Supply chain control: what medical device manufacturers need to know

The EU and UK medical device laws require manufacturers to establish a system of communication with other economic operators and customers for vigilance, post-market surveillance and quality assurance.

Difficulties can therefore arise if the manufacturer does not have oversight of the supply chain and has no direct line of sight to the end customer. To maintain control, manufacturers should include clauses in distribution agreements requiring distributors to: 

• comply with applicable law
• comply with good distribution practices (or equivalent)
• report complaints to the manufacturer and, if applicable, the UK/EU representative
• support post-market surveillance and vigilance activities, including recalls, and
• include the above (and other) key clauses in any sub-distribution agreement. 

However, caution should be taken when contractually restricting a distributors' permitted sales in the EU and UK.  

Addressing the EU first, the EU's Vertical Block Exemption Regulation (VBER) distinguishes between active sales (direct solicitation or active marketing efforts towards potential customers) and passive sales (responses to unsolicited customer requests). Although the VBER allows manufacturers to contractually restrict active sales to certain territories or customers, passive sales cannot be restricted directly or indirectly (such as through using country-specific labelling, barcodes or flags indicating sale destinations or wording that prohibits onward sales) within the EU and EEA. The EU imposes significant fines for restricting passive sales - eg Nike (€12.5 million), Sanrio (€6.2 million), Comcast Corp (€14 million), Melia (€6.7 million) - and maximum fines can reach 10% of annual worldwide turnover. Passive sales can, however, be prevented for exports outside the EEA.

The UK has a similar Vertical Block Exemption Order (VABEO) distinguishing between active and passive sales in relation to trade in the four UK countries. This means that, although VBER does not apply to the UK, export bans from the EU to the UK could still breach UK competition law if they restrict market competition. Therefore, most manufacturers treat the UK as part of the EEA for the purposes of VBER when structuring their distribution network. The UK can also impose fines but has not yet seen any such cases for sales restrictions.

VBER also applies to online sales and prohibits agreements that prevent internet use for sales to particular territories or customers. Restrictions on specific online sales channels or the imposition of quality standards for online sales are permissible, provided they do not indirectly prevent effective internet sales to particular territories or customers.   

If a manufacturer doubts a sale is passive, it can use the distribution agreement to require the distributor to prove that the sale is passive. 

If a distributor sells devices from inappropriate locations (eg prescription-only devices sold directly online without prescriptions), the manufacturer should contact the retailers directly, as consumer marketing platforms are likely to take action to limit any such sales due to reputational risks. Any unlawful activities should also always be reported to the relevant authorities.

This is an area on which we have regularly advised so please do get in touch if you have any questions. 

Competition law for medical devices will be just one of the topics covered at our upcoming Spotlight on medical devices event on Tuesday 10 September. Click the banner above for more information and to register your place.