Case Summary

In January, 2005, Animal Science Products, Ranis Company and other plaintiffs (collectively, “Plaintiffs”) raised antitrust actions in the U.S. against four Chinese Vitamin C makers (collectively, “Defendants”), alleging that Defendants formed an illegal cartel under the lead or guidance of China Chamber of Commerce for Import & Export of Medicines & Health Products (CCCMHPIE), restricting the quantity of Vitamin C and fixing its prices. Plaintiffs sought an injunction from the price-fixing acts and triple damages for their losses. The four Chinese companies were Hebei Welcome Pharmaceutical Co., Ltd., Weisheng Pharmaceutical (Shijiazhuang) Co., Ltd., Jiangsu Jiangshan Pharmaceutical Co. Ltd., and East North Pharmaceutical Co., Ltd. Two years later, North China Pharmaceutical Group Corp., the parent company of Hebei Welcome Pharmaceutical Co., Ltd. was brought into one of the class actions.

During the eight year litigation, two defendants, Weisheng Pharmaceutical (Shijiazhuang) Co., Ltd. and Jiangsu Jiangshan Pharmaceutical Co. Ltd., respectively settled for USD 22.5 million and USD 1.05 million with Plaintiffs. Defendant North East Pharmaceutical Co., Ltd. escaped from the actions because of an arbitration clause stated in its purchase agreements with its U.S. distributors, which moved the jurisdiction of the District Court.

On March 14, 2013, the Eastern District Court entered judgment for $153.3 million, about 1 billion RMB, against the only remained two defendants, Hebei Welcome Pharmaceutical Co., Ltd. and North China Pharmaceutical Group Corp. This is the first judgment held among those antitrust litigations against Chinese companies.

Lawyer’s comments

I. Antitrust Law of the U.S.

The Sherman Antitrust Act is the earliest law that prohibits antitrust acts. Section 1 states,

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

The Enhancement and Reform Act of 2004 raised the fine against a corporation to $100 million, the fine against a person to $1 million, and the imprisonment to a person to up to 10 years.

The remained two defendants were found to reach a fixed pricing agreement among competitors, forming a price cartel, which is strictly prohibited by the antitrust law in the U.S under the illegal per se rule. That is, the acts of the two defendants were illegal without extrinsic proof of any surrounding circumstances such as lack of knowledge or other defenses, or any economic analysis as to whether they promote or restrict competition. Acts regulated by the illegal per se rule include fixing prices, group boycott, division of markets and tier-in sale, and are generally restricted in all countries under their antitrust laws. Once a company is determined to having performed such acts, it may be imposed huge amount of fines and its executives may trigger criminal liabilities.

II. Chinese companies between antidumping and antitrust

In early 2002, two giant Vitamin C makers, Roche Ltd. and Basf GmbH shifted their operation strategies, reducing their production of Vitamin C，so Chinese companies got chances to occupy about 80% global markets of Vitamin C in a short time due to its much lower prices, and caused the Department of Commerce of U.S. to consider to allege the Chinese makers antidumping Vitamin C into the U.S. market.

At that time, it was common that Chinese companies received antidumping and anti-subsidy investigations and were unknowledgeable about antitrust rules in different countries. Therefore, in order to avoid being investigated for antidumping, they shared information and coordinated prices and quantities of goods among each other under the lead or guidance of domestic chambers of commerce or industry associations. The Antitrust Law of China also exempts such pricing agreements in Article 15, “Where a business operator is able to prove that the agreement it has entered into falls under any of the following descriptions，… (6) where the objective is to protect the legitimate interests in foreign trade and economic cooperation.” However, it is very hard to have foreign countries to admit the exempt in Article 15(6) since each country has its own jurisdiction over antitrust acts occurred outside its domain.

In this case, apparently, the Eastern District of New York did not accept Defendants’ arguments that they fixed the prices in order to maintain the Vitamin C markets or industry in a disciplined competitive order. Under the U.S. law, any agreement or conspiracy is illegal if it restraints the trade or commerce in the United States. Such a conspiracy disobeys the U.S. antitrust law even if it causes no substantial damages to the United States.

Therefore, any acts performed by competitors such as sharing price information, or fixing prices or quantities shall unavoidably fall into the regulatory scope of the antitrust law of U.S., no matter that the purpose is set to keep antidumping investigation away. The liabilities under the antitrust law will be even more serious. Chinese companies shall pay attention to antitrust as well as antidumping regulations and laws while doing overseas business.

III. Possible antitrust investigations in China or other countries

It is not the first litigation for the U.S. courts to determine the antitrust issue on Vitamin C. In May 1999, the antitrust unit of U.S. Department of Justice won its suits over price-fixing acts conducted by nine largest global Vitamin C makers, which paid $ 990 million as a result. The companies in Swiss, German, Belgium and Japan were accused of manipulating the prices of Vitamin C with a total amount of $ 5 billion in issue. The antitrust unit accused that Roche of Swiss initiated the price-fixing cartel, and imposed it with $ 500 million fine with some executives being imprisoned. Basf of German was imposed $ 225 million. Other companies were imposed different amounts. In November 2001, European Union charged the nine companies in total Euro 855 million including 462 million from Roche and 296 million from Basf.

Back to this Vitamin C case, the five Chinese companies may probably be further punished by the European Union or other countries if the same price conspiracy acts are found to have affected other regions as well, similar to what Roche and Basf encountered 12 years ago.

On January 4, 2013, the National Development and Reform Commission (NDRC) disclosed its LCD display antitrust investigation decision against Korean companies Samsung and LG and Taiwanese companies Chimei, AU Optronics, China Picture Tube and HannStar Display, imposing the six companies damages of RMB 353 million in total. This is the first investigation that China punished overseas companies for their lateral price fixation and the amount of damages is the largest that China ever imposed against illegal pricing acts. Representative of NDRC opined in public that NDRC would enhance its antitrust investigation and strictly enforce the Antitrust Law of China by treating domestic and foreign companies on equal footing. In light of the annual total Vitamin C production of 100 thousand tons, nearly 90% domestic market share, of the four companies, they may unavoidably fall into the investigation scope of NDRC if the companies have discussed the prices of their Vitamin C in the Chinese markets.

By JIN Yi, Lifang & Partners