In the October 2011 edition of Antitrust News & Notes, we reported that the district court in In Re Vitamin C Antitrust Litigation had ruled that a putative class was entitled to sue Chinese corporations accused of fixing Vitamin C export prices, notwithstanding the defendants' claim that the Chinese government had compelled the price-fixing activity.1 In the wake of that ruling, and a further ruling by the district court that it has the authority to enjoin illegal conduct by the Chinese firms, one Chinese company has broken new ground by entering into a US$10 million settlement with the putative class representatives.
The plaintiffs in In re Vitamin C Antitrust Litigation2 filed suit in 2005, alleging that certain Chinese corporate defendants3 violated U.S. antitrust law by fixing the price of Vitamin C exported from China to the U.S. As previously reported, in September 2011, Judge Brian Cogan of the Eastern District of New York denied a summary judgment motion in which the defendant vitamin manufacturers argued that they were required by Chinese government export regulations to fix prices, and for that reason, they should be immune from U.S. antitrust liability under the foreign sovereign compulsion doctrine. The Chinese government, appearing for the first time as an amicus before a U.S. court, submitted a brief in support of the manufacturers' claims of compulsion, but Judge Cogan denied the motion, concluding that the applicable Chinese regulations did not require price-fixing at above-market prices and did not impose penalties on the manufacturers amounting to compulsion.4 Judge Cogan later granted a motion for class certification on behalf of direct purchasers and certified two classes of such purchasers: one seeking damages and another seeking injunctive relief.5
Since we last reported on this matter, Judge Cogan has rejected another summary judgment argument seeking to cabin the court's authority over the Chinese defendants. Defendant Northeast Pharmaceutical Co. Ltd. (Northeast) moved for summary judgment on the grounds that injunctive relief against it was not warranted on the facts, and in any event, the court lacked the ability to enforce injunctive relief against a foreign corporation. Northeast argued that an injunction against a Chinese defendant would be unenforceable in practice, because the Chinese government would be unlikely to enforce injunctions issued by U.S. courts against Chinese corporations.6 According to Northeast's theory, the only mechanism available to a U.S. court for enforcing an injunction against a Chinese corporation would be to "embargo all exports of Vitamin C from Northeast at U.S. ports," and posited that doing so might spark an international trade war.7 The court disagreed that embargo was the only enforcement means at its disposal, and concluded that it could, among other options, hold Northeast in civil or criminal contempt and assess fines, which could be made payable to Plaintiffs in the event that Plaintiffs sustained losses as a result of Northeast's contempt. Rejecting Northeast's remaining arguments as merely repeating international comity issues he had addressed in his September 2011 ruling on the foreign sovereign compulsion doctrine, Judge Cogan concluded that it is "indisputably permissible" for a court to enjoin private companies from engaging in behavior on foreign soil that is directed towards the United States.8 The court distinguished the relief requested by Plaintiffs from action that might encroach on a foreign nation's sovereignty – such as enjoining "uniquely foreign behavior" or attempting to force China to revise its domestic laws regarding price-fixing.9 Noting that Plaintiffs instead sought to enjoin a cartel whose conduct was allegedly directed towards exports, including those to the United States, and that the requested relief was sought against a private entity rather than foreign government, the court held that an injunction in this instance would not inappropriately impact China's sovereignty.10
Following the court's September 2011 order denying the foreign sovereign compulsion defense, the class representatives for the Direct and Indirect Plaintiffs reached separate settlements with Defendant Aland (Jiangsu) Nutraceutical Co., Ltd. (Aland). On May 21, 2012, the settling Plaintiffs moved for preliminary approval of their settlements with Aland, the terms of which include payments by Aland totaling $10.5 million, $9.5 million of which would go to the Direct Purchaser Plaintiffs, with the remaining $1 million going to the Indirect Purchaser Plaintiffs.11 According to a copy of the settlement agreement between Aland and the Direct Purchaser Plaintiffs, Aland further agrees to obey any injunction against Section 1 violations that the district court may enter against non-settling Defendants, and to be treated as though it remains a defendant in the action if the matter goes to trial against the other Defendants.12 In exchange, Plaintiffs agree to a broad release of claims against Aland.13 In light of the release, the particulars of how Aland might participate at any future trial likely remain to be seen. The request for court approval is still pending and Aland has reserved the right to rescind the Settlement Agreements should court approval be denied. Aland appears to be the only defendant to have reached a settlement agreement with Plaintiffs, although negotiations with other defendants may be underway.
Should the court approve the Aland settlements, In re Vitamin C Antitrust Litigation will mark the first settlement by a Chinese company in a U.S. cartel class action. The settlement, together with Judge Cogan's rulings on questions of foreign sovereign compulsion and international comity, are a potent reminder to Chinese and other foreign companies doing business in the U.S. that they may be subject to U.S. antitrust law. With the U.S. Department of Justice and private plaintiffs focusing attention on Chinese companies, those companies should ensure that they are cognizant of U.S. antitrust laws and are implementing effective antitrust compliance policies.
Footnotes
1 See "District Court Denies Motion for Summary Judgment in Groundbreaking Decision Regarding the Foreign Sovereign Compulsion Defense Despite Chinese Government's Appearance as an Amicus," Antitrust News & Notes, October 2011, available at www.velaw.com.
2 In re Vitamin C Antitrust Litig., No. 1:06-MD-1738 (E.D.N.Y.).
3 The Chinese corporate defendants include Vitamin C manufacturers Herbei Welcome Pharmaceutical Co., Ltd., Northeast Pharmaceutical Co. Ltd., Weisheng Pharmaceutical Co. Ltd., and Aland (Jiangsu) Nutraceutical Co., Ltd.
4 In re Vitamin C Antitrust Litig., 810 F. Supp. 2d 522 (E.D.N.Y. 2011).
5 See In re Vitamin C Antitrust Litig., 279 F.R.D. 90 (E.D.N.Y. 2012).
6 In re Vitamin C Antirust Litig., No. 1:06-MD-1738, 2012 WL 2016824 (E.D.N.Y. June 4, 2012).
7 Id. at *3.
8 Id. at *6.
9 Id.
10 Id. at *6.
11 Joint Memorandum of Law in Support of Direct and Indirect Purchaser Plaintiffs' Motions for Preliminary Approval of Settlements with Defendant Aland, In re Vitamin C Antirust Litig., No. 1:06-MD- 1738, Docket #470-1 (E.D.N.Y. May 21, 2012).
12 Settlement Agreement, Exhibit A, Joint Memorandum of Law in Support of Direct and Indirect Purchaser Plaintiffs' Motions for Preliminary Approval of Settlements with Defendant Aland, In re Vitamin C Antirust Litig., No. 1:06-MD-1738, Docket #470-3, *8, 13 (E.D.N.Y. May 21, 2012).
13 Id. at * 8, *11.
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