Sinphar Pharmaceutical

1326th Commissioners' Meeting (2017)

Case:

Sinphar Pharmaceutical violated the Fair Trade Law by restricting the resale prices of downstream businesses for the company's products

Keyword(s):

Pharmacy, contract, suggested price list

Reference:

Fair Trade Commission Decision of April 7, 2017 (the 1326th Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 106024

Industry:

Manufacture of Drugs and Medicines (2002)

Relevant Law(s):

Article 19 of the Fair Trade Law

Summary:

1. Sinphar Pharmaceutical Co., Ltd. (hereinafter referred to as Sinphar Pharmaceutical) signed with pharmacies the "Sinphar Counter Project Contract" in which it was stipulated that "[P]arty B (pharmacy) hereby agrees to sell the products of Party A (Sinphar Pharmaceutical) at suggested prices; otherwise, Party A may terminate the contract and cancel the feedback percentage in order to maintain the cooperation system of this project, brand image and market order." This stipulation in the contract was in violation of Article 19 of the Fair Trade Law.
2. Findings of the FTC after Investigation:
   (1) According to pharmacies that had set up a Sinphar Counter, the ownership of the products they purchased outright from Sinphar Pharmaceutical belonged to them. When they sold the products to consumers, the invoices were issued in their own names. Therefore, their pricing considerations included their profit margin which had to be the difference between their purchasing price and selling price. Moreover, the fact that Sinphar Pharmaceutical did not pay them commissions was enough to prove the pharmacies purchased outright from Sinphar Pharmaceutical.
   (2) It was stipulated in contracts Sinphar Pharmaceutical signed with the pharmacies between 2013 and 2016 that Sinphar Pharmaceutical could terminate the contract and cancel the provision of free medicines or monetary feedback if any pharmacy failed to sell the company's products according to the agreement between both sides or at prices suggested. Meanwhile, according to many pharmacies that had set up a Sinphar Counter, if Sinphar Pharmaceutical's salespeople discovered prices of products at the Sinphar Counter were marked lower than the suggested prices, they would request, remind or persuade such pharmacies to make adjustments. The FTC's investigation revealed that a number of pharmacies had indeed accordingly raised the prices of products at the Sinphar Counter. In other words, the company was able to use the abovementioned contract stipulation and certain practices to impose restrictions on the resale prices of products supplied to its trading counterpart for the resales to third parties. Despite that Sinphar Pharmaceutical contested that it had never really terminated any contract on any pharmacy, the aforesaid contract stipulation and the threat to cancel the provision of free medicines or monetary feedback or early contract cancellation had already formed psychological pressure for such pharmacy operators. In other words, the intervention resulted from the company's practice had substantially restricted the freedom of the pharmacy operators to decide their resale prices.
   (3) Sinphar Pharmaceutical contested the resale price restriction was imposed to maintain the image of its brand name and products, and the service quality of professional pharmacists selling the company's medicines. However, it could not provide any evidences to explain how the resale price restriction could help achieve promotion of intra-brand competition. In addition, the business scales, operating modes and management costs of the pharmacies were all different. The resale price restriction could only prevent the pharmacies from deciding their own prices and at the same time weaken intra-brand competition. Apparently, Sinphar Pharmaceutical was unable to provide any concrete evidences to prove the resale price restriction could promote intra-brand competition or was economically justifiable due to competition consideration as described in Article 25 of the Enforcement Rules of Fair Trade Law, so that the condition could comply with the proviso set forth in Article 19 (1).
3. Grounds for disposition:
   Sinphar Pharmaceutical used the contract to impose restrictions on the resale prices of pharmacies for its products and also instructed its salespeople to request, remind or persuade pharmacies to adjust their prices. The conduct made it impossible for pharmacies with a Sinphar Counter to determine their prices according to the competition they faced, their management strategy, and their cost structure. Intra-brand price competition between different retail outlets was therefore weakened, yet the restriction could not be justified as intended to promote market competition. Apparently, Sinphar Pharmaceutical had violated Article 19 (1) of the Fair Trade Law. After assessing the sales of Sinphar Pharmaceutical, the facts that the duration of the unlawful act having lasted for more than three years, the 1,066 pharmacies cooperating with the company in different period spreading all over the country, and 739 pharmacies signing contracts with the company between Oct. 2015 and Sep. 2016, the FTC ordered the company to immediately cease its unlawful act while imposing on it an administrative fine of NT$2.5 million.

Sinphar Pharmaceutical Co., Ltd.'s Uniform Invoice Number: 42042734