Brian Cogan, a judge at the US District Court for the Eastern District of New York, has only just taken the case on following the death of David Trager, said William Isaacson, partner at Boies, Schiller & Flexner and co-lead counsel for the plaintiffs.
“But he has a reputation for moving fast. I expect to hear something any week now.”
The Chinese firms, who are accused of colluding to limit production and fix Vitamin C prices in the US from 2001, claimed they were compelled to do so by the Chinese government, which has taken the highly unusual step of submitting a written document to the court supporting the defendants.
Is the case beyond the jurisdiction of the US courts?
The key issue at stake is whether the doctrines of ‘foreign sovereign compulsion’ (which protects foreign firms compelled by their governments to break US law) and ‘act of state’ (which says a foreign government can’t be questioned by another country’s courts for actions within its own borders), apply in this case.
If they do, it would be beyond the jurisdiction of US courts, even though the companies have not contested the allegations.
When judge Trager rejected a bid to dismiss the case in 2008, he said it was not clear “whether the defendants were performing a government function, whether they were acting as private citizens pursuant to governmental directives or whether they were acting as unrestrained private citizens”.
However, the plaintiffs – two US vitamin buyers –insist the Chinese firms were acting independently and that the doctrines did not apply, said Isaacson. “They only brought in the government later when they were accused of price fixing.”
The actions of the firms contributed to a sharp rise of the price of vitamin C as they controlled such a large share of the global market (more than 60 percent) between them, he claimed.
How has China built its dominant position in global vitamin supply?
Leo Hepner, a consultant to the food and pharmaceutical industry, told our sister title FoodManufacture.co.uk that Chinese vitamin C producers had been able to build up a dominant position in the market after benefiting from government export subsidies enabling them to undercut US and European rivals, which had until the early 1990s themselves been accused of anti-competitive behavior.
But they were also ahead of the game technologically, claimed John Connor, Professor of Industrial Economics at Purdue University, who has written extensively about global vitamin production.
“A two-stage fermentation technology was developed in China around 1990 that resulted in significantly lower costs of production for vitamin C than the synthetic process used by European and Japanese manufacturers. Whenever Chinese chemical companies could adopt production methods that made their vitamin production price-competitive (assisted by Chinese government export subsidies), they aggressively captured US market share.”
Conditions ‘ripe for forming export cartel’
While he could not comment specifically on the case in question, he said that translations of web-posted documents of the Chinese firms about their intention to fix export prices “appeared to be quite inculpatory from a US antitrust-law perspective, and the 2004-05 price increases were [also] suspicious”.
He added: “The high degree of concentration of supply, along with many other factors that are known about the industry, make it ripe for forming an effective export cartel. But whether such a cartel was in fact formed and raised prices would require months of further study.”
One industry source told NutraIngredients-USA.com he could recall only one case where the foreign sovereign compulsion doctrine had been successfully used as a defense, adding that in most cases, while the foreign government may have permitted, suggested or even encouraged anti-competitive behavior, it "did not flat out require the defendants to act this way".
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