3) Distribution Structure of Medicines
There were two different distribution structures in the domestic medicine market, such as
following: (i) distributing drugs through wholesale distributors and (ii) directly dealing with
medical institutions. In particular, from the year 1994, the legal obligation of distributing
drugs was imposed on the general hospitals with more than 100 beds through medicine
wholesalers.
Overall, the yearly turnover in the distribution market of domestic drugs reached KRW 6.13
trillion as of 2005. Moreover, the turnover of wholesale distribution excluding direct
transaction between pharmaceutical companies and medical institutions, including hospitals,
clinics, pharmacies and public health centers was KRW 2.99 trillion, accounting for 48.9% of
the entire drug distribution sector.
As of 2005, the number of medical drug distributors was 1,589, and the top 10 wholesale
distributors in terms of sales amount accounted for 40.8% out of KRW 6.13 trillion of total
wholesale turnover. The top 10 companies in terms of sales revenues reached 62.4% of the
total drug sales of wholesale market (KRW 4.584 trillion in 2005).
2. Findings
The 17 domestic and multinational pharmaceutical companies, including Dong-A
Pharmaceutical, provided economic benefits and kickbacks to medical institutions and
healthcare professionals in order to increase prescription of their drugs. Their offers were
various kinds, including cash, gift vouchers, medical equipments, entertainment support such
as golf, financial support to seminar, conference and other events of hospitals, researcher dispatch to general hospitals, compensation payment for choosing their products,1 cash under the name of PMS,2 and advertising costs for hospitals.
3. The KFTC’s Decision 1 This refers to the gifts and cash provided by pharmaceutical companies for being chosen when the medical products are supplied to hospitals and clinics. 2 This is the post-sale practice of collecting and reviewing information of safety and effectiveness of products.
4
1) The Initial Decision
Following the result of the first investigation on the October 31, 2007, the KFTC issued a
corrective order and imposed surcharges of KRW 19.9 billion in total on the 10
pharmaceutical companies for their unfairly luring customers and carrying out resale price
maintenance. In addition, the KFTC decided to file a complaint to the prosecutors against five
pharmaceutical companies, including Dong-A Pharmaceutical, Yuhan, Hanmi Pharmaceutical, Green Cross, and Choongwae Pharmaceutical.3 Moreover, in accordance
with the second investigation on January 14, 2009, the KFTC decided to make a corrective
order and also impose KRW 20.3 billion of surcharges in total on seven pharmaceutical companies.4
Unlike the outcome of the first investigation, the KFTC also found their business practices
as unfair trade practices of disrupting enterprise’s activities in the second investigation. In
particular, Daewoong Pharmaceutical induced a certain pharmaceutical company to set a low
price for its first generic drug of its original product, ‘Gliatilin’, whose patent was to be
expired, when it submitted the price notice to the Korea Food and Drug Administration
(KFDA), thereby impeding other competitors’ release of generic drugs. MSD also made a
false slander against a newly released product, ‘Alofia Tab’, as the one made in India, thereby
disrupting its competitor’s business activities because the product was competing with its
own product, ‘Propsecia’. These two cases were regarded as unfair trade practices hampering
competitors’ business activities; so, the companies received sanctions by the KFTC.
2) Formal Objection and Decision
Choongwae Pharmaceutical which received corrective orders, surcharges and also criminal
sanctions in the first investigation brought an appeal to the KFTC. In addition, GSK that also
received corrective orders and surcharges from the second investigation brought a formal
objection to the KFTC’s decision.
Choongwae Pharmaceutical raised an issue of the KFTC’s surcharge including intravenous
fluid when calculating relevant turnover amount for measuring surcharges. In general, the