Agreements on transfer orders and influenza vaccines
Leniency, fine and hybrid settlement
Damages claims
Comment
Belgian companies active in the pharmaceutical sector at different levels should be aware of competition law. The Belgian Competition Authority (BCA) has placed the sector high on its agenda, and is now acting in line with those priorities. On 18 February 2022, the BCA's prosecution service punished two pharmaceutical wholesalers for participating in a cartel, and imposed fines of €29.8 million. Pharmaceutical laboratories and pharmacies that have been a victim of these cartel agreements can now use this decision to claim damages in court.
Agreements on transfer orders and influenza vaccines
In a settlement decision of 18 February 2022, the BCA's prosecution service held that two pharmaceutical wholesalers, Febelco CV and Pharma Belgium-Belmedis SA, were involved for more than 13 years in two different cartel infringements. One cartel related to so-called "transfer orders", the other to influenza vaccines.
Cartel agreements regarding transfer orders
Typically, pharmaceutical laboratories either sell their pharmaceutical products to pharmaceutical wholesalers, which resell them to pharmacists, or they sell their products directly to pharmacists and take care of the distribution logistics themselves. A third possible route to market involves so-called "transfer orders". In the transfer orders system, the pharmaceutical laboratory sells large quantities of its products directly to a pharmacist, but the distribution logistics are taken care of by the pharmacist's chosen pharmaceutical wholesaler.
In its decision of 18 February 2022, the BCA's prosecution service found that some pharmaceutical wholesalers, including Febelco and Pharma Belgium-Belmedis, had agreed to apply the same commercial conditions towards the pharmaceutical laboratories for the distribution of pharmaceutical products via the transfer orders system. In particular, the wholesalers had agreed to apply the same pricing for their services to pharmaceutical laboratories and to offer services with identical content. Such agreements to fix the prices and the content of commercial services among competitors infringe article IV.1 of the Belgian Code of Economic Law and article 101 of the Treaty on the Function of the European Union. According to the BCA, the agreements had lasted for at least 13 years, from 2003 till 2016.
Cartel agreements regarding influenza vaccines
The BCA's prosecution service also found that, between 2003 and 2016, Febelco and Pharma Belgium-Belmedis had fixed prices for influenza vaccines. Each year, pharmacists can pre-order a certain quantity of the new influenza vaccine during a specific period (the "pre-sales period") before they are put on the market. According to the BCA, certain pharmaceutical wholesalers, including Febelco and Pharma Belgium-Belmedis, had agreed to apply the same commercial conditions for influenza vaccine sales to pharmacists during the pre-sales periods. In particular, the companies had agreed not to grant discounts to pharmacists and not to accept returns of unsold vaccines ordered during the presale period. They had equally agreed on the duration of the pre-sales period. Again, such agreements about prices and commercial conditions among competitors are a hardcore cartel infringement, under both Belgian and European competition law.
Leniency, fine and hybrid settlement
The BCA started an investigation into these practices following Febelco's leniency application, which revealed the existence of these infringements. By being the first to confess to its involvement in the cartel agreements, Febelco received immunity and thus escaped a cartel fine. Pharma Belgium-Belmedis also applied for leniency, but it only received a 40% reduction in fines – the second leniency applicant can only receive a reduction of between 30% and 50%. The BCA therefore imposed a fine on Pharma Belgium-Belmedis of €26,780,401 for the transfer orders infringement, and €3,016,792 for the influenza vaccines infringement, a total of €29,797,193.
This fine amount also takes into account a 10% reduction as a "transaction discount". Both Febelco and Pharma Belgium-Belmedis agreed to enter into a transaction – that is, a settlement – with the BCA. In the context of such a transaction procedure, the BCA's prosecution service reduces the fines to be imposed on the companies in return for the companies' acknowledgement of their participation in the infringements and their resulting responsibility. The fine is then imposed in a decision made by the BCA's prosecution service, without proceedings before the Competition College. Importantly, unlike settlement decisions imposed by the European Commission, BCA settlement decisions are final and thus cannot be appealed.
Interestingly, in this case, a third company that had also been also subject to the BCA's investigations into these cartel agreements, CERP SA (the Belgian subsidiary of Astera), decided not to enter into the BCA's prosecution service's proposed settlement. While the BCA case is thus closed regarding Febelco and Pharma Belgium-Belmedis, the BCA's procedure against CERP continues. Therefore, this is the BCA's first hybrid settlement case.
Given the cartel agreements' long duration of 13 years and the involved companies' importance in the pharmaceutical wholesaler market, many pharmaceutical laboratories and pharmacists are likely to have suffered significant damages due to these competition law infringements. In recent years, the European Union has incentivised private damages claims by cartel infringement victims through the stimulation of the introduction of new rules facilitating such damages claims. Therefore, Belgian legislation provides that final BCA decisions, like the BCA's final settlement decision of 18 February 2022, will serve as an irrebuttable presumption of the competition law infringement made by the cartelists, Febelco and Pharma Belgium-Belmedis, and the cartel infringements are also (rebuttably) presumed to have caused damages.
Importantly, not only victims of Pharma Belgium-Belmedis, but also victims of the immunity applicant, Febelco, can claim damages. The BCA's grant of immunity protects a company against the imposition of cartel fines, but does not generally shield it from damages claims.
The BCA had noted in the past that the pharmaceutical sector is one of its main focus areas. In its priorities for 2021, it indicated that:
the pharmaceutical sector remains a priority for the BCA, as is the case in other European countries. The Covid-crisis even stressed the major importance of this sector. The BCA will pay attention to all parts of the value chain: the prices set by the laboratories, competition between wholesalers-distributors, the competitive dynamics and innovation at the level of pharmacies.
The BCA is clearly determined to meet this stated priority. Accordingly, the BCA is dealing with several cases in the pharma sector, relating to restrictive practices and merger review. For example, an investigation into certain hospitals and pharmaceutical companies regarding restrictive practices to limit, delay or prevent market entry or expansion of biosimilar medicines competing with existing medicines is still ongoing. Several cases on abuse of dominance (excessive pricing) in the pharma sector are also currently pending before the BCA.
For further information on this topic please contact Carmen Verdonck or Beatrijs Gielen at ALTIUS by telephone (+32 2 426 1414) or email ([email protected] or [email protected]). The ALTIUS website can be accessed at www.altius.com.