Image
China and US on a 17 years fight over Vitamin C
As one of the most popular dietary supplements in people’s life, Vitamin C is able to promote absorption and do good to our health. What you may not know is that a war of Vitamin C had already lasted for 17 years and finally came to an end in August.
In 2005, Animal Science Products, Inc. and The Ranis Company Inc. brought a class action against four Chinese Vitamin C exporting companies, Hebei Welcome Pharmaceutical Co., Ltd. (“Welcome”), Jiangsu Jiangshan Pharmaceutical Co., Ltd. (“Jiangshan”), Northeast Pharmaceutical Co., Ltd. (“Northeast”), Weisheng Pharmaceutical Co., Ltd. (“Weisheng”) claiming that they have conspired to inflate prices and restrict supply, which constitute a violation of anti-monopoly law in US (Sherman Act and Clayton Act).
North China Pharmaceutical Group Corporation (NCPG), the parent company of Welcome, was later added as co-defendant.
A litigation lasting for 17 years
The case was firstly trialed in District Court for the Southern District of New York in 2013, where the jury imposed a damage compensation against Welcome and NCPG for around 147.8 million USD. Jiangshan settled the claims against it for $10.5 million after the motion for summary judgment was denied in 2011, Weisheng and Northeast settled for 22.5 million USD and 0.5 million USD on the eve of jury’s deliberation. The case went on against the other co-defendants.
In 2016, US Court of Appeals for the Second Circuit reversed the district court’s holding, helding that the district court was bound to defer to the facially reasonable explanation of Chinese law submitted by the Ministry of Commerce of the People’s Republic of China, where is explained that Chinese law requires the defendants to undertake the anticompetitive conductat issue. The Supreme Court reversed 2nd Circuit’s holding in 2018, holding that 2nd Circuit afforded too much deference to the Ministry’s submissions, and remanded to carefully consider but not conclusively defer to the Ministry’s views.
In August, the 2nd Circuit finally made rulings that they will reverse the District Court’s holding and remand with instructions to dismiss the complaint.
Parties agreed the anticompetitive conduct occurred
Different from most antitrust cases, the parties in this case generally agreed that the complaints conducts did occur with argument that Chinese law required them to do so.
In 1996, Chinese companies (specifically the Defendants at issue) started a price war against each other, and therefore occupied bigger global market of Vitamin C. In order to regulate the export of Vitamin C, PRC Ministry of Foreign Trade and Economic Cooperation and State Drug Administration announced the Notice Relating to Strengthening the Administration of Vitamin C Production and Export, where it is stated that the price of Vitamin C shall be strictly controlled.
Beginning in 2000, another price war flattened Chinese Vitamin C export prices, and by 2001, the defendants succeeded in capturing about 60% of the global market for Vitamin C. In December 2001, after China entered into WTO, China represented to the WTO that, beginning in January 2002, it “gave up export administration of … vitamin C.” Therefore, in 2002 China adopted a PVC (Price Verification Chop) regime for manage the price of Vitamin C, where the price would be reviewed by each import and export chamber rather than Customs. In 2003, the Chamber published a notice informing members that “industry agreed export prices [for Vitamin C] … have been revised” and that the “agreed prices are the minimum prices.” [1]
The Court therefore held that the applicable Chinese law during the relevant period [including both the PVC regime and the Chamber’s 2002 delegation of price-coordination authority to the Sub-Committee] required the defendants, as Vitamin C manufacturers and exporters, to fix the price of Vitamin C sold on the international market.
PRC Ministry of Commerce also submitted 4 statements with the Court as amicus curiae. Such statements stated that the alleged fixed price limited export behavior of Chinese companies was required by the Chinese government that time in order to maintain the normal market order, which was a kind of special management and control method during the process of economic system transformation of China.
The Court’s Holding
After also analyzing other elements (Nationality of the Parties and Site of the Anticompetitive Conduct, Effectiveness of Enforcement and Alternative Remedies, Foreseeable Harms to American Commerce, Reciprocity, Possible Effect upon Foreign Relations) as instructed by SCOTUS and based on above facts and analysis, the Court finally reached the conclusion that a true conflict between US law and PRC law exists, and therefore Principle of International Comity applies, where dismissal of the lawsuit is mandated.
Comments stated that this case is helpful for MNEs to better analysis its risk in potential antitrust litigations filed in US, analyzing whether there are exempts that would bar the plaintiffs for proceeding a time-consuming and costing litigation, which would severely obstruct its business development.
