Chinese Vitamin C Makers Broke Antitrust Law, Jury Told

A federal jury in New York is set to begin deliberating whether Chinese vitamin C makers violated U.S. law by fixing export prices or were merely complying with their government’s directives.

Lawyers for U.S. dietary supplement firms and for the vitamin C makers delivered closing arguments today in the civil case, which alleges the Chinese firms acted voluntarily to boost prices. The jury of five women and two men is scheduled to start deliberations tomorrow in Brooklyn federal court.

The case marks the first time Chinese firms have faced a trial on U.S. antitrust claims, according to James Serota, a lawyer for one of the companies named in the suit. The country’s Ministry of Commerce told the court in a 2006 brief that it is “deeply interested” in the proceedings.

A finding that the companies violated U.S. antitrust law “would improperly penalize defendants for the sovereign acts of their government and would adversely affect implementation of China’s trade policy,” the ministry said in the brief.

William Isaacson, an attorney for the plaintiffs, said during his closing argument that the Chinese firms were blaming the government for their own decisions.

‘Point the Finger’

“They needed an excuse,” Isaacson said. “They needed to point the finger.”

Defendants in the trial included Hong Kong-based China Pharmaceutical Group Ltd. (1093), its Weisheng Pharmaceutical unit, North China Pharmaceutical Co. and its Hebei, China-based unit Hebei Welcome Pharmaceutical Co.

Before the arguments began, U.S. District Judge Brian M. Cogan announced that Weisheng and China Pharmaceutical were “no longer in the case,” without providing more details. A lawyer for the companies declined to comment about whether a settlement had been reached.

Initially, Aland Jiangsu Nutraceutical Co. and Shenyang, China-based Northeast Pharmaceutical Group Co. (000597) were also sued. They settled before the trial.

Altogether, the companies supplied about 80 percent of the vitamin C in the U.S., according to Isaacson.

Supplement Firm

Animal Science Products Inc., a livestock-supplement firm based in Nacogdoches, Texas, and Ranis Co., a food company based in Elizabeth, New Jersey, filed the suit in 2005 alleging the Chinese firms constricted supplies to manipulate prices.

Prices increased to as high as $15 a kilogram ($6.82 a pound) from about $2.50 a kilogram over the course of the scheme, plaintiffs alleged.

During about two weeks of testimony, the Chinese companies sought to show they couldn’t be held liable for price-fixing because they were following the instructions of regulators.

Key to their case was witness Qiao Haili, a retired Chinese Ministry of Commerce employee who was formerly in charge of vitamin C exports, according to court documents. Qiao, who took the stand on behalf of defendants, told jurors that the vitamin C firms were required to adhere to agreed-upon pricing and volume restrictions under Chinese law.

Ministry Official

If they did not obey, Qiao could stop them from exporting, he said. Qiao was an official in the ministry’s Chamber of Commerce of Medicines and Health Products Importers & Exporters, according to court documents. Plaintiffs contended he didn’t have as much authority as he claimed.

In cross examination, Isaacson challenged Qiao’s assertions about his former powers and questioned him about a memo in which the official described export regulations as a “formality that only honest fellows will follow.” Isaacson also showed Qiao contracts from the defendants which did not bear an official stamp that the official said was required for exporters to conduct business.

“Mr. Qiao told you a story, told you a story different from what he wrote at the time,” Isaacson said in court today. “What we found is that Mr. Qiao’s not a powerful man. He’s a regular guy, he’s a retiree.”

Charles Critchlow, a lawyer for Hebei Welcome and North China Pharmaceutical (600812), told jurors that exports were Hebei’s “lifeblood” and that it couldn’t risk breaking rules enforced by Qiao.

“The hand of the Chinese government, in the person of Mr. Qiao, was pervasive and everywhere in this case,” he said.

The case is In re Vitamin C Antitrust Litigation, 1:06- md-01738, U.S. District Court, Eastern District of New York (Brooklyn).

To contact the reporter on this story: Christie Smythe in federal court in Brooklyn, New York, at csmythe1@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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