Price Fixing in the US Violates Antitrust Law. Not Always So in China.
Knowing general antitrust law principles is indispensable to anyone who does business in the global market. However, when it comes to the particulars, different legal standards mean that an action that violates antitrust law in one jurisdiction may be legal in another. This can make antitrust law a complex and sometimes unpredictable realm to negotiate from a legal and ethical perspective. The September 2016 resolution of a US price-fixing case against Chinese vitamin C exporters after more than a decade of litigation illustrates the twists and turns
Price fixing (that is, competitors agreeing to set prices at a certain level) violates US antitrust law. Two Chinese companies, Hebei Welcome Pharmaceutical and its holding company North China Pharmaceutical Group Corporation, colluded with competitors to fix the prices of vitamin C sold to US companies. US purchasers harmed by this conduct filed a class action lawsuit that eventually went to trial. A jury found the companies liable for violating Section 1 of the Sherman Act. The district court awarded the purchasers $147 million in damages. The companies did not argue about the amount of damages, nor did they dispute the allegations or the Court’s jurisdiction.
Instead, the Chinese companies asked the US Court of Appeals for the Second Circuit to dismiss the case because Chinese law mandated the very conduct US antitrust law prohibited. Specifically, the Ministry of Commerce of the People’s Republic of China (Ministry) required vitamin C exporters to coordinate prices and create a global supply shortage in order to maintain China’s longstanding dominance of the vitamin C market.
The Ministry itself had filed a formal statement with the district Court explaining how Chinese law required price fixing in this situation. To muddy the waters further, it turned out that the group of alleged competitors, the China Chamber of Commerce of Medicines & Health Products Importers & Exporters (Chamber), was not what it seemed. The Chamber was not like a chamber of commerce in the US or a trade association. Rather, the Ministry stated in its brief that the Chamber was in fact a state instrumentality that implemented the Ministry’s rules and regulations governing the vitamin C trade. The Ministry provided evidence that the Chamber was responsible for coordinating industry-wide prices for all vitamin C exporters in China.
The district court had not deferred to the Chinese government’s legal interpretation. But the Second Circuit called the filing of the statement “an historic act” and concluded that the Court must defer to the interpretation contained in that statement.
The Second Circuit Court ruled that principles of mutual recognition, reciprocity, and respect between China and the US (international comity) required the case to be dismissed. After enumerating a ten-factor test to determine whether international comity applied, the Court added that “whatever its precise contours, international comity is clearly concerned with maintaining amicable working relationships between nations, a shorthand for good neighborliness, common courtesy and mutual respect between those who labour in adjoining judicial vineyards.”
This case compelled the Court to address “how a federal court should respond when a foreign government, through its official agencies, appears before that court and represents that it has compelled an action that resulted in the violation of U.S. antitrust laws.” It also required the Court to balance the alleged harm to US consumers and purchasers of vitamin C against the interests of the Chinese government in regulating trade by Chinese businesses. But for the Chinese government’s formal statement, the result may have been very different.
Although the Court did not assume that it must defer to a foreign government’s interpretation of its own laws in every instance, the Court did defer to the Ministry’s interpretation, noting that it could not identify a case in which “a foreign sovereign appeared before a US tribunal and the US tribunal adopted a reading of that sovereign’s laws contrary to that sovereign’s interpretation of them.”
Based on the Ministry’s interpretation of Chinese law, the Court ruled there was a “true conflict” of laws under principles of international comity that prevented the companies from simultaneously complying with Chinese and US antitrust law.
The Court concluded that the companies “were required by Chinese law to set prices and reduce quantities of vitamin C sold abroad and doing so posed a true conflict between China’s regulatory scheme and U.S. antitrust laws such that this conflict in their legal obligations, balanced with other factors, mandates dismissal of [the purchasers’] suit on international comity grounds.” [Animal Sci. Prods. v. Hebei Welcome Pharm. Co. (In re Vitamin C Antitrust Litig.) (2nd Cir. 2016) no. 13-4791-cv]
It’s important to note that the results of this case are extremely fact-specific, and applied only to the Chinese vitamin C exporters whose conduct was formally supported by the Chinese government. The same conduct by US companies doing business in China would almost certainly violate US antitrust law. Neither the Chinese government nor any other deus ex machina would likely save the day if a jury similarly pinned a price fixing verdict on antitrust law violators.