On Thursday, March 14, a federal jury in New York found Chinese vitamin-C manufacturer Hebei Welcome Pharmaceutical Co. and its parent, North China Pharmaceutical Group Corp., liable for agreeing with other Chinese manufacturers to fix prices in the vitamin-C market. The jury awarded USD54.1m in damages to the plaintiffs – purchasers including U.S. food and drink companies, packagers, wholesalers and distributors – an amount which was then trebled by the presiding judge to an award of USD162.3m in accordance with federal antitrust laws. Three other Chinese manufacturers involved in the conspiracy reached settlements with the plaintiffs prior to the announcement of the verdict.
The significance of this case lies in the rejection by both the court and jury of the vitamin-C defendants' arguments that they only fixed prices because they were instructed to do so by the Chinese government. These arguments were rejected notwithstanding supporting admissions made by the Chinese government in papers filed in advance of the trial, as well as live testimony provided by a former Chinese government official during trial. Under the U.S. foreign sovereign compulsion doctrine, foreign companies may be exempted from antitrust law violations where it is shown that their actions were compelled by a foreign government.
That the vitamin-C producers were held liable for violating the antitrust laws in the face of admissions by the Chinese government that it facilitated the conduct, suggests the foreign sovereign compulsion doctrine will be of little utility to foreign-based multinationals to fend off antitrust suits in the future. It also highlights the likelihood we will see an increase in the number of civil antitrust cases in coming years challenging cartels formed in China and other economies where regulators continue to play an active role in managing markets. These types of cases are often lengthy, costly and highly disruptive to businesses, as is evidenced by the fact that the vitamin-C case only just concluded after over eight years of litigation.
This development reinforces the need for Chinese multinationals, as well as multinationals in other regulated economies, to be particularly vigilant in balancing their global business responsibilities with their obligations to and relationships with their sovereign governments, particularly when it comes to antitrust law. Antitrust enforcement is an increasingly global practice, requiring companies to evaluate compliance and market strategies utilizing both local and global standards.