AAI Warns Supreme Court Against Shielding Foreign Export Cartels from Antitrust Scrutiny (Animal Science Products v. Hebei Welcome Pharmaceutical, No. 16-1220)

The American Antitrust Institute (AAI) has filed an amicus brief asking the U.S. Supreme Court to deny foreign governments effective veto power over application of the U.S. antitrust laws.

The question before the Court involves the standard standard of deference owed to statements of foreign sovereigns regarding interpretations of foreign law. This has important implications for the enforcement of the U.S. laws against foreign export cartels when they harm U.S. competition and consumers.

In a domestic antitrust class action, U.S. purchasers accused Chinese companies of fixing the price and limiting the supply of vitamin C exported to the U.S. On a motion to dismiss and again at summary judgment, the defendants argued that their conduct was exempt from antitrust scrutiny under multiple defenses. These include the act of state doctrine, the foreign sovereign compulsion doctrine, and principles of international comity.

At both stages, the Ministry of Commerce of the People’s Republic of China (MOFCOM) appeared as amicus curiae on behalf of the defendants, stating that their conduct was compelled under Chinese law. The district court refused to dismiss the case, finding sufficient contradictory evidence of compulsion to warrant further factual development. The case proceeded to trial, and a jury awarded plaintiffs $54.1 million in damages before trebling.

On appeal, the Second Circuit reversed the judgment and held that the district court should have granted defendants’ motion to dismiss in the first instance under principles of international comity. The court concluded that there was a “true conflict” between U.S. and Chinese law, based on statements in MOFCOM’s amicus brief to which the Court held it was “bound to defer.”

The AAI brief makes a number of important arguments regarding the standard of deference in such cases. First, adopting the Second Circuit’s “conclusive” standard of deference to a foreign government’s statement that its laws compelled price fixing of exports to the United States would make it too easy to establish a foreign sovereign compulsion defense or a “true conflict” under principles of international comity. The effect would be to substantially impair antitrust enforcement and impose significant costs on U.S. consumers.

Second, the brief argues that strict compliance with the requirements for these defenses is dictated by the Sherman Act’s statutory jurisdictional reach. It is also consistent with international antitrust norms condemning protectionist export cartels. A conclusive deference standard would lower these strict standards by making it easier to prove compulsion or a conflict of laws, even when other evidence suggests either or both may be dubious.

Third, the brief argues that ambiguity and a lack of transparency in an exporting country’s “regulatory” regime should counsel against excessive deference to the country’s post hoc litigation statements that it required its companies to cartelize export trade.

Finally, the brief argues that it would be particularly unwise to lower the standards for proving compulsion or conflict in an era when international cartels continue to proliferate and more, not less deterrence, is needed.

The brief was written by AAI Vice President & General Counsel Rick Brunell and Associate General Counsel Randy Stutz, with assistance from AAI research fellows Mark Angland and So Young Oh.