Chinese Vitamins – Extraterritoriality and State Compulsion

This is a U.S. Supreme Court decision in the ‘Chinese Vitamins case’ (Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co. Ltd, 585 U. S. [to be determined] (2018), available here). As to the facts of the case, in 2005 Animal Science sued Hebei Welcome. Animal Science manufactures livestock supplements, in which it uses Vitamin C. It alleged that Hebei and other Chinese manufacturers had fixed the prices of the Vitamin C that they sold to the United States. The Chinese sellers moved to dismiss the complaint on the ground that Chinese law required them to fix the price and quantity of vitamin C exports, thus shielding them from liability under U. S. antitrust law by the act of state doctrine, the foreign sovereign compulsion doctrine, and under principles of international comity. The Ministry of Commerce of the People’s Republic of China (the ‘Ministry’) filed an amicus brief explaining that it is the administrative authority authorized to regulate foreign trade,…

A Quarter Pounder tying with Cheese

I would like to refer you to a very interesting (i.e. entertaining) class action – which you can find here. In short, the claim is that McDonald’s Quarter Pounder and Double Quarter Pounder with Cheese constitutes an unlawful tying of Quarter Pounders and … cheese. While a customer may still obtain (single or double) Quarter Pounders without cheese, this is not a listed product in stores and a customer who enters into a physical store in the US will still be forced to pay the price of the (single or double) Quarter Pounder with cheese. This leads to an overcharge of 30 to 90 cents, reflecting the price McDonalds charges for the additional slices of cheese which customers ‘do not want, order, or receive’. I would point out that this requires evidence that McDonald has market power in the market for… fast food? Burgers? Fast-food burgers? Coronary-disease inducers? You may feel that this is a silly class action. But one…

Steven Salop  ‘An Enquiry Meet for the Case: Decision Theory, Presumptions, and Evidentiary Burdens in Formulating Antitrust Legal Standards’

Because legal decisions are adopted with imperfect information, decision-makers must strive to create a decision process and make decisions that are rational in light of the costs and benefits of information-gathering and the inevitable uncertainty under which they decide. Presumptions play an important role in this.  Antitrust law contains a number of important presumptions, which: ‘run the gamut along a continuum from irrebuttable (i.e. conclusive) anticompetitive presumptions to rebuttably anticompetitive to competitively neutral to conclusively procompetitive and finally to irrebuttable procompetitive presumptions. These presumptions are based on the effects inferred from the market conditions’ and most capture the central tendency of the category of conduct to increase or decrease competition and consumer welfare. This paper – which can be found here – seeks to understand, through the lens of economic decision theory, how the appropriate presumption for various categories of conduct should be established, and how rational presumptions and their associated post-rebuttal evidentiary burdens of production and persuasion can be better…

Herbert Hovenkamp ‘Antitrust Balancing’ (2016) NYU J. L. & Bus. 12 369

The basic argument of this paper, which can be found here, is that courts very rarely engage in any balancing even when cases fall under the rule of reason. Most people who are familiar with Hovenkamp’s work will not be particularly surprised by this argument. The interesting claim in this paper is that he thinks that there can be meaningful balancing in merger control – particularly when determining whether merger-induced efficiencies are sufficient to offset upward pricing pressures created by the merger. The paper is structured as follows: A first section looks at balancing under the Sherman Act. It points out that “aside from naked price fixing, market division, and a few boycotts, most agreements among competitors are addressed under the rule of reason”. It then explains (as he has done so many times before) that in practice: “the courts pursue rule of reason analyses through a verbal sequence something like this: first, the plaintiff has the burden to show…

Carl Shapiro and Herbert Hovenkamp ‘Horizontal Mergers, Market Structure, and Burdens of Proof’ (2018) Yale Law Journal 127(7) 1996

This paper, which can be found here, deals with the ‘structural presumption’ for merger control set out in US law by the Philadelphia National Bank case in 1963. In this case, the Supreme Court stated: “That ‘competition is likely to be greatest when there are many sellers, none of which has any significant market share,’ is common ground among most economists, and was undoubtedly a premise of congressional reasoning about the antimerger statute.’ The Supreme Court held that a merger producing a firm that controls an “undue percentage share” of the market and that “results in a significant increase in the concentration of firms in that market” is “inherently likely to lessen competition substantially.” As a result, the merger should be prohibited, at least “in the absence of evidence clearly showing that the merger is not likely to have such anticompetitive effects” The merging parties can then rebut this structural presumption by showing that the market shares do not accurately…

Margherita Colangelo ‘Reverse Payment Patent Settlements in the Pharmaceutical Sector Under EU and US Competition Laws: A Comparative Analysis’ (2017) World Competition 40(3) 47

As its name indicates, this paper – which can be found here – compares the European and American approaches to pay-for-delay agreements – i.e. those agreements between an originator and a generics manufacturer where the former pays the latter to settle a patent injunction and agrees conditions to delay generic entry into the market. This payment goes against the standard expectation that a defendant in a patent suit would pay an IP-holding plaintiff to settle, but it is nonetheless economically rational for both parties: ‘the profit that the generic entering the market anticipates selling at a significant discount to the price of the brand-name product will be much less than the profit the brand-name drug company loses from the same sales applying the monopolistic price’. Settling the dispute eliminates the potential for competition and allows the parties to share profits that would otherwise be eroded by lower prices. The argument is that, while the case-mix on each side of the…

Sven Gallasch ‘Activating Actavis in Europe – the proposal of a ‘structured effects-based’ analysis for pay for delay agreements’ (2016) Legal Studies 36(4) 683

This article – which can be found here – criticises the adoption of a ‘by-object’ approach in the EU for pay-for-delay agreements, and argues that Europe should instead adopt a test along the lines of the rule of reason approach delineated by the US Supreme Court’s decision in Actavis. This paper is structured as follows: Section 2 compares the EU and US regulatory frameworks. While broadly consistent with the papers above, this paper emphasises two points which merit attention. First, it is pointed out that the existence of a period of exclusivity for the first generic entry can, when coupled with the possibility of the generic supplier settling a patent validity claim with the branded drug originator, skew the incentives of the parties in favour of settlement to the disadvantage of final consumers. Instead of solving the patent dispute in court, the parties settle their dispute. The generic company is nonetheless granted the 180 days of generic exclusivity. The parties…

Eleanor Fox “China, Export Cartels and Vitamin C: America Second?”

This paper, which can be found here, seems to argue that framing the issue in this case – which was described in the post below – as a matter of international comity misunderstands the matters at stake. The question is first, one of jurisdiction under the effects’ doctrine over a cartel implemented abroad, and, following this, about whether the US rules on the foreign sovereign compulsion defence apply. The correct interpretation of Chinese law may be relevant, but only in certain circumstances and only in the course of the normal application of US rules. She begins by pointing out that this is a case of a naked cartel, and that China’s sole role in it is to intervene before US courts in order to free its manufacturers from the consequences of violating the clear and well-known rule of US law forbidding price fixing. As such, the matter is not merely whether China alone can say what Chinese law is, which is…

Danny Crane “The Chinese Vitamins Case: Who Decides Chinese Law?’

This paper – which can be read here – begins by summarising the background to the case. In short, since the 1970s, when China began its transition to a market economy, the Chinese government has maintained export controls in the Vitamin C market in order to maintain a competitive edge over producers from other countries. In part due to the regulatory activities of the Chinese government, Chinese companies control about 60% of the worldwide Vitamin C market. A class of vitamins’ purchasers alleged that the defendant Chinese vitamins companies conspired to fix the price of vitamin C sold to U.S. companies, in violation of Section 1 of the Sherman Act. Rather than contest the facts, the defendants enlisted the aid of the Ministry of Commerce of the People’s Republic of China (“MOFCOM”) which submitted an amicus curiae brief in the district court asserting that defendants’ output reduction agreements were directed by MOFCOM itself and were mandatory. Two main questions arose…

Richard N. Langlois ‘Hunting the Big Five: Twenty-first Century Antitrust in Historical Perspective’

In this paper – available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3124356 – the author considers that proponents of the New Brandeis movement in antitrust are animated by a perception that antitrust is not fit for purpose in the digital age. He considers that this movement is arguing for a return to an earlier age of greater interventionism and greater focus on market structures – which is why he calls this movement ‘new structuralism’. Given this focus, proponents of this movement also advocate for a complete overthrow of the Chicago school paradigm, with its anti-interventionist bias. The author’s argument is that the New Brandeis School gets its History wrong, misconceives the nature of the competitive process, and deliberately refuses to confront the political economy of antitrust. He builds his argument as a rebuttal of Lisa Kahn’s article on Amazon (which I circulated and discussed on 3 March 2017). In the interest of clarity, I will ignore that part of the argument when reviewing the paper,…