Decision No. 119 – Case C 184-08 –Lawsuit by the National Economic Prosecutor’s Office against Farmacias Ahumada S.A. and others

08/06/2016

The Competition Tribunal ruled unanimously in favor of the National Economic Prosecutor’s Office, sentencing Farmacias Cruz Verde S.A. and Farmacias Salcobrand S.A. to pay fines of 20,000 Annual Tributary Units or UTA (approximately US$19 million) each –the maximum applicable fine according to the law in force at the time of the events– for colluding in the market of pharmaceutical products distribution. According to the decision, the existence of a collusive agreement between these drugstore chains and Farmacias Ahumada S.A., to increase prices of at least 206 pharmaceutical drugs between December 2007 and March 2008, was proven beyond reasonable doubt.

The decision established the existence of this illicit agreement with direct evidence, linking information contained in e-mails and statements from drugstore and pharmaceutical laboratories executives, with the information of final price movements of each of the drugs indicated in the lawsuit, and with information of the regular price quotes that each drugstore chain assesses in its competition.

The described evidence allowed to establish that Salcobrand transmitted, via the pharmaceutical laboratories executives, its disposition to being the first to increase prices of certain drugs, and the three drugstore chains coordinated the dates in which each one would increase its price. The prices were increased following an established pattern, denominated “1-2-3”, under which the first price increase was applied by one chain on “day 1” (almost always, Salcobrand), followed by another chain on “day 2”, and the third one in “day 3”.

It was proven that one of the chains informed the date of the price increase to the corresponding laboratory, so that it could transmit it in advance to the other two drugstore chains, and awaited confirmation that they would follow the increase. Some e-mails from laboratory executives even confirmed that they informed the chains whenever one of them had problems to implement the agreed price increase, and let them know of new dates.

The Tribunal also found evidence of an unusual price monitoring of the competing chains’ prices by each drugstore chain, in the actual dates of the price increases –or the day before–, for several consecutive days, for practically all the analyzed drugs. This pattern was a much more intensive than the normal price monitoring the chains did before the price increases, in which they usually got price quotes from their competitors’ stores every 7 or 15 days, and never for two days in a row. These uncommon monitoring patterns cannot be explained without the existence of a previous conspiracy, which allowed each chain to know what its competitors were to do.

In each of the analyzed drug categories, the three drugstore chains possess a combined market share between 70% and 99%.

To determine the fine, the Competition Tribunal took into account: (i) the gravity of the illicit conduct –collusion being the gravest of those sanctioned by Decree Law N° 211–, (ii) the fact that, in this case, the agreement impacted on pharmaceutical products, the majority of which were destined to treat chronic diseases, and which had the aptitude to extend the conduct effects to the complete category of pharmaceutical products distributed by drugstore chains, causing impairment to those who require them for treatment.

The extension of the damages caused by the conduct was especially grave, given that it involved practically all the supply of the drugs, the significant number of consumers affected throughout the country, and the fact that the agreement would probably have been maintained for more time, and it would have extended to other drugs, if the National Economic Prosecutor’s Office investigation had not started.

The Tribunal also took into account the economic benefits of the drugstore chains from this collusion. Even though they had engaged in a price war, price coordination allowed them to anticipate price increases and avoid the costs of having ended the price war independently.

The fact that Cruz Verde and Salcobrand’s legal predecessors –Comercial Salco S.A. and Farmacias Brand S.A.– had been found guilty of a similar conduct in 1995 by the Comisión Resolutiva, was not taken into account for determining the fine, given the time that has passed and the fact that that had been the last sentence for them in this venue.

The rest of the National Economic Prosecutor’s Office’s requests were denied. They were related to the existence of a contract between Salcobrand and Socofar S.A. (related to Cruz Verde), other possible acts or contracts between drugstore chains, and to the alleged participation of executives of one chain in the ownership and administration of other chain. The requests were denied because neither the alleged facts and conducts were proven, nor their link to the punished illicit conduct.

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