Antitrust Law Daily Wrap Up, TOP STORY—EDNY: Chinese Holding Company’s Links to Vitamin C Price Fixing Conspiracy Sufficiently Established, (Feb 11, 2013)

By E. Darius Sturmer, J.D.

A Chinese investment holding company with an indirect ownership interest in a manufacturer that allegedly conspired to fix prices of vitamin C for export to the United States could itself be liable for a Sherman Act violation stemming from its control of the manufacturer with respect to the alleged conduct at the center of the conspiracy, the federal district court in Brooklyn has ruled (In re Vitamin C Antitrust Litigation, February 8, 2013, Cogan, B.).

A motion by the company—North China Pharmaceutical Group Corp. (NCPG)—for summary judgment was denied. A separate motion by the plaintiffs to compel NCPG to conduct an additional search for documents responsive to their discovery requests was granted in part and denied in part.

NCPG, an entity owned by the Chinese state, is connected to the defending manufacturer—Hebei Welcome Pharmaceutical Co.—by virtue of its partial ownership (approximately 28%) of North China Pharmaceutical Ltd., Hebei Welcome’s majority stakeholder. However, the court noted, its motion for dismissal from the suit was denied in August 2012 on the ground that the complaining purchasers sufficiently averred that NCPG had nevertheless exerted “unusual control” over Hebei Welcome by virtue of the actions of its Deputy General Manager, who also served as the Chairman of Hebei Welcome.

According to the complaining purchasers, the executive had personally attended meetings of the vitamin C subcommittee of the China Chamber of Commerce of Medicines and Health Products Importers & Exporters, where the manufacturers allegedly set vitamin C price levels and production volumes, and had been elected as the president of the committee following one such meeting.

NCPG’s argument that much of the evidence upon which the court relied in denying dismissal was inadmissible hearsay—including the Chamber’s announcement that the NCPG/Hebei Welcome executive had been named president of the committee and a memorandum released at a 2007 technology symposium that appeared to discuss pricing coordination—was rejected. The announcement reflected a contemporaneous record made by someone with personal knowledge which was kept through regular business conduct, the court noted.

While the symposium memo was a weaker piece of evidence because the portion of it that discussed the suggestion of holding a meeting to address high vitamin C prices did not explicitly implicate NCPG, there was other evidence on the record that suggested NCPG was a member of the alleged conspiracy. This included work summaries sent by Hebei Welcome to NCPG concerning vitamin C production, content on NCPG’s own website describing the company as a “leading pharmaceutical manufacturer,” and the aforementioned presiding of the company’s executive over the committee where many of the discussions underlying the alleged conspiracy took place.

Motion to compel. The plaintiffs’ request that the court compel NCPG to have its “U.S. counsel perform a thorough, independent search of its files for all responsive documents from June 2006 through September 2008 … including documents pertaining to DSM, Roche, or BASF” was largely denied, with one exception. The request “essentially [sought] to reopen discovery on the eve of trial, on matters of dubious relevance, and without convincing the court that [NCPG] failed to satisfy its discovery obligations,” the court held.

The search methodology employed by NCPG appeared to have been largely adequate, and the plaintiffs had been afforded full discovery of the executive who constituted the alleged link between Hebei Welcome and NCPG, the court noted. The only clear flaw in NCPG’s search methodology was that it appeared to have mistakenly searched its electronic records for “BSF” instead of “BASF.” Therefore, NCPG was directed to produce to the plaintiffs any responsive documents located by searching for “BASF.”

The case is No. 06-MD-1738 (BMC)(JO).

Companies: Animal Science Products, Inc.; Hebei Welcome Pharmaceutical Co., Ltd.; North China Pharmaceutical Group Corp.

Attorneys: Shawn L. Raymond (Susman Godfrey L.L.P.) for the plaintiffs. Dale C. Christensen (Seward & Kissel LLP) for the defendants.

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