WASHINGTON (CN) – The United States’ uncertain trade relationship with China was the backdrop for a Supreme Court hearing Tuesday on whether Chinese companies can be held liable for violating U.S. antitrust laws.
Perhaps due to the fraught nature of U.S.-China trade relations, the justices grant China the rare opportunity to present arguments on the case before the court, despite the fact it is not a party to the case.
Ordinarily, only the U.S. government is granted such an opportunity.
President Trump has threatened to impose tariffs on up to $150 billion of Chinese imports due to what he says are China’s unfair trade practices and its failure to tamp down on the theft of intellectual property.
China has responded by threatening to impose comparable tariffs on U.S. goods and by filing a complaint with the World Trade Organization.
Tuesday’s case was an appeal by two American companies of a 2nd Circuit ruling tossing a $147.8 million damages award on their claims that two Chinese vitamin manufacturers effectively gamed distinctions between the laws of the U.S. and China to create a worldwide shortage and thereby fix prices for vitamin C.
Carter Phillips, representing China, argued that the justices should defer to China’s interpretation of its regulations and uphold the lower court ruling.
He noted China has been consistent in its submissions to the courts hearing that case, and that there’s no evidence China ever attempted to improperly shield its companies from U.S. law.
Brian Fletcher, a Justice Department lawyer, conceded some deference to another country’s laws is warranted, but that that respect can be taken too far and ultimately be detrimental to U.S. companies.
In 2005, Animal Science Products Inc., of Texas, and The Ranis Co. Inc., of New Jersey, both purchasers of vitamin C, accused Chinese manufacturers Hebei Welcome Pharmaceutical and North China Pharmaceutical Group of antitrust violations.
China intervened in the case, asking the trial court to dismiss the allegations in part because its laws had forced Chinese companies to comply with government-mandated pricing regimes.
A federal judge questioned the credibility of the Chinese submissions and, after a 2013 jury trial, awarded the two U.S. companies $147.8 million in damages.
But the New York-based 2nd Circuit overturned the judgment, concluding that when a foreign government intervenes in a case in U.S. courts, those courts are obligated to defer to that country’s characterization of its own laws.
Throughout the initial trial and appeal the U.S. companies claimed the defendant companies colluded with China’s Chamber of Commerce of Medicine and Health Products Importers and Exporters.
Hebei rejected the claims, saying they were only following rules established by the Chinese chamber.
On Tuesday, Fletcher argued that the 2nd Circuit ruling was “too rigid” and said deference should be decided on a case-by-case basis.
Animal Science attorney Michael Gottlieb asked the justices to vacate and remand the Second Circuit decision, arguing that “U.S. courts should not give up their responsibility to say what the law is in cases and controversies before them, even when that law is foreign.”
But Justice Stephen Breyer challenged that premise.
The central question, he said, is one of semantics.
“Maybe there’s a difference between ‘defer to a reasonable interpretation’ and give ‘respectful deference to,’ but what is it?” Justice Breyer asked.
“What you want us to do is say you used the term “defer to a reasonable interpretation” and you should have used the term, “we give respectful deference to.” And for that reason, we would like you to reconsider the whole thing,” Breyer said.
The problem, Breyer said, is that without an exhaustive record on Chinese rulings around price fixing, the court will be hard pressed to determine what should be accepted out of respect for sovereignty and what should be rejected.
“The rule that you simply defer to whatever foreign sovereign appears could put U.S. courts in a very delicate position without any guidance for how to answer the question of which arm of the foreign is authoritative,” Gottlieb said.
This creates a serious risk for U.S. interests, he argued.
If the Second Circuit ruling sticks, the U.S. could be unable to enforce its own laws or interpret them in the way they are “supposed to be interpreted in areas where foreign law bleeds into U.S. laws around antitrust,” he said.
Hebei’s attorney, Jonathan Jacobson of New York, walked arguments back to respectful deference.
“[The Chinese Chamber of Commerce] creates regulations, interprets the regulations and enforces the regulations,” he said. “In [an attached] brief by Chinese professors, they explain the rule: the rule maker has the authority to interpret its own rules in China and that that authority is dispositive. That’s what makes the difference.”
Chief Justice John Roberts remained stuck on the “constant emphasis on respectful.”
“It doesn’t mean we can’t disagree right. You know, “with all due respect” usually means the person’s about to say you don’t know what you’re talking about,” Roberts said.
“Respectfully, your honor,” Jacobson said, causing those in the chamber to erupt in laughter, “When a foreign government comes in with an official statement of its own laws, respectful deference is not a sufficient standard. The deference standard should be [different,]” Jacobson said.
“To be clear, ‘respectful’ really plays no role, right?” Roberts asked. “If you want the government to say, well, all right, I guess you’re right. I guess I have to defer to this. You might say that’s disrespectful but that’s all that matters, whether you’re going to defer and by defer you mean accept, whether you accept the proposition or not?”
Jacobson responded by saying he was “equating the foreign government with the entity that has the authority to interpret law under those circumstances.”
Agreements on minimum prices are “clearly illegal per se even if people charge a higher price than that [fixed price],” Jacobson argued.
“What the Chinese law required was unambiguously price fixing that was in conflict with U.S. law, and that is why, in reaching the determination to affirm, vacate, or reverse, we believe the appropriate disposition is to affirm,” he said.