"Uncollected Fees for Drug Storage and Gift Card Usage"
First Private Profit Extraction Sanction in the Pharmaceutical and Drug Sector
Seo Jung-jin, Chairman of Celltrion, is speaking at the Celltrion Group 2023 Press Conference held on the 25th at Park One Tower in Yeouido-dong, Yeongdeungpo-gu, Seoul. Photo by Hyunmin Kim kimhyun81@
Bio company Celltrion has been fined several hundred million won for unfairly supporting affiliates with a high shareholding ratio of Chairman Seo Jung-jin. However, since it was not proven that Chairman Seo directly ordered or was involved in the act of private interest appropriation, prosecution was avoided.
The Fair Trade Commission (FTC) announced on the 3rd that it decided to impose corrective orders and a fine of 435 million won on Celltrion for unfairly supporting its related companies with a high shareholding ratio of the chairman, Celltrion Healthcare (hereinafter Healthcare) and Celltrion Skincure (hereinafter Skincure).
Celltrion is a business group restricted from cross-shareholding mainly engaged in pharmaceutical manufacturing and sales, designated as a large business group subject to private interest appropriation regulations since 2016. Healthcare (Chairman Seo Jung-jin’s shareholding ratio 88.0%) is a company responsible for global marketing and distribution of biosimilars (biopharmaceutical generics) produced by Celltrion, and was merged into Celltrion in December last year. Skincure is Celltrion’s cosmetics subsidiary, with Chairman Seo holding 69.7% of shares.
According to the FTC, from December 2009 to December 2019, Celltrion provided unfair benefits by offering pharmaceutical storage services free of charge to Healthcare, in which the chairman holds shares. During the same period, trademark rights were also allowed to be used free of charge by Healthcare, and from 2016, Skincure was also allowed to use them free of charge.
In August 2008, Celltrion signed a 'Basic Sales Rights Grant Agreement' with Healthcare to disperse risk factors encountered in the early development of biosimilars. As compensation for risk dispersion, Healthcare was granted exclusive domestic and international sales rights for Celltrion biosimilars.
According to this contract, Healthcare was to purchase and store biosimilar products from Celltrion, and if Celltrion stored them, Healthcare was to pay storage fees to Celltrion. However, from December 2009, Celltrion agreed not to receive storage fees from Healthcare, and in August 2012, the provision for storage fee payment was deleted from the contract.
An FTC official stated, "This contradicts the original contract content that Healthcare bears some risks during manufacturing and development in exchange for exclusive sales rights, and also goes against general business practices or customs where the product owner is responsible for storage."
Through this method, Celltrion unfairly provided approximately 950 million won in storage fees to Healthcare from 2016 to 2019.
Additionally, Celltrion provided the 'Celltrion trademark rights' free of charge to Healthcare from 2009 to 2019, and to Skincure from 2016 to 2019. After registering the 'Celltrion (CELLTRION) trademark' with the Korean Intellectual Property Office in November 2003, Celltrion allowed affiliates such as Healthcare and Skincure to use the trademark free of charge by combining their company names with the Celltrion trademark.
From 2018, recognizing that such acts could violate the Fair Trade Act as unfair support, Celltrion independently calculated the unpaid trademark usage fees from affiliates. However, the unpaid trademark usage fees continued until the National Tax Service imposed taxation in 2019.
These acts violate Article 23-2 of the Monopoly Regulation and Fair Trade Act (Fair Trade Act), which prohibits unfair provision of benefits to related parties. The FTC estimated that the unfair benefits obtained by Healthcare and Skincure from 2016 to 2019 amounted to about 1.21 billion won.
The FTC stated, "Both Healthcare and Skincure are related companies with a high shareholding ratio of the chairman. Around 2009 and 2016, when the initial support acts began, both companies accumulated operating losses and lacked cash flow, but their financial structures improved due to this support."
Kim Dong-myung, head of the FTC’s Internal Transaction Monitoring Division, explained, "Although the period of private interest appropriation was considerable and the amount was not insignificant, there was insufficient evidence to prove that the chairman directly ordered or was involved, so prosecution was not pursued."
This case is the first instance of sanctioning private interest appropriation in the pharmaceutical and drug sectors closely related to public life. The FTC said, "It is significant that we detected and sanctioned the transfer of wealth to related parties by large business group affiliates supporting the chairman’s personal companies."
Meanwhile, Celltrion stated, "We had already completed improvements regarding the illegal matters before the FTC investigation," and added, "We humbly accept the FTC’s disposition and will strengthen our internal compliance management system."
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