- FTAIA Remains a 'Foreign' Statute Open to Multiple Interpretations
- August 18, 2014 | Author: Scott Martin
- Law Firm: Greenberg Traurig, LLP - New York Office
Congress enacted the Foreign Trade Antitrust Improvements Act (FTAIA) in 1982 to clarify the extraterritorial reach of the Sherman Act. Subsequently, the FTAIA itself was the subject of a further clarifying opinion by the Supreme Court barely a decade ago1 - one that, unfortunately, left open to debate questions concerning the circumstances under which domestic effects of alleged anticompetitive conduct (e.g., cartel activity in an alleged “global” market) may “give rise” to antitrust claims by a foreign purchaser overseas. And as recent decisions by three high-profile Circuit Courts of Appeal - the Second, Seventh and Ninth - demonstrate, the FTAIA continues to confound and to beg more precise language from Congress or a more definitive interpretation by the Supreme Court.
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The FTAIA provides, in part, that U.S. antitrust laws “shall not apply to conduct involving [non-import] trade or commerce . . . with foreign nations unless (1) such conduct has a direct, substantial and reasonably foreseeable effect” on domestic commerce and (2) such effect gives rise to a claim” under the Sherman Act. See 15 U.S.C. § 6a (emphasis added). As a threshold matter, appellate courts have struggled to determine whether the FTAIA’s requirements are jurisdictional or substantive in nature - affecting both the timing and imperative nature of a court’s determination of the statute’s applicability (and acceptance of pleaded facts as true), as well as the ability of a party to waive those requirements. In an en banc decision in 2012, the Seventh Circuit concluded that “the FTAIA sets forth an element of an antitrust claim, not a jurisdictional limit on the power of the federal courts.”2 In decisions this summer, the Ninth Circuit and Second Circuit have now come to a similar conclusion by addressing a question the court had previously expressly declined to resolve and by overruling earlier precedent, respectively, after reviewing modern Supreme Court decisions concerning when statutory requirements are jurisdictional.3 In the Second Circuit case, contractual waiver of the FTAIA’s requirements was, in fact, argued by the plaintiff-appellant, but rejected by the appellate panel because it had not been raised before the district court and because the provisions at issue appeared to do no more than affirm that the defendants “must abide by the Sherman Act to the extent that it applies” - leaving them free to argue that it did not apply.4
However, while there appears to be a developing uniformity of views on the substantive, rather than jurisdictional, nature of the FTAIA’s elements, the substance itself - what constitutes a “direct” effect on domestic commerce - has yielded substantially less consensus of late among the appellate courts. In a June 4, 2014 decision, the Second Circuit rejected the district court’s reliance on a 2004 Ninth Circuit decision that found “an effect is ‘direct’ if it follows as an immediate consequence of the defendant’s activity.”5 Rather, the Second Circuit borrowed from a 2012 Seventh Circuit case to adopt a more permissive standard suited to flexible, case-specific factual evaluation: that “direct” requires “a reasonably proximate causal nexus.”6 Ultimately, the Second Circuit found that the claims were barred, however, on an alternative ground not raised or ruled on below: that the domestic effect did not “give rise” to the plaintiff’s injury, but rather that injury “flowed directly from the defendants’ exclusionary foreign conduct [an alleged patent holdup that excluded plaintiff from the market].”7
Meanwhile, an opinion last month by a Ninth Circuit panel underscored the seriousness of FTAIA determinations. The panel found that the statute did not bar prosecution of a global conspiracy to fix the price of liquid crystal display (LCD) panels, upholding a well-publicized 2012 jury verdict and a $500 million judgment.8 In that case, however, the appellate court was able to sidestep - expressly so, stating “we need not resolve whether the evidence of the defendants conduct was sufficiently ‘direct’ or whether it ‘give[s] rise’ to an antitrust claim”9 - because it found overwhelming the evidence that the defendants sold price-fixed panels in import trade into the United States, thus falling outside the FTAIA and within the Sherman Act.
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Even while antitrust enforcement is on the rise worldwide both in terms of the number of active jurisdictions and the vigor of those governments’ efforts (such as over 100 enforcement personnel being deployed in one of many recent industry raids in China), and even while significant purchasers find new venues and opportunities for private “global” redress, the United States’ treble-damage opt-out class action paradigm still holds strong allure for the private plaintiffs’ bar. And the extent to which potential damages can vary, especially in international cartel cases, depending upon which purchases are embraced under the FTAIA virtually ensures continuing active litigation over the interpretation of this peculiarly “foreign” statute.
1See F. Hoffman La Roche Ltd. v. Empagran S.A., 542 U.S. 155 (2004) (precluding foreign purchasers from bringing suit in U.S. courts under the federal antitrust laws where their foreign injuries are “independent of any adverse domestic effect”).
2Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845, 852 (7th Cir. 2012) (en banc).
3See United States v. Hui Shiung, --- F.3d ---, 2014 WL 3361084, at *11-12 (9th Cir. July 10, 2014) (reviewing recent authority and determining that the FTAIA “does not limit the power of the federal courts” but rather “provides substantive elements under the Sherman Act” for non-import trade with foreign nations); Lotes Co., Ltd. v. Hon Hai Precision Indus. Co., 753 F.3d 395, 403-08 (2d Cir. 2014) (overruling Filetech S.A. v. France Telecom S.A., 157 F.3d 922 (2d Cir. 1998), and finding the FTAIA requirements to be non-jurisdictional).
4See Lotes, 753 F.3d at 408-09.
5See id. at 409-13 (quoting United States v. LSL Biotechnologies, 379 F.3d 672, 680 (9th Cir. 2004)).
6See Lotes, 753 F.3d at 409-13 (citing Minn-Chem, 683 F.3d at 857). Interestingly, a Seventh Circuit panel decision earlier this year had drawn a sharp line against finding that the Sherman Act applied to price-fixing of alleged cellular phone component parts purchased by a plaintiff-manufacturer’s foreign subsidiaries for manufacture of phones overseas or never for import into the U.S. at all. That decision, however, has since been withdrawn after the Seventh Circuit granted a rehearing request on July 1, 2014.
7Id. at 413-15.
8United States v. Hui Shiung, --- F.3d ---, 2014 WL 3361084.
9Id. at *18.