Chinese companies win: US Antitrust judgment vacated on comity grounds

In an opinion issued on September 20, 2016, In re: Vitamin C Antitrust Litigation,¹ the Second Circuit unanimously held that US courts must respect a foreign government's—in this case, China's—interpretation of its laws or regulations where the foreign government directly participates in United States (US) court proceedings and demonstrates a true conflict of laws between the two countries. This long-awaited opinion, vacating a 2013 antitrust price-fixing jury verdict against Chinese vitamin C manufacturers, opens US antitrust and other laws to more comity arguments, particularly from businesses in China. In recognizing the unique nature of China's economic-regulatory system, the Court’s decision represents a victory for the Chinese defendants and offers a possible defense for businesses that face different and contradictory sets of laws or regulations abroad.

Background

US purchasers of vitamin C sued Chinese vitamin manufacturers and their affiliates claiming they illegally agreed to fix prices and limit output from China. The trial court denied the defendants’ initial motion to dismiss and denied the defendants’ subsequent motion for summary judgment, rejecting the Chinese manufacturer’s defenses of foreign sovereign compulsion, act of state doctrine; and principles of international comity. The trial court declined to defer to the interpretation of Chinese law contained in an amicus curiae brief that the Chinese Ministry of Commerce (MOFCOM) (speaking on behalf of the Chinese government) filed in support of the defendants. This was the first time any Chinese Government entity had appeared amicus curiae before any US court.

Ultimately, the case was tried to a jury in the Eastern District of New York. In March 2013, the jury returned a verdict against the Chinese manufacturers. The trial court entered a judgment awarding the plaintiffs approximately $147 million in damages and enjoining the defendants from engaging in future anticompetitive behavior. The Chinese manufacturers appealed. The Second Circuit heard argument on January 29, 2015, and issued its opinion in September 2016, reversing and remanding the judgment based on principles of international comity.

Comity balancing test

The Second Circuit used a comity balancing test. It 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 US 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 US court proceedings by providing sworn evidence of its laws, the US court must defer to the government's statements about its own law. Because 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 US 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 US antitrust laws if those businesses can prove that they were required to act by foreign regulations in a way that would violate US law if performed in the US 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 US, although the decision may be persuasive to other courts considering the same issue.