Vitamin makers may appeal verdict

Updated: 2013-03-19 10:59

By Joseph Boris in Washington (China Daily)

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Vitamin makers may appeal verdict

A North China Pharmaceutical booth at a trade show in Shanghai. The Chinese drugmaker and its subsidiary Hebei Welcome Pharmaceutical were fined $162.3 million by a federal court in New York for price fixing of vitamin C. For China Daily

A New York jury last week found two Chinese companies liable for fixing prices of vitamin C sold in the United States, but the verdict doesn't necessarily end the unusual case or clear a path for resolving other competition-related disputes between the world's leading economic powers.

Seven jurors in US District Court in Brooklyn took less than a day of deliberation to decide that Hebei Welcome Pharmaceutical Co and its parent, North China Pharmaceutical Co, colluded to set prices and limit exports of raw vitamin C between December 2001 and December 2006, which is illegal under US antitrust laws because it stifles competition.

Immediately after Thursday's verdict, the judge in the case ordered Hebei Welcome and North China Pharmaceutical to pay $162.3 million to the US plaintiffs in the case. They had sued to recover $54.1 million, but US antitrust laws allow damages to be tripled.

The fine is the first of its kind against a Chinese pharmaceutical manufacturer. North China Pharmaceutical is one of the country's four biggest suppliers of vitamins.

On March 12, two days before the verdict, two other defendants that had gone to trial in the civil suit - Hong Kong-listed China Pharmaceutical Group Ltd and its Weisheng Pharmaceutical Co unit - reached a settlement in the case.

They agreed to pay the plaintiffs $22.5 million, though China Pharmaceutical said in a statement it believes it and Weisheng "are not liable for the claims asserted and that they have good and valid defenses thereto". The companies settled, according to the statement, to "avoid the risk of an adverse jury verdict and treble-damage award" as well as further appeals.

"Given the circumstances, it was a bearable settlement, and obviously no one knows what a jury will do," said Daniel Mason, a San Francisco-based lawyer for Zelle, Hoffman, Voelbel & Mason LLP, who represented China Pharmaceutical Group and Weisheng Pharmaceutical.

The two companies will pay their settlement in two chunks over 18 months, Mason said.

The Brooklyn jury didn't accept the defense that all four Chinese companies had presented at the start of the trial. In their defense, all stated their own government, through China's Ministry of Commerce, "compelled and enforced" them to act as a cartel.

In support of the vitamin C makers' admission that they acted together, the Ministry of Commerce submitted a friend-of-the-court brief - a rare move by a foreign government in a civil case. The ministry said a verdict or fine would "improperly penalize" the vitamin companies for "the sovereign acts of their government and would adversely affect implementation of China's trade policy".

The trial, which began on Feb 25 and lasted three weeks, might not be the final word in the case. The lawsuit was filed in 2005 by two US companies and has since grown to about 150 plaintiffs, mostly food and beverage processors, nutritional-supplement distributors and other direct buyers at a time that Chinese firms dominated a $500 million market for vitamin C in the US.

A 2002 written agreement by the Chinese companies to set prices and limit exports, the US plaintiffs claim, caused spot-traded prices of vitamin C to soar to as much as $15 a kilogram by April 2003 from about $2.50 per kg in 2001.

Xinhua News Agency reported on Sunday that North China Pharmaceutical would appeal the fine imposed on it and Hebei Welcome.

The ministry's written assertion was not allowed as evidence to be presented at trial, but the court did allow testimony from retired Ministry of Commerce official Qiao Haili, over the plaintiffs' objections.

Qiao, who formerly oversaw vitamin C exports for the ministry, took the stand on behalf of the two defendants and told jurors that the companies were required by Chinese law to adhere to agreed-on limits on price and output of their exports. If they didn't comply, their export licenses could have been revoked, Qiao said.

Whether it ends with last week's verdict or a ruling on appeal, the case probably won't alter the course of US-China commercial and trade relations, said Jacques de-Lisle, a law and political-science professor and director of the Center for East Asian Studies at the University of Pennsylvania.

"Vitamin C is an unusual product, and this was a market in which China had dominance," he said "It's probably more symptomatic than causal in terms of [frictions in] the commercial relationship."

For one thing, deLisle said, litigation risk is something that big players in any market, from any country, must factor in to their cost of doing business.

"One reason the sovereign-compulsion defense got complicated in this case is (that) what the Chinese companies were saying fell somewhere between two categories - one in which the foreign government is telling us, 'You must do X' and American antitrust law which says, 'Don't do X,'" he said.