Med­i­cal gi­ant loses an­titrust law­suit

China Daily (Hong Kong) - - NATION DIGEST - By ZHOU WENTING in Shang­hai ZHAO YI­NAN in Tian­jin

Med­i­cal gi­ant John­son & John­son has be­come the first For­tune 500 com­pany to be ruled by a Chi­nese court as hold­ing a monopoly, in a land­mark law­suit that ex­perts say signals the coun­try’s tougher stance to­ward price-fix­ing.

In a fi­nal ver­dict on Thurs­day, Shang­hai High Peo­ple’s Court or­dered John­son & John­son Med­i­cal China Ltd and John­son & John­son Med­i­cal Shang­hai Ltd to pay 530,000 yuan ($ 86,456) in com­pen­sa­tion to a for­mer dealer.

The court said the Chi­nese sub­sidiaries of the US gi­ant adopted a mo­nop­o­lis­tic prac­tice by set­ting a price floor for its Chi­nese dealer Rain­bow Med­i­cal.

Ding Wen­lian, chief judge of the case, said, “The prac­tice of plac­ing a min­i­mum re­sale price made John­son & John­son avoid price com­pe­ti­tion and con­fined the mar­ket com­pe­ti­tion of sim­i­lar prod­ucts, which kept the price of the equip­ment at a high level and dam­aged con­sumer in­ter­ests.”

Ding added, “The mar­ket for med­i­cal in­stru­ments in China faced a lack of com­pe­ti­tion.”

The case, the first ver­ti­cal monopoly law­suit and also the first rul­ing in fa­vor of the plain­tiff in an an­titrust case in China, comes on the fifth an­niver­sary of the coun­try’s anti-monopoly law.

A ver­ti­cal monopoly refers to a com­pany that con­trols all as­pects of pro­duc­tion, dis­tri­bu­tion and sales of a prod­uct. A hor­i­zon­tal monopoly, an­other com­mon mo­nop­o­lis­tic prac­tice, refers to a com­pany that owns or con­trols an en­tire stage in the sup­ply process.

The Supreme Peo­ple’s Court, the na­tion’s top court, said in a state­ment to China Daily that the rul­ing will be used as a ref­er­ence in sim­i­lar dis­putes and to help dis­tin­guish le­gal busi­ness prac­tices from il­le­gal re­sale price main­te­nance that hurts com­pe­ti­tion.

Re­sale price main­te­nance is where a man­u­fac­turer and its dis­trib­u­tors agree that the dis­trib­u­tors will sell the man­u­fac­turer’s prod­uct at cer­tain prices at or above a price floor or at or be­low a price ceil­ing.

Rain­bow Med­i­cal had been a dis­trib­u­tor for John­son & John­son for 15 years by 2008. In their an­nual con­tract, John­son & John­son placed a re­sale price floor on Rain­bow.

In March 2008, the Chi­nese dealer agreed to sell John­son & John­son prod­ucts be­low the price floor to a hos­pi­tal, in a deal that trig­gered a warn­ing from the US multi­na­tional, which later sus­pended Rain­bow from sell­ing its prod­ucts.

John­son & John­son didn’t re­new its con­tract with Rain­bow in 2009, but aban­doned the price limit that year when it signed con­tracts with other deal­ers.

Rain­bow sued John­son & John­son in Au­gust 2010, de­mand­ing com­pen­sa­tion of more than 14 mil­lion yuan.

John­son & John­son had said ear­lier that it set the price floor to pre­vent dam­age to its busi­ness rep­u­ta­tion.

As a For­tune 500 com­pany with more than 15 years of busi­ness in China, John­son & John­son has a mar­ket share of more than 50 per­cent, ac­cord­ing to the court ver­dict.

Dai Bin, Rain­bow’s at­tor­ney from Bei­jing Zhanda Law Firm, de­scribed the Shang­hai court’s rul­ing as a land­mark de­ci­sion.

“It in­di­cates that the plain­tiff, who is usu­ally in a rel­a­tively weak po­si­tion in a monopoly dis­pute, can be pro­tected by law as long as it ad­duces suf­fi­cient ev­i­dence,” he said.

Ji Guang­ming, an at­tor­ney for John­son & John­son, de­clined in­ter­view re­quests, while China Daily’s re­quest for com­ments from John­son & John­son went unan­swered.

Huang Yong, a pro­fes­sor from the Univer­sity of In­ter­na­tional Busi­ness and Economics’ School of Law, said the court rul­ing will serve as a good ex­am­ple of how to an­a­lyze the le­gal­ity of a ver­ti­cal monopoly and how to judge busi­ness ac­tions that limit com­pe­ti­tion, such as re­sale price main­te­nance.

Se­bastien Evrard, a part­ner in the Bei­jing of­fice of Jones Day, a global law firm spe­cial­iz­ing in an­titrust cases, said this case will hope­fully give some guid­ance to busi­nesses on how the pro­hi­bi­tion of re­sale price main­te­nance will be ap­plied in China in par­tic­u­lar whether re­sale price main­te­nance can be le­gal un­der cer­tain cir­cum­stances.

He added that an­titrust cases are in­creas­ing in China, but there is no need to fear that they will mainly fo­cus on for­eign com­pa­nies.

“If we look back to the past five years, in­stead of the past three months, you’ll see that most of the law en­force­ment (ap­plied to) Chi­nese com­pa­nies.”

He said for­eign com­pa­nies are usu­ally more aware of the anti-com­pe­ti­tion prin­ci­ples, as much of their busi­ness is car­ried out in coun­tries with years of an­titrust prac­tice. But since China’s anti-monopoly law has its own terms, they should also know what is le­gal and il­le­gal in the coun­try.

Most, if not all, com­pe­ti­tion laws around the world pro­hibit re­sale price main­te­nance, Evrard added. China’s anti-monopoly law fol­lows the same prin­ci­ple, if it has an an­ti­com­pet­i­tive ef­fect.

“Most of the court de­ci­sions in other coun­tries have found that re­sale price main­te­nance is a vi­o­la­tion of com­pe­ti­tion law, be­cause the obli­ga­tion has the ef­fect of keep­ing the price up and can po­ten­tially re­sult in con­sumers pay­ing higher prices.” Con­tact the writ­ers at zhouwent­ing@ chi­ and zhaoy­i­nan@chi­


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