The court establishes collusion between medicine distributors during a state tender

01.11.2012

Legal Update No. 391, 1 November 2012

(according to the materials of Resolution of the Federal Arbitration Court for the Moscow Circuit of 17 October 2012 on case No. А40-106906/11-149-684).

The Ministry for Health and Social Development of Russia held an auction for purchase of medicines under the 7 nosologies programme. Applications for participation in the auction were received from two companies but one of them failed to turn up at the auction, so the state contract for supplying the medicines was concluded at the starting (maximum) price with the sole participant.

After the auction results were summed up, the auction participants concluded a contract for supply of the medicines constituting the subject matter of the tender. In fact, the participant that failed to appear sold the medicine to its direct competitor in the tender.

The antitrust authority believed that the companies’ actions testified to them having reached a verbal agreement and that their actual actions led to the tender being recognised as not having taken place and to state contracts being concluded at the starting (maximum) prices with the sole participant in the tender.

The cassation court agreed with the conclusions of the Federal Antimonopoly Service of Russia’s Commission and recognised the participant that failed to appear as having violated the provisions of clause 2, part 1, article 11 of Federal Law of 26 July 2006 No. 135-FZ “On Protection of Competition” on the basis of the following circumstances:

  • Initially, the company submitted an application to participate in the auction but subsequently withdrew from participation therein;
  • After the auction, the company sold a batch of medicines in the auction volume to its competitor, the winner of the auction;
  • The actions of both companies were not economically justified or feasible, since the companies entered the tenders without having the requisite goods and agreements on their supply in the future with medicine distributors.

The Federal Antimonopoly Service of Russia thus established that a verbal agreement had been concluded between the auction participants, this leading to restriction of competition. In justification of its position, the Federal Antimonopoly Service of Russia refers to indirect evidence: the conduct of the companies participating in the tender before and after it was held and achievement of a result that benefited both companies.

Supporting the arguments of the Federal Antimonopoly Service of Russia, the cassation court stated that the facts established by the Federal Antimonopoly Service of Russia Commission testified to untypical, bad faith conduct on the part of the tender participants and also noted that the result of the auction under consideration could not have been attained without both participants being fully aware of each other’s conduct at the auction and intending to keep the price up.

The outcome of the given case is in the nature of a precedent since the Federal Antimonopoly Service of Russia managed to prove conclusion of a verbal anti-competition agreement between tender participants.

If you have any question or would like more detailed information, please contact: Nina Belozertseva, Head of Healthcare and Pharmaceuticals Practice, Goltsblat BLP, by phone +7 495 287 44 44, or by e-mail nina.belozertseva@gblplaw.com; or Nikolay Voznesenskiy, Head of Competition & Antitrust Practice, Goltsblat BLP, by phone +7 495 287 44 44, or by email Nikolay.Voznesenskiy@gblplaw.com.

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