Antitrust Law Daily $147M Vitamin C price fixing judgment tossed on comity grounds
Tuesday, September 20, 2016

$147M Vitamin C price fixing judgment tossed on comity grounds

Chinese manufacturers of vitamin C will not be required to pay a $147 million judgment for engaging in a price fixing conspiracy. The U.S. Court of Appeals in New York vacated the judgment and reversed an order denying the manufacturers’ motion to dismiss, finding that because the Chinese government had filed a formal statement in the district court asserting that Chinese law required the defendants to set prices and reduce quantities of vitamin C sold abroad, and because the manufacturers could not simultaneously comply with Chinese law and U.S. antitrust laws, the principles of international comity required the district court to abstain from exercising jurisdiction in this case (In re Vitamin C Antitrust Litigation, September 20, 2016, Hall, P.).

Vitamin C purchasers Animal Science Products, Inc. and The Ranis Company, Inc. claimed that Chinese companies Hebei Welcome Pharmaceutical and North China Pharmaceutical Group Corp. conspired to fix the price and supply of vitamin C sold to U.S. companies on the international market, in violation of the Sherman and Clayton Acts. The district court denied the defendants’ motion to dismiss and, after a jury trial, entered judgment, awarding the plaintiffs approximately $147 million in damages and enjoining the defendants from engaging in future anticompetitive behavior.

The central issue on appeal, according to the appellate court, was whether principles of international comity required the district court to dismiss the suit. The appellate court first reaffirmed the "the principle that when a foreign government, acting through counsel or otherwise, directly participates in U.S. court proceedings by providing a sworn evidentiary proffer regarding the construction and effect of its laws and regulations, which is reasonable under the circumstances presented, a U.S. court is bound to defer to those statements."

Conflict of laws. The Ministry of Commerce of the People’s Republic of China had filed a formal statement with the district court, asserting that Chinese law required the defendants to set prices and reduce quantities of vitamin C sold abroad. In particular, Chinese law required the defendants, from 2002 to 2005, to participate in the "price verification and chop" or "PVC" regime, in order to export vitamin C. This regulatory regime allowed vitamin C manufacturers to only export vitamin C subject to contracts that complied with the "industry-wide negotiated" price. The appellate court found it reasonable to view the entire PVC regime as a decentralized means by which the Ministry regulated the export of vitamin C by deferring to the manufacturers and adopting their agreed upon price as the minimum export price.

Deference in this case, according to the court, was particularly important because of the unique and complex nature of the Chinese legal- and economic-regulatory system and the stark differences between the Chinese and U.S. systems. However, instead of viewing the ambiguity surrounding China’s laws as a reason to defer to the Ministry’s reasonable interpretation, the lower court attempted to parse out the defendants’ precise legal role with China’s complex vitamin C market regulatory framework.

Comity factors. The remaining comity factors clearly weighed in favor of U.S. courts abstaining from asserting jurisdiction, the appellate court next decided. In particular, the appellate court found that all of the defendants were Chinese vitamin C manufacturers with their principle places of business in China, and all the relevant conduct at issue took place entirely in China. Complaints concerning China’s export policies could adequately be addressed through diplomatic channels and the World Trade Organization’s processes. There was also no evidence that the defendants acted with the express purpose or intent to affect U.S. commerce or harm U.S. businesses in particular. Further, according to the Ministry, the exercise of jurisdiction by the district court has already negatively affected U.S.-China relations.

Recognizing China’s strong interest in its protectionist economic policies and given the direct conflict between Chinese policy and U.S. antitrust laws, the appellate court concluded that China’s interests outweighed whatever antitrust enforcement interests the United States might have in this case as a matter of law. The lower court therefore abused its discretion by failing to abstain on international comity grounds from asserting jurisdiction. The district court’s order denying the defendants’ motion to dismiss was therefore reversed and the case was remanded with instructions to dismiss the plaintiffs’ complaint with prejudice.

The case is No. 13-4791-cv.

Attorneys: William A. Isaacson (Boies, Schiller & Flexner LLP), Melinda R. Coolidge (Hausfeld LLP) and Katherine Kunz (Susman Godfrey LLP) for Animal Science Products, Inc. and The Ranis Co., Inc. Jonathan M. Jacobson (Wilson Sonsini Goodrich & Rosati, PC) for North China Pharmaceutical Group Corp. and Hebei Welcome Pharmaceutical Co Ltd.

Companies: North China Pharmaceutical Group Corp.; Hebei Welcome Pharmaceutical Co Ltd.; Animal Science Products, Inc.; Ranis Co., Inc.

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