In today's global marketplace, few companies are out of the reach of U.S. antitrust laws, including Chinese companies operating outside of the United States
In today's global marketplace, few industries or companies, small or large, are out of the reach of U.S. antitrust laws. As the recent Vitamin C Antitrust Litigation in New York federal court has shown, this includes Chinese companies operating outside of the United States.
In the Vitamin C case, purchasers of vitamin C claimed that Chinese vitamin manufacturers and their affiliates – while in China – illegally agreed to fix prices and limit exports from China. In March 2013, a jury returned a verdict against the Chinese manufacturers, awarding vitamin purchasers $54 million in damages, which was then trebled under the U.S. antitrust laws to a $162 million judgment.
As of June 2014, a Chinese pharmaceutical company and its vitamin C unit are appealing the judgment to the U.S. Court of Appeals for the Second Circuit.
The Chinese Ministry of Commerce of the People's Republic of China (“MOFCOM”) has filed a legal brief in the Court of Appeals supporting the defendants.
Although the Vitamin C case may be the first time a Chinese company has been sued for antitrust violations in the United States, similar lawsuits may increase as economic relations between the United States and China continue to grow. In light of that reality, this article presents eight issues that Chinese companies should consider if they do business in the United States or if their products are ultimately sold in the United States.
1. Antitrust Lawsuits Can Result in Treble Damages or Jail Sentences
Although they come at the end of a lawsuit or a prosecution, the possibility of “treble” damages in a private lawsuit or jail sentences for individuals in a criminal prosecution should be a primary concern for all companies sued or prosecuted in the United States.
If found liable in a civil case, a defendant will not only have to pay the plaintiff for its actual damages but it would also be exposed to “treble” damages or three times the actual damages. While a corporate defendant in an antitrust criminal case could also face large monetary fines, the added possibility of imprisonment for individual employees makes the U.S. antitrust laws more problematic.
In April 2014, the U.S. Department of Justice announced the country's first successful extradition of a foreign individual, an Italian corporate executive, to stand trial in the United States for criminal antitrust charges. In 2009, four Taiwanese and Korean executives were sentenced to serve jail time (all less than a year) in the United States for their participation in a global price-fixing conspiracy. They also agreed to pay fines and assist the U.S. government in its investigation.
2. Defendants Must Take Action Immediately
Once a lawsuit is filed, the defendants or the companies sued must act quickly to comply with deadlines. While most antitrust cases against foreign entities are brought under the federal antitrust laws and end up in U.S. federal court, each state also has its own set of antitrust or competition laws and individual state court systems. Each court has its own rules, procedures, and deadlines. Some court deadlines give defendants as little as 20 days to respond. Missing a deadline could seriously undermine a defendant's position in a lawsuit. Although the consequences of being sued in the U.S. can be daunting, a foreign company's chances of achieving a positive result are greater if it acts quickly, retains counsel, and works to develop a defensive strategy.
3. The Broad Jurisdiction of U.S. Courts Can and Will Reach Chinese Companies
Even if a foreign company has no offices or employees in the United States, it may still be sued in a U.S. court for antitrust violations if it does business in the United States or if its business outside of the country affects commerce in the United States. U.S. courts can even hear claims brought by non-American plaintiffs against non-American defendants if those claims arise from activities affecting U.S. commerce.
Two U.S. court decisions in March 2014 demonstrate the problems and uncertainty in extending U.S. jurisdiction over foreign defendants.
A federal court in Northern California recently refused to dismiss a Chinese company from a multidistrict price-fixing lawsuit involving cathode ray tubes. Although the company argued that it never manufactured or sold products in the United States, the court found evidence that the company knew that others sold its products in the country and that those sales were related to the plaintiffs' claimed injuries, arguably giving the court jurisdiction over the company.
Just a few weeks later, in a short-lived decision, the U.S. Court of Appeals for the Seventh Circuit affirmed dismissal of a U.S. corporation's price-fixing claims against several Taiwanese, Korean, and Japanese manufacturers of liquid-crystal display or LCD panels. The Seventh Circuit found that because the manufacturers' sales of LCD panels to the U.S. corporation's foreign subsidiaries occurred outside the U.S. and the panels were used only as components in final products later imported to the U.S., the manufacturers' alleged conduct did not have the direct and substantial effect on U.S. commerce required under U.S. antitrust laws.
The plaintiff requested a rehearing of the decision, and both the U.S. Department of Justice and Federal Trade Commission filed briefs supporting the plaintiff. On July 1, 2014, the Seventh Circuit vacated its decision, stating that it will rehear oral argument and ordering the parties to file supplemental briefs.
4. U.S. Antitrust Laws Often
Apply to Activities That Must Be Evaluated on a Case by Case Basis Four main antitrust statutes exist under federal law in the United States – the Sherman Act, the Clayton Act, the Robinson-Patman Act, and the Federal Trade Commission Act – and two federal agencies police potentially anticompetitive conduct, the Department of Justice and the Federal Trade Commission.
The U.S. antitrust agencies primarily focus on cartels and mergers. However, many business activities, especially those that are often the subject of litigation by private parties, must be evaluated on a case by case basis. For example, the legality of vertical price-fixing, refusals to deal and boycotts, exclusive dealing, and price discrimination largely depends on each case's circumstances, such as the specific facts of the case, the relative positions of the parties, and the injuries suffered by the parties suing and by consumers.
5. Antitrust Lawsuits against Chinese Companies Will Raise Important Issues of Comity
Antitrust suits against Chinese companies will necessarily raise difficult issues of “comity,” or how much respect U.S. courts should show to Chinese government actions and policies. The “act of state” doctrine stands for the principle that one nation, within its own territory, should not sit in judgment of another nation. American courts have also acknowledged that “sovereign compulsion” may be a viable defense to antitrust liability where a defendant shows that a foreign government compelled the defendant's potentially illegal actions. U.S. courts, however, are not required to apply these principles in every case involving a foreign government's acts.
In the Vitamin C case, the Chinese manufacturers asserted a “sovereign compulsion” defense – that the Chinese government compelled them to work together to fix prices. They also claimed that, under the “act of state” doctrine, the case would require the U.S. court and jury to improperly judge the Chinese economic system and government actions.
Although MOFCOM stepped forward to support the Chinese manufacturers, the trial judge and the jury rejected the “sovereign compulsion” defense, finding that the manufacturers acted on their own.
Not surprisingly, the Vitamin C defendants in their appeal have devoted more than half of their argument to these issues of comity.
6. The Intensive U.S. Discovery Process Prolongs Lawsuits
The Vitamin C case went to trial eight years after it was first filed in an American court. That is not unusual in the U.S. court system, due in large part to what is called the discovery process.
U.S. courts have liberal discovery rules, meaning that private plaintiffs, government agencies, and defendants are entitled to request and collect documents potentially relevant to a lawsuit or prosecution. In today's highly digital business world, a company, especially one with global operations, may have millions of potentially relevant documents, both paper and electronic, including emails.
Companies generally have a duty to preserve and not destroy any potentially relevant information, documents, and records. Failing to preserve documents and other refusals to follow the U.S. discovery rules can result in sanctions ranging from monetary fines to an adverse judgment.
7. Defendants Often Settle and Plea before Trial
Very few civil and criminal cases, particularly antitrust cases, go to trial in the United States. Both sides will often opt for an agreed resolution – settlement agreements in civil cases and plea agreements in criminal cases – to avoid not only an uncertain trial verdict but also the significant time and expense that a trial requires. Settling does not necessarily mean that there is no chance of winning at trial. Instead, it often reflects a business or strategic decision made after weighing the benefits and the risks of settlement versus trial.
Private plaintiffs can also bring “class actions” in the United States, where the injury to each plaintiff or class member may be small and even weak, but, because the total class is large and indefinite, the potential damages are significant. In response, U.S. courts and legislators have built in safeguards to protect against unfair class settlements and the risk of a large verdict, as well as placing limitations on class actions generally.
8. Companies Sued in the U.S. May Face a Trial by an American Judge or Jury
In the United States, either a jury or a judge will decide the fate of a case at trial. An American jury is generally composed of 6 to 12 citizens chosen from the geographic area surrounding the court. Given the jury's role in deciding all issues of liability, jury selection is a crucial process.
Before a case reaches trial, there are also several points at which a judge could decide the case. Both federal and state court judges make their own decisions, without any direct interference by other government branches. Only other judges, on the appellate levels, can overturn a judge's ruling or a jury's verdict.
The trial of an antitrust case can last weeks. Lawyers from both sides present opening and closing arguments but the majority of the trial is often dedicated to the testimony of fact and expert witnesses. Opposing sides have the opportunity to question or “cross-examine” and discredit each other's witnesses. At the end of a trial, the jury or the judge considers the evidence and testimony presented at trial and the applicable laws before reaching a decision. The U.S. federal court system requires unanimous jury verdicts. In other words, all jurors must agree to find a defendant liable or guilty, unless the parties agree beforehand to a non-unanimous verdict. Not all state courts, however, require unanimous verdicts.
While antitrust cases rarely go to trial in the United States, trials are not out of the realm of possibility and can carry significant consequences. A non-U.S. company, therefore, should not only stay educated about the U.S. antitrust laws, but also should be prepared in the event it is sued in the United States under the antitrust laws.