Chinese companies win: Antitrust judgment vacated on comity grounds

Publication September 2016

In an opinion issued on September 20, 2016, In re: Vitamin C Antitrust Litigation, the Second Circuit unanimously held that U.S. courts must respect a foreign government's interpretation—in this case, China's interpretation—of its laws or regulations where the foreign government directly participates in U.S. court proceedings. This long-awaited opinion, vacating a 2013 antitrust price-fixing verdict against Chinese vitamin C manufacturers, opens U.S. antitrust law to more comity arguments, particularly from businesses in China. The Court's decision, in recognizing the unique nature of China's economic-regulatory system, represents a victory for the Chinese defendants and offers a possible defense for businesses that face different and contradictory sets of laws or regulations.

Background

In the trial, U.S. purchasers of vitamin C alleged that Chinese vitamin manufacturers and their affiliates illegally agreed to fix prices and limit output from China. The Chinese Ministry of Commerce (MOFCOM), speaking on behalf of the Chinese government, filed an amicus curiae brief in support of the defendants during trial. In March 2013, a jury returned a verdict against the Chinese manufacturers, awarding vitamin purchasers $54 million in damages, which was then trebled under U.S. antitrust laws to a $162 million judgment. The Chinese manufacturers appealed. The Second Circuit heard argument on January 29, 2015, and issued its opinion in  September, reversing and remanding the judgment based on principles of international comity.

Comity balancing test

The Court used a comity balancing test. The Second Circuit explained that a court should abstain from exercising subject-matter jurisdiction where compliance with the laws of two countries is impossible, in what the Court described as a "true conflict." To determine whether a true conflict exists, a court must determine what the law of each country requires. Because U.S. antitrust law clearly prohibits horizontal price-fixing arrangements, the question before the Second Circuit was whether Chinese regulations required the defendants to enter into horizontal price-fixing agreements. The Second Circuit explained that when a foreign government directly participates in U.S. court proceedings by providing sworn evidence of its laws, the U.S. court must defer to the government's statements about its own law. Since MOFCOM declared that it required the defendants to engage in the price-fixing at issue in the case, a true conflict existed between Chinese and U.S. law. As a result, the Second Circuit held the trial court abused its discretion when it ruled on the antitrust claims instead of abstaining from exercising subject-matter jurisdiction.

Impact of decision

The Second Circuit's opinion offers some clarity for businesses sued under U.S. antitrust laws if those businesses can prove that they were required to act by foreign regulations in a way that would violate U.S. law if performed in the United States. Defendants, particularly Chinese businesses, may try to rely on sworn statements by foreign governments and wield the comity defense to have lawsuits dismissed based on the abstention doctrine. The Second Circuit's decision is not binding in other circuits around the United States, although the decision may be persuasive to other courts considering the same issue. Plaintiffs could seek a rehearing in the Second Circuit or petition for certiorari with the U.S. Supreme Court to try to reverse the ruling.


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