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 a matter that falls to be assessed subject to principles of international comity – it is also, and mainly, about whether the manufacturers’ behaviour amounted to foreign sovereign compulsion under US law.
According to her, the proper order of analysis should be to look at whether there is foreign sovereign compulsion first, and at matters of general comity second – with general comity operating as an exceptional and residual category to the “special comity” doctrine of foreign sovereign compulsion.
- Foreign Compulsion Defence
The author disagrees that this is a matter of extraterritoriality demanding comity. Given that this is an export cartel, the only, and the only intended, effects were in the United States, not in China (except as the home of extra profits). Hence, the practice is clearly covered by the Sherman Act.
The main question is then whether private price fixing in or into a country that forbids it can ever be a proper subject on which a foreign sovereign can grant immunity to its own firms.
In this case, that is highly doubtful. First, while the United States has a domestic state action defence, it does not extend to private price fixing. Second, state action not a cover for price fixing in China: instead, it is a violation of China’s Anti-Monopoly Law for any organ of government in China to compel price fixing. This is not unlike EU law [Note: I do not think this interpretation of the State compulsion defence in Europe is strictly correct as worded, at least under competition law alone]. From this, two conclusions are derived: (i) private price fixing, even if ordered by the state, remains private price fixing; (ii) even state rules compelling firms to fix prices do not compel them to do so in the most exploitatively manner possible, and there is no reason – in comity or fairness – to exempt the extra windfall profits from liability.
Importantly, the interpretation of Chinese law by China does not preclude the application of the foreign compulsion defence. Even if the conduct of the Chinese government amounted to a command, this does not answer the question of whether the circumstances amounted to “compulsion” under the US law. As such, the case does not turn on the correct interpretation of Chinese law: if anything, this interpretation of Chinese law is only relevant in the assessment of whether the US doctrine of foreign sovereign compulsion applies.
The foreign sovereign compulsion defence has not been litigated often, and never by the Supreme Court. In any event, it would seem that the defence requires: (i) a command of a foreign state; (ii) the foreign government’s command would give rise to the imposition of penal or other severe sanctions; and (iii) the compelled conduct can be accomplished entirely within the foreign sovereign’s own territory.
The author argues that the conduct does not meet these requirements. The jury in the district court found that the manufacturers did not “find themselves” caught in a conflict; that they wanted to fix prices and may have sought their government’s blessing; that they did not have to agree on prices with their rivals, and indeed some did not; that even if they were part of the consortium that negotiated the agreed price, they could charge less with impunity; and that they were not compelled to agree to more than a competitive price, and they surely were not compelled to charge more than the “formally” agreed price. Furthermore, the offending conduct could not be accomplished entirely in China; and fixing prices in China for delivery to the United States is surely as severe in its effect and as unlinked to home country regulatory choices as is fixing prices in the United States for delivery to the United States.
Due to all these reasons, she holds that the situation in question does not fall within the scope of the foreign sovereign compulsion defence.
Assuming that the conduct is not allowed under the foreign compulsion doctrine, the courts would then have to grapple with the general comity issue. The right questions are: does US antitrust law, in this application, unduly interfere with China’s choices in regulating its own economy, outweighing the US interest in freeing its economy of price fixing and compensating the victims? Second, because the doctrine is based on reciprocity, would the courts of China grant a similar favour to the United States? It is argued that: ‘An affirmative answer to the undue interference question would be strained. An affirmative answer to the reciprocity question would be naïve’.
Ultimately, she concludes that, in a globalized world, sovereigns must accommodate themselves to the legitimate interests of one another; and that this case is one of several cases guiding the search for appropriate norms of accommodation: ‘There are times when the United States must fit into China’s system, as when China applies its Anti-Monopoly Law to sales and licenses by Americans into China. There are times when China must fit into the US system, as when the United States applies its antitrust law to sales by Chinese firms into the United States. Qualcomm (China) is a paradigmatic case for the first proposition. Vitamin C should be a paradigmatic case for the second.’
Comment: I think this is a very interesting paper inasmuch as it clearly links national rules on extra-territoriality with the challenges posed to competition enforcement in a globalised world where states participate in commercial activities both as economic agents and as public powers.
Having said that, the paper does not really answer what impact a statement by a government regarding its own laws should have on a court’s assessment of those laws for the purposes of the foreign sovereign compulsion defence, which is ultimately the question before the U.S. Supreme Court (even though I would take her to mean that the statement should only be part of a wider assessment of the actual circumstances of the case when she says that: “Characterization of China’s behavior and the manufacturers’ response under all of the circumstances would seem to be a question involving mixed questions of fact and law under the Sherman Act ’).