In its recent decision dated 15 September 2015, the Hungarian Competition Office (“HCO”) established the illegality of the collusion of three pharmaceutical wholesalers (EUROMEDIC-PHARMA Zrt. (“EUROMEDIC”), HUNGAROPHARMA Zrt. (“HUNGAROPHARMA”) and TEVA Zrt. (“TEVA”) and two actively collaborating consultant firms, Mezadin Kft. (“Mezadin”) and PharmAudit Kft. (“PharmAudit”) in a public procurement procedure. A total fine of almost HUF 2.5 billion (approx. EUR 8 million) was imposed.
I. The underlying public procurement procedure
On 10 November 2011, BEK Zrt. (owned by the Municipality of Budapest; “BEK”) launched an accelerated, restricted public procurement procedure on “The supply of medicine and solutions for infusions” for twelve hospitals in Budapest with a value of HUF 5 billion (approx. EUR 16 million) per year (“Tender”). The preparations for the Tender began in April 2011 by assessing the needs of the twelve municipal hospitals. Originally, by setting feasible conditions, the Tender was “structured” to enable a large number of bidders to submit their offers in order to keep prices at the lowest level possible. Instead of the creation of product groups the active ingredients of the products were specified in the documentation, and the revenue thresholds and the capacity to deliver were also set in favour of competition.
BEK employed PharmAudit as an external expert, who, with the help of Mezadin “organised” the infringement. The condemned companies jointly brought about the modification of the tender documentation (especially the selection criteria) in a manner that allowed only the aforementioned three wholesalers to fulfil the conditions. Consequently, only EUROMEDIC, HUNGAROPHARMA and TEVA were able to participate in the Tender.
II. Single, complex and continuous infringement
The HCO started its investigation on 9 April 2013 with an on-site inspection without prior notification (a so-called dawn raid) at the registered seats and branches of the above listed companies. In addition, the personal car, laptop and mobile phone of PharmAudit’s representative, as well as the private residency of Mezadin’s representative were searched. The HCO also seized and relied on data from mobile phones and phone calls (retrieved from cell data) as well as the testimonies made in the course of the criminal investigation launched in parallel.
Although the Tender was first issued allowing open competition, in accordance with the infringers’ interest, BEK later modified the conditions, also taking into account the backroom deals of the cartel members. As a result of the changes in the tender documentation, other pharmaceutical companies were unable to submit any bids, and were thus excluded from the Tender. The cartel allowed the three wholesalers to share the active ingredients specified in the Tender among one another, and by way of “dividing” the ingredients, to become tender winners in their intended ratios.
In its decision, the HCO established that the companies under investigation committed a single, complex continuous infringement having the object and the effect of restricting competition in the Tender. They manipulated the tender documentation to their advantage, harmonised their respective prices in awareness of the prices of each other prior to the submission of their bids, and divided the market amongst them.
III. The sanctions imposed by the HCO
According to Article 11 of the Hungarian Competition Act and in the HCO’s respective practice, price fixing and division of the market in public procurement procedures amount to a hard-core cartel. In the present case, the infringement was also aggravated by the fact that the companies under investigation were in fact successful in realising the anti-competitive provisions of their agreements in the Tender. As a result, the HCO regarded their behaviour as severely imputable, which shall be considered an aggravating factor when it comes to the calculation of the fines. EUROMEDIC, HUNGAROPHARMA and TEVA both received a fine of HUF 792.2 million (approx. EUR 2.5 million), while the “facilitators” of the cartel received maximum fines proportionate to their respective turnover.
IV. Potential aftermath of the case
Based on our experience, it is highly likely that the companies under investigation will request the judicial review of the HCO’s decision and face a long-lasting court procedure.
In addition, it will be interesting to see what kind of effect would this have on the public procurement market in the pharmaceutical sector since according to the new bill of the Hungarian Public Procurement Act (adopted on 22 September 2015 and effective as of 1 November 2015) a similar cartel fine will result in the exclusion of the cartel members from participation in public tenders for three (3) years after the HCO’s (or the competent court’s) decision becomes binding.
Laws: Act LVII of 1996 on the prohibition of unfair market practices and unfair competition
Act CVIII of 2011 on Public Procurement, and bill of the new Public Procurement Act (No. T/4849)