Empagran:The First Step In Avoiding A U.S. Monopoly On Antitrust Enforcement

AuthorJoseph Di Pietro
PositionJD/MBA candidate at American University Washington College of Law
Pages09

Joseph DiPietro is a second-year JD/MBA candidate at American University Washington College of Law and the American University, Kogod School of Business, where he will pursue an MBA concentration in Accounting. Mr. DiPietro holds an undergraduate degree in Finance from Loyola College. Mr. DiPietro would like to thank Dr. Jonathan Baker, Antitrust Professor at the Washington College of Law, for his guidance during the research phase of this article. Mr. DiPietro welcomes feedback to his article via e-mail at jd6312a@american.edu.

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[O]ur courts have long held that application of our antitrust laws to foreign anticompetitive conduct is . . . reasonable, and hence consistent with the principles of prescriptive comity . . . .1

Background

ECONOMIC GLOBALIZATION brings with it the question of whether domestic regulations should follow businesses abroad. When U.S. laws apply extraterritorially, meaning outside of its borders, issues are raised regarding the appropriateness of applying U.S. jurisdiction over foreign conduct in light of other nations' interests in the method of resolution and the eventual outcome of the matter. This dilemma is especially pressing in the antitrust arena due to the frequency with which foreign plaintiffs are seeking redress in U.S. courts for injuries suffered abroad. The issue of extraterritorial application of the Sherman Antitrust Act has come before the U.S. Supreme Court several times, most recently in the Empagran case. Empagran was an international price-fixing antitrust suit against several foreign and domestic vitamin manufacturers and distributors. 2 For analytic purposes, the Court assumed that the injury alleged by the plaintiffs (from Australia, Ecuador, the Ukraine, and Panama) was entirely independent of any domestic injury.3 In an 8 to 0 ruling (Justice O'Connor abstained), the Court held that when a foreign plaintiff solely alleges a wholly foreign injury, U.S. courts lack jurisdiction over the foreign claim.

The Court, however, remanded to the D.C. Circuit the determination of whether the plaintiffs preserved an alternative argument alleging that the adverse domestic effects exacerbated their foreign injury and therefore, should be justiciable in U.S. courts.4 In this alternative argument, the Empagran plaintiffs claimed that a positive correlation exists in the pricing of foreign and U.S. vitamin markets, and that the correlation links the foreign injury to the domestic effects. That link, according to plaintiffs, suffices for jurisdiction over their foreign claim, despite the fact that the specific conduct and injury giving rise to the claim occurred overseas.5

Extraterritorial Application of U S. Antitrust Law Prior to 1982

The Sherman Act, which applies to conduct that adversely affects commerce, was first interpreted in the international context in American Banana v. United Fruit.6 In this case, the Supreme Court determined that the Sherman Act did not apply to conduct occurring in foreign nations, even if the alleged antitrust conduct adversely effected U.S. commerce. In 1927, the Supreme Court permitted jurisdiction over conduct occurring outside of the U.S. which adversely effected domestic commerce.7 The "effects test," formulated by the Second Circuit in United States v. Aluminum Company of America, stated that U.S. jurisdiction over foreign conduct exists if the conduct was intended to effect, and subsequently did effect domestic commerce.8 The "effects test" shifted the focus from an examination of the territory in which the conduct occurred to an examination of the conduct's effects.

Later, in Timberlane Lumber v. Bank of America, the Ninth Circuit expanded the "effects test" by creating a three-prong test for analyzing whether jurisdiction was merited over foreign antitrust claims.9 The Timberlane Court's consideration of foreign interests exemplified a growing trend in recognizing international comity. The circuit courts continued to develop different analyses regarding foreign interests in the antitrust context, leading to the passage of the Foreign Trade Antitrust Improvements Act (FTAIA).

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FTAIA

In 1982, Congress amended the Sherman Act with the passage of the FTAIA. The FTAIA permits a broad range of anticompetitive conduct under U.S. jurisdiction, including all conduct not involving imports. The FTAIA also creates an exception for certain types of conduct that adversely affect U.S. commerce provided that there is a "direct, substantial, and reasonably foreseeable effect"10 on export, trade, or domestic commerce. The Empagran Court determined that Congressional intent would also include wholly foreign conduct, with the same effects mentioned in the Act's exception. 11

Circuit Split Prior To Empagran
Den Norske Stats Oljeselskap V Heeremac Vof ("Statoil")

In Statoil, the Fifth Circuit held that foreign plaintiffs12 alleging a cause of action consisting of a wholly foreign injury lack jurisdiction in U.S. courts. Statoil involved a Norwegian oil company seeking damages based on an alleged price-fixing conspiracy orchestrated by British and Dutch companies in the North Sea.13 The British and Dutch companies provided heavylift barge services, and there were only seven heavy-lift barges in existance at the time.14 Heavy-lift services also existed in Asia and an American company provided the services in the Gulf of Mexico. The conspiracy theory alleged that the British, Dutch, and American providers divided the markets and subsequently set price above the competitive level.15

The plaintiff claimed injuries suffered in the North Sea and based its claim for U.S. jurisdiction on the domestic injuries in the Gulf of Mexico.16 The plaintiff contended that the domestic injury suffered gave rise to its cause of action, notwithstanding the injuries occurring in separate markets, because the conduct originated from the same conspiracy.17 No dispute existed over whether a domestic plaintiff had jurisdiction based on an injury suffered in the Gulf of Mexico. However, the Fifth Circuit refused to infer a connection from the domestic injury to the injury in the North Sea.18 The court rejected the concept of one plaintiff 's jurisdiction giving rise to another and held that a foreign plaintiff injured in a transaction with no domestic effect may not seek redress in U.S. courts.19

Kruman V Christie's International

In a contrary decision, the Second Circuit granted jurisdiction to a class of foreign plaintiffs claiming wholly foreign 20injuries. The Kruman court theorized a nexus between the domestic and foreign effects of anticompetitive conduct.21 The court held the FTAIA and the Sherman Act provided jurisdiction over the foreign plaintiffs' claims despite all transactions occurring outside of the U.S.22 The Second Circuit declared that its ruling deters pricefixing...

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