Antitrust Law Daily Wrap Up, TOP STORY—EDNY: Foreign Trade Antitrust Improvements Act Does Not Bar Vitamin C Price Fixing Claims, (Nov 20, 2012)

By Jeffrey May, J.D.

Price fixing claims brought by “foreign purchasers” of vitamin C against Chinese manufacturers were not barred by the Foreign Trade Antitrust Improvements Act (FTAIA), the federal district court in Brooklyn, New York, has decided (In re Vitamin C Antitrust Litig., November 16, 2012, Cogan, B.).

The defending manufacturers challenged “claims by foreign purchasers involving solely foreign sales by foreign defendants.” They contended that the claims were barred by the FTAIA. The FTAIA excludes Sherman Act claims based on anticompetitive conduct that causes only foreign injury.

The vitamin C at issue was bought overseas by foreign purchasers for delivery to the United States. According to the plaintiffs, the foreign purchasers were either multinational corporations with a substantial presence in the United States or overseas brokers purchasing vitamin C delivered in the United States. Moreover, what the defendants called ‘foreign sales by foreign defendant” were purchases made directly from the defendants for delivery in the United States.

The plaintiffs questioned the timing of the motion to dismiss. They argued that the defendants should not have waited until only weeks before trial before bringing the motion. In response, the defendants argued that they could bring this motion at any time since the FTAIA goes to the court's subject matter jurisdiction.

The court explained that it did not need to decide whether the FTAIA was jurisdictional in nature or an element of an antitrust claim in order to rule on the defendants' motion to dismiss. The Third and Seventh Circuits had recently decided that the FTAIA was an element of an antitrust claim and not jurisdictional in nature; however, there was no definitive word from the Second Circuit.

The defendants' motion was timely whether it was characterized as a motion to dismiss for lack of subject matter jurisdiction or a motion on the merits of plaintiffs' damages claims, the court ruled.

Import Trade or Commerce Exception

Generally, the FTAIA excludes from the scope of the Sherman Act foreign activities, other than import trade or commerce. The court found the FTAIA inapplicable in this case because the foreign purchasers’ claims fell within this import trade or commerce exception.

The plaintiffs demonstrated that defendants' conduct was directed at the U.S. import market. They alleged that the “defendants and their coconspirators have participated in meetings and conversations in China and elsewhere in which the price, volume of sales and exports to the United States, and markets for vitamins were discussed and agreed upon.” Even though many of the transactions at issue took place abroad among foreign parties, the intent and result of those transactions was the direct importation of vitamin C into the United States, the court explained.

Domestic Effects Exception

The plaintiffs alternatively argued that the foreign purchaser claims were within the reach of the Sherman Act under the domestic effects exception to the FTAIA because of their “direct, substantial, and foreseeable effect” on domestic commerce in vitamin C and because this effect gave rise to a Sherman Act claim. The court agreed.

The plaintiffs alleged not only that defendants conspired to fix the prices they charged for vitamin C on the global market, but also that they “deliberately targeted and severely burdened consumers in the United States.” Moreover, the domestic effect of the defendants' conduct “gives rise” to an antitrust claim. The alleged super-competitive prices that the plaintiffs paid were the direct result of the increased prices caused by the defendants' alleged conduct. Although the defendants argued that the location of the purchase or transaction, rather than the location of delivery, was the relevant issue for FTAIA analysis, the domestic effects exception might be satisfied where either the purchase or the delivery of goods took place within the United States, in the court’s view.

Standing

The court also rejected the defendants' challenges to the foreign purchasers’ standing. There was no rule that antitrust standing was denied to purchasers merely because the purchase transaction took place abroad. The court also refused to dismiss for lack of standing on the ground that the foreign purchasers' claims would create a risk of double recovery.

The case is 1:06-md-01738-BMC-JO.

Shawn L. Raymond (Susman Godfrey LLP) for plaintiffs. Charles Howard Critchlow (Baker & McKenzie) for Hebei Welcome Pharmaceutical Co.

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