Plaintiff Perspective: the Long Arm of State Antitrust Law
| Publication year | 2014 |
| Author | By Marc A. Pilotin |
By Marc A. Pilotin1
As manufacturing of consumer products and their component parts continues to move offshore,2 consumers face a greater risk of suffering injuries resulting from anticompetitive conduct occurring outside of the United States.3 The antitrust docket in the Northern District of California speaks to this point. From TFT-LCD panels to memory chips to optical disk drives to lithium-ion rechargeable batteries, the District has seen numerous consumer lawsuits for damages arising from alleged price-fixing of consumer-product components.4 Each of these cases has involved international cartels.
To recover damages against such cartels, however, aggrieved consumers who purchased products containing price-fixed components (i.e., finished products) generally must turn to state antitrust statutes because of the bar on indirect purchaser recovery under the Sherman Act.5 Many state antitrust regimes permit indirect purchasers to sue for damages resulting from anticompetitive conduct.6 And the fact that state antitrust laws provide relief where its federal counterpart does not is acceptable. As the U.S. Supreme Court recognized, the federal antitrust regime was intended "to supplement, not displace, state antitrust remedies."7
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But as state antitrust laws are increasingly being used to target offshore anticompetitive conduct, courts have grappled with the precisely how far these statutes reach. While antitrust defendants have attempted to muddle the analysis, as explained further below, the requisite analysis is simply whether—like the extraterritorial application of any state statute—applying the state law offends due process or that state's choice-of-law principles in light of the challenged conduct. As the Ninth Circuit recently elaborated in the context of California's Cartwright Act, so long as
a defendant's conspiratorial conduct is sufficiently connected to California, and is not 'slight and casual,' the application of California law to that conduct is 'neither arbitrary nor fundamentally unfair,' and the application of California law does not violate that defendant's rights under the Due Process Clause.8
With respect to choice-of-law considerations, while states have adopted varying analyses, such analyses typically consider whether the state has a "significant relationship" to the conduct or, alternatively, whether the state has a "government interest" in proscribing it.9 Contrary to antitrust defendants' views,10 neither the Foreign Antitrust Improvements Act of 1982 ("FTAIA"), the dormant Foreign Commerce Clause, nor notions of international comity limit state antitrust laws to domestic conduct.
State antitrust laws constitute one of the only protections consumers have against international cartels. As long as applying these laws to an international cartel's anticompetitive conduct does not violate due process or choice-of-law principles, consumers should be entitled to obtain relief under them.
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As explained in our high school civics class, in our federal system, the states have a "general power of governing,"11 unlike our federal government, which is one "of limited powers."12 Pursuant to its "numerous and indefinite" powers,13 a state need not have federal permission to act, so long as it remains within the bounds imposed by the U.S. Constitution.14
Against this grade school backdrop, there is nothing remarkable about state antitrust law reaching conduct outside of the United States. State tort law has regularly applied to conduct occurring abroad, including with respect to products liability,15 trade secret misappropriation,16 and injuries resulting from terrorist attacks.17 It is also well settled that states can regulate foreign entities through their respective tax regimes, even if those regimes sweep in conduct occurring abroad,18 and through requiring foreign ships operating outside the state's territorial waters to use certain fuels.19 Indeed, as the U.S. Supreme Court has restricted extraterritorial application of certain federal laws, primarily based on the judicially-created presumption that Congress did not intend for federal laws to extend extraterritorially,20 commentators have pointed to corresponding state laws as alternative avenues for relief.21
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This is not to say that a state's power to reach conduct occurring abroad is limitless. The Due Process Clause of the United States Constitution constrains the extent to which state laws reach international conduct.22 Due process requires that "'for a State's substantive law to be selected [and applied to a particular case] in a constitutionally permissible manner, that State must have a significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair.'"23
Ultimately, however, the restraints due process imposes are "only modest," with the Ninth Circuit finding that "most commentators have viewed" the analysis as "setting a highly permissive standard."24 The "Due Process Clause . . . requires a court to invalidate the application of a state's law only where the state has no significant contact or significant aggregation of contacts, creating state interests, with the parties and the occurrence or transaction."25 Thus, as the Ninth Circuit has observed, a "'state court is rarely forbidden by the Constitution to apply its own state's law.'"26
The due process analysis was recently applied in AT&T Mobility LLC v. AU Optronics Corp, in which the Ninth Circuit held that California's Cartwright Act could apply to out-of-state purchases affected by the foreign antitrust conspiracy at issue in In re TFT-LCD (Flat Panel) Antitrust Litigation.27 There, the district court dismissed the plaintiffs' claims under the Cartwright Act, holding that its application would violate due process because the plaintiffs' purchases of allegedly price-fixed goods took place outside of California.28 The Ninth Circuit held that this conclusion erroneously and "severely truncates the scope of anticompetitive conduct that the [Cartwright] Act proscribes."29
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Due process, the AT&T court reasoned, permitted the Cartwright Act to reach much further. The court explained,
The Cartwright Act can be lawfully applied without violating a defendant's due process rights when more than a de minimis amount of that defendant's alleged conspiratorial activity leading to the sale of price-fixed goods to plaintiffs took place in California.30
Thus, while the defendants' sale of the price-fixed products in California may satisfy due process concerns, so will in-state conduct that constitutes "more than a de minimis amount" of the alleged conspiratorial activity, even if the conspiracy was primarily foreign in nature.31
In addition to satisfying federal due process considerations, the application of a state's substantive law must comport with that state's choice-of-law principles. For instance, California applies the "governmental interest approach" to identify the law of decision, which requires
(1) determining if the foreign law "materially differs" from California law; (2) and if so, next determining each respective state's interest in application of its law; (3) and finally, if the laws materially differ and both states have an interest in the litigation, selecting the law of the state whose interest would be "more impaired" if its law were not applied.32
With respect to the second consideration, California "has a manifest interest in providing its residents with a convenient forum for redressing injuries inflicted by out-of-state actors."33 Thus, when considering whether a California consumer may apply the Cartwright Act to conduct occurring outside the state, a court need only consider the first and third factors.
Accordingly, while state antitrust statutes may be applied to offshore conduct, like other state laws, there must be some connection between the foreign conspiracy and the forum state. Moreover, that state's choice-of-law doctrine must support application of the state's substantive law. As explained further below, outside of express statutory limits set by the state, these are the primary constraints on applying state antitrust law to foreign conduct.
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Likely because due process and choice-of-law principles do not erect substantial barriers to applying state antitrust statutes to anticompetitive conspiracies occurring abroad, antitrust defendants have turned to the FTAIA to place limits on them. However, nothing in the FTAIA suggests that Congress intended for the statute—which, by its own terms, applies only to the Sherman Act and the Federal Trade Commission ("FTC") Act34—to constrain state antitrust law. This conclusion is reinforced further by the presumption that federal law does not preempt state statutes.35 Thus, while the Supremacy Clause grants Congress the power to restrict state antitrust law,36 it has not yet done so.
A. Legislative History of the FTAIAThe FTAIA originated in a package of laws Congress passed "[t]o encourage exports by facilitating the formation and operation of export trading companies, export trade associations and the expansion of export trade services generally."37 The package contained three new statutory schemes that addressed antitrust laws. Two of the three—the Export Trading Company Act of 1982 and a title concerning "Export Trade Certificates of Review"—addressed "antitrust laws," defining the term to mean both federal and state antitrust or unfair competition law.38 The FTAIA, by contrast, specifically addressed only the Sherman Act and the FTC Act.39
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In passing the law, Congress expressed no...
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