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Johnson and Johnson Fined for Fixing Prices in China

China Fines J&J and 4 Other Companies a Total of $3.04M For Allegedly Manipulating The Prices of Eyeglasses and Contact Lenses
Johnson & Johnson
Johnson & Johnson was fined $583,000 for price-fixing in China's eyeglasses and contact lens markets. Johnson & Johnson

NEW BRUNSWICK, NJ—Multi-national pharma giant Johnson & Johnson, along with at least four other companies, were fined a total of 19 million yuan ($3.04 million) for allegedly fixing prices in China’s eyeglass and contact lens markets, according to Bidnessetc.com's Hannah Ishmael.

The Chinese National Development and Reform Commission (NDRC) announced the fine on May 29, indicating that the companies required dealers to set lens prices at a “suggested level” above the minimum price that vision care-related products can be sold for.

In addition to the alleged mandate, retailers were ordered to coordinate promotion of products across all major Chinese cities throughout the year in efforts to stabilize prices.

These mandates were paired with undisclosed penalties and threats to stop oversea distribution of supplies to pressure retailers and dealers.

Johnson & Johnson (J&J) is a household name in many countries these days, but the company began as a private, family-owned business in New Brunswick nearly 120 years ago.

J&J continues to play a role in the politics and development of New Brunswick to this day.

The US Federal Trade Commission defines price fixing as, “an agreement (written, verbal, or inferred from conduct) among competitors that raises, lowers, or stabilized prices or competitive terms.”

Companies involved in this scandal include J&J, which faces a fine of $583,000, and some of its main competitors: Nikon Corporation ($269,000), Carl Zeiss Meditec AG ($281,00), Essilor International ($1.4 mil), and Valeant Pharmaceutical’s Bausch + Lomb unit ($83,000).

Two other companies, Japanese-based Hoya Corp and China’s own Shanghai Weicon Optics, escaped punishment by cooperating with investigators and volunteering information about potential structural changes to help combat such issues from occurring in the future.

Samantha Lucas, Vice President of the vision sector at Johnson & Johnson did not respond to a voicemail from New Brunswick Today seeking comment on the fine.

As the largest healthcare company in China, J&J now has a 28-year history in the country.

J&J has been building up its medical device presence in China, one of the world's fastest growing markets, undeterred by the fact that other companies have struggled with government rules in the country.

China recently fined an infant formula company for price fixing, but, until now, the country had not leveled any price fixing fines against J&J.

“More and more we realize the importance of becoming a local player,” J&J Chief Financial Officer Dominic Caruso told Bloomberg News.

“The Chinese market is about one-third composed of imported products and two- thirds driven by local products. Both markets are growing fast, but the local market is growing faster.”

J&J's early investment in China is said to be paying off.

The company is thought to be ahead of the curve in a market that's important to every medical-device company simply because of its large population.

J&J's thriving diabetes and vision business in China has been supported by the country's growing middle class. Incomes are increasing and people can now get medical care and treatment that was not possible in the past.

Chinese officials have been cracking down on price fixing and enforcing stricter regulations in several sectors in recent years in an attempt to fight price inflation and corruption.

In May, Chinese authorities cracked down on a massive bribery network led by the former chief of GlaxoSmithKline (GSK) after a 10-month long investigation into GSK’s corporate practices.

Perhaps J&J can look to GSK to see the negative impacts the price fixing allegations might have on its sales.  Despite being fully cooperative with authorities, GSK reported a 61% decrease in sales since news of the bribery charges broke.

This story comes on the heels of the company's annual shareholders meeting, where J&J reported first-quarter sales of $18.1 billion, up 3.5% from 2013’s first quarter.

The meeting was also the site of an emotional protest entitled “Johnson & Johnson Hurts Women,” alleging reckless conduct on behalf of the executives is responsible for several women being seriously injured by the corporation’s mesh pelvic implants.

Though Alex Gorsky, J&J's Chairman and CEO, attributed the first quarter’s success to “successful new product launches and the continued growth of key products,” it is unclear what role the price fixing scheme may have played in the company’s revenue, or what effect it will have on future profits.