February 26, 2013
Chinese vitamin C manufacturers face price-fixing trial in US
Accused of fixing prices, two Chinese vitamin c manufacturers who claimed that their government compelled them to do it, went to trial in Brooklyn as early as Monday (Feb 25).
A class action antitrust lawsuit filed in US District Court in New York on behalf of vitamin C purchasers in the US accuses the Chinese companies of raising prices over a period from December 2001-June 2006. Jury selection is scheduled for Monday.
The trial will offer a rare opportunity to test the foreign sovereign compulsion doctrine, which protects foreign companies that were compelled by their own governments to break US law.
Historically, defendants who invoke the defence have had little success because they lack the necessary evidence to show they were compelled to act under threat of penalties from their home governments, say legal experts.
The case will turn on whether the defendants can show in sufficient detail how they were compelled by the Chinese government to cooperate on production and price as part of the Chinese government's regulation of vitamin C exports.
The litigation against the vitamin C manufacturers began in 2006. The plaintiffs, led by a small New Jersey vitamin C distributor called The Ranis Company Inc., alleged in their complaint that the defendants consented to limit their exports in a 2001 written production and price agreement.
As a result, according to the plaintiffs, spot prices for vitamin C jumped to as high as US$15 per kilogramme in April 2003 from around US$2.50 per kilogramme in 2001.
Throughout the case, the defendants have received support from China's government, which filed its first-ever amicus brief in a US court. The Ministry of Commerce argued that a ruling against the manufacturers would "improperly penalise" them for "the sovereign acts of their government and would adversely affect implementations of China's trade policy."
As a matter of law, the argument did not persuade US District Judge Brian Cogan, who rejected a motion for summary judgment by the defendants in 2011.
"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," Cogan wrote. "I decline to defer to the Chinese government's statements to the court regarding Chinese law."
At a hearing in October, Cogan told lawyers for the defendants that at trial he would not allow witnesses to testify that they were compelled by the Chinese government. Such statements, he said, would be considered legal conclusions and "witnesses cannot testify to conclusions."
Instead, Cogan said that the defendants would have to specifically detail what they were instructed to do by the Chinese government. Leading the case for the plaintiffs will be William Isaacson, a partner at Boies, Schiller & Flexner. Isaacson and his firm are familiar with the vitamin C market, and in the late 1990s investigated a vitamin C cartel among European and Japanese companies that resulted in over US$1 billion in settlements.
