Competition Commission on Regulating Distribution of Pharmaceutical Products

[Anupriya Dhonchak is a IV year student at the National Law University, Delhi]

The pharmaceutical sector merits close competition scrutiny because the practices by multiple market players in the sector play a crucial role in determining sustainable access to affordable medicines. The nexus among manufacturers, wholesalers and retailers gives rise to unique competition concerns due to the structure and profit distribution of the industry and its governance by an arguably slipshod regulatory framework.

Research has established that pharmaceutical companies shell out vast sums of money for drug promotion via sales representatives, samples, advertisements in broadcast and print media and sponsorships for promoting drugs. It is also well documented that the expenditure of pharma companies on product promotion often exceeds their expenditure on research and development. The Competition Commission of India (CCI) notes that the analysis of the Indian drug promotion matrix brings into stark relief the various unfair trade practices prevailing in the industry.

In a recent order by the CCI, a union of chemists and druggists in District Jalgaon, Maharashtra was penalised for charging a compulsory Product Information Service (PIS) fee from pharmaceutical companies prior to the introduction of new products in the District. The case pivoted upon the determination of the mandatory requirement for pharmaceutical companies to pay the PIS fee for obtaining approval from the Jalgaon District Medicine Dealers Association (JMDA). JMDA claimed that it charged the PIS fee to publish information about the launch of pharmaceutical products in Jalgaon District in the Association’s bulletins or newsletters, which were then to be circulated among all the dealers. However, the CCI concluded, based on evidence and cross examination of witnesses, that pharma companies had to compulsorily pay the PIS fee as a precondition to selling their medicines in Jalgaon District.

Role of Pharmaceutical Companies- Victims or Collaborators?

It is interesting to analyse the CCI’s discussion on the role of pharmaceutical companies in these agreements. While framing issues for adjudication, the CCI opined that even if publication for advertisement were to be beneficial to certain companies leading to their acquiescence in the payment of PIS charges, it was irrelevant to the case at hand. This is because the question for determination before the CCI was limited to whether the payment of the PIS charges was voluntary. This approach does not engage with pharmaceutical companies as beneficiaries within the PIS system of obtaining permission from the JMDA. It does not analyse the role of these companies in acquiescence to an anticompetitive agreement imposed by the JMDA in precluding the entry of new products in the market by manufacturers unwilling to pay PIS charges.

JMDA objected that the introduction of certain pharmaceutical products in the District without payment of the PIS evidenced the voluntary nature of the fee. The CCI negatived this contention by noting that these few aberrations here and there did not take away from the established and prevalent trade practice of charging the PIS fee mandatorily before launching products in the District. This practice limits and controls the free supply of products by pharmaceutical companies in the market. Further, it was held that the payment of PIS charges was not to advertise the product as it was purported to be, but to obtain permission to sell it. There was no regular publication of the information received about various drugs in the Association’s bulletins. Only three out of twelve issues of the bulletin had been published and as per the Director General’s investigation, there were approximately 4000 drugs for which payment was received by the JMDA but no PIS information was published even after the lapse of considerable time.

The pharmaceutical companies deposed that they were not concerned about the time frame of the publication. Further, these companies do not typically receive copies of the bulletin after publication. It was noted that it is unlikely that these companies would be paying the PIS charges for advertisement without even checking whether the information sought to be advertised is actually published. Moreover, the manner and format of publication differed from the Drug Price Control Order (DPCO) Guidelines. The use of words ‘contribution’ and ‘product approved for advertisement’ in the cover letters by pharmaceutical companies to the Maharashtra State Chemists and Druggists Association also indicated that these charges were being paid by pharma companies as a compulsory levy prior to sale of their products.

The Director General (DG) concluded that such a practice distorts supply of medicines in the market, creates barriers to entry for pharmaceutical companies planning to enter the market and forecloses competition in the market as there are very few products of similar kind available in the market. It is also detrimental to economic development as it restricts the distribution of new drugs or their launch by way of any change in product brand, dosage, form, strength, etc. Thus, it imposes unwarranted restrictions on the freedom of trade by market participants and adversely affects the interest of consumers.

The CCI concluded that the conduct of JMDA contravened the provisions of section 3(3) of the Competition Act, 2002, which raises a presumption of appreciable adverse effect on competition. The burden of proof lay upon the JMDA to show that no appreciable adverse effect on competition existed as a result of its conduct. It was open for the JMDA to rebut this presumption by showing efficiency justifications for enforcing the practice of payment of PIS charges. However, it failed to do the same. Thus, finding no mitigating factor, the CCI imposed a penalty on JMDA at the rate of 10 percent of its income from PIS charges for three financial years i.e. 2013-14, 2014-15 and 2015-16, which came out to be Rs. 80,185 while fines of Rs 214,000 and Rs. 127,000 were imposed upon the JMDA President and former Vice-President, respectively.

There was no discussion on pharmaceutical companies being complicit in this practice. Their role was limitedly discussed as beneficiaries of the publication and their conduct was not questioned based on the assumption that they did not wish to risk a boycott of their medicines in the District by JMDA. Previously, CCI orders have penalised trade associations of chemist and druggists for seeking a no-objection certificate for appointment of new stockists and imposing PIS charges on pharma companies for introduction of new drugs in the market. However, this is the first case wherein an association was penalised solely for collecting PIS charges.

This order is commendable for ensuring that the supply of pharma products in the market is not limited and controlled by anticompetitive agreements. However, the acquiescence of pharma companies in unfair practices in cahoots with retailers and wholesalers requires a more comprehensive study of the industry keeping in mind the primary aim of regulating distribution- to protect the public’s access to safe and affordable medicines while increasing consumer choice.

Anupriya Dhonchak

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