The trial of four Chinese vitamin C producers accused of participating in a cartel began this week. The trial, which is expected to last two to three weeks, is likely to focus on the companies’ defense that the Chinese government compelled them to engage in the alleged anticompetitive behavior.
Under American law, in some circumstances companies may avoid antitrust liability if a court finds that their involvement in anticompetitive behavior was compelled by a foreign government. Cases in which companies assert this defense can put American courts in the difficult position of attempting to interpret foreign law.
In the case of In re Vitamin C Antitrust Litig., the court’s interpretation of Chinese law took on added significance, as the Ministry of Commerce of the People’s Republic of China (MOFCOM) took the unusual step of filing an amicus brief supporting the companies’ defense of foreign compulsion. Thus, the court was presented with the question whether to defer to a Chinese government agency’s interpretation of its own law. Despite MOFCOM’s statements that the defendants were compelled by Chinese law to engage in the alleged price-fixing, the District Court for the Eastern District of New York twice refused to find that the foreign compulsion defense was sufficiently established to dispose of the case.
In considering the defendants’ motion to dismiss in 2008, Judge David Trager wrote that, “[MOFCOM]’s Brief is . . . entitled to substantial deference, but will not be taken as conclusive evidence of compulsion.”2 Finding that the plain language of the plaintiffs’ documentary evidence directly contradicted MOFCOM’s position, the court refused to dismiss the case.3 Three years later, Judge Brian Cogan was more emphatic in denying the Chinese companies’ motion for summary judgment. He wrote, “there is no rock and no hard place. The Chinese law relied upon by defendants did not compel their illegal conduct. . . . I decline to defer to the Chinese government’s statements to the court regarding Chinese law.”4
The defendants may still convince the jury, however. At trial, the companies are expected to present the testimony of Qiao Haili, a retired MOFCOM employee who oversaw vitamin C exports during the period in which the companies are alleged to have been fixing prices. Qiao’s testimony could strengthen the companies’ argument that their behavior was involuntary and compelled by MOFCOM.
Many Chinese companies with substantial U.S. operations or U.S. commerce are carefully monitoring the vitamin C case as an indicator of the future willingness of American courts and juries to accept (or to reject) compulsion by Chinese law as a defense. Indeed, prior experience with this defense may be helpful in framing the issue for the court. Rick Rule – head of Cadwalader’s Antitrust Group and a former head of the Antitrust Division of the U.S. Department of Justice – points out that “for years foreign defendants in antitrust cases have sought to rely on the foreign sovereign compulsion defense, generally with limited success.”
To some extent, the limited success reflects a disconnect between the mind-set of U.S. courts and the reality of commercial life in foreign countries. That is, even though companies may feel compelled to follow “suggestions,” “advice,” “directions,” and the like of their home government, the absence of clear compulsion – “if you fail to follow this advice, you will suffer the following penalty” – is often fatal to the defense in U.S. courts.