In re Vitamin C Antitrust Litigation: A Watershed Case?

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The U.S. Court of Appeals building housing the Second Circuit in New York City. [Courtesy Bjoertvedt/Wikimedia]

Courts tread carefully when applying U.S. law to foreign defendants. Foreign law may compel the very conduct that U.S. law prohibits, and judicial interference may infringe on the executive function to handle international relations. While principles of international comity indicate that U.S. courts should defer to the laws of other nations out of respect, the contours of these principles are less than clear. In 2016, the Second Circuit confronted the thorny issue of extraterritorial application of U.S. laws on several occasions. In particular, In re Vitamin C Antitrust Litigation merits reflection. Although commentators differ on the importance of the case, Vitamin C offers a window into how the Second Circuit may navigate international comity issues in future cases.

On September 20, 2016, the Second Circuit settled an antitrust matter waged for over a decade. In 2005, commercial purchasers of Vitamin C alleged that four Chinese manufacturers engaged in a conspiracy to fix prices and volumes in violation of §1 of the Sherman Act and §§4 and 16 of the Clayton Act. Together, the two Acts comprise the bedrock of American antitrust law, which broadly aims to protect free markets and eliminate conduct that restrains competition. The Vitamin C defendants did not dispute the allegations, but moved to dismiss based on several defenses, including the principle of international comity. To support this defense, the Ministry of Commerce of the People’s Republic of China (MOFCOM) filed an amicus brief, maintaining that Chinese law mandated that defendants fix prices and restrict output. According to MOFCOM, a chamber of commerce regulated Vitamin C exports through a verification process that coordinated minimum prices and export volumes. Nevertheless, the Eastern District of New York denied the motion to dismiss, seeking additional discovery, and subsequently denied a motion for summary judgment, concluding that the “Chinese law relied upon by defendants did not compel their illegal conduct.” Despite the historic nature of MOFCOM’s appearance, which the District Court noted was the first time the Chinese government appeared amicus curiae before any U.S. court, Judge Brian Cogan deemed MOFCOM’s efforts a “post-hoc attempt to shield defendants’ conduct…rather than a…straightforward explanation of Chinese law.” He credited the expert testimony of the plaintiffs, which deemed price fixing voluntary under Chinese law. After some defendants settled, the remaining defendants proceeded to trial, where a jury returned a guilty verdict, rendering a $147 million award.

On appeal, the Second Circuit vacated the judgment, finding that the lower court’s exercise of jurisdiction constituted an abuse of discretion. The Second Circuit held that Judge Cogan failed to give adequate deference to MOFCOM’s interpretation of Chinese law. In what has been deemed a watershed opinion, Judge Hall, on behalf of a unanimous court, stated, “We reaffirm the principle that when a foreign government, acting through counsel or otherwise, directly participates in U.S. court proceedings by providing a sworn evidentiary proffer regarding the construction and effect of its laws and regulations, which is reasonable under the circumstances presented, a U.S. court is bound to defer to those statements.” While Judge Hall acknowledged the existence of varying opinions across circuits, he aimed to uphold a “tradition of according respect to a foreign government’s explication of its own laws,” and concluded that the Chinese government deserved “the same respect and treatment” that the U.S. would expect “to receive in comparable matters before a foreign court.” Judge Hall found that a “true conflict” of laws existed that compelled the manufacturers to violate U.S. antitrust laws. Unlike the lower court, Judge Hall accepted MOFCOM’s explanation as reasonable; as Freshfields Brukhaus Deringer attorneys explained, MOFCOM posited that, despite voluntary language, “terms of art within Chinese law” connoted the “government’s expectation that private actors actively self-regulate to achieve the government’s policy goals in order to minimize the need for the government to resort to stronger enforcement methods.” Even if the anticompetitive conduct harmed American consumers, U.S. courts had no apparent jurisdiction over the case, allowing the defendants to escape the colossal judgment.

While Vitamin C garnered substantial press, commentators debate its implications. In China, Quinn Emanuel observes that the decision was “hailed as a victory” over the overreaching of U.S. laws. O’Melveny & Myers read the opinion as limiting “the extraterritorial reach of the Sherman Act, thereby echoing recent decisions narrowing the geographic scope of [U.S.] law in other areas”; these commentators likened Vitamin C to the landmark case of Daimler, which restricted the scope of general jurisdiction over a foreign defendant. Years after the 1982 enactment of the Foreign Trade Antitrust Improvements Act, which enables the application of antitrust laws to foreign conduct that has a “direct, substantial, and reasonably foreseeable effect” on U.S. commerce, the boundaries of antitrust law appear unsettled.

However, several factors limit the impact of Vitamin C. Although Vitamin C might be read to indicate that a true conflict of laws guarantees dismissal, the participation of the Chinese government was pivotal to defendants’ prevailing. Foreign governments will not show up in every case. Thus, concerns that Vitamin C will lead foreign companies to disregard U.S. law with the expectation that they can justify anticompetitive behavior as government-mandated fall flat. Moreover, MOFCOM’s intervention was particularly forceful; as Judge Hall observed, “the Chinese government has repeatedly made known to the federal courts, as well as to the United States Department of State in an official diplomatic communication…that it considers the lack of deference it received…to be disrespectful.” Perhaps a less vigorous appeal by a government with less influence would not have earned a dismissal even in the event of a “true conflict.”

Given the development of antitrust laws in China, U.S. courts are also less likely to encounter similar issues with Chinese corporations in the future. Since the conduct at issue in Vitamin C, which occurred from 2001 to 2005, China has reformed its export policies and instituted laws that minimize coordination of prices among competitors. On the other hand, conduct that is unlawful in the U.S. and permissible in China still exists in other areas of law; thus, American plaintiffs should take note of Vitamin C as they try to collect against Chinese defendants.

Furthermore, several questions remain unanswered. As the National Law Journal observed, the comity defense “remains ripe for probing in future cases.” The Second Circuit articulated that a foreign government’s interpretation of law must be “reasonable under the circumstances,” yet whether courts have any leeway on evaluating reasonableness is unclear. By analyzing MOFCOM’s testimony, Judge Hall suggested that the reasonableness factor was important, and yet, the Court observed, “we have yet to identify a case where a foreign sovereign appeared before a U.S. tribunal and the U.S. tribunal adopted a reading of that sovereign’s laws contrary to that sovereign’s interpretation of them.” Thus, perhaps plaintiffs have no hope in withstanding a comity defense when a foreign defendant receives clear support from its government. Still, in the last footnote of Vitamin C, the Court cabined its ruling: “it may not be reasonable in all cases to abstain on comity grounds from asserting jurisdiction at the motion to dismiss stage…a trial court may need the opportunity to consider the countervailing interests and policies on the record that follows discovery.” Considering this cautionary note, perhaps if a trial would cause political strife between the United States and a foreign sovereign, dismissal might be warranted even if the defendants’ conduct was not compelled by foreign law. Finally, the opinion does not exclude the possibility that an assertion of a “true conflict” of law by a private individual may be sufficient in some cases.

Rather than announce a clear rule, the Second Circuit left future courts room to interpret the breadth of Vitamin C. Thus, the facts and circumstances of each case may dictate how a court will weigh a foreign sovereign’s interpretation of conflicts of law. Commentators and corporations alike should continue to monitor Vitamin C as the plaintiffs may petition the Supreme Court for review this year.


Katie Salvaggio is a second-year student at Columbia Law School and a staff member of the Journal of Transnational Law. She graduated from the University of Virginia in 2013 with a degree in history.