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Managerial Economics

Notes The foreign sovereign compulsion defense has rarely been litigated and it has only been
successful once, according to antitrust law experts. But the presence of the Chinese
government in the vitamin C case could cause Judge Brian Cogan to look for a way to
dismiss the case. "You can see why a judge would be reluctant to keep the case when it's
about foreign affairs and trade policy," said Spencer Waller, director of the Institute for
Consumer Antitrust Studies at Loyola University Chicago School of Law.
No U.S. Action
The Chinese government's participation may explain why neither the U.S. Department of
Justice nor the Federal Trade Commission has taken any action against the Chinese
companies. According to enforcement guidelines that the government issued in 1995, the
DOJ and FTC will not take action against a company if a foreign government makes a
sufficiently detailed presentation that a specific law compelled the defendant's actions.
William Isaacson, a partner at Boies, Schiller & Flexner and the co-lead counsel for the
plaintiffs, said that neither the Chinese government nor the defendants have been able to
point to such a law.
Isaacson and his law firm have a unique perspective on the vitamin C market. In the late
1990s, they investigated a vitamin C cartel among European and Japanese companies.
Their probe led to U.S. prosecutions that resulted in more than $900 million in corporate
fines and several guilty pleas. Isaacson said he is bewildered that the U.S. government has
not contacted him for more information about his case against the Chinese companies.
"I've never understood why they don't want to find out what's been happening." The
Department of Justice's antitrust division and the FTC declined to comment.
The plaintiffs, two U.S. buyers of vitamin C, alleged in one of their briefs that the defendants
fixed prices without any help from the government. It was only after the defendants were
accused of price fixing that they invoked their government's involvement, according to
the plaintiffs.
For their part, the Chinese manufacturers say that China's Ministry of Commerce directed
an entity called the Chamber of Commerce of Medicines and Health Products Importers
and Exporters to coordinate production. According to the brief submitted by the Ministry
of Commerce, the action was taken in order to mitigate the exposure Chinese companies
faced in potential antidumping investigations from other countries and to ensure China's
orderly transition to a market-driven economy.
But that position could turn out to be problematic for China in a dispute with the United
States at the World Trade Organization. In that proceeding, the United States has charged
that China has played a role in limiting exports of certain raw materials, in violation of
WTO rules. To bolster its case, the United States has pointed to China's admission in the
vitamin C case that in fact it is involved in setting production limits.
The case is Animal Science Products and The Ranis Company v. Hebei Welcome
Pharmaceutical Co. Ltd. et al, U.S. District Court for the Eastern District of New York, No.
05-00453.
Question
Do you think what China is doing is right?

Source: Reporting by Andrew Longstreth of Reuters Legal; Editing by Amy Singer and Eddie Evans; This article first appeared
on Westlaw News & Insight, www.westlawnews.com

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