This summer we are going to the Czech Republic where pharmaceutical companies have to prepare for the sector inquiry announced by the Czech competition authority.

The Czech competition authority will intensify its efforts in the pharmaceutical sector

According to its recently published annual report, the Office for the Protection of Competition of the Czech Republic (the “Office”) plans a thorough investigation of the pharmaceutical sector, in terms of compliance with both competition and public procurement rules.

In this context, the Office will carry out an extensive sectoral investigation in the pharmaceutical sector, focusing in particular on the distribution of pharmaceuticals. According to our information, the Office has already initiated the first steps to investigate selected practices in the pharmaceutical sector. It has also established cooperation with other public institutions, such as the Czech Chamber of Pharmacists, the Czech State Institute for Drug Control (SUKL), the General Health Insurance Company of the Czech Republic (VZP) and the Ministry of Health, which will assist in the detection of possible anti-competitive practices within the framework of the sectoral investigation.

It can therefore be expected that the Office will turn to a number of entities from the pharmaceutical sector as part of the planned investigation, in particular pharmaceutical manufacturers, distributors, pharmacies, health insurance companies, healthcare providers and other relevant entities. The Office has quite extensive powers within the sectoral investigation. It can conduct unannounced raids at the business premises of companies and require intensive cooperation from the investigated entities, under the threat of high, often multi-million Czech crown fines.

In this context, we recommend that individual companies prepare thoroughly for possible investigations by the Office. This preparation should focus first on the correct set-up of internal processes and compliance manuals. Ideally, it is also advisable to conduct training of management and selected personnel so that they are able to respond adequately in the context of an investigation and do not expose the company and themselves to the risk of sanctions.

The Commission publishes its draft revised vertical block exemption regulation and vertical guidelines

On July 9, 2021, the European Commission unveiled its draft guidelines and block exemption regulation (“VBER”) applicable to vertical agreements for public consultation.

These two drafts include a certain number of improvements intended to take better account of the market developments over the past decade, and remedy the difficulties identified during the previous public consultations organized in connection with the revision of the VBER and its guidelines.

The major developments include notably a new approach to certain practices hitherto considered as online sales restrictions. The dual pricing practice, consisting in applying to a given distributor a higher wholesale price for products intended for online sales than for those intended for in-store sales, is no longer considered by the Commission as a hardcore restriction. A differentiation could therefore be applied, provided it is intended to encourage or reward an adequate level of investment and is justified by the costs borne by each of these channels.

The Commission also proposes to abandon the principle of equivalence hitherto applied in selective distribution network. Thus, it will no longer be necessary to impose on online sellers criteria overall equivalent to those required for offline sellers. The Commission considers that online sales are a “well-functioning” sales channel and inherently different from the offline channel, so that it is no longer necessary to protect it by characterizing these measures as hardcore restrictions.

However, the Commission specifies that these restrictions (dual pricing and absence of equivalence) are only exempted if they are not designed directly or indirectly to prevent the buyer or its clients from selling the products or services online.

The drafts submitted for consultation also offer the supplier, in the context of an exclusive distribution network, the possibility to provide for shared exclusivity. Concretely, a supplier may allocate a given customer group or territory to several exclusive distributors that will all be protected from the active sales of distributors established outside this territory.

Regarding dual distribution (meaning that a supplier markets its products through independent distributors but also directly to end customers, and thus compete directly with its distributors), the Commission notes that this practice has been used extensively these past few years with the development of online sales, with the consequence that current rules may exempt vertical agreements raising horizontal concerns that are no longer negligible. Therefore, the Commission proposes to limit the scope of the exemption. New Article 2, §4 of the draft VBER thus exempts dual distribution agreements when the combined market share of the parties on the relevant retail market does not exceed 10%. The exemption also applies when the supplier and its distributors hold a combined market share at retail level greater than 10%, insofar as it does not exceed 30%, except for exchanges of information between the parties, which will be assessed according to the rules applicable to horizontal agreements.

Regarding finally resale price maintenance practices, the Commission does not take a position on this issue related to the control of promotional campaigns by the suppliers, or the alleviations that could be envisaged in franchises in order to protect brand image, issues in respect of which some players had denounced a risk of legal uncertainty, in the absence of any clear evaluation grid. On the other hand, in its draft guidelines, the Commission now seems to consider that setting the resale price in a vertical agreement between a supplier and a buyer that performs an agreement previously concluded between the supplier and a given end user/customer does not constitute resale price maintenance practice when the end user has waived its right to choose the company that is to perform the agreement. In such a case, setting the resale price would not result in an Article 101, §1, restriction, since the resale price is no longer subject to competition for the relevant end user. Accordingly, a wholesaler dealer could no longer be criticized for the application of resale price fixed by the supplier with respect to a given customer, when the supplier and end customer have previously agreed on this price.

Although in draft form, these documents already give us a preview of the (welcome) developments contemplated by the European regulator. Interested parties have until September 17 to submit their contributions, and the measures are expected to take effect on June 1, 2022.