HIGHLIGHTS:

  • The U.S. Supreme Court has invited the Acting Solicitor General to express the views of the United States regarding Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co. Ltd., et.al, otherwise known as In re: Vitamin C Antitrust Litigation.
  • The request may signal the Supreme Court's intent to review the U.S. Court of Appeals for the Second Circuit's decision in this case, which held that international comity required dismissal of an otherwise valid antitrust claim, with prejudice, because the government of China appeared amicus curiae and asserted that its laws required defendants to engage in anti-competitive conduct.
  • The Second Circuit's ruling, if left to stand, could have far-reaching implications for U.S. companies working with foreign suppliers, manufacturers and distributors. For this reason, guidance from the U.S. Supreme Court would be welcome for all companies engaged in international commerce.

The U.S. Supreme Court on June 26, 2017, took the somewhat unusual step of inviting the Acting Solicitor General to express the views of the United States regarding Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co. Ltd., et.al, Case No. 16-1220, otherwise known as In re: Vitamin C Antitrust Litigation. This request may signal the Supreme Court's intent to review the U.S. Court of Appeals for the Second Circuit's controversial decision in this case, No. 13-4791-cv (2d Cir. Sept. 20, 2016), which held that international comity required dismissal of an otherwise valid antitrust claim, with prejudice, because the government of China appeared amicus curiae and asserted that its laws required defendants to engage in anti-competitive conduct. The Second Circuit's ruling, if left to stand, may have far-reaching implications for U.S. companies working with foreign suppliers, manufacturers and distributors.

Overview 

In 2005, the plaintiffs, U.S. vitamin C purchasers Animal Science Products Inc. and The Ranis Company Inc., brought a multi-district class action against Chinese vitamin C suppliers Hebei Welcome Pharmaceutical and North China Pharmaceutical Group Corp., alleging that the Chinese suppliers conspired to fix the price and supply of vitamin C sold to U.S. companies on the international market in violation of Section 1 of the Sherman Act as well as Sections 5 and 16 of the Clayton Act. The U.S. District Court for the Eastern District of New York denied the defendants' motion to dismiss, and a jury rendered a verdict in favor of the plaintiffs. The plaintiffs were awarded $147 million, and the defendants were enjoined from engaging in future anti-competitive conduct.

On appeal, the Second Circuit considered whether the principles of international comity require a federal court to abstain from exercising jurisdiction over the litigation. The Chinese government appeared amicus curiae before both the district and appellate courts (marking the first appearance by the Chinese government before a U.S. federal court). Specifically, the Chinese Ministry of Commerce submitted an amicus brief, stating that Chinese law required the defendants to fix the price and quantity of vitamin C sold abroad. Thus, the Ministry asserted, the Chinese suppliers were engaged in anticompetitive behavior dictated by Chinese law.

The Second Circuit held that the federal courts must defer to the Chinese government's interpretation of its own laws. Thus, the District Court abused its discretion by allowing the matter to proceed when U.S. and Chinese anti-competitive laws were in "true conflict," as principles of international comity required the District Court to abstain from exercising jurisdiction over the matter. Accordingly, the Second Circuit vacated the jury award, overturned the injunction and remanded the case with instructions to dismiss the complaint with prejudice.

The plaintiffs sought certiorari in January 2017. In late June, after all briefing on certiorari was otherwise completed, the Supreme Court "invited" the Acting Solicitor General "to file a brief in this case expressing the views of the United States."

International Comity and Deference

The central issue considered by the Second Circuit was whether the principles of international comity required the District Court to abstain from asserting jurisdiction over the plaintiffs' antitrust claims. As the Second Circuit stated, the doctrine of "international comity" is "not just a vague political concern favoring international cooperation when it is our interest to do so, but rather a principle under which judicial decisions reflect the systemic value of reciprocal tolerance and goodwill." As such, courts must balance the interests of the United States, the foreign state, and the just and efficient functioning rules of international law to ascertain whether it is appropriate to maintain jurisdiction over a matter that concerns matters of international comity.

In weighing these considerations, the Second Circuit applied a multi-factor balancing test established by Timberlane Lumber Co. v. Bank of America, 549 F.2d 597 (9th Cir. 1976) and Mannington Mills, Inc. v. Congoleum Corp., 595 F.2d 1287 (3d Cir. 1979). These factors are:

  1. the degree of conflict with foreign law or policy
  2. the nationality of the parties, locations or principal places of business of corporations
  3. the relative importance of the alleged violation of conduct here as compared with conduct abroad
  4. the extent to which enforcement by either state can be expected to achieve compliance, the availability of a remedy aboard and the pendency of litigation there
  5. the existence of intent to harm or affect American commerce and its foreseeability
  6. the possible effect upon foreign relations if the court exercises jurisdiction and grants relief
  7. if relief is granted, whether a party will be placed in the position of being forced to perform an act illegal in either country or be under conflicting requirements by both countries
  8. whether the court can make its order effective
  9. whether an order for relief would be acceptable in this country if made by the foreign nation under similar circumstances
  10. whether a treaty with the affected nations has addressed the issue

In evaluating these factors, the Second Circuit focused on the degree to which the U.S. and Chinese laws on price-fixing were in "true conflict" making it impossible for an individual or entity to comply with both sets of laws. In making this determination, the Second Circuit evaluated the degree to which it was obligated to extend deference to the Chinese government's interpretation of its own laws and determined that a foreign government's statement interpreting its own laws must be afforded deference. The Second Circuit affirmed that "when a foreign government, acting through counsel or otherwise, directly participates in U.S. court proceedings by providing a sworn evidentiary proffers regarding the construction and effects of its laws and regulations, which is reasonable under the circumstances presented, a U.S. court is bound to defer to those statements," citing United States v. Pink, 315 U.S. 203 (1942) (which held that an official declaration from the Russian government explaining the intended effect of its 1918 decree nationalizing Russia's insurance business was conclusive and entitled to deference). The Second Circuit went on to state that, "[i]f deference by any measure is to mean anything, it must mean that a U.S. court not embark on a challenge to a foreign government's official representation to the court regarding its laws or regulations, even if that representation is inconsistent with how those laws might be interpreted under the principles of our legal system."

On this basis, the Second Circuit deferred to the Ministry's written interpretation of its laws and, as explained in the amicus brief, concluded that China's laws required the defendants to engage in anti-competitive behavior. Based on the deference afforded to the Ministry's written interpretation of China's laws, the Second Circuit held that the U.S. antitrust laws and Chinese law were in "true conflict" and the comity test weighed in favor of the courts abstaining from exercising jurisdiction over the matter.

Conclusion

For defendants faced with allegations of anti-competitive conduct occurring abroad, the Second Circuit's decision provides a clear road map to dismissal where the relevant foreign government is willing to appear and claim its laws conflict with the U.S. antitrust laws. For plaintiffs, the decision should give pause when considering claims against foreign companies, particularly those located in countries with laws that may provide the patina of legality to anti-competitive conduct.

For all companies engaged in international commerce, guidance from the U.S. Supreme Court would be welcome. If its request for input from the Acting Solicitor General is any indication, the Court may agree.