On The Case

Chinese, U.S. governments to face off in SCOTUS trade skirmish

(Reuters) - On Friday, the U.S. Supreme Court granted an extremely unusual motion by China’s Ministry of Commerce, allowing the ministry to present oral argument on April 24, when the justices hear a big antitrust case by U.S. Vitamin C purchasers suing Chinese vitamin makers accused of price-rigging.

The Chinese manufacturers – and the Chinese government – have long insisted that the cartel was simply following Chinese trade law. But China is not actually named in the case. The Commerce Ministry, known as MOFCOM, had to ask the Supreme Court for permission to argue as an amicus for members of the cartel, who backed the motion calling for them to divide their time with the Chinese government.

The justices’ decision to hear from China’s lawyer, Carter Phillips of Sidley Austin, sets up a fascinating dynamic – because the Supreme Court will also hear arguments from the U.S. Justice Department, which has sided with the U.S. companies suing Chinese Vitamin C makers. In the same order granting permission for the Chinese government to present arguments, the Supreme Court also gave time to the solicitor general’s office to argue against China.

The Supreme Court, in other words, is about to host a direct confrontation between representatives from the Chinese and U.S. governments over a Chinese trade policy the U.S. considers controversial.

You can’t call the Supreme Court case, Animal Science Products v. Hebei Welcome Pharmaceuticals, a full-blown trade war. But in the context of ongoing uncertainty about trade between the U.S. and China, it’s a skirmish – especially because the Chinese government has for years been protesting this case, both in court and in diplomatic communiques.

The issue before the justices isn’t actually the legality of China’s allegedly anticompetitive directives to Vitamin-C makers but the degree of deference U.S. courts owe China – or any other foreign sovereign – when it appears in U.S. courts to explain its own laws.

In the Animal Science case, China’s Ministry of Commerce first showed up as an amicus in Brooklyn federal district court, where the case was filed, to argue that the defendants were following the Chinese government’s instructions when they agreed to set prices for Vitamin C. The trial judge nevertheless allowed the antitrust suit to go to trial, after the U.S. purchasers raised doubts about China’s supposedly inconsistent descriptions of its antitrust laws. A jury found the defendants liable, and the trial judge ultimately entered a $147 million judgment against the Chinese companies.

The 2nd U.S. Circuit Court of Appeals was more sympathetic to China’s calls for international comity. The appeals court, in a historic moment, even allowed China’s counsel to present arguments as an amicus when the 2nd Circuit heard the case. In September 2016, the appeals court vacated the $147 million judgment, holding that U.S. courts must defer to foreign sovereigns under the circumstances of this case. “When, as in this instance, we receive from a foreign government an official statement explicating its own laws and regulations, we are bound to extend that explication the deference long accorded such proffers received from foreign governments,” the 2nd Circuit said.

The U.S. government stayed out of the case in the lower courts. But after Boies Schiller Flexner, on behalf of the Vitamin C purchasers, asked the Supreme Court to reconsider the 2nd Circuit’s nearly inviolable deference standard, the justices asked for the solicitor general’s views. Despite lobbying by China, the Justice Department urged the Supreme Court to take the case.

In March, after the justices granted review, the solicitor general’s office filed an amicus brief arguing that U.S. judges ought to defer to foreign sovereigns’ interpretations of their laws but should not be conclusively bound by those interpretations nor barred from considering evidence that supports a different conclusion. The U.S. vitamin purchasers told the Supreme Court that the 2nd Circuit’s deference standard would leave U.S. courts vulnerable to unscrupulous foreign governments acting to protect state-controlled defendants.

The Chinese defendants in the antitrust case, represented at the Supreme Court by Wilson Sonsini Goodrich & Rosati, argued in its merits brief that the 2nd Circuit’s standard of deference to a foreign sovereign’s reasonable explanation of its law is entirely consistent with the Supreme Court’s precedent. The Chinese ministry’s amicus brief reiterated that China has been gravely offended by the suggestion that its defense of the Vitamin C cartel is opportunistic, rather than a good-faith explanation of Chinese law. If the U.S. Supreme Court were to compromise the deference due to foreign sovereigns, China said, it would “signal to private parties that they should follow petitioners' lead and disparage the competence and motives of foreign sovereigns who appear in U.S. courts.”

It is not at all unusual for foreign sovereigns to file amicus briefs at the U.S. Supreme Court when cases implicate their interests, as UCLA law professor Kristen Eichensehr wrote in a 2016 Virginia Law Review article, "Foreign Sovereigns as Friends of the Court." Nor is it unusual for foreign sovereigns to present oral arguments when they are themselves parties at the U.S. Supreme Court, as the Islamic Republic of Iran did in a case earlier this term involving the seizure of Iranian antiquities to satisfy a judgment won by victims of a Hamas bombing.

But it is quite unusual for the Supreme Court to allow a foreign government to participate in oral arguments when it is not a party. The Chinese government and Vitamin C makers came up with two examples: 1985’s Air France v. Saks (469 U.S. 1103), in which France argued as an amicus; and 2004’s Intel v. Advanced Micro Devices (541 U.S. 901), in which a lawyer presented an argument on behalf of the European Union, an amicus.