COLLUSION CASE – FARMACIAS AHUMADA: STILL IN THE NEWS
Authors: Michelle Barrington & Andrés Grunewaldt, Albagli, Zaliasnik, & Cia
Farmacias Ahumada S.A. (FASA) is once again facing accusations in Chile. The SERNAC (National Consumer Protection Agency) filed a class action law suit in Appellate Court in Santiago on December 4, 2009 alleging that Farmacias Ahumada failed to fully comply with the terms and conditions set out in the compensation plan previously agreed upon with the National Economic Prosecutor. The compensation plan was designed to compensate the consumers that were negatively affected by the price fixing practices of FASA and its competitors Salcobrand and Cruz Verde.
It is important to note that, with the intention of addressing and responding to the pharmacy’s faulty behavior, FASA and the National Economic Prosecutor reached the Conciliatory Agreement, in which FASA admitted colluding with competitors in the retail pharmacy sector in order to continuously increase prices in a concerted manner. The price fixing scheme was alleged to have been the result of a three-year long price war with its competitors which dramatically reduced profit margins of the parties involved. In this extremely competitive environment, FASA claims to have reduced prices to the point of selling some of its products to the public at a loss, forcing Salcobrand and Cruz Verde to do the same.
The Conciliatory Agreement stipulated that FASA pay a fine of 1.350 Annual Utility Units (UTA), approximately US$ 1.2M, to the Republic of Chile, as well as, a compensation payment to the equivalent of US$ 5M to the effected consumers.
According to SERNAC, not only did Farmacias Ahumada fail to fully compensate consumers, but they also failed to follow the administrative procedures required for the proper implementation of the reparation payment plan. José Roa, Director of SERNAC stated “A company can make a mistake, it can admit a wrongdoing, but it is unacceptable for Farmacias Ahumada not to fulfill its legal commitments. As a result, we are resorting to the courts. In Chile, agreements and contracts must be upheld.”
The fines and reparation payments agreed to by Farmacias Ahumada in the Conciliatory Agreement seek to replace the actual fulfillment of the legal obligations that failed to be delivered to the consumer. However, it also contains a punitive element which sends a strong reminder to all participants in the market of their commitment to the common good and to fair market practices.
The principles of free competitive markets, responsibility and goodwill, are what inspired this legislation and are the fundamental legal pillars of the community. Our legislation also assumes that companies will accept and respect consumers’ preferences, thus committing themselves to responsible social practices, the public interest, and to society as a whole.
This judicial action intends to sanction the company with the highest fines established under Law Nº 19.496 in the Protection of Consumer Rights, as well as, fulfill the originally agreed upon compensation and reparation sums owed to effected consumers.
The justification for this type of sanction is based on the need to generate an effect that is both exemplary and corrective in nature, with an impact that not only permeates through the marketplace but through the entire community, for this type of fraud arises from the planned and conscientious actions of those controlling business entities with the intention of damaging third parties in the pursuit of their own interests.