Competition law enforcement in the pharmaceuticals sector in Russia

1. Is there any specific regulatory framework that deals with competition regulation in the pharmaceutical sector in your country?

Formally, there is no specific regulatory framework for competition regulations in the pharmaceutical sector.

Competition law issues are primarily dealt with in Federal Law No. 135-FZ on the Protection of Competition dated 26 July 2006 (the “Competition Law”), which contains general provisions relating to anti-competitive agreements or practices and abuses of dominance, as well as merger control rules.

Some competition law aspects in the context of advertising can be found in Law No. 38-FZ on Advertising dated 13 March 2006 (the “Advertising Law”).

In addition, certain M&A deals in the pharmaceutical market might also be caught by Federal Law No. 57-FZ on Procedures for Foreign Investment in Companies of Strategic Significance for National Defence and Security of the Russian Federation (the “Strategic Industries Law”) that applies to transactions or agreements involving the participation of foreign investors in companies engaged in business deemed to be strategic to the country (such as activities connected with causative agents of infectious diseases that are conducted by Russian pharmaceutical companies).

In addition, as public procurement and state tenders are particularly relevant in the pharmaceutical sector, Federal Law No. 44-FZ on Contract System in the Area of Purchases of Goods, Works and Services for State and Municipal Needs dated 5 April 2013 (the “Public Procurement Law”) provides a legal framework relating to public procurement, including that of pharmaceuticals.

The Russian competition authority regularly issues clarifications on the application of the Competition Law, which are not viewed as sources of law.

In the pharmaceutical sector, the Russian competition authority elaborated, together with business associations, a Code of Good Practices in the Pharmaceutical Industry. This Code may be acceded to by any company, is of an advisory nature and aimed at self-regulation of the pharmaceutical industry in Russia, as well as the establishment of fair, open and honest rules of competitive cooperation in the pharmaceutical industry.

2. Which authorities are entrusted with enforcing these rules?

The Federal Antimonopoly Service (the FAS) is in charge of inspecting and enforcing the competition rules and regulations. The FAS is responsible for merger control in the pharmaceutical market and controls anti-competitive agreements and practices. The FAS is also entrusted with monitoring compliance with the Advertising Law.

As far as the Strategic Clearance Law is concerned (as described above), transactions involving ‘strategic’ entities (including in the pharmaceutical sector) are subject to approval by a special state body called the Government Committee on Control over Foreign Investments.

3. What actions can authorities take to tackle anticompetitive conduct and what remedies can they impose?

Pharmaceutical companies involved in anticompetitive conduct/agreements/practices might be subject to the following remedies and liabilities:

  • first, the FAS can issue mandatory instructions to cease a breach, e.g. a dominant pharmaceutical company can be required to supply its products on a non-discriminatory basis to a greater number of distributors, elaborate commercial policy aimed at selection of the distributors and have such policy approved with the FAS, etc.;
  • second, the FAS can also issue an order to transfer to the state budget the revenue received due to the breach of antimonopoly legislation (under the Competition Law);
  • third, administrative fines might be imposed on infringers, calculated on the basis of revenue (up to 15% of the revenue gained over the period of the breach of antimonopoly legislation) or fines or disqualification of company officials (such fines may be imposed under the Code on Administrative Offences due to the administrative proceedings initiated by the FAS);
  • finally, for more serious antimonopoly breaches (cartels) criminal liability (fines or disqualification, and imprisonment sentence) can be imposed by the courts on the officials of the pharmaceutical companies.

4. Can remedies for damages suffered due to anticompetitive conduct be sought through private enforcement? What kind of remedies and how can they be obtained?

Under a general rule in the Civil Russian Code as well as the Competition Law, private parties are entitled to have recourse to court proceedings.

The available remedies are redress for violated rights, damages (including loss of expected profit), and compensation for harm caused to property.

However, although Russian laws allow both follow-up and standalone private actions, this concept is still at a formative stage and is not widely used in practice.

Administrative proceedings under the Competition Law remain a more popular choice among private parties due to their flexibility, relative simplicity, cost and time effective advantages in contrast to court proceedings.

5. Has the antitrust authority conducted any sector-wide inquiry into the pharmaceutical sector in your country and, if so, what were the main observations and consequences?

The pharmaceutical sector has always been under heavy scrutiny from the FAS so inquiries are common in the industry.

In accordance with the FAS Annual Report 2019 (on the Competition Climate on the Russian Market), key focuses of the development of the Russian pharmaceutical market are:

  • uncovering cartel agreements in the pharmaceutical sector. In 2017, the FAS named the pharmaceutical market the second ‘most cartelised’ market in Russia. This aspect became especially significant in the COVID-19 pandemic in 2020;
  • extending the scope of mandatory IP licences to the healthcare sector;
  • controlling the prices for vital and essential medicines.

6. What is the rate of enforcement of competition laws in the pharmaceutical sector in your country in the last three years? Is it high compared to other sectors?

The pharmaceutical sector being under heavy scrutiny from the FAS and the strength of competition law enforcement in the pharmaceutical sector is significant. However, the overall number of cases decreased over the last five to seven years due to the increased use of warnings (preventive measures) to dominant undertakings as well as the established practice of the FAS in the sector.

7. What type of anti-competitive conduct is most common in the pharmaceutical sector in your country?

The subject matter of the cases has remained relatively standard over the last few years, namely: cartels, abuse of dominance (e.g., refusal to deal), and infringements of public procurement and advertising laws.

8. Please provide information on a couple of interesting/significant anti-trust cases in the pharmaceutical sector in your country.

One of the important cartel cases, where the Russian courts supported the FAS in two instances (appeal and cassation) involved two pharma companies. In 2018, the two companies formed a cartel participating in 331 auctions for supplying medicinal drugs and medical products for over RUB 800 million.

In their defence, the parties referred to a trust agreement for shareholdings in charter capital, in terms of which they argued to be part of the same economic group of entities, and thus outside the scope of the anticompetitive violation.

However, supported by the courts the FAS did not accept the argument, as the transfer of shares had not been duly registered in the Russian State Register of Legal Entities.

The amount of the fine imposed on the parties exceeded in total RUB 280 million.

The FAS itself considers this case as a precedent for the qualification of a trust agreement as being insufficient for companies to be viewed as single economic entity for the purpose of the qualification of cartel arrangements.

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