Public welfare sponsorship or commercial bribery?

By Li Shu, AllBright Law Offices
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It has been common in recent years that drugs and medical device companies sponsor professionals to participate in medical science conferences. However, such companies, whose primary goal is to maximize profits, should consider legal issues, such as the differences or boundaries between sponsorship and commercial bribery, as well as the resulting legal risks, when they voluntarily sponsor medical staff to take part in non-profit registered academic conferences on medical science.

LAWS AND REGULATIONS

Sponsorship, or donation, refers to the public-welfare support and aid in the forms of funds or materials provided to health and family planning organizations voluntarily and for free by individuals, legal persons and other organizations both at home and abroad.

Purposes of donations. Article 5 of the Measures for the Administration of the Acceptance of Public Welfare Donations by Health and Family Planning Organizations for Trial Implementation (hereinafter referred to as Measures) stipulates that drugs and medical device companies shall sponsor medical staff to participate in academic activities. Article 4 stipulates that the donations should be made on a voluntary and free basis, for public welfare and not for profit. Besides, Article 5 of the Nine Prohibitions for Strengthening Ethical Conduct in the Healthcare Industry prohibits medical staff from marketing medical, food and health products.

The sponsor shall not specify a beneficiary of the receiving entity. Article 18 of the measures, stipulating that the sponsor shall not specify the beneficiary of a receiving entity, may lead to the drugs and medical device companies breaking the law by sponsoring specific medical staff for academic activities. Therefore, some companies specify the qualifications of candidates in donation agreements with the receiving entities in order to circumvent the regulation.

Li Shu Senior Partner AllBright Law Offices
Li Shu
Senior Partner
AllBright Law Offices

The sponsor must sign written donation agreements with the receiving entity. Article 16 and 17 of the measures set out the formal requirementsfor healthcare entities to accept donations. A drugs and medical device enterprise shall sign a written donation agreement with the legal representative of the healthcare entity or any person authorized in writing to represent the healthcare entity, for which the recipient of sponsorship for medical academic activities works. The donation agreement requires the official seal of the receiving healthcare entity, and should specify donated property, purpose of donation, requirements for property management as well as the timetable and method of implementing the donation.

LEGAL RISKS

Drugs and medical device enterprises usually provide sponsorships for medical staff to promote new products, and may face the legal risk of being regarded as commercial bribery for breaching the legal requirements of being charitable and non-profit.

Definition of commercial bribery. According to Article 2 of the State Administration for Industry & Commerce’s Interim Provisions on Prohibiting Commercial Bribery and Article 7 of the Anti-Unfair Competition Law, commercial bribery is defined as an operator’s behaviour of bribing with money, materials, or by other means to the individual, counterparty or any third party that may affect the transaction, in order to secure a purchase of the products or any other improper advantage to obtain or retain business.

China’s legal regulation on commercial bribery. According to Article 9 of the State Administration for Industry & Commerce’s Interim Provisions on Prohibiting Commercial Bribery and Article 22 of the Anti-Unfair Competition Law, if an operator’s sale or purchase of products by means of bribery constitutes a crime, the operator shall be held criminally responsible; if the action does not constitute a crime, relevant regulators shall impose a fine on the operator of not less than RMB10,000 and not more than RMB200,000, according to the circumstances, and shall confiscate the illegal income, if any.

FCPA regulation on commercial bribery. If the sponsor is a foreign-funded company, it may also be subject to the Foreign Corrupt Practices Act (FCPA). In cases of FCPA violation involving Chinese drugs and medical device companies in 2016, such as GlaxoSmithKline, Jun Ping Zhang working in Harris Corporation and AstraZeneca’s Chinese subsidiary, the violators offered money and valuable gifts to medical institutions or their staff.

SUGGESTIONS FOR REDUCING RISK

According to the analysis above, drugs and medical device companies may face many legal restrictions when it comes to sponsoring medical staff, and are more likely to be investigated for alleged commercial bribery.

Based on existing laws and regulations as well as past sponsorships of such companies, we offer the following suggestions: (1) companies should provide participants of medical science conferences with useful small gifts bearing their logos, such as notebooks, pens and anything else worth no more than RMB100, rather than cash, discount coupons, food, valuable paintings, music CDs, etc.; (2) promotional materials with advertisements for medical science conferences should be submitted to related authorities for examination beforehand; (3) companies should avoid business contact with the medical staff they invite to address conferences and pay reasonably for their speeches; (4) the sponsorship agreement or donation agreement should specify the purpose of donated property and the responsibility for violation.

Li Shu is a senior partner of AllBright Law Offices

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