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Constitutional court defeats law’s attempt at disqualifying charities and non- profit organisations from direct ownership of pharmacies.

Constitutional court defeats law’s attempt at disqualifying charities and non- profit organisations from direct ownership of pharmacies.

Introduction
A recent judgment by the Portuguese Constitutional Court throws light on two issues: the ownership of pharmacies; and the seldom discussed but important co-operative and social sector of the economy, as guaranteed under Article 82 (1) and (4) of the Portuguese Constitution (adapted from the English language translation available at the Portuguese Parliament’s website):

Article 82
(Sectors of ownership of the means of production)

1. The co-existence of three sectors of ownership of the means of production shall be guaranteed.

2. The public sector shall comprise such means of production as should rightly belong to, and be managed by, the State or other public bodies.

3. Notwithstanding the provisions of the following paragraph, the private sector shall comprise such means of production as should rightly belong to, or be managed by, natural persons or private legal persons.

4. The co-operative and social sector shall specifically comprise:

a) Means of production that co-operatives possess and manage in accordance with co-operative principles, notwithstanding such specific provisions as the law may provide for co-operatives with public participation, when justified by the special nature thereof;

b) Community means of production possessed and managed by local communities;

c) Means of production collectively operated by workers;

d) Means of production possessed and managed by non-profit legal persons, the primary objective of which is charitable, namely bodies of a mutualist nature.”

The case
Decree-Law No. 307/2007, of 31 August (hereinafter, the “Decree-Law”), established a new and long overdue basic regulatory framework for the ownership and operation of pharmacies.

Before the Decree-Law was enacted, the ownership of pharmacies, under legislation dating from 1965, was limited to professional pharmacists and, exceptionally, to bodies corporate of the co-operative and social sector. The Decree-Law effectively opened this market to the private sector.

However, the Decree-Law also produced a veritable quantum leap in policy: the injunction that bodies of the co-operative and social sector may not per se directly own pharmacies. If they wish to engage in a pharmaceutical enterprise, they must create a limited company (UK) or corporation (US) on which formal ownership thereof is conferred.

In other words, the Decree-Law obligated undifferentiated organisations, such as co-operatives, mutual societies and charities, to set up for profit legal persons of the private sector to act as vehicles, to accomplish the legislative aim of levelling the playing field by making all pharmacy operators equally accountable to the same set of regulations, equally liable to corporate income tax and, hence, equally competitive in a free market environment.

Existing pharmacies owned by bodies of the co-operative and social sector were granted a five-year period (ending this year) to conform to the Decree-Law. Non-compliance with the new requirement is punishable with heavy fines.

The Ombudsman considered the norms of the Decree-Law pertaining to the aforementioned ‘privatisation’ to be in contravention of Article 82 of the Constitution and, in addition, to the constitutional principles of equality and proportionality.

Accordingly, the Ombudsman petitioned the Constitutional Court to perform the judicial review of said norms. The Prime Minister, as respondent, representing the Government, upheld the constitutionality thereof.

The judgment
The plenum of the Constitutional Court delivered its judgment on 13 December 2011, published in the Official Journal on 24 January 2012.

In essence, the Court agreed with the Ombudsman, but with a few singular nuances.

>Firstly, the Decree-Law does not violate Article 82’s guarantee of equal access by the co-operative and social sector to the pharmacy business, nor does it reserve such activity to the private sector. The question should be whether the imposition of indirect ownership through the intermediation of a private entity is reasonable and justifiable in view of the legislative intent.

> Secondly, in attempting to answer the last question, one should distinguish between two separate roles played by legal persons of the co-operative and social sector:
– When such bodies enter the market, obviously with profit seeking motives (as is the case with most co-operatives and many mutual societies), there is no reason not to level the playing field, as described above, nor to treat them other than on a par with for profit legal persons of the private sector; therefore, if such bodies wish to own pharmacies, it is not unreasonable to require them to shed their special legal status (see below), which would otherwise unfairly distort competition.
– When such bodies, however, do not wish to enter the market and do refrain from seeking profit, the rationale underpinning the Decree-Law deserves censure: these bodies, which pursue solely non-profit goals (e.g. charitable organisations) should not be treated on an equal footing with bodies that do compete in the market.

> Thirdly, non-profit bodies of the co-operative and social sector warrant protection, as encapsulated under Article 63 (5) of the Constitution: “(…) the State shall (…) support and inspect the activities and the operation of private charitable institutions and of other non-profit institutions that are recognised to be in the public interest.”. This special status entails an array of measures consistent with the objectives and social relevance of such bodies, ranging from tax benefits to public funding.

The Court thus decided to declare the adjudicated norms unconstitutional, insofar as the requirement that non-profit legal persons of the co-operative and social sector establish private legal persons, in order to exercise the right to own pharmacies, is clearly excessive and fails to meet the constitutional standards of proportionality: the means (said requirement) are not suitable, necessary nor reasonable to achieve the legislative aim of the Decree-Law (levelling the playing field in an open and free market).

The declaration of unconstitutionality rendered the tainted norms ipso jure null and void.

Conclusion
Legal persons of the co-operative and social sector in Portugal may directly own pharmacies, provided that they do so within the scope, or in pursuance, of charitable and/or non-profit objectives.

Armando Isaac

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