Impending decision on vitamin C price fixing case could have wide ranging implications

“The importance of this case is that it could set a dangerous precedent,”​ said Scott Steinford, president of the CoQ10 Association and principal in the consulting firm Trust Transparency.

In mid-January the Supreme Court agreed to hear the case, which is now on the docket. The case has been winding its way through the courts for more than a decade. American companies Ranis Co, a food company, and Animal Science Products Inc, a livestock supplement company, led a class action lawsuit that charged price fixing on the part of North China Pharmaceutical Group Corp and its manufacturing arm Hebei Welcome Pharmaceutical Co.  The suit charged that the companies conspired in the period of December 2001 to June 2006 to send the price of vitamin C soaring from $2.50 a kilogram to $15.

Discrepancies between countries’ anti-trust laws

The Chinese companies used the so-called sovereignty defense, meaning they were complying with Chinese laws and thus had no choice in the matter.  The jury for the first go-round of what has become known as the Vitamin C Antitrust Litigation didn’t buy that argument and in 2013 found for the plaintiffs, awarding $148 million in damages.

But in 2016 the 2nd US Circuit Court of Appeals in New York overturned the ruling​​, saying that Chinese laws required the companies to act in manner that violated US antitrust laws. This meant the original verdict did not take into account the significant legal differences between the two countries, and therefore should be overturned.

In a written judgement, circuit judge Peter Hall stated: "Recognizing China's strong interest in its protectionist economic policies and given the direct conflict between Chinese policy and our antitrust laws, we conclude that China's interests outweigh whatever antitrust enforcement interests the United States may have in this case.” ​

Multi step legal test

The appeals court focused on how much the laws of the two countries were in “true conflict” which would make it impossible for a company operating in both markets to comply with both sets of laws. The ruling rested on a legal doctrine of international comity (essentially respect for each others’ laws). 

The court applied a 10-item test set up in two international precedents from the 1970s (one case was about timber harvested in Honduras, the other dealing with international trade in flooring products) to determine the degree to which it was obligated to extend deference to the Chinese government's interpretation of its own laws. The test includes concepts such as whether any judgment could be enforced and how much a ruling might negatively affect international relations between the two countries.

According to legal observers, these multi-item legal tests tend to make each ruling very specific to the facts of each case, which limits the precedential value of the earlier rulings.  It leads to less predictability in the outcomes, they say.

Vitamin C  price has remained stable

Steinford said the vitamin C trade has hummed along in the decade or more since the case first went to trial.  Prices have remained more or less stable at the higher level, he said, and companies that use this widely traded and employed commodity have adapted. He said he's often surprised by how many stakeholders in the industry seem to be in the dark on the issue. 

Cal Bewicke, CEO of ingredient supplier Ethical Naturals, said his firm does a small amount of business in natural forms of vitamin C, but he agreed that many in the industry take the commodity price for the bulk ingredient as a given without thinking much about how that price is set.  And he said he hopes that any publicity surrounding the case would not serve to stoke the fires in the US of seeing Chinese suppliers at the bogeymen. Bewicke said he sees any issues with Chinese supply, be they price, possible adulteration or what have you, as very much a two-way street.

What’s more important than trying to reset the price of vitamin C is what the case could mean for other ingredients, Steinford said.  If the Supreme Court rules to let the appeals court ruling stand, it could affect many other sectors, not just vitamins.

“The precedent that could set could have far reaching effects for all ingredients in international trade. I would estimate now that 80% or more of the ingredients in international trade either come from China or make their way through China,” ​Steinford said.

“What could this mean for the future if our anti-trust laws have no effect on ingredients purchased from China?”​ he added.

Oral arguments in the case are set for April 24.  It is listed on the docket as Animal Science Products vs Hebei Welcome Pharmaceutical Co.