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Health care giant Johnson & Johnson has become the latest global company accused of misconduct in China after a court ordered it to pay damages to a local distributor in a lawsuit brought under an anti-monopoly law.
The ruling by a Shanghai court expands use of the five-year-old law and comes amid a flurry of Chinese investigations of possible bribery, price-fixing and other misconduct by global companies.
The court, in a ruling issued on Thursday, said J&J was guilty of “vertical monopoly” for setting minimum prices for surgical sutures. It said that caused the Chinese distributor to lose potential sales and awarded 530,000 yuan (HK$670,583) for lost profits.
Phone calls to Johnson & Johnson’s offices in Beijing and Shanghai were not answered.
Chinese regulators are stepping up scrutiny of the activities of global companies and have intervened in some cases to require changes to proposed acquisitions and some business practices.
Lawyers watch Chinese anti-monopoly rulings closely because there have been few such court cases. That has raised uncertainty among global companies that are eager to expand in the world’s second-largest economy.
Business groups welcomed the 2008 law as a step toward clarifying operating conditions in China. Since then, they have said it is enforced more actively against foreign companies than against their Chinese rivals.
China’s government is especially sensitive to consumer prices at a time when communist leaders face pressure to contain surging living costs.
Last month, two dairies – Nestle and FrieslandCampina – announced price cuts after authorities launched an investigation of possible price-fixing by foreign milk suppliers. They also were accused of using vertical monopolies to raise prices.
Also last month, police detained four employees of GlaxoSmithKline on charges they bribed doctors to prescribe the British pharmaceutical giant’s drugs.
Chinese news reports said the J&J case was the first time a court ruled against a Fortune 500 company in an anti-monopoly case.
The judge, Ding Wenlian, said the ruling reflected the law’s intention of protecting consumers and “public interests”, according to the government’s Xinhua news agency.
J&J was accused of improperly setting minimum sale prices to maintain its image as a premium brand, according to a court announcement. It said J&J has since stopped imposing that condition on distributors.
Setting minimum prices for distributors or retailers or prohibiting price-cutting is a standard strategy for makers of luxury goods and other products or services that want to be seen as a premium product.
The lawsuit by Rainbow Medical Equipment & Supply said it lost its contract with J&J in 2009 after it submitted a bid to supply sutures to a Beijing hospital at a price below the US company’s standard. Rainbow Medical it had worked for J&J for 15 years.
A Shanghai court rejected a lawsuit by Rainbow Medical seeking 14 million yuan. But a higher court ordered J&J to reimburse it for lost profits due to violations of the anti-monopoly law.
Foreign business groups also have expressed concern about a section of the anti-monopoly law that forbids abuse of intellectual property rights to hamper competition. Companies worry it might be used to force them to give know-how to potential Chinese rivals.
In the highest-profile anti-monopoly case to date, Beijing rejected Coca-Cola’s US$2.5 billion bid in 2009 for a fruit juice producer, Huiyuan Juice Group. Regulators said Coca-Cola would gain too large a market share, but industry analysts said Beijing didn’t want to see one of the country’s most successful indigenous brands to fall into foreign hands.


Chinese court rules against J&J in monopoly suit

A Chinese court, in a ruling issued on Thursday, said J&J was guilty of 'vertical monopoly' for setting minimum prices for surgical sutures. Photo: Reuters

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