From Sea to Shining Sea: a New Approach to Interpreting the Foreign Trade Antitrust Improvements Act

• Publication year: 2015

From Sea to Shining Sea: A New Approach to Interpreting the Foreign Trade Antitrust Improvements Act

Gerard F. Bifulco

FROM SEA TO SHINING SEA: A NEW APPROACH TO INTERPRETING THE FOREIGN TRADE ANTITRUST IMPROVEMENTS ACT

ABSTRACT

The Foreign Trade Antitrust Improvements Act (FTAIA) was passed in 1982 to govern the application of the Sherman Act to antitrust violations that occurred abroad. While the statute received little attention in its early years, public and private plaintiffs have recently begun to collect large fines and penalties under its jurisdiction. As the number of parties subject to these judgments has continued to grow, the increasing focus on the FTAIA has caused uneven development of the statute: while certain aspects of the FTAIA were defined and refined by judicial interpretation, other language in the statute remained underdeveloped.

This Comment focuses on the requirement within the FTAIA that conduct from a foreign entity must have a "direct, substantial, and reasonably foreseeable effect" on United States commerce. This section of the FTAIA forms the basis of the statute. That is, to satisfy the FTAIA the effect of the defendant's conduct must have a "direct, substantial, and reasonably foreseeable effect" on American commerce and that effect must "give[] rise to a claim" under the Sherman Act. The "direct, substantial, and reasonably foreseeable effect" requirement is greatly underdeveloped: some courts have interpreted certain words in the phrase, while others have provided no guidance as to the standard by which the effect requirement is judged.

This Comment proposes a new interpretation of the "direct, substantial, and reasonably foreseeable effect" requirement of the FTAIA. This new interpretation provides courts with the means to interpret a section of the FTAIA by balancing previous judicial attempts at deciphering the statute with the intent of the members of Congress who drafted it. By considering whether the anticompetitive conduct proximately causes the harmful effect on U.S. commerce, creates a substantial effect on the price and volume of the good, and the effect is reasonably foreseeable to an ordinary businessperson in the foreign entity's market, this Comment's interpretation will give businesses, practitioners, and judges a lens that will help clarify the FTAIA. This unified

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approach to interpreting the FTAIA also provides an efficient remedy to the confusion created by contradicting interpretations of the statute.

Introduction..............................................................................................871

I. The Effects Requirement and Foreign Antitrust Violations: An Elusive Standard...............................................876

A. The "Effects" Test Under Alcoa ............................................... 877
B. Redefining the Effects Requirement: The Foreign Trade Antitrust Improvements Act ....................................................... 880
C. The FTAIA and the Courts: A Clearer Standard?..................... 882

1. The Supreme Court and the FTAIA: Missed Opportunities....................................................................... 882
2. The Lower Courts and the FTAIA: Confusion and Variance .............................................................................. 884

II. A New, Unified Standard For Interpreting the Foreign Trade Antitrust Improvements Act...........................................886

A. Direct......................................................................................... 887

1. Courts' Interpretations of "Direct" .................................... 887
2. The Best Approach Under a Unified Standard: Proximate Cause ................................................................................... 889
3. The Standard in Practice: Intel Corp. Microprocessor ....... 891

B. Substantial ................................................................................. 892

1. Courts' Interpretations of "Substantial" ............................ 893
2. The Best Approach Under a Unified Standard: Price and Volume ................................................................................. 894
3. The Standard in Practice: United Phosphorus .................... 896

C. Reasonably Foreseeable ............................................................ 897

1. Courts' Interpretations of "Reasonably Foreseeable" ....... 898
2. The Best Approach Under a Unified Standard: The Objective Businessperson .................................................... 899
3. The Standard in Practice: Static Random Access Memory ............................................................................... 902

D. Applying the New Unified Standard: Minn-Chem .................... 903

III. Implications of the New Approach..............................................906

Conclusion..................................................................................................908

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Introduction

Enforcement of the Sherman Act against international cartels and antitrust violations beyond the borders of the United States has become big business for both private litigants and the government. The recent success of the Department of Justice (DOJ) demonstrates how lucrative prosecuting these overseas violations can be. The DOJ recently obtained a settlement in which nine Japan-based companies and two executives paid more than $740 million in criminal fines for their involvement in conspiracies to fix the prices of auto parts.¹ The DOJ collected over $1.1 billion dollars in criminal antitrust fines in the 2013 fiscal year,² tying its record for highest total antitrust fines collected in a fiscal year.³ These massive figures draw attention away from an interesting anomaly within antitrust-law enforcement. While impressive fines continue to mount against foreign entities, certain aspects of the law that governs these claims, the Foreign Trade Antitrust Improvements Act (FTAIA), have not been extensively interpreted by U.S. courts.

The FTAIA allows U.S. courts to hold foreign companies liable for violations of the Sherman Act. The FTAIA only applies to conduct involving export trade or export commerce.⁴ For a court to allow for Sherman Act liability under the FTAIA, the conduct must satisfy two conditions. First, the conduct must have a "direct, substantial, and reasonably foreseeable effect" on U.S. commerce.⁵ Second, the effect must "give[] rise to a claim" brought by

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the plaintiff under the Sherman Act.⁶ Courts that have discussed the FTAIA often focus on how these requirements apply to civil procedure⁷ or on the "gives rise to a claim" prong.⁸ In contrast, little to no discussion has occurred regarding the "direct, substantial, and reasonably foreseeable effect" requirement of the FTAIA. The underdevelopment of the "direct, substantial, and reasonably foreseeable effect" requirement of the FTAIA has caused confusion in the lower courts.

A comparison of hypothetical scenarios illuminates this confusion.⁹ First, imagine that a group of international companies that produce a computer component, decide to collude and charge a higher price for the component.¹⁰ The cartel sells the price-fixed component to different companies that assemble the computer outside of the United States.¹¹ These assembled computers, which contain the price-fixed component, are then sold to consumers throughout the world.¹² second, imagine a similar group of international companies that produce a component of televisions.¹³ These international companies engage in conduct similar to that in the previous example: they collude and charge a higher price and then sell to different companies that assemble the televisions outside of the United States.¹⁴ Again, the assembled

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televisions are sold to consumers throughout the world.¹⁵ Thus, these two hypothetical scenarios contain identical facts, with the only difference being the actual product involved in the anticompetitive conduct.

These hypothetical scenarios are based on actual cases. The courts in these cases reached different conclusions regarding antitrust liability. The computer hypothetical is modeled on the facts of In re Intel Corp. Microprocessor Antitrust Litigation, a case in which the plaintiff argued that foreign price-fixing by the defendant resulted in reduced revenue and hurt the plaintiffs ability to compete in the United States.¹⁶ The court held that the chain of events that eventually resulted in the alleged reduction in competition in the United States was not sufficiently "direct."¹⁷ In contrast, the television hypothetical is modeled on the facts of In re TFT-LCD (Flat Panel) Antitrust Litigation, a case in which the plaintiff claimed that inflated prices created by the defendant's foreign conduct were passed on to U.S. consumers.¹⁸ The court in TFT-LCD held that the foreign companies were subject to antitrust liability based on the "direct" effect their actions had in the United States.¹⁹ While the actual cases contain more nuances than the brief hypothetical scenarios above, the issue remains the same: similar situations have received different treatment from judges interpreting the "direct, substantial, and reasonably foreseeable effect" prong of the FTAIA.

The "direct, substantial, and reasonably foreseeable effect" prong of the FTAIA forms the basis of the statute. This prong defines the effect on U.S. commerce that must be shown to have a claim under the statute, which in turn is analyzed in the second prong of the FTAIA to determine whether that effect on U.S. commerce "gives rise to" the plaintiffs claim.²⁰ Judicial interpretation of the FTAIA focuses almost exclusively on this "gives rise to" prong of the FTAIA.²¹ Proceeding to the "gives rise to" analysis without clearly defining

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the effect as required under the first prong of the FTAIA essentially ignores a key assumption for the second prong: there was a "direct...