Vitamin Price Fixing Lawsuits
Merck KgaA of Germany has agreed to pay an undisclosed sum and cooperate with the plaintiffs in a lawsuit by foreign purchasers of vitamins who alleged price fixing by the defendants. In reviewing the case as we discuss below, the U.S. Supreme Court will decide how the U.S. antitrust law applies to transactions that take place entirely overseas.
Although some of the manufacturers have pleaded guilty to antitrust violations in the U.S., some of the violations took place in other countries. The suit that was brought in the Federal District Court for the District of Columbia seeks to force the companies to pay damages to plaintiffs from other countries for damages sustained abroad.
The suit was dismissed in the district court on the grounds that foreign companies can't sue companies for damages incurred outside the U.S. in U.S. courts. A federal appeals court reinstated the suit saying that foreign plaintiffs can sue for the purely foreign effects of their actions.
Roche Holding, the giant Swiss chemical and pharmaceutical company, announced that it would set aside an additional 1.2 billion Swiss francs ($810 million) to its reserve to cover the cost of lawsuits in the vitamin price fixing litigation. Thus the reserve has now grown to 4.5 billion Swiss francs ($3.04 billion). The company further stated that it may have to set aside even more reserves in the future to cover the civil lawsuits.
Roche reached an agreement in September of 2002 to sell its vitamin and specialty chemicals division to DSM, a Dutch chemicals group for $2.2 billion, but it remains responsible for liabilities from the price-fixing lawsuits. Criminal and regulatory suits have been settled
New York State's Attorney General Eliot Spitzer announced that the state would distribute its $18.5 million share of the money that the state received as its share of the $225 million vitamin criminal price fixing lawsuit to 106 health programs. New York was one of 21 states involved in the lawsuit as we discuss below.
New York's share will go to programs involving prenatal care, nutrition and other health measures. The largest allotment, $600,000 will go to the New York Sate Coalition Against Domestic Violence. The largest allotment in the city, which is $300,000, will go to Food For Survival, a food-distribution program in the Bronx.
The European Commission fined 8 vitamin producers a total of 855 million euros ($752 million) to settle the European end of the cartel price fixing suits that began in the early 1990s. "This is the most damaging series of cartels the commission has ever investigated," said Mario Monti, the union's competition commissioner. " It is particularly unacceptable that this behavior concerned substances which are vital elements for nutrition essential for normal growth and maintenance of life".
Hoffman-La Roche was singled out as the ringleader and ordered to pay 462 million euros ($406 million). BASF of Germany was fined 296 million euros ($260 million). Roche and BASF were found to have been involved in all 12 separate cartels. The other companies involved were Takeda Chemical Industries of Japan, Merck of Germany, Rhone-Poulenic of France, now part of Aventis, Daiichi Pharmaceuticals of Japan, Eisai and E. Solvay Pharmaceuticals of Holland.
The vitamins involved in the cartels price fixing action were vitamin C for human consumption, vitamin A and E used in animal feed, vitamin D3, B1, B2, B5, B6, biotin (H), folic acid (M), beta carotene and carotenoids. Aventis was exempted from fines for its involvement in the vitamin A and E cartels, because it was the first company to cooperate with the authorities in investigating the cartels. Roche's fine was the equivalent of 2.6 percent of the company's total sales last year, even though the fine could have been as much as 10 % of the companies total sales last year.
In the United States a settlement in the amount of $225 million was reached in the decade-long vitamin price fixing suit brought against 6 of the world's largest vitamin producing companies by consumers, businesses and governments in 21 states, the District of Columbia and Puerto Rico.
The total settlement is divided into 3 parts:
The 6 companies agreeing to make the payments were: Roche Group, BASF, Aventis, Takeda, Eisai, and Daiichi. Farmers and retail stores claiming damages are to file compensation claims with the court under procedures still to be announced. The companies still face regulatory scrutiny by the European Union antitrust watchdogs.
New York State will receive $25 million out of the settlement. As announced by New York State's Attorney General Eliot Spitzer $19 million of the state's share will go to nonprofit groups and municipalities for programs dealing with prenatal care, child nutrition and hunger. The state will keep $6 million as compensation for the higher prices it paid for vitamin-containing products. The State of California is expected to settle the matter separately with these same companies for $80 million.
Several of the largest plaintiffs in the civil suit against the vitamin manufacturers have opted out of the $1.17 billion class action settlement in the raw vitamin blends price-fixing case. Plaintiff's attorneys informed a federal judge in Washington, D.C. that 224 companies representing 75 % of the vitamins purchased chose to opt out of the class of 4,000 plaintiffs. Those who opted out felt that they could get a fairer amount on an individual basis by pursing the court action to completion on their own. U.S. District Court Judge Thomas Hogan has approved a $242 million agreement to settle charges for the remaining plaintiffs. Those pulling out of the settlement include Tyson Foods and Quaker Oats.
On November 3, 1999 seven of the world's largest drug companies agreed to settle for $1.17 billion a class action law suit for vitamin price fixing. The price fixing had been going on for nearly a decade and involved the price fixing of the raw vitamin blends of most food items. The class action suit had been instituted by the large food, beverage and animal feed companies. The ordinary consumer will not benefit from this settlement. State class action suits are being brought that will hopefully compensate the ordinary consumer for their losses. The seven companies that settled were as follows:
| Roche Group BASF Takeda Chemical Rhone-Poulenic Eisai Daiichi Pharmaceutical Hoechst Marion Roussel |
$632 million $281.1 million $100.9 million $85 million $44.9 $24.7 $4.4 |
Please note that Rhone-Poulenic and Hoechst Marion Roussel merged in 1999 to form Aventis.
The settlement figure represents about 20 cents on every dollar of sales by these companies during the period of 1990 through 1997. Class action suits are still being pursued against a smaller group of vitamin manufacturers that deal in niacin and choline chloride.
In May of 1999, in the largest criminal antitrust fine in United States history, Roche Holding A.G. and BASF A.G. agreed to pay more than $725 million for illegal price fixing that caused fraudulent inflation of vitamin prices throughout the world. These two companies, along with a third defendant, Rhone-Poulenc took part in this conspiracy for over a decade, but was not penalized since they were protected from criminal prosecution because of their cooperation in the case. The vitamins affected were vitamins A, B2, B5, C, E, and beta-carotene. These three companies together control almost 90% of the vitamin market.
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By Allan Rubin
updated December 28, 2003
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