ANTITRUST LAW--Foreign Trade Antitrust Improvements Act Does Not Alter Sherman Act's Coverage of Import Trade--United States v. Hui Hsiung, 758 F.3d 1074 (9th Cir. 2014).
The Sherman Antitrust Act (Sherman Act), which prevents corporate monopolies, has expanded in the global economy. (1) Congress enacted the Foreign Trade Antitrust Improvements Act (FTAIA) in 1982 in response to concerns that the scope of the Sherman Act was too broad due to its jurisdictional language. (2) In United States v. Hui Hsiung, (3) the United States Court of Appeals for the Ninth Circuit addressed whether an international price fixing conspiracy between foreign manufacturers fell under the jurisdiction of the Sherman Act as amended under the FTAIA. (4) The Ninth Circuit held that the manufacturers participated in import trade, which does not fall within the FTAIA, and thus was not an exception to the application of the Sherman Act. (5)
From the years 2001 to 2006, the top six leading manufacturers in Thin-Film-Transistor Liquid-Crystal Displays (TFTLCDs) held a series of secret "Crystal Meetings" in Taiwan to set a target price of TFT-LCDs and stabilize the market at that set price. (6) Hui Hsiung was the Executive Vice President of AU Optronics (AUO) during this time period, and AUO was one of the manufacturers that attended the Crystal Meetings. (7) During the meetings the participants decided to sell the TFT-LCDs to companies based in the United States for use in consumer electronics and that retail branches of the manufacturers would set price benchmarks for selling panels to wholesale customers. (8) AUO provided reports from each meeting, called the "Crystal Meeting Reports," to its retailer, AU Optronics Corporation of America (AUOA). (9) AUOA was then able to use these reports to negotiate prices with their U.S. customers, including HP, Compaq, Dell, and Apple. (10) By setting the price of TFT-LCDs imported to the U.S., AUO and AUOA had the opportunity to generate massive profits. (11)
The conspiracy came to an abrupt halt in 2006, when the FBI raided the offices of AUOA in Houston, Texas, but the participating members of the conspiracy had already made millions of dollars in profits. (12) Authorities charged AUO, AUOA, Hui Hsiung, and AUO's CEO, Hsuan Bin Chen with conspiracy to fix prices for TFT-LCDs in violation of the Sherman Act. (13) The indictment also alleged that AUO and AUOA derived profits of approximately USD500,000,000 from these sales. (14) The district court denied both the defendants' motions to dismiss, ruling that price fixing is a per se violation of the Sherman Act and that the price fixing conspiracy involved foreign and domestic conduct. (15) During the jury trial, the government presented a myriad of evidence concerning the defendants' extensive involvement in the Crystal Meetings and the sales of price-fixed TFT-LCDs to customers in the U.S. (16)
After an eight week trial, the jury found the defendants guilty of conspiracy to fix prices and found that the defendants collected gross profits of USD500,000,000 in violation of the Sherman Act. (17) The district court sentenced Hsiung to 36 months in prison and imposed a USD200,000 fine upon him, corporate defendants AUO and AUOA to three-years probation, and fined AUO USD500,000,000 . (18) The defendants appealed to the Ninth Circuit Court of Appeals, raising five different issues regarding the reach of the Sherman Act. (19) The Ninth Circuit affirmed the convictions and sentences, sustaining that the FTAIA was inapplicable because the defendants engaged in import trade. (20)
Antitrust law has been in effect since the establishment of the Sherman Act in 1890 to protect trade and commerce against monopolies and unfair business practices. (21) Over time, U.S. commerce and trade underwent significant global expansions, resulting in the need for the courts to address the extraterritoriality of the Sherman Act. (22) In United States v. Aluminum Co. of America, (Alcoa), (23) Justice Learned Hand of the Second Circuit addressed the issue of extraterritoriality and created "the effects test," which stated that conduct was subject to U.S. jurisdiction if that conduct was intended to and does in fact have an effect on import commerce. (24) The circuit courts applied various versions of the effects test until Hartford Fire Ins. Co. v. Cal., (25) when the Supreme Court addressed and attempted to clarify the extraterritoriality of the Sherman Act. (26) In Hartford Fire, the Supreme Court altered the effects test and established the substantial effects test, which states that the Sherman Act is applicable when foreign conduct produces and is intended to produce a substantial effect in the United States. (27) The Court found that Hartford Fire Insurance Co. and other London-based reinsurers were within the reach of the Sherman Act because they engaged in a price fixing conspiracy to manipulate the insurance market in the United States and had a substantial effect on U.S. commerce. (28)
In the years following Alcoa and Hartford Fire, courts continued to dispute the reach of the Sherman Act regarding foreign conduct and Congress consequently enacted the Foreign Trade Antitrust Improvements Act (FTAIA) in an effort to create uniformity. (29) Congress enacted the FTAIA as an exclusionary rule to the Sherman Act, thus clarifying that U.S. exporters solely dealing in overseas transactions were not subject to Sherman Act limitations unless they engaged in antitrust activity that hurt or negatively impacted the U.S. economy. (30) The purpose behind the FTAIA's enactment was to clarify the scope and coverage of antirust laws rather than limit the federal court's power to hear a case. (31) Although the Ninth Circuit has not addressed whether application of the FTAIA requires a court to conduct a jurisdictional analysis before assessing the merits of a case, the Supreme Court in Morrison v. Nat'l Australia Bank Ltd., (32) emphasized that prohibitive conduct limiting federal statutes is a question of merits rather than of jurisdiction. (33) In Morrison, the Supreme Court addressed the extraterritoriality of an exclusionary provision to the Securities Exchange Act (SEA). (34) In distinguishing a true jurisdictional limitation and merits determination, the Court emphasized that [section]10(b) of the SEA focused on prohibited conduct and not the case's ability to be tried in federal court. (35)
Within the FTAIA there are two clauses in which conduct is not protected and would therefore fall within the scope of the Sherman Act. (36) First, the FTAIA does not limit the scope of the Sherman Act regarding import trade or commerce. (37) Second, the FTAIA does not limit the scope of the Sherman Act if the conduct has a direct, substantial, and reasonably foreseeable effect on U.S. commerce, more commonly known as the domestic effects exception. (38) In F. Hoffman-La Roche Ltd. v. Empagran S.A., (39) the Supreme Court addressed the difficult scope of the FTAIA in determining whether a price fixing conspiracy between foreign and domestic vitamin manufacturers violated the Sherman Act. (40) The Supreme Court held that the FTAIA was applicable because the price-fixing activity was primarily foreign and caused separate foreign injury. (41) Had the Court found that the activity constituted import trade or had a direct, substantial, and reasonably foreseeable effect on U.S. commerce, their conduct would not fall within the FTAIA, thus making the Sherman Act applicable. (42)
In United States v. Hui Hsiung, the United States Court of Appeals for the Ninth Circuit held that the quantity of goods the defendants sold to customers in the United States qualified as import trade and thus exempted the defendants from the application of the FTAIA. (43) In first determining the extraterritoriality of the Sherman Act, the court applied the substantial effects test established in Hartford Fire. (44) The court reasoned that because the defendant targeted the U. S. market and sold millions of their products at a fixed price to companies and customers in the United States, which substantially effected U. S. commerce, the defendant was therefore subject to the Sherman Act. (45) The Ninth Circuit then addressed whether the defendant's conduct fell within the FTAIA, the exclusionary provision to the Sherman Act. (46) In first analyzing the FTAIA, the Ninth Circuit distinguished whether the FTAIA was a jurisdictional or merits issue. (47) The court determined that the FTAIA was a merits issue because the FTAIA excluded certain conduct from the reach of the Sherman Act rather than court's ability to hear the case, staying consistent with precedent set forth by the Supreme Court regarding the extraterritoriality of federal securities laws. (48)
The Ninth Circuit then decided whether the FTAIA covered the defendants' or if their conduct fell within the Sherman Act. (49) The court determined that the defendant's conduct constituted import trade and thus did not fall within the FTAIA at all. (50) The Ninth Circuit reasoned that the defendants' conduct constituted import trade because they regularly contacted customers in the United States to negotiate prices of TFT-LCD's, imported over one million price-fixed panels per month into the United States, and earned over USD600,000,000.00 from import sales of TFT-LCD's in the United States. (51) The court then addressed whether the evidence was sufficient to support a conviction under the domestic effects exception, in other words whether the conduct had a "direct, substantial, and reasonably foreseeable effect on U.S. commerce." (52) The court acknowledged that there was ambiguity relating to the flow of products from the defendants' manufacturers to the United States, using dicta to state they were unsure of how direct an effect their conduct had on U.S. commerce. (53) Despite this, the court...