'3,000 Won Daiso Health Supplement' Abuse Allegations... Fair Trade Commission Targets Korean Pharmaceutical Association [Why&Next]

The competition authorities have launched an investigation into allegations of abuse of power by the Korea Pharmaceutical Association (KPA) during the withdrawal of some pharmaceutical companies, including Ilyang Pharmaceutical, from the Daiso health functional food (health supplement) business. The KPA is suspected of exerting undue pressure on three pharmaceutical companies, including Ilyang Pharmaceutical, to force them to withdraw from the Daiso health supplement business. The investigation will focus on whether the business association, the KPA, used its bargaining position to pressure the pharmaceutical companies to exit the business and whether individual pharmacists were mobilized to enforce a boycott campaign during this process. If the investigation confirms any illegality, sanctions such as fines under the Fair Trade Act and criminal penalties may be imposed. Since the legal issues involved are relatively straightforward, the investigation results are expected to be announced as early as the first half of the year.

According to related government agencies on the 14th, the Fair Trade Commission (FTC) sent an investigation team to the KPA headquarters office located in Seocho-gu, Seoul, the previous day to conduct an on-site investigation. FTC investigators were reported to be securing related documents and email records at the headquarters office, carrying an investigation notice stating "Investigation of violations of Articles 45 and 51 of the Monopoly Regulation and Fair Trade Act (Fair Trade Act)." The on-site investigation is expected to take another day or two. The FTC began a full-scale investigation after reviewing media reports related to the Daiso health supplement withdrawal controversy last week and discovering suspicious points during fact-checking.

Ilyang Pharmaceutical launched nine types of Daiso-exclusive health supplement products nationwide at Daiso stores on the 24th of last month. These Daiso-exclusive health supplements, with adjusted ingredients and content to reduce prices to about 10-20% compared to pharmacies, were met with enthusiastic consumer response at low prices ranging from 3,000 to 5,000 KRW. However, Ilyang Pharmaceutical suddenly decided to withdraw from the business on the 28th, just five days after the product launch. Daewoong Pharmaceutical and Chong Kun Dang Health, which were preparing to launch products together with Ilyang Pharmaceutical, also expressed their intention to consider withdrawal. Subsequently, Kwon Young-hee, president of the KPA, visited these three pharmaceutical companies to demand corrective action, and it was speculated that this was a measure taken considering the strong backlash from the pharmacist group, which showed signs of a boycott campaign.

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The FTC is closely monitoring whether the KPA used the power of the business association to interfere with the business activities of pharmaceutical companies. The key legal issue will be whether the KPA pressured the three pharmaceutical companies, including Ilyang Pharmaceutical, to withdraw from the Daiso health supplement business and whether individual pharmacists were encouraged (or forced) to participate in a boycott against pharmaceutical companies supplying Daiso to induce the business withdrawal. If evidence is found that the KPA warned the three pharmaceutical companies of disadvantages should they refuse to withdraw, sanctions can be imposed under Article 45 of the Fair Trade Act (Prohibition of Unfair Trade Practices). Article 45 prohibits acts that unfairly interfere with business activities or encourage others to do so, which may harm fair trade.

In a similar past case, the FTC applied this provision to impose fines. In 2016, three medical associations, including the Korean Medical Association, pressured medical device manufacturers and pharmaceutical companies to prevent Korean traditional medicine doctors from using Western medical devices such as X-rays, resulting in a fine of 1.137 billion KRW imposed by the FTC. At that time, the medical associations argued that unqualified Korean traditional medicine doctors using X-ray equipment posed risks not only to patients but also to the practitioners themselves, and they systematically blocked the use of medical devices by Korean traditional medicine doctors. The medical associations also requested five major large diagnostic laboratories to refuse blood test requests from Korean traditional medicine doctors, and the FTC imposed sanctions after securing evidence that some laboratories completely stopped transactions following these demands.

If this case is concluded as a violation of the Fair Trade Act, the FTC can impose a fine of up to 1 billion KRW on the KPA. Criminal penalties such as imprisonment of up to three years or fines of up to 200 million KRW may also be applied to the KPA leadership and other individuals involved. Considering that the processing period for cases involving business associations violating the Fair Trade Act is usually short, about two to three months, a conclusion is expected within the first half of the year.