Public scrutiny of unfair competition in the pharmaceutical industry

By Xia Yibin, AnJie Law Firm
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The Law Against Unfair Competition, being the only law that currently expressly specifies that an entity engaging in commercial bribery is liable for damages for civil tort, is of great significance. The various ills and corrupt practices that plague the pharmaceutical industry put a serious crimp on the progress and pace of medical reform. The widespread occurrence of such unfair competition practices as the paying of commissions to physicians to prescribe certain drugs, false advertising and publicity, abuse of power in carrying on operations, etc., make the application of the law to establish, implement and improve a public scrutiny mechanism particularly important.

A photo of Xia Yibin who is a Partner at AnJie Law Firm
Xia Yibin
Partner
AnJie Law Firm

The author will address the unfair competition practice of paying physicians a commission to prescribe certain drugs and explore how the pharmaceutical industry should fully utilise current laws to implement and improve a public scrutiny mechanism, while leaving the other two types of unfair competition practices mentioned above for discussion at a later date.

Q: The unfair competition practice of paying commissions to physicians to prescribe certain drugs harms the interests of what entities? What legal liability should be borne?

A: Article 8 of the Law Against Unfair Competition prohibits the unfair competition practice of commercial bribery. Paying commissions to physicians to prescribe certain drugs is an example of commercial bribery.

First, the practice of paying commissions to physicians to prescribe certain drugs harms the lawful rights and interests of business operators that operate in good faith. After the GlaxoSmithKline (GSK) China bribery case came to light in July 2013, the market became generally bullish on GSK’s competitors, Changshan Pharmaceuticals and Tiantan Biological Products.

In May 2014, the Hangzhou Municipal Health Bureau criticised the wholly foreign-owned pharmaceutical enterprises AstraZeneca, Novo Nordisk and Eli Lilly by name for engaging in commercial bribery, following which their competitor, Dongbao Pharmaceutical, saw its stock price jump more than 5% at the opening bell. It can be seen that once a stop is put to unfair competition practice, other business operators operating in good faith can benefit greatly.

Second, such practice harms the customer’s right to choose. The practice greatly inflates the end price of pharmaceuticals. Motivated by the benefits that derive from such commissions, medical personnel will often first recommend the drug produced by the company that is practising commercial bribery when they write prescriptions. Patients, who lack the medical knowledge and trust the medical personnel, thus have their right to choose actually impaired by such unfair competition practice.

Third, unfair competition practices seriously disrupt the fair competition market order and harm the public interest. The legal liability bearable when acts of unfair competition are carried out include civil liability, administrative liability and criminal liability.

The author believes that to establish a mechanism of scrutiny for the public it is necessary to increase the protection accorded business operators that operate in good faith and also consumers, and guide business operators that operate in good faith, and also consumers, in safeguarding their lawful rights and interests through claiming tort damages to actively make up for economic losses incurred by business operators that operate in good faith, and consumers, as a result of unfair competition practices.

Currently, article 20 of the law specifies that business operators that have suffered a tort have the right to seek tort damages, but does not specify that consumers have the right to seek damages when their rights are infringed as the result of unfair competition practices.

Q: How is the burden of proof allocated when an unfair competition tort action is instituted?

A: When instituting a tort action in respect of the unfair competition practice of commercial bribery, the business operator that operates in good faith bears the burden of proving the following:

  1. That the operator in violation of the law acted in a subjectively wilful manner and objectively practised commercial bribery; naturally it can be inferred, through the business operator’s practise of commercial bribery, that it necessarily practised unfair competition in a subjectively wilful manner;
  2. That there exists a specific and concrete competitive relationship between the injured business operator operating in good faith and the business operator operating in violation of the law, and that the business operator operating in good faith genuinely suffered injury, with such injury including direct and indirect loss of profits;
  3. That there is causal relationship between the unfair competition practice and the fact of the injury. It can be said that this is the most difficult point in the burden of proof. In terms of the adducement of evidence for the causal relationship, the business operator operating in good faith should emphasise the collection and collation of evidence in respect of the type, and the scope of treatment, of the pharmaceutical or medical apparatus, its distributors and end customers, and market share.

Q: How will the law profoundly adjust and promote the continued intensification of medical reform in the pharmaceutical industry?

A: As medical reform intensifies, the law will play a decisive role. GSK and foreign pharmaceutical giants have now started to adjust their marketing strategies in China, prohibiting the practice of paying commissions to physicians to prescribe their drugs and placing their emphasis on developing brand marketing and strategic marketing.

However, numerous domestic pharmaceutical and related enterprises still rely on the practice of paying commissions to physicians to prescribe their drugs. It is a deeply worrying situation because by becoming business operators operating in good faith that are protected by the law after they change their marketing model, the foreign pharmaceutical giants will be able to put a stop to the practice of paying commissions to physicians to prescribe drugs remaining in the pharmaceutical market based on the law.

At such time, wielding the tremendous market advantages conferred by their patented prescription medicines, the foreign pharmaceutical giants will carry all before them, and the large number of domestic pharmaceutical enterprises that are dependent on the practice of paying commissions to physicians to prescribe their drugs, instead of investing in the development of new drugs, will be in for a shock, triggering a greater domino effect. This is something that local domestic pharmaceutical enterprises need to think long and hard about – and improve.

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