A jury has returned a verdict against vitamin C manufacturer Hebei Welcome Pharmaceutical and its parent, North China Pharmaceutical Group, for violating American antitrust law. In finding for the plaintiffs, the jury rejected the Chinese companies’ defense that their conduct had been compelled by the Chinese government. The jury found that the plaintiffs had sustained damages of $54.1 million, which was trebled under U.S. antitrust law for a total award of $162.3 million.1 Prior to the jury verdict, three of the original five defendants reached a settlement with the plaintiffs, with two of them reportedly agreeing to pay the plaintiffs $22.5 million.2
The defendants had argued that the Chinese Chamber of Commerce of Medicines and Health Products Importers & Exporters was a part of the Ministry of Commerce of the People’s Republic of China (MOFCOM), and that they were thus legally required to act in accordance with the Chamber’s rules. Under American law, in some circumstances companies may avoid antitrust liability if a court finds that a foreign government compelled the companies to engage in anticompetitive behavior. In this case, however, the jury was persuaded by the plaintiffs’ portrayal of the Chamber as a voluntary organization that lacked the power to compel the defendants to fix prices.3
Earlier in the case, the District Court for the Eastern District of New York had twice refused to find that the foreign compulsion defense was sufficiently established to dispose of the case, despite MOFCOM’s submission of a brief stating that it had compelled the defendants to fix prices on vitamin C exports.4
The skepticism of both the court and the jury in this case could potentially be taken as a warning signal to Chinese companies – and their China-based trade associations -- that compulsion by Chinese law may be a difficult defense to establish in American courts. Although Chinese companies may feel compelled by guidance from their government, American judges and juries may not understand such guidance to be compulsion, and Chinese companies may in turn be exposed to significant antitrust liability in the United States.