(CN) — After prompting from the U.S. Supreme Court to take a second look at whether American vitamin C makers could enforce antitrust law against Chinese competitors, the Second Circuit reiterated its position that they could not in a ruling issued Tuesday morning.
In a 2-1 decision, the court found that a now-defunct Chinese regulatory scheme enforced between 2002 and 2008 mandated price-fixing by that country’s vitamin C exporters, meaning that a lower court should have dismissed an antitrust action against two of those exporters under the principles of international comity.
U.S. Circuit Judge William Nardini, a Donald Trump appointee, penned the majority opinion and said that U.S. courts could not exercise jurisdiction over the civil antitrust action against Hebei Welcome Pharmaceutical Co. and North China Pharmaceutical Group in light of a mandate by the Chinese government that vitamin C manufacturers engage in industry-wide negotiations on pricing.
“The United States undoubtedly has a substantial interest in the uniform enforcement of its antitrust laws,” Nardini wrote. “Yet 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… on either side of the issue.” He also pointed out that the U.S. could still pursue those interests through diplomatic efforts.
The case included the first-ever official appearance by the Chinese government in a U.S. court when China’s Ministry of Commerce filed an amicus brief and other submissions in support of the exporters’ argument that Chinese regulations made them engage in a price-fixing scheme.
The U.S. Supreme Court ruled in June 2018 that a different Second Circuit panel gave too much credence to that appearance in affirming the case’s dismissal, with the late Justice Ruth Bader Ginsburg writing, “Given the world’s many and diverse legal systems, and the range of circumstances in which a foreign government’s views may be presented, no single formula or rule will fit all cases in which a foreign government describes its own law.”
The high court ordered another, more critical review of the Chinese law involved. In Tuesday’s order, Nardini wrote that the deeper dive came to the same conclusion. One particularly sticky issue, a 2002 statement to the World Trade Organization that China was loosening its price-control regime, wasn’t enough to raise red flags with the court.
“While the Chinese government may not have compelled market price coordination in the same fashion that it enforced minimum prices, our conclusion that the price-fixing feature of the 2002 notice was nonetheless mandatory remains in place,” Nardini wrote, referring to the policy that outlined the price-control requirement.
Nardini was joined in the majority by U.S. Circuit Judge José Cabranes, a Bill Clinton appointee.
Senior U.S. Circuit Judge Richard Wesley, a George W. Bush appointee, argued in a dissent that a five-factor test the Supreme Court laid out for determining whether to give the Chinese government deference was not met. Its submissions, he wrote, “lack sufficient ‘clarity thoroughness, and support,’” conflated two different regulatory schemes, and ignored the fact that the sellers fixed their prices higher than the government’s minimum price of $3.35 per kilogram.
“The defendants argue that 'the price level established does not matter' because the Sherman Act prohibits price fixing per se,” Wesley wrote. “However, international comity does not work that way.”
Contacted Tuesday afternoon, attorneys for the companies and for the Ministry of Commerce said they were happy with the decision.
“The Second Circuit reached the correct result,” the vitamin C exporters' attorney, Jonathan Jacobson of California Bay Area firm Wilson Sonsini Goodrich & Rosati, wrote in an email. “Chinese law clearly conflicted with US law and, as the court recognized, dismissal of the case was the only proper outcome given that the companies could not comply with both sets of laws.”
“I think it’s fair to say that the Ministry of Commerce is quite pleased with the outcome,” said attorney Carter Phillips of the Washington firm Sidley Austin, who represented the ministry in the appeal. While China’s regulatory system for exports has changed in the 16 years since the case was first filed, he said, officials described it as an “irritant” in a letter to the State Department, and were pleased to see the irritation removed.
Phillips added that there are likely more arguments to come on the issue. “I assume the plaintiffs will continue the fight,” he said. “These are events from way, way long ago, and it would be nice for this thing to come to closure, but I have a feeling this won’t be the last word on it quite yet.”
Attorneys for the plaintiffs, the Texas-based Animal Science Products Inc. and the New Jersey-based Ranis Co., did not respond to a request for comment Tuesday afternoon.
At the American Antitrust Institute, which filed an amicus brief with the Supreme Court opposing dismissal of the case, Vice President of Legal Advocacy Randy Stutz said allowing international comity defenses for price-fixers could lead to more fixing down the line.
“With regard to price-fixing-- the international comity considerations, arguably, are a little different, insofar as price-fixing is internationally condemned as an antitrust violation around the world,” he said in a phone interview. “Generally speaking, there should be a high bar for an argument that enforcing the prohibition on price-fixing poses a conflict with a foreign jurisdiction that has an otherwise normal competition law.”
Stutz noted that a renewed Supreme Court appeal would be going before a new set of justices following Ginsburg’s 2020 death and replacement by conservative Justice Amy Coney Barrett. He also speculated that the decision could create a workaround for other would-be price fixers, namechecking an early-2010s case in which phone manufacturers used price-fixed Taiwanese parts in order to sell phones in the U.S. at an inflated price.
“I wonder if we’ll now see defendants attempting to use IC arguments as a basis to discourage U.S. courts from trying to reach international conduct,” Stutz said.
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