In re Vitamin C Antitrust Litig.

• Decision Date: 06 September 2011
• Docket Number: No. 06–MD–1738 (BMC)(JO).,06–MD–1738 (BMC)(JO).
• Citation: 2012 Trade Cases P 77779,810 F.Supp.2d 522
• Parties: In re VITAMIN C ANTITRUST LITIGATION.This document refers to: All Actions.
• Court: U.S. District Court — Eastern District of New York

2012-1 Trade Cases P 77,779

810 F.Supp.2d 522

In re VITAMIN C ANTITRUST LITIGATION.This document refers to: All Actions.

No. 06–MD–1738 (BMC)(JO).

United States District Court, E.D. New York.

Sept. 6, 2011.

MEMORANDUM DECISION AND ORDER

COGAN, District Judge.

Plaintiffs have filed suit against Chinese vitamin C manufacturers, alleging that they engaged in an illegal cartel to fix prices and limit supply for exports, including those to the United States.¹ The four main defendants are Hebei Welcome Pharmaceutical Co. Ltd. (“Hebei Welcome” or “Welcome”), Aland (Jiangsu) Nutraceutical Co., Ltd. (“Jiangsu Jiangshan” or “JJPC”), Northeast Pharmaceutical Co. Ltd. (“NEPG” or “Northeast”) and Weisheng Pharmaceutical Co. Ltd. (“Weisheng”) (collectively “defendants”).²

Plaintiffs bring this putative class action under Section 1 of the Sherman Act and Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 4, 16. Plaintiffs seek treble damages and injunctive relief against all defendants except for Northeast, against whom only injunctive relief is sought.

Defendants do not dispute that the cartel agreements at issue violate the antitrust laws save for one primary defense: that they were compelled by the Chinese government to fix prices. They have filed a motion for summary judgment based upon that defense and the related doctrines of comity and act of state.

The three doctrines upon which defendants rely recognize that a foreign national should not be placed between the rock of its own local law and the hard place of U.S. law. However, that concern is insufficient to protect defendants from their acknowledged violation of the antitrust laws because, here, there is no rock and no hard place. The Chinese law relied upon by defendants did not compel their illegal conduct. Although defendants and the Chinese government argue to the contrary, the provisions of Chinese law before me do not support their position, which is also belied by the factual record. I decline to defer to the Chinese government's statements to the court regarding Chinese law.

Accordingly, defendants' motion for summary judgment is denied.

(1)

BACKGROUND

By November 2001, defendants, who faced much lower manufacturing costs than their foreign competitors, had captured over 60% of the worldwide market for vitamin C. China's share of vitamin C imports to the United States rose from 60% in 1997 to over 80% by 2002. Around this time, a number of foreign competitors discontinued or reduced production.

It is not disputed that defendants fixed prices and agreed on output restrictions. Defendants are members of the Chamber of Commerce of Medicines and Health Products Importers and Exporters (“the Chamber”). Many of the agreements at issue were reached at meetings of the Chamber and appear to have been, at the very least, facilitated by the Chamber. Defendants, however, contend that the Chamber is a government-supervised entity through which the Chinese government exercises its regulatory authority over vitamin C exports and that all of the agreements at issue were compelled by the Chinese government.

After plaintiffs filed suit, defendants moved to dismiss the complaint, invoking the foreign sovereign compulsion defense, the act of state doctrine and the doctrine of international comity. The Ministry of Commerce of the People's Republic of China (“The Ministry”), which is the highest authority in China authorized to regulate foreign trade,³ filed an amicus brief in support of defendants' motion, explaining the Chinese government's regulation of vitamin C exports. The Ministry “formulates strategies, guidelines and policies concerning domestic and foreign trade and international economic cooperation, drafts and enforces laws and regulations governing domestic and foreign trade, and regulates market operation to achieve an integrated, competitive and orderly market system.” The Ministry is equivalent to a cabinet level department in the United States. According to the Ministry, defendants' actions were compelled by the Chinese government.

Judge David G. Trager denied defendants' motion to dismiss, finding the record, at that time, to be “simply too ambiguous to foreclose further inquiry into the voluntariness of defendants' actions.” ⁴ In re Vitamin C Antitrust Litig., 584 F.Supp.2d 546, 559 (E.D.N.Y.2008). With the benefit of some discovery, plaintiffs had offered evidence suggesting that defendants' agreements may have been voluntary. In addition, Judge Trager was concerned with the possibility that the cartel and purportedly compulsive governmental regulations at issue had been established at the behest of defendants and the Chinese government had simply given its “imprimatur.”

Defendants now move for summary judgment on their three related defenses. Although the initial complaint in this suit was filed in January 2005, the operative complaint for the purposes of the instant motion covers the time period from December 1, 2001 through December 2, 2008.

(2)

CHINESE LAW

I. China's Economic Transition and the Establishment of the Chambers

In 1978, China began to transition from a planned economy to a “socialist market economy.” During the planned economy era, the control of foreign trade was centralized under the Ministry and all foreign trade was conducted through state-owned import and trade companies according to state trade plans. After some reforms in the mid–1980's led to aggressive forms of competition, the government imposed new administrative controls, which involved the establishment of the various China Chambers of Commerce for Import and Export (“Chambers”), including the Chamber. According to defendants' Chinese law expert, Professor Shen Sibao,⁵ the formation of the Chambers was part of China's “important national policy which requires Chinese exporting companies to ‘unite and act in unison in foreign trade.’ ”

The authority to regulate import and export commerce was eventually transferred from the state-owned trading companies to these Chambers. When the Chambers were created, they were staffed with personnel transferred directly from the government.

The Chambers were given both governmental functions, which had previously been performed by the Ministry, and private functions. The governmental functions included, inter alia, responding to foreign anti-dumping charges and industry “coordination.” The private functions of the Chambers included organizing trade fairs, conducting market research and “mediating” trade disputes.

II. 1996 Interim Regulations

The first governmental directive cited in the Ministry's brief is the Interim Regulations of the Ministry on Punishment for Conduct of Exporting at Lower–than–Normal Price (“1996 Interim Regulations”), which were promulgated on March 20, 1996.⁶ The 1996 Interim Regulations, which applied to all export products produced in China, address the Ministry's power to punish enterprises for exporting at “lower-than-normal” prices. Potential punishments include “a notice of criticism” and monetary fines. According to the regulations, a normal price includes the costs for producing the product as well as “reasonable profit.” The Ministry could request the Chambers to investigate alleged violations of the regulations. The 1996 Interim Regulations also note that “[a]ll export enterprises shall ... follow the coordination by various chambers of commerce for import and export trade, and set export prices which are suitable in countries to which the goods are exported.”

Although not raised by either party, according to a recent decision by the World Trade Organization (“WTO”), the 1996 Interim Regulations were formally repealed on September 12, 2010. WTO, Panel Report, WT/DS394/R, WT/DS395/R, WT/DS398/R, China—Measures Related to the Exportation of Various Raw Materials (July 5, 2011) (“WTO Panel Report”), ¶ 7.1029 (citing Order No. 2 of 2010 (promulgated by the Ministry on Sept. 12, 2010)). However, in this proceeding before the WTO (“WTO Proceeding”), China asserted that it “ceased to impose ... penalties [under the 1996 Interim Regulations]” as of May 28, 2008 when “verification and chop,” which required export contracts to receive an official seal, was repealed.⁷ Id. ¶ 7.1031.

III. 1996 Conference and Report

In early 1996, the Ministry held a conference and issued a report addressing problems in the vitamin C industry. Although China's vitamin C industry had rapidly expanded, the industry faced a number of problems including: (1) “violations of export administration regulations” and “the lack of strong administration and coordination of exports”; (2) a glut of capacity and Chinese vitamin C producers; (3) “disorderly” and fierce export competition that resulted in companies “blindly cutting prices”; and (4) threats of foreign anti-dumping suits. To combat these problems, the report recommended restricting production in order to “preserve price,” barring expansion of production capacity and consolidating the numerous vitamin C producers.

IV. 1997 Notice and 1997 Charter

In November 1997, the Ministry and the State Drug Administration (“SDA”) promulgated the Notice Relating to Strengthening the Administration of Vitamin C Production and Export by [the Ministry] and [SDA] (the “1997 Notice”). The purpose of the 1997 Notice was “to rectify the operational order and optimize the operational team of Vitamin C export, realize the scale-operation on export, improve the competitiveness of our Vitamin C products in the international market, promote the healthy development of Vitamin C export and maintain the interest of our country and enterprises ....”

The regulatory scheme under the 1997 Notice had three primary components. First, the 1997 Notice required export licenses, which were granted by the government based on certain qualifications, including prior production output. Second, the Ministry set export quotas for the total volume of vitamin C that could be exported and export quotas for each individual...