The promise of a gift when buying medicines is unfair competition

In connection with a complaint filed by a retailer of medicinal products in Varna about a competitor, the CPC with its decision of 22 February 2024 finds that there has been a violation of the general prohibition of Article 29 of the Law on Protection of Competition (LPC) for unfair competition.

The facts of the dispute

The retailer of medicinal products on the territory of the town of Varna, through its chain of pharmacies, conducts an advertising campaign "Loyal Client" in the period March-December 2023. Customers are issued personal cards that cannot be assigned, and at each purchase, the merchant places a stamp and signature by the pharmacist. When collecting 11 seals, the twelfth visit of the patient for the purchase of medicines, partially paid by the NHIF, the patient will pay only 1 cent. In the course of the proceedings before the CPC, the defendant company has submitted another order to the manager, with which the "Loyal Client" program is for any medicinal products (with or without a doctor's prescription and regardless of whether they are reimbursed by the NHIF or sold on the free market) and on the twelfth purchase the patient will receive a product gift.

Until the end of the proceedings, it was not established that awards were given under the "Loyal Client" program. The request by the rival company for the imposition of a penalty maintains that when selling medicinal products, the pharmacies carry out advertisement through the "loyalty" cards by promising medicines free of charge at the twelfth purchase and carry out dumping by selling medicines below their cost.

Legal conclusions of the CPC

Concerning the claim of dumping

According to the CPC, registered producer prices could not limit the downward setting of a retailer's prices. The state policy is aimed at protecting the consumer and limiting the opportunities of traders in the chain "Manufacturer – wholesaler – retailer" to unlawfully set their prices upwards. This limits the possibility of excessive profit for traders, given the specifics of the products offered. Therefore, the state legally determines the upper thresholds of commercial mark-ups of medicinal products. The Ordinance on the Marginal Prices of Authorised Medicinal Products for Retail Sale sets only the upper thresholds and the trade mark-ups for medicinal products. It is not the amount of the trade discount that is adjusted, but the amount of the trade mark-up. The restriction according to the ordinance is that the retailer does not make a sale at a price higher than the marginal price.

The CPC states that there is no legal requirement for medicinal products to be sold only at the statutory ceiling price. It is normal in the behavior of traders to give up part of the possible trade markup but with the possibility of selling above the cost of the products and the cost of their realization in order to attract customers. For the retailer, it can be stated that the price that is "lower than the cost of production" within the meaning of the law is the price that the retailer pays to his supplier or distributor. On this price are added the costs of the realization of the goods or services, thus forming from the sum of the two amounts the final cost of the good or service for the retailer. This is also the minimum value of the good or service below which there will be a dumping sale by the entrepreneur.

Due to the lack of information provided by the defendant company, the CPC qualifies the trader's behavior as an obstruction of the investigating authority and imposes a monetary sanction. The lack of sales at a price of 1 penny, on the other hand, according to the CPC, is a lack of part of the set of facts of the prohibition on dumping and therefore does not engage the liability of the trader under Article 36 (4) of the CPA.

Unfair competition

In determining whether there is a violation of the general prohibition of unfair competition, the CPC is motivated by the Code of Professional Ethics of the Master Pharmacist, which does not allow the use of commercial and pricing approaches for prescription medicinal products in order to redirect patients from one pharmacy to another and by the Rules of Good Pharmaceutical Practice. The market related to the marketing of medicinal products is highly regulated due to the nature of the products intended for the life and health of patients. In this sense, traders, apart from not being given the freedom to set price levels of products themselves (mark-ups and final prices), are not granted freedom to advertise these products.

Pharmacists are given the opportunity to actively participate in health care, contributing to the improvement of the patient's health and providing pharmaceutical care in the form of consultations, but no regulatory or ethical act offers an opportunity to motivate the patient to purchase medicines. On the contrary, there is a restriction not only on motivating the purchase of a particular drug but also on the motivation to choose a retail outlet (pharmacy) from which patients can purchase medicines.

The law also prohibits any action in the sale of medicinal products aimed at stimulating the sale of the medicinal product, explicitly prohibiting the advertising to contain a promise of a gift or property benefit.

According to the CPC, the "Loyal Client" program of Sana pharmacies is not aimed at improving the patient's health or consulting on available medicinal products but is conducted only to motivate patients to visit Sana pharmacies and to buy medicines from them.

Although the "Loyal Client" program does not specify and in the proceeding by the defendant company is not provided comprehensive information about the promised reward and which products will be given free of charge during the twelfth visit to Sana pharmacies, the message of giving something free of charge is a sufficient incentive to prefer this trader over its competitors. The legal price regulation of the market, leading to the equalization of the price levels of medicines at different traders, restricts competition between them, giving patients the freedom to choose a pharmacy. In this case, however, patients would change their usual preference and buy a product from Sana pharmacies, as this enables them to receive the promised gift or discount from this retailer. Moreover, the only way to receive the promised gift or discount is by making purchases from this merchant. It is for this reason that the possible demand distortion effect will occur anyway since the latter is influenced solely by the consumer's behavior, and the client determines his purchasing decision by the possibility of acquiring something free of charge instead of paying for it in the usual way.

According to the CPC, the promise of a gift to patients turns the purchase of medicines into participation in a kind of attractive promotion, and the prescribed medicine – a ticket for it. This course of action diverts the attention of patients from the essence of pharmaceutical services and forms another attitude towards them, affecting in an unscrupulous way the interests of competing retailers.

The decision of the CPC is not final and is subject to appeal to the court.