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10 травня 2016

Pharmaceutical Antitrust in Ukraine 2016

Автор: Олексій Пустовіт
Джерело: Getting The Deal Through Pharmaceutical Antitrust 2016 Edition, с. 109-113

Статтю можна прочитати нижче мовою оригіналу.

Pharmaceutical regulatory law

1 Which legislation sets out the regulatory framework for the marketing, authorisation and pricing of pharmaceutical products, including generic drugs? Which bodies are entrusted with enforcing these rules?

The relevant legislation includes the following:

• Law on Medicines 1996;

• Law on Legislative Fundamentals in Health Care 1992;

• Law on Licensing of Certain Types of Economic Activity 2015;

• Law on Advertising 1996;

• Resolution of the Cabinet of Ministers of Ukraine (CMU) Approving the Procedure for State Quality Control of Medicines Imported to Ukraine, No. 902 2005;

• Resolution of the CMU Approving the procedure for State (Re-)regis-tration of Medicines and State (Re-)registration Fee, No. 376 2005;

• Resolution of the CMU on the Measures for Stabilisation of Prices for Medicines and Medical Devices, No. 955 2008;

• Resolution of the CMU on the Notification of Changes in Wholesale Prices on Medicines and Medical Devices, No. 240 2014;

• Resolution of the CMU on Certain Issues of State Regulation of Prices for Medicines and Medical Devices, No. 333 2009;

• Resolution of the CMU on the Implementation of a Pilot Project Regarding the Introduction of State Regulation of Prices for Medicines for Treating Persons with Essential Hypertension, No. 340 2012; and

• Decree of the Ministry of Health of Ukraine (MHU) Approving the Procedure for Expert Examination of Medicines' Registration Materials which were Submitted for State (Re-)registration and Expert Examination of Materials on Amendments to Registration Materials within Registration Certificate Validity Term, No. 426 2005.

The regulators entrusted with enforcing these rules include:

• the Cabinet of Ministers of Ukraine;

• the Ministry of Health of Ukraine;

• the State Administration of Ukraine on Medicinal Products;

• the State Expert Centre of the Ministry of Health of Ukraine;

• the Antimonopoly Committee of Ukraine; and

• the State Inspection of Ukraine on Consumer Rights Protection.

2 Is there specific legislation on the distribution of pharmaceutical products?

• Resolution of the CMU on Certain Issues related to Trade in Medicines, No. 259 2010;

• The Order of the MHU Approving the Licensing Terms for Manufacturing, Wholesale and Retail of Medicines, No. 723 2011;

• The Order of the MHU Approving the Licensing Terms for Conducting of Economic Activity regarding Import of Medicines, No. 143 2013;

• The Order of the MHU Approving the Procedure of the Quality Control of Medicines in Retail and Wholesale Trade, No. 677 2014;

• The Order of the MHU Approving the Procedure of the Certification of Enterprises, which are the Wholesalers (Distributors) of Medicines, No.

421 2005;

• Guidelines of the MHU 42-5.0:20014 - 'Medicines. Good Distribution Practice';

• Guidelines of the MHU 42-5.1:2011 - 'Medicines. Good Storage Practice'.

3 Which aspects of this legislation are most directly relevant to the application of competition law to the pharmaceutical sector?

The above legislative acts mainly regulate technical requirements. The Resolution of the CMU on the Measures for Stabilisation of Prices for Medicines and Medical Devices, No. 955 2008 also sets maximum margins for selected medicines.

Competition legislation and regulation

4 Which legislation sets out competition law?

Dominance, anticompetitive conduct and mergers are regulated by the Law on Protection of Economic Competition 2001, while unfair com­petition issues are addressed in the Law on Protection against Unfair Competition 1996.

Competition legislation is enforced by the Antimonopoly Committee of Ukraine (AMC), which has quite broad powers that cover mergers, arrangements and practices in the pharmaceutical sector. Its activity is regulated by the Law on the Antimonopoly Committee of Ukraine 1993.

The AMC issues regulations and guidelines comprising a substantial part of the national competition legislation. The most relevant are:

• the Regulation on the Procedure for Filing Applications with the AMC for Obtaining its Approval of the Concerted Practices of Undertakings (the Concerted Practices Regulation) 2002. The document clari­fies the procedure for obtaining concerted practices approvals and requirements to notifications;

• the Regulation on the Procedure for Filing Applications with the AMC for Obtaining its Prior Approval of the Concentration of Undertakings (the Merger Regulation) 2002. Similar to the Concerted Practices Regulation, the document sets the procedure and requirements for merger applications;

• the Methodology for Establishment of the Monopoly (Dominant) Market Position of Undertakings (the Monopoly Methodology) 2002, which contains rules on market definition and tests for dominance and collective dominance;

• the Resolution on the Standard Requirements to Concerted Practices of the Undertakings for their General Exemption from the Requirement to Obtain Prior AMC Clearance (the General Exemption Regulation) 2002, which sets safe harbours for agreements between undertakings; and

• the Resolution on the Standard Requirements to Concerted Practices of the Undertakings concerning Joint R&D or Development and Engineering Works 2012 (the R&D Regulation).

5 Which authorities investigate and decide on pharmaceutical mergers and the anticompetitive nature of conduct or agreements in the pharmaceutical sector?

There is no special authority in charge of competition issues in the pharma­ceutical sector. The AMC conducts investigations and decides pharmaceu­tical cases and mergers following general rules and procedures.

6 What remedies can competition authorities impose for anticompetitive conduct or agreements by pharmaceutical companies?

These can be split into interim measures and decisions. During a case investigation the AMC can request that an undertaking refrain from certain practices if in the authority's opinion these practices may qualify as a violation of the competition laws. The authority may also obligate an undertaking to perform certain actions that are required to ensure the rights and interests of third parties.

Where the AMC identifies that conduct or agreements have character­istics of violation of the competition laws, it may also issue recommenda­tions to cease such practices without opening a case investigation. If the undertakings comply with the recommendations and, where applicable, take measures to remove the AMC's concerns, it can avoid the case investi­gation and sanctions that would be problematic, should the AMC complete the investigation and issue a statement of objection.

Following the case investigation, the AMC can issue a decision con­taining an order to bring the violation to an end and also to eliminate the consequences of the violation.

It should be noted, however, that often the AMC's recommendations and decisions lack precision and the addressees face difficulties in under­standing what exactly in their conduct raises competition concerns and how best to resolve the problematic issues. For this reason, remedies usu­ally require follow-up negotiations with the AMC.

7 Can private parties obtain competition-related remedies if they suffer harm from anticompetitive conduct or agreements by pharmaceutical companies? What form would such remedies typically take and how can they be obtained?

Yes, private parties can lodge complaints with the AMC. If the AMC finds that certain conduct raises competition concerns, it may impose remedies. For details on the remedies, see question 15.

8 May the antitrust authority conduct sector-wide inquiries? If so, have such inquiries ever been conducted into the pharmaceutical sector and, if so, what was the main outcome?

Yes, the AMC does this quite regularly. Focus of the inquiries varies from year to year, and hot topics include retroactive discounts, transparency of conditions offered by pharmacies (the AMC wishes to ensure non­discriminatory conditions), payments to pharmacies for various market­ing services and inadequate pricing practices. Most of the concerns relate to abuse of dominance and it has become the AMC's common practice to define markets very narrowly, both by product and geography. See ques­tion 11 for more details.

Following most of the sector investigations, the AMC issued recom­mendations, and in many cases opened case investigations, with a few cases resulting in fines. The vast majority of fining decisions relate to unfair competition (misleading advertising); these cases also result in the largest fines. The AMC's recommendations usually suggest refraining from increasing prices.

9 To what extent do non-government groups play a role in the application of competition rules to the pharmaceutical sector?

The AMC welcomes cooperation with such groups, but it is mainly limited to exchange of opinions. Recently, the AMC made an attempt to find effec­tive ways to resolve some of the most problematic issues in marketing in the pharmaceutical sector by creating a working group with representa­tives of NGOs.

As regards enforcement, complaints can be lodged by parties suffer­ing from an alleged violation that appreciably limits the mechanisms avail­able to the groups to influence the AMC. However, various round tables and public discussions are usually taken into account by the AMC, and there have been cases where the issues raised by the groups resulted in investigations and decisions.

Review of mergers

10 Are the sector-specific features of the pharmaceutical industry taken into account when mergers between two pharmaceutical companies are being reviewed?

There are no sector-specific rules. Moreover, pharmaceutical deals are normally large-scale, so a great deal of the mergers reviewed by the AMC are not local transactions.

Ukrainian merger control rules capture many foreign-to-foreign transactions and there have been many decisions in such cases. In recent cases (that are still pending) where Phase II was initiated, the AMC pub­licly invited third parties to express their opinions with respect to the noti­fied mergers. The AMC's past practice was to request opinions by sending enquiries to selected respondents. It is too early to comment on the effec­tiveness of the new approach, but potentially it makes the review process for the notifying parties more complex and less predictable. Judging from past cases, the notifying parties may need to address negative opinions that are not always substantiated (eg, the authority may not have sufficient resources to do a fast and proper analysis of such responses).

Another issue is that there is no consistent practice in analysis of phar­maceutical mergers in terms of market definitions and effect on competi­tion. The approach may vary from case to case.

11 How are product and geographic markets typically defined in the pharmaceutical sector?

Historically, the AMC reviewed most mergers using ATC classification. In most cases it used level 3, but there have also been cases where levels 2 and 4 were considered. In recent years, the AMC has conducted many sector investigations that led to alternative market definitions. While in merger cases the AMC continues to use ATC3, in other cases, especially as regards abuse of dominance, the AMC would normally initiate a detailed substitut-ability analysis.

The AMC often relies on various scientific studies and opinions of the competent Ukrainian associations and institutes. Where switching to an alternative product is problematic (eg, because of the established practice or other factors the procuring public authorities would normally stick to products of a specific manufacturer), the AMC is likely to consider such product as a single market, even though there could be alternatives on the market belonging in the same ATC level. Other factors that can be taken into account to differentiate products are, for example, the active ingre­dient, dosage and packaging. There have been cases where each of the competitive products under different brands was considered as a single product market.

As regards geography, for merger cases involving producers and unfair competition (misleading advertising), the AMC would often consider the national market. In mergers it may also take a wider approach and look at the market more globally, especially when it comes to overlaps or claimed efficiencies.

For mergers involving distributors and pharmacies in particular, the markets may be defined much more narrowly. In many abuse of domi­nance cases pharmacies were considered as having a dominant position on selected streets or other small areas. Needless to say, such an approach is heavily criticised.

12 Is it possible to invoke before the authorities the strengthening of the local or regional research and development activities or efficiency-based arguments to address antitrust concerns?

In mergers, efficiencies may be taken into account, but they would not outweigh serious competition concerns at the AMC review stage. The legislation, however, provides for a possibility to seek CMU clearance of a transaction prohibited by the AMC. This procedure is very complex and rarely used (there are no precedents in the pharmaceutical sector), but the efficiencies or other advantages should be taken into account by the CMU.

13 Under which circumstances will a horizontal merger of companies currently active in the same product and geographical market be considered problematic?

There are two tests for assessment of mergers in Ukraine. The merger can be prohibited if it either results in monopolisation or substantial restriction of competition on the market.

The AMC, in the first instance, carries out a monopolisation test. Monopolisation is defined as the strengthening of a dominant position without further elaboration; the AMC considers any increase in the mar­ket share above the dominance threshold (irrespective of the increment) as monopolisation. Dominance is presumed to exist if the market share exceeds 35 per cent, unless the undertaking proves that it faces significant competition from its rivals; for other cases where dominance can exist, see question 25. For this reason, transactions where either party has close to or over a 35 per cent market share can be problematic, while market shares of 20 to 35 per cent are likely to draw additional attention.

14 When is an overlap with respect to products that are being developed likely to be problematic? How is potential competition assessed?

The notification form for a joint venture contains retrospective data, and competition analysis is normally based on existing products. For products being developed, however, the overlap can potentially be problematic.

When it comes to acquisitions or mergers, information on such prod­ucts may not be contained in the notification or the documents attached thereto. However, if the notifying parties seek the maximum possible compliance and include respective discussion in the notification, the AMC would likely pick up on this issue and request the parties evaluate the pos­sible effect on competition with respect to such products.

15 Which remedies will typically be required to resolve any issues that have been identified?

For domestic mergers notified to the AMC, the authority may request par­ties to maintain a certain level of prices for selected goods (usually socially sensitive; eg, anti-flu drugs, over-the-counter medicines), to continue their production and to impose reporting obligations (to monitor the situation with problematic products). Structural remedies are also possible. In non-Ukrainian mergers, the AMC often imposes reporting obligations and requests that undertakings refrain from unjustified price increases; these requirements only concern products present on the Ukrainian market.

16 Would the acquisition of one or more patents or licences be subject to merger reporting requirements? If so, when would that be the case?

It is unclear whether acquisitions of licences constitute mergers. If, in addition to the licences, there are other assets being acquired, the merger requirement is likely to apply (assuming that the reporting thresholds are hit). If only the licence is being acquired, clearance may still be required in some situations. Additionally, if the transfer of the licence includes restric­tions or may otherwise have potential effects on competition, separate antitrust clearance may be required. See question 17 for details.

Anticompetitive agreements

17 What is the general framework for assessing whether an agreement or practice can be considered anticompetitive?

An agreement or practice can be considered anticompetitive if it has the prevention, elimination or restriction of competition as its object or effect. Below is a non-exhaustive list of practices that are hard-core restrictions:

• fixing prices or other purchase or sale conditions;

• limiting production, markets, technological development or invest­ment, as well as assuming control of them;

• dividing markets or sources of supply according to territory, type of goods, sale or purchase volumes, or classes of sellers, buyers or consumers;

• distorting the results of trading, auctions, competitions or tenders;

• ousting other companies from the market or limiting their market access;

• applying different conditions to identical agreements to put a specific company at a disadvantage;

• executing agreements that are conditional on the contracting party's acceptance of additional obligations unrelated to the subject of the agreement;

• substantially limiting the competitiveness of other companies without justifiable reasons; and

• parallel behaviour (actions or omissions) that resulted or may result in the prevention, elimination or restriction of competition is also consid­ered a violation, unless there are objective reasons for this behaviour.

There are also general exemptions and block exemptions. Prohibition of anticompetitive practices will not apply:

• where the aggregate market share of the parties (including their respective corporate groups) in any of the product markets concerned is less than 5 per cent; or

• to vertical or conglomerate arrangements where the parties' com­bined market share is below 20 per cent, and to horizontal and mixed arrangements where the parties' combined market share is below 15 per cent. However, market share-based exemption cannot apply if (cumulative conditions):

• the aggregate worldwide turnover or assets value of the parties (including their respective groups) exceeded €12 million in the preceding financial year;

• the aggregate worldwide turnover or assets value of at least two undertakings that belongs to the parties' groups separately exceeded €1 million in the preceding financial year; or

• the aggregate turnover or assets value in Ukraine of at least one undertaking that belongs to either party's group exceeded €1 mil­lion in the preceding financial year.

However, it appears that in the AMC's practice the value of assets or turn­over test does not serve as an appropriate benchmark to assess potential competition concerns. This is because the effects of vertical restraints on competition primarily depend on the market position of the parties (for example, their market shares).

If the parties are at least potential competitors, the general exemptions do not apply to horizontal or mixed hard-core restrictions, including:

• price fixing;

• territorial, customer or supplier and other market sharing;

• restrictions on (including imposing an obligation to refrain from) pro­duction or distribution of products; and

• distortion of the results of trading, auctions, competitions or tenders.

The exemption under the R&D Regulation applies when the combined market share of the parties on the relevant market does not exceed 25 per cent and the parties meet a set of other criteria (for example, equal access to the results of the R&D activity).

When assessing their practices, undertakings may obtain advice from the AMC regarding their compliance with competition legislation. It is also possible to seek authorisation (individual exemption) of certain potentially anticompetitive concerted practices if:

• the parties can prove that these practices encourage manufacturing, technological or economic development, or other efficiencies; and

• the practices do not lead to a substantial restriction of competition.

18 To what extent are technology licensing agreements considered anticompetitive?

Such agreements would not normally be considered anticompetitive, as far as they contain standard permissible restrictions, such as duration or ter­ritory of use of the licence, types of activities and sphere of use, as well as minimal volume of production.

However, minimal volume of production may raise the AMC's concern if it limits the competitiveness of the undertaking, or, for example, if there exists an unreasonably high quota that may oust other companies from the market or limit their market access.

19 To what extent are co-promotion and co-marketing agreements considered anticompetitive?

This may be the case if the cooperation removes or lessens competition between the parties having appreciable market presence (eg, securing mar­keting channels or control over sales). Achieved advantages such as extra discounts or exclusivity may also be problematic.

20 What other forms of agreement with a competitor are likely to be an issue? Can these issues be resolved by appropriate confidentiality provisions?

Any agreement or behaviour that satisfies criteria outlined in question 17. Confidentiality provisions are also frequently viewed by the AMC as anticompetitive, as recently the AMC has been encouraging companies to make their conditions transparent, available to third parties, justifiable and non-discriminatory. It is assumed that by having access to such condi­tions an interested party can better plan its activity and benefit from them generally.

21 Which aspects of vertical agreements are most likely to raise antitrust concerns?

Exclusivity is one of the most problematic issues. Other common problems include marketing services and payments to pharmacies for various addi­tional services.

22 To what extent can the settlement of a patent dispute expose the parties concerned to liability for an antitrust violation?

There are no relevant cases or rules; general restrictions apply. The settle­ment will qualify as an agreement. See question 17 for details.

23 Are anticompetitive exchanges of information more likely to occur in the pharmaceutical sector given the increased transparency imposed by measures such as disclosure of relationships with HCPs, clinical trials, etc?

Exchange of information lacks regulation by competition laws. In the investigations conducted by the AMC so far, the information exchange has not raised substantial concerns. However, the problem may attract more attention as the AMC's enforcement practice evolves.

Anticompetitive unilateral conduct

24 In what circumstances is conduct considered to be anticompetitive if carried out by a firm with monopoly or market power?

Any conduct (actions or failure or refraining to take certain actions) of a dominant (or monopolist) undertaking that resulted or may result in the prevention, elimination or restriction of competition or harm to the inter­ests of other undertakings or consumers may be regarded as abuse of dom­inant (or monopolist) position on the market. In order to be found abusive, such conduct should not be possible in a highly competitive environment.

When investigating a potentially abusive conduct, the AMC must first assess whether the undertakings concerned are dominant on the relevant market. For that purpose the AMC will primarily define the relevant prod­uct and geographical market (see question 11 for the market definition) and calculate the market share of the undertakings concerned on that market.

As a general rule, the following unilateral conduct is considered abuse of dominant position:

• setting of prices or other conditions of purchase or sale of products that could not have been set in a highly competitive environment;

• applying dissimilar prices or other conditions to equivalent transac­tions without valid justification;

• making the conclusion of contracts subject to acceptance of supple­mentary obligations that, by their nature, or according to commercial usage, have no connection with the subject of such contracts;

• limiting of production, markets or technical development that harmed or may harm other undertakings or customers;

• refusing, in part or in full, to purchase or sell goods in the absence of alternative sources or distribution channels;

• significant limiting of competitiveness of other undertakings without valid justification; and

• creating barriers for market entry or exit.

The above list is indicative; it only outlines the AMC's approach to assess­ment of unilateral conduct in the context of dominance. Any other type of harmful restrictive behaviour of an undertaking with market power may be found to be abusive.

25 When is a party likely to be considered dominant or jointly dominant?

An undertaking will be presumed to hold a dominant position if its market share on the relevant market exceeds 35 per cent, unless such undertaking proves that it faces significant competition from its rivals.

Collective dominance will be presumed if the three largest market players jointly have more than 50 per cent of the market, or the five largest market players jointly have more than 70 per cent of the market.

In rare cases, a company with a smaller market share may be found dominant if such undertaking does not face significant competition from other market players, for instance, because of competitors' considerably smaller market shares.

26 Can a patent holder be dominant simply on account of the patent that it holds?

There are no relevant rules or cases. By analogy to other cases, a company may be found dominant, but there are many other factors that need to be analysed. Essentially, this may be the case if the patent is in use and the product is present on the market and holds a dominant position.

27 To what extent can an application for the grant or enforcement of a patent expose the patent owner to liability for an antitrust violation?

A patent application does not provide exclusive proprietary rights to the applicant. A limited right to compensation arises when the patent applica­tion is published, however, such compensation may only be sought after the patent grant. At the same time, Ukrainian patent laws are clear that a patent owner has exclusive right to prohibit unauthorised use of an inven­tion or utility model by others, and is entitled to apply to court in order to enforce patent rights. Therefore, we would not expect filing of a patent application or an application for the enforcement of a patent to expose the applicant or patent owner to liability for an antitrust violation. If there are grounds for compulsory licensing, the respective procedures provided for by the applicable laws and regulations shall be met.

28 Can certain life-cycle management strategies also expose the patent owner to antitrust liability?

General restrictions for unilateral conduct apply; see question 24.

29 May a patent holder market or license its drug as an authorised generic, or allow a third party to do so, before the expiry of the patent protection on the drug concerned, to gain a head start on the competition?

No special restrictions, general rules or prohibitions apply; see questions 17 and 24.

30 To what extent can the specific features of the pharmaceutical sector provide an objective justification for conduct that would otherwise infringe antitrust rules?

There are no specific rules, but various efficiencies are more likely to be accepted by the AMC as justification than in other industries.

31 Has national enforcement activity in relation to life-cycle management and settlement agreements with generics increased following the EU Sector Inquiry?

Not applicable.

Update and trends

The most notable change in Ukraine over the past year was the appointment of a completely new team of state commissioners in mid-2015. It is expected that the AMC's policy will be changing in the near future, and pharmaceutical issues (mainly distribution and retail) will remain among the hot topics.

A notable change was the issuance of Guidelines for calculating fines in September 2015 (further amended in February 2016), which finally made the rules the AMC uses when imposing fines public. The Guidelines, however, are recommendatory in nature and may not always be followed by the AMC.

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