Long-Running Vitamin C Price-Fixing Lawsuit Dismissed on International Comity Grounds

The U.S. Court of Appeals for the Second Circuit on 10 August dismissed a price-fixing lawsuit against Hebei Welcome Pharmaceutical Co. and its parent company North China Pharmaceutical Group Corp. The 2-1 decision represented a defeat for Texas-based Animal Science Products Inc. (ASP) and New Jersey-based Ranis Co., which claimed they were overcharged for purchases of vitamin C (a claim that was actually accepted by all parties).

The dismissal of the 16.5-year-old case hinged on the finding of a “true conflict” between U.S. antitrust laws and mainland Chinese laws that applied to Hebei. Hebei and NCPGC argued that those laws required them to engage in price-fixing with the other market participants.

ASP and Ranis originally brought a class action case against four mainland Chinese vitamin C manufacturers in 2005. The original complaint named all four of the leading mainland Chinese vitamin C exporters: Jiangsu Jiangshan Pharmaceutical Co. Ltd., Northeast Pharmaceutical Group Co. Ltd. and Weisheng Pharmaceutical Co. Ltd., in addition to Hebei.

The vitamin C exporters argued for dismissal of the case on the basis of “the act of state doctrine”, “foreign sovereign compulsion” and “international comity”. The district court initially denied that motion and the case went to trial in 2008. Mainland China’s Ministry of Commerce filed an amicus curiae (friend of the court) brief, which marked the first official appearance by an agency of the mainland Chinese government in a U.S. court. The Ministry noted in its 2008 statement that mainland China’s “ongoing transformation from a state-run command economy to a market-driven economy” gave rise to terms and concepts such as “co-ordination” and “voluntary self-restraint” that a U.S. court would likely misunderstand, but it fully supported the exporters’ defence against ASP and Ranis.

The other three firms opted to settle their cases but Hebei continued to pursue the matter, awaiting the verdict of the jury. The jury ruled in favour of the U.S. companies in 2013, granting a sum of US$147.8 million in triple damages to be paid by Hebei.

Hebei and NCPGC appealed the verdict to the U.S. Court of Appeals for the Second Circuit, which ruled in 2016 that while the jury might have correctly applied U.S. antitrust laws such as the Sherman and Clayton Acts, Hebei had acted appropriately in complying with mainland Chinese laws that mandated fixing the prices and quantities of vitamin C exports. The Appellate Court ruled that the district court should have deferred to the explanation of mainland Chinese law submitted by the Ministry of Commerce that proved there was a “true conflict” between domestic and U.S. law.

The U.S. firms then raised the case to the U.S. Supreme Court, marking the first time the mainland Chinese government appeared as an amicus curiae in oral argument before the highest U.S. court and only the third such instance involving a foreign government. In 2018 the Supreme Court unanimously referred the case back to the appellate court, stating that while U.S. courts owed “respectful consideration” to foreign governments’ interpretations of their own laws they did not owe “complete deferral”, as had been done by the appellate court in 2016.

However, the recent decision by the U.S. Court of Appeals for the Second Circuit completely voids the jury verdict of 2013. The 70-page ruling includes a review of the history of mainland Chinese vitamin C exports, including changes introduced following WTO accession in 2001. In reviewing the different pricing regimes, the appellate court concluded that at no point was Hebei at liberty to establish prices on its own. Appellate Judge William Nardini wrote for the majority that despite any American consumer interest in preventing or punishing foreign companies’ anticompetitive conduct, he could not authorise any judgement against Hebei.

The appellate court’s decision notes that “comity is both a principle guiding relations between foreign governments and a legal doctrine by which U.S. courts recognize an individual’s acts under foreign law.” The U.S. Supreme Court ruled in 1895 that comity is “the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws.”

Nardini added that “the U.S. Department of Justice has not brought criminal antitrust enforcement actions against these defendants, and the Department of State has not weighed in as an amicus curiae on either side of the issue.” Instead, he suggested that “there are also alternate means for the United States to vindicate those interests, such as through bilateral diplomatic efforts, multilateral discussions, trade proceedings in the WTO, or dispute resolution in another international forum.”