the advertised-drug market in the Kaohsiung and Pingtung area.
   ii.AMA members, regulated by its association, reach the consensus to restrict business activities in the lower-stream market. Such an action is sufficient to affect demand and supply of advertised-drug market in the Kaohsiung and Pingtung area. It violates Article 14(1) of the Fair Trade Law regarding prohibition on concerted actions.
   (3) The FTC resolved that 53 pharmacies under YCAA and 16 drug suppliers under AMA were to be imposed with an administrative fine respectively. The total amount of the fines imposed was NT$ 101.95 million.

Appendix:
Gainwise Industrial Limited's Uniform Invoice Number: 23865441
Black Elephant Medical Co., Ltd.'s Uniform Invoice Number: 97061690
Deli Co., Ltd.'s Uniform Invoice Number: 69519681
Jianmei Medical Co., Ltd.'s Uniform Invoice Number: 84728217
Wu Liaw Enterprise Co., Ltd.'s Uniform Invoice Number: 86444469
Baoninneng Enterprise Co., Ltd.'s Uniform Invoice Number: 97193257
Lu Wang International Co., Ltd.'s Uniform Invoice Number: 12789410
Concern Biotech Corp.'s Uniform Invoice Number: 80451527
Heqi Medical Co., Ltd.'s Uniform Invoice Number: 84605622
Daitien Medical Co. Ltd.'s Uniform Invoice Number: 80435999
Ou Chii Ney Woa Ltd.'s Uniform Invoice Number: 16121698
Shenshenghua Enterprise Co., Ltd.'s Uniform Invoice Number: 12619582
Yiyang Enterprise Co., Ltd.'s Uniform Invoice Number: 89752377
Sanbaofe Medical Co., Ltd.'s Uniform Invoice Number: 70514283
Summarized by Lin, Hsiao-Hung; supervised by Lin, Gin-Lan