Practice Areas

CSO

2026.04.14

The CSO (pharmaceutical sales agency) industry is subject to complex regulation, including the strengthening of rebate punishment rules, the crackdown on resale price maintenance, violations of the Fair Agency Transactions Act, and the simultaneous punishment of medical institutions and CSO firms.

1. CSO | The Meaning of CSO and Rebate Regulation, and the Role of the Law Firm

A CSO (Contract Sales Organization) refers to a structure in which a pharmaceutical company outsources its sales organization to an external party to carry out the sale and promotion of pharmaceuticals.

On the grounds that CSOs are subject to relatively weaker regulatory controls than a pharmaceutical company's own sales organization, issues such as the receipt and provision of rebates, violations of the prohibition on providing economic benefits, improper inducement of customers, and excessive incentive structures have been raised as social problems, and the intensity of regulation is on a sharp upward trend.

Because not only the Medical Service Act and the Pharmaceutical Affairs Act but also the Monopoly Regulation and Fair Trade Act and the Fair Agency Transactions Act may apply, CSO sales become subject to the control of a multi-layered regulatory system rather than a single law.

The characteristics of rebate punishment and the regulation of improper customer inducement are as follows.

· The prohibition on providing economic benefits subjects both the provider and the recipient to punishment

· There is a possibility that the incentive structure a CSO receives from a pharmaceutical company will be reinterpreted as a rebate

· A medical institution may also be subject to separate administrative and criminal sanctions on the mere fact of receipt

The Role of the Attorney in CSO Advisory

An attorney in pharmaceutical, bio, and healthcare matters comprehensively manages corporate risks such as the following.

· Analyzing the legal risks of the sales structure, compensation system, and commission rates

· Establishing strategies for preemptive measures against suspected rebate conduct and for subsequent defense

· Reviewing whether there are violations of the Monopoly Regulation and Fair Trade Act, the Fair Agency Transactions Act, and general consumer protection laws

· Preparing strategies for statements and document submission during a regulatory investigation, and providing representation in the response

A company needs a structural diagnosis by a professional as to how its CSO operating method is assessed within the scope of regulation.

Examining the requirements for establishing a violation of the Unfair Competition Prevention Act, the level of punishment, and trade secret precedents
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2. CSO | Sales Compliance, Internal Management Systems, and Legal Due Diligence

If a CSO's internal management system is inadequate, its sales carry a high risk of leading to rebates, under-the-table dealings, and customer inducement.

Therefore, from the early stage, the sales method, compensation system, consignment contracts, performance evaluation standards, and the like should be analyzed in detail to eliminate legal risks.

① Diagnosis of rebate risks and establishment of internal controls

· Reviewing the possibility that the incentive and commission system constitutes the provision of economic benefits

· Confirming the appropriateness of records of provided promotional expenses, education expenses, and conference costs

· Checking whether medical institution visits and information-provision activities contain elements that violate the Medical Service Act (improper inducement)

· Establishing an internal reporting system and refining operating rules (anonymous reporting, protective measures, and so on)

② Due diligence on resale price maintenance (RPM) and fair trade risks

Resale price maintenance is an act in which a supplier imposes a price on its counterparty, and it is subject to regulation under the Monopoly Regulation and Fair Trade Act.

If a CSO is involved in the supply price or sale price of pharmaceuticals, the following matters are analyzed intensively.

· Whether the CSO requires restrictions on price increases or discounts during its activities

· Whether rebates are in effect combined with resale price maintenance in the structure

· The possibility that favorable treatment of and benefits to business partners are assessed as RPM or improper inducement of customers

③ Due diligence on violations of the Fair Agency Transactions Act (forced purchasing, pushing inventory, and so on) and the transaction structure

· Analyzing whether forced purchasing, forced targets, or no-return conditions are imposed on distributors

· Confirming whether a practice of pushing inventory exists

· Diagnosing unfair trade practices such as refusal to continue dealings, discriminatory dealings, and the provision of disadvantages

· Reviewing the reasonableness and non-discriminatory nature of the transaction terms

④ Review of the legality of related-party relationships, the contract structure, and the sales method

· Reviewing the risk clauses of the consignment contract between the pharmaceutical company and the CSO

· Checking whether the performance-reporting system and the method of information sharing create a risk of violating the Personal Information Protection Act

· Reviewing whether the employee and freelancer sales organization complies with labor law

Pharmaceutical and medical device transparency regulations, corporate response measures
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3. CSO | Strategy for Responding to Reports, Investigations, and Criminal Penalties

CSO related regulation is not merely an administrative matter, as it may lead to criminal punishment, administrative sanctions on medical institutions, penalty surcharges from the Fair Trade Commission, sanctions under the Fair Agency Transactions Act, and the recovery of unjust gains.

For this reason, a strategic response is needed immediately once a report is filed or an investigation begins.

① Responding to Investigations by the Fair Trade Commission, Health Authorities, and Prosecutors

· Applying the principle of minimal and essential submission in response to demands for documents

· Legal response to demands for seizure and investigation of an excessive scope

· Advance review of the consistency of statements and of risk factors

· Establishing a strategy to separate and reduce criminal liability when management is investigated

② Defense Within the Joint-Liability Structure of Medical Institutions and CSO Companies

In many cases the structure is one in which the provider (the CSO) and the recipient (the medical institution) are punished at the same time.

Daeryun attorneys experienced in medical matters collaborate with attorneys experienced in criminal matters to analyze the following factors and build a defense rationale.

· Whether the economic benefit was in fact intended to ‘induce medical practice’

· Whether it fell within the scope of normal transactions, education, or academic support

· Whether the CSO’s conduct can be separated from the pharmaceutical company’s instructions and policies

· Whether the criteria for assessment as an ‘improper inducement’ were met

③ Defense in Accusation Cases for Violation of the Fair Agency Transactions Act and the Monopoly Regulation and Fair Trade Act

· Analysis of the constituent elements for each type of violation, such as RPM, coerced purchasing, and discriminatory dealing

· Identifying factors for reducing penalty surcharges and corrective orders

· Establishing a strategy to mitigate sanctions using the record of CP operation

Compliance matters and violations of the Monopoly Regulation and Fair Trade Act
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4. CSO | Building and Evaluating a Fair-Trade CP and Operating an Internal Audit System

For a CSO company to substantially reduce its regulatory risk, building a Compliance Program (CP) is indispensable.

When a CP is operated properly, it may also be reflected in the mitigation of Fair Trade Commission sanctions.

① Designing, Operating, and Evaluating a CP (Compliance Program)

· Establishing internal guidelines that reflect the rules prohibiting rebates and improper inducement

· Operating regular training programs for sales staff

· Building an internal audit and risk-monitoring system

· Preparing for CP evaluation and responding to the review

② Responding to Unfair Competition and Trade Secret Infringement

In the pharmaceutical and bio sales environment, leaks of information between competitors, movement of employees, and poaching of clients occur frequently.

Daeryun supports both civil and criminal matters with respect to the following issues.

· Securing evidence of trade secret infringement and pursuing injunction litigation

· Responding to acts of unfair competition such as inducement of clients and discriminatory dealing

· Establishing a strategy for settlement, mediation, or litigation with competitors

Requirements for violation of the Unfair Competition Prevention Act, level of punishment, and trade secret precedents
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5. CSO | Responding to CSO Regulation, Attorney Counsel Needed

The Medical, Bio, and Healthcare Group of Daeryun Law Firm supports companies throughout the entire process on the basis of the following capabilities.

Extensive Handling of Rebate and Improper Inducement Investigations and Litigation

In cases suspected of providing or accepting rebates, we closely analyze whether the constituent elements are met, and design a statement strategy and an evidence-response plan from the early stage of the investigation to reduce criminal liability.

We also build a defense rationale that separates and reduces the joint-liability structure of medical institutions and CSO companies, responding with a consistent strategy through the litigation stage.

Specialized Analysis of the Regulatory Framework in the Pharmaceutical, Medical, and Distribution Industries

On the premise of an industry structure to which several laws apply at once, we provide legal analysis tailored to the characteristics of the industry, examining what regulatory risks the client company's sales methods, compensation systems, and transaction structures contain.

In addition, we anticipate the enforcement and review standards of regulatory agencies and present a compliance strategy centered on prevention.

Experience in Building CP and Evaluating the Operation of a Fair-Trade Compliance System

We design internal control guidelines, a training system, and a monitoring system that allow a Compliance Program (CP) to be operated substantively, and we present measures that can structurally reduce the client company's fair-trade risk.

We also support the organizing of documents and the response to due diligence in preparation for the Fair Trade Commission's CP evaluation (rating), helping to establish the requirements for mitigation.

Experience Handling Trade Secret, Unfair Competition, and Fair Agency Transactions Act Cases

In trade secret disputes such as leaks to competitors and employee departures, we handle the entire process from the strategy for securing evidence to provisional injunction and main-action litigation, protecting the core assets of the client company.

When allegations of violating the Fair Agency Transactions Act or the Monopoly Regulation and Fair Trade Act are raised, we focus on lowering the level of sanctions by establishing, as a matter of law, the reasonableness of the transaction terms and whether they are discriminatory.

Examination of Evidence, Collaboration With the Digital Forensics Center Available

We carry out, under the lead of attorneys, the document analysis, securing of electronic information, and investigation of partner companies needed in the internal audit process, reducing legal risk and gaps in evidence.

In addition, through collaboration with the Digital Forensics Center, we support the securing of evidentiary materials for dispute response by lawfully collecting and analyzing digital data from mobile devices, PCs, servers, and the like.

If a regulatory risk has arisen in the pharmaceutical distribution or sales process, professional assistance spanning the report stage - investigation stage - litigation stage - and post-event risk management is needed.

If you need related legal assistance, we encourage you to 🔗book a legal consultation with a medical attorney.