manufacturer’s competitors. Then, the practice concerned should not be regarded as the one
out of the normal track. In order to prohibit economic kickbacks including the sales
promotion support as unjust customer inducement, they should be regarded as excessive or
unjust, compared to a usual trade practice with concerns of luring customers of competitors.
3) Key Features in the Case
Unfairly luring customers is the practice regulated by the law which has been applied to the
rebate of pharmaceutical companies. It is an unfair trade practice whose means or methods of
competition are unfair. In the market where there is no market dominant business, like the
pharmaceutical sector, such practice can be easily applied to the rebate of medical products,
which are less likely to lead to the restraint on competition. In addition, a wide range of
regulations of the Ministry of Health and Welfare are applied to distribution of medical
products. Given the features of actual transaction pricing system, it is difficult to carry out
normal price competition of medical products. As a result, through various abnormal support
and unjust kickbacks, pharmaceutical companies helped medical institutions prescribe their
own medical products. As such, price did not serve its role as a competition element in
distributing medical products because of (i) its structure that doctors choose the product for
patients for the drug prescription; (ii) the agency problems followed by such structure; and
(iii) no incentive for medical institutions to purchase medical products at low price.
The Guidelines for Review of Unfair Trade Practices (amended on August 12 2009,
Established rule no. 72 of the KFTC) designate unfair competitive practices taken place in
this type of situation. The Guidelines stipulate one of the best examples of unfairly drawing
customers by providing unjust benefits as an “act of pharmaceutical companies providing
rebate or favors to doctors or hospitals to prescribe their medicines”. However, since offering
various types of benefits to customers is essential for efficient or performance that oriented
competition, the issue here is whether such rebate can be regarded as “unjust or excessive in
light of normal trade practice”.
3. Abuse of Superior Position
Medical institutions’ request for rebate from their counterparties, including pharmaceutical
12
companies or medical product distributors, goes under abuse of market dominant position, especially forcing the counterparty for benefits leading to disadvantage to others,14 pursuant
to Article 23(1) subparagraph 4 of the MRFTA. Regarding this matter, by considering the
size of medical institution, its status as the size of customer of medical products, continual
trade relationship, and its right to oversee the execution of agreement, the KFTC
acknowledges the market dominant position of the medical institution concerned. The KFTC accepted15 unfairness of trade by deciding whether donation of medical products had been
done by a voluntary basis or request from medical institutions.
In case of donation of medical products, if it is not provided voluntarily, the medical
institutions requesting such donation are prohibited as an abuse of superior position. If it is
done voluntarily, the pharmaceutical companies’ practices should be regulated for their unfair
customer inducement. However, in the latter case, unfairness of such practice would depend
on whether (i) such donation is done in a transparent manner; (ii) it leads to increased
prescription or other reciprocity; or (iii) the amount is excessive considering transaction size.
III. The Main Issues
1. Offering Kickbacks
In this case, the KFTC and the Court described pharmaceutical companies’ kickbacks to
medical institutions as ‘rebate’ in the medical industry. Economic kickbacks are normally
used for unfairly drawing customers including actively offering benefits, such as the
provision of sales promotion articles or subsidy of sales promotion expense, price discount
and excessive provision of extra products of the enterprise when changing from competitor’s
product to that of the enterprise in question, as well as passively offering benefits, such as
waiving of price or obligation to provide security, extending the payment period and reducing
the cost to be paid.
Types of economic benefits, which could trigger issues in distribution process, are properly
articulated under the Health and Medical Service Act. First of all, according to Article 9(3)
subparagraph 6 of the Guideline of New Health-technology Assessment System (the Notice