On August 10, 2021, the United States Court of Appeals for the Second Circuit (the “Second Circuit”) once again drew on principles of international comity to dismiss antitrust price-fixing claims against Chinese vitamin C manufacturers.1 The court found that a true conflict existed between Chinese law and U.S. law, making it impossible for the China-based defendants to comply with both. This, in combination with other international comity factors favoring dismissal, supported the court’s position that U.S. law could not reach the defendants’ conduct abroad. The Second Circuit’s decision strengthens the international comity defense in cases that meet certain criteria, providing foreign companies with a potential shield against U.S. antitrust liability.
How Did We Get Here?: The Procedural Posture
In 2005, U.S. purchasers of vitamin C filed suit in the Eastern District of New York, alleging that China-based defendants, Hebei Welcome Pharmaceutical Co. Ltd. and North China Pharmaceutical Group Corporation, violated U.S. antitrust laws by conspiring to fix the price of vitamin C exported into the U.S.2 The defendants did not deny the allegations. Instead, they argued that the district court should decline jurisdiction and dismiss the case on international comity grounds because price fixing was required under Chinese law. China’s Ministry of Commerce (the “Ministry”) supported the defendants’ interpretation of the law in an amicus curiae brief submitted to the court. This, notably, was the first time the Chinese government had inserted itself into U.S. court proceedings. The district court rejected the defendants’ claims, finding that Chinese law did not compel the alleged conduct and that international comity did not require dismissal of the case. After the defendants lost at trial, the court entered a $147.8 million judgment against them.
On appeal in 2017, the Second Circuit reversed the district court’s ruling, finding that the lower court abused its discretion in denying the defendants’ motion to dismiss.3 The Second Circuit held that U.S. courts are bound to defer to a foreign government’s interpretation of its own laws when that foreign government submits an official interpretation. Applying this rule, the court found that international comity required the lower court to dismiss.
The Supreme Court overturned the Second Circuit’s ruling in 2018, finding that the circuit court gave too much deference to the Ministry’s submission.4 The Court held that “[a] federal court should accord respectful consideration to a foreign government’s submission, but is not bound to accord conclusive effect to the foreign government’s statements.”5 The Court remanded the case back to the Second Circuit for reconsideration in accordance with its holding.
Second Circuit Decision
On remand, the Second Circuit followed the Supreme Court’s direction and “carefully consider[ed]” the Ministry’s statements supporting the defendants’ position.6 The court proceeded to apply a multi-factor balancing test to determine whether international comity applied to the case, focusing heavily on the first factor — the existence of a “true conflict.”7
The Second Circuit found that, during the period in question, Chinese vitamin C exporters were required to coordinate on price pursuant to price-fixing controls enacted by the Chinese government. In coming to this conclusion, the court relied on materials, including regulatory documents and the Ministry’s own statements. These sources supported the conclusion that a true conflict existed because abiding by Chinese law would have required the defendants to violate U.S. antitrust law.
While the majority of the Second Circuit’s analysis focused on the first factor, the court noted that additional comity factors also weighed in favor of dismissal. These factors include (1) the defendants’ nationality and the site of the anticompetitive conduct, (2) reciprocity expectations if the U.S. had laws similar to those in China, and (3) the possible effect on foreign relations. In regard to this third factor, the court noted the Department of State’s lack of guidance regarding the effects on foreign relations. Absent executive input pointing to the contrary, the court relied on the Ministry’s statements indicating that China saw the proceedings “as threatening its rights as a sovereign to enact and enforce regulations governing Chinese companies conducting business within China’s borders.”8
The Second Circuit acknowledged the U.S. interest in “the uniform enforcement of its antitrust laws,” but again pointed to the fact that neither the U.S. Department of Justice nor the Department of State participated or weighed in on the proceedings.9 To address U.S. concerns, the court listed a number of alternative means for which the U.S. could enforce its interest, including “bilateral diplomatic efforts, multilateral discussions, trade proceedings in the [World Trade Organization], or dispute resolution in another international forum.”10
Key Takeaways: What Does This Mean?
The Second Circuit’s decision strengthens the international comity defense in a narrow set of cases where a foreign government participates in U.S. proceedings by submitting interpretations that make clear its laws conflict with U.S. laws. While these interpretations are not given complete deference, they may be given considerable weight when supported by additional documents and materials. Certainly the Second Circuit’s decision in this case may provide foreign defendants who meet these unique characteristics with a potential shield against antitrust liability. The decision should not be read, however, to completely preclude U.S. enforcement, and it remains to be seen whether other circuits presented with the same question will reach a similar conclusion. Moreover, as the Second Circuit noted, the U.S. may still invoke its interest through alternative means, such as trade negotiations between the executive branches of each nation, or dispute resolution in an outside forum. Executive Branch guidance on whether proceedings would have an adverse effect on foreign relations may also tip the balance against dismissal, allowing U.S. courts to invoke jurisdiction and hear the case.
1 See Animal Sci. Prods., Inc. v. Hebei Welcome Pharma. Co. Ltd., No. 13-4791-CV, 2021 WL 3502632, at *1 (2d Cir. Aug. 10, 2021).
2 Id. at *2.
3 In re Vitamin C Antitrust Litig., 837 F.3d 175, 189 (2d Cir. 2016).
4 Animal Sci. Prods., Inc. v. Hebei Welcome Pharma. Co., 138 S. Ct. 1865, 1869 (2018).
6 Supra note 1, at *4.
7 The ten-factor test is outlined in a footnote to the decision and includes, “(1) Degree of conflict with foreign law or policy; (2) Nationality of the parties; (3) Relative importance of the alleged violation of conduct here compared to that abroad; (4) Availability of a remedy abroad and the pendency of litigation there; (5) Existence of intent to harm or affect American commerce and its foreseeability; (6) Possible effect upon foreign relations if the court exercises jurisdiction and grants relief; (7) If relief is granted, whether a party will be placed in the position of being forced to perform an act illegal in either country or be under conflicting requirements by both countries; (8) Whether the court can make its order effective; (9) Whether an order for relief would be acceptable in this country if made by the foreign nation under similar circumstances; [and] (10) Whether a treaty with the affected nations has addressed the issue.” See id. at *4 n.9.
8 Id. at *17.
9 Id. at *18.