June 8, 2012

China's Aland Nutraceutical resolves US cartel class action case

Aland (Jiangsu) Nutraceutical Co., Ltd, has made a deal to recompense US$10.5 million to resolve price-fixing allegations against it, which is related to its Vitamin C sales in the US.

As part of the negotiated settlements, which are subject to court approval, Aland will pay US$9.5 million to a class of direct purchasers of Vitamin C and US$1 million to the indirect purchasers of Vitamin C. As the plaintiffs noted in their papers seeking approval of the settlement, the settlement marks "the first civil settlement with a Chinese company in a US antitrust cartel case."

The case involves allegations that the defendants conspired to fix prices of vitamin C in violation of Section 1 of the Sherman Act, which is the US law that prohibits price-fixing agreements among competitors. Aland -- with supporting briefs filed by the Chinese Ministry of Commerce -- argued that it was compelled by the Chinese government to fix prices (as part of a Chinese Chamber of Commerce of Medicines and Health Products Importers and Exporters export regime) and that therefore its conduct was immune from the US antitrust laws. The defendants fought vigorously in support of this sovereign compulsion (and related act of state and international comity) defense, but in September 2011, Judge Cogan of the Eastern District of New York denied defendants' motion for summary judgment on this theory, ruling that, despite the defendants' and the Chinese government's arguments, the "Chinese law relied upon by defendants did not compel their illegal conduct" and that "the provisions of Chinese law...do not support their position, which is also belied by the factual record."

This settlement serves as a reminder to Chinese companies doing business in the US -- even those that have Chinese government affiliations -- of the need to be cognizant of US antitrust laws and to put in place effective antitrust compliance policies to avoid potential legal complications. Of course, in the US, Chinese companies need to also be concerned about the US Department of Justice (DOJ), which prosecutes cartels as criminal matters. Both the DOJ and the class action plaintiffs are increasingly focusing on conduct of Chinese companies so vigilance in complying with US antitrust laws is very important.