February 9, 2016
Current Issues Under the FTAIA
Antitrust Committee
New York City Bar Association
The Statute
“[The Sherman Act] shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless
(1) such conduct has a direct, substantial, and reasonably foreseeable effect—
(A) on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or
(B) on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States; and
(2) such effect gives rise to a claim under the provisions of sections 1 to 7 of this title, other than this section.”
15 U.S.C. §6(a) (emphasis added).
A. “Directness” Standards
· 9th Circuit: “Conduct has a ‘direct’ effect for the purposes of the domestic effects exception to the FTAIA ‘if it follows as an immediate consequence of the defendant[s’] activity.’” United States v. Hui Hsiung, 778 F.3d 738, 758 (9th Cir. 2015) (emphasis added). “An effect cannot be ‘direct’ where it depends on such uncertain intervening developments.” United States v. LSL Biotechnologies, 379 F.3d 672, 680 (9th Cir. 2004) (emphasis added).
· 7th Circuit: Minn-Chem, Inc. v. Agrium Inc., 683 F.3d 845, 856-58 (7th Cir. 2012) (rejecting the “immediate consequence” standard and holding that “direct” only means “a reasonably proximate causal nexus”) (emphasis added).
· 2nd Circuit:“[F]oreign anticompetitive conduct can have a statutorily required ‘direct, substantial, and reasonably foreseeable effect’ on U.S. domestic or import commerce even if the effect does not follow as an immediate consequence of the defendant’s conduct, so long as there is a reasonably proximate causal nexus between the conduct and the effect.” Lotes Co., Ltd. v. Hon Hai Precision Indus. Co., Ltd., 753 F.3d 395, 398 (2d Cir. 2014) (emphasis added).
B. Illinois Brick and the FTAIA—Motorola Mobility LLC v. AU Optronics Corp., 775 F.3d 816 (7th Cir. 2015) (“Motorola V”).
· At issue on appeal from a decision by the Illinois district court were the TFT-LCD panels that were bought and paid for by, and delivered to, foreign subsidiaries (mainly Chinese and Singaporean) of the plaintiff Motorola.
· After those panels were bought by the subsidiaries and incorporated by them into cellphones abroad, the cellphones were sold and shipped to Motorola for resale in the United States.
· The Seventh Circuit affirmed the dismissal of Motorola’s claims based upon Motorola’s purchases of panels from its foreign subsidiaries because such indirect purchases were barred by Illinois Brick. Motorola V, 775 F.3d at 821-23 (“Motorola can't just ignore its corporate structure whenever it’s in its interests to do so. . . . Having chosen to conduct its LCD purchases through legally distinct entities organized under foreign law, it cannot now impute to itself the harm suffered by them.”).
C. Types of conduct that have been alleged to satisfy the FTAIA’s “gives rise to” requirement:
· Arbitrage opportunities
o Empagran S.A. v. F. Hoffmann-LaRoche, Ltd., 417 F.3d 1267, 1270 (D.C. Cir. 2005) (“Empagran II”) (“The appellants’ theory in a nutshell is as follows: Because the appellees’ product (vitamins) was fungible and globally marketed, they were able to sustain super-competitive prices abroad only by maintaining super-competitive prices in the United States as well. Otherwise, overseas purchasers would have purchased bulk vitamins at lower prices either directly from U.S. sellers or from arbitrageurs selling vitamins imported from the United States, thereby preventing the appellees from selling abroad at the inflated prices. Thus, the super-competitive pricing in the United States “gives rise to” the foreign super-competitive prices from which the appellants claim injury. The appellants paint a plausible scenario under which maintaining super-competitive prices in the United States might well have been a ‘but for’ cause of the appellants’ foreign injury. As the appellants acknowledged at oral argument, however, ‘but for’ causation between the domestic effects and the foreign injury claim is simply not sufficient to bring anticompetitive conduct with the FTAIA exception.”
o In re Dynamic Random Access Memory (DRAM) Antitrust Litig., 546 F.3d 981, 988 (9th Cir. 2008) (“DRAM”) (“The defendants’ conspiracy may have fixed prices in the United States and abroad, and maintaining higher U.S. prices might have been necessary to sustain the higher prices globally, but Centerprise has not shown that the higher U.S. prices proximately caused its foreign injury of having to pay higher prices abroad. Other actors or forces may have affected the foreign prices.”).
· Prices Negotiated in the United States
o Motorola Mobility, Inc. v. AU Optronics Corp., No. 09-cv-6610, 2014 U.S. Dist. LEXIS 8492 at *33 (N.D. Ill. Jan. 23, 2014) (“Motorola IV”) (“The MDL court identified one aspect of these transactions that took place domestically: Motorola’s senior procurement officers in the United States approved the prices that Motorola’s foreign affiliates were to pay for LCD panels. But this domestic approval cannot fairly be said to give rise to Motorola’s Sherman Act claim. For Sherman Act purposes, the injury arose when Motorola’s foreign affiliates purchased LCD panels at inflated prices, not when Motorola decided at what price those purchased would be made.” See DRAM, 546 F.3d at 988 (stating that foreign injury is ‘having to pay higher prices abroad’); In re Monosodium Glutamate Antitrust Litig., 477 F.3d 535, 539 n.3 (8th Cir. 2007) (stating that the injury is the ‘higher prices paid’)”).
· Global Pricing
o DRAM, 546 F.3d at 990 & n.10 (“As to Centerprise’s assertion that the defendants’ activities resulted in the U.S. prices setting the worldwide price, Centerprise has taken liberties in characterizing the language of its complaint and, moreover, has not set forth a theory with any specificity of how this price-setting occurred or how it shows a direct causal relationship.”; “Most notably, paragraph 75 of its complaint alleges: ‘Memory purchases are a 24 hour global business, dependent in large part on United States events. For example, Plaintiff and many Class members start their days with communications to Defendants in Taiwan and Korea to understand what pricing is available for DRAM, and as the day goes on follow sales in the United States . . . . The significance of these assertions, however, is not self-evident and Centerprise has not elaborated on how any of its asserted facts show that the higher U.S. DRAM prices proximately caused the excessive DRAM prices that Centerprise paid.”).
o F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 158 (2004) (“Empagran I) (“[T]his case involves vitamin sellers around the world that agreed to fix prices, leading to higher vitamin prices in the United States and independently leading to higher vitamin prices in other countries such as Ecuador. We conclude that, in this scenario, a purchaser in the United States could bring a Sherman Act claim under the FTAIA based on domestic injury, but a purchaser in Ecuador could not bring a Sherman Act claim based on foreign harm.”).
· Targeting
o Motorola IV, 2014 U.S. Dist. LEXIS 8492 at *30 (“To be sure, courts have not clearly articulated what ‘proximate cause’ means in the FTAIA context. But courts have been clear on what it does not mean. The three circuits that have considered this question have all agreed that the fact that defendants ‘knew or could foresee the effect of their allegedly anti-competitive activities in the United States on the [plaintiffs’] injuries abroad or had as a purpose to manipulate United States trade does not establish that ‘U.S. effects’ proximately caused the [plaintiffs’] harm.’” (quoting Empagran II, 417 F.3d at 1271).
o Motorola V, 775 F.3d at 822-23 (“Motorola insists that it was the ‘target’ of the price fixers - that they ‘integrated themselves into the design of Motorola’s U.S. products, and intentionally manipulated Motorola’s price negotiations by illegally exchanging Motorola-specific information.’ But this is just inflated rhetoric used to describe, what is obvious, that firms engaged in the price fixing of a component are critically interested in the market demand for the finished product - knowledge of that demand is essential to deciding on the optimal price of the component. If the price fixers are too greedy and fix a very high price for the component, this may result in so high a price for the finished product that the sales of that product will fall and with it the purchases of the component and quite possibly the profits of the price fixers. Motorola’s ‘target’ theory of antitrust liability would nullify the doctrine of Illinois Brick.”).
· “Single Enterprise”
o Sun Microsystems, Inc. v. Hynix Semiconductor, Inc., 608 F. Supp. 2d 1166, 1186, 1190(N.D. Cal. 2009) (“In sum, the court finds that plaintiff has failed to sufficiently demonstrate that application of a single entity doctrine is appropriate in the manner urged by plaintiff here as to the foreign subsidiaries.” “To the extent Sun suffered any injury as a result of its subsidiaries’ higher DRAM payments, those injuries are derivative of those suffered by the foreign subsidiaries.”)
Darrell Prescott
Baker & McKenzie
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darrell.prescott@bakermckenzie.com