Preserving per se.

• Author: Gluck, Abbe
• Position: Case Note

United States v. Nippon Paper Indus., 109 F.3d 1 (1st Cir. 1997), cert. denied, 118 S. Ct. 685 (1998).

"[W]e do not have two versions of antitrust law, one for international transactions and one for domestic: to the extent the law applies at all, it applies in a nondiscriminatory fashion."(1) In 1995, the Department of Justice indicted Nippon Paper Industries of Japan for conspiring with other Japanese firms to fix prices on thermal fax paper sold in the United States, in violation of section 1 of the Sherman Anti-Trust Act.(2) In 1997, the First Circuit upheld the indictment,(3) becoming the first court to extend the jurisdictional reach of the Sherman Act to a criminal conspiracy formed solely among foreign firms.(4)

Yet the First Circuit decision and its subsequent implementation by the district court did not create a jurisdictional threshold that, once crossed, sets the typical antitrust prosecution in motion. To the contrary, Nippon Paper established a new element of the substantive offense--proof of "substantial effects"--that applies solely in international prosecutions. Not only does the new doctrine produce different substantive requirements for domestics and foreigners, it also undermines a half-century of case law holding that, once a particular restraint of trade is deemed illegal "per se"--as it was in this case--effects need not be proven to convict.

After providing a brief background of the "per se rule," this Case Note outlines how courts have undermined the rule through their reluctance to subject foreigners to its forceful presumptions. The Case Note argues that the rule should be applied consistently against all defendants. One way to do this is to separate jurisdiction from substance, thereby allowing courts to make the jurisdictional determination of effects using presumptions that both comport with the rule's emphasis on efficiency and follow naturally from per se doctrine.

The First Circuit based its decision in Nippon Paper on Hartford Fire Insurance v. California,(5) a civil antitrust action in which the Supreme Court held that the Sherman Act applied abroad, provided "foreign conduct ... meant to produce and did in fact produce some substantial effect in the United States."(6) The First Circuit extended the jurisdictional authority further, holding that Hartford Fire applied in the criminal context.(7) At trial, the district court put the question to the jury; but rather than separate the jurisdictional inquiry from the merits, the court included the jurisdictional effects requirement in its charge on the elements of the substantive offense.(8) In July of 1998, the trial ended with a hung jury.

Nippon Paper creates a conflict within criminal antitrust doctrine by requiring that effects be proven to find a substantive "per se" violation of the Sherman Act. The case was the first wholly foreign criminal antitrust action prosecuted under the per se rule, one of the two substantive frameworks used to decide antitrust cases. Under the other framework, the rule of reason, the circumstances justifying the restraint are balanced against the restraint's anticompetitive effects.(9) The per se rule, however, precludes consideration of either the effects of the restraint or the reasons for it.(10) The per se rule is potent because negative effects are presumed. Moreover, it is efficient because that presumption "avoids the necessity for an incredibly complicated and prolonged economic investigation."(11) As such, criminal antitrust prosecutions typically target only per se offenses.(12)

For more than fifty years, the Supreme Court has held that price-fixing agreements like that in Nippon Paper are per se illegal, relieving the government of its burden to prove their effects.(13) The Court, however, also has indicated that using presumptions to find elements of the crime may be unconstitutional.(14) Hence the significance of the Nippon Paper charge: By importing the jurisdictional effects requirement into the elements of the substantive offense, the court dispossessed the per se rule of its powerful presumptions.

II

Courts justified undermining the per se rule for foreigners based on comity principles.(15) The notion that it is somehow unfair to subject foreigners to U.S. law--even absent a conflict of laws--makes courts reluctant to use the per se presumptions against them. Nippon Paper provides one of two bad ways to reach the same bad result.

One way courts have eroded the per se rule for foreigners has been to try to preserve it through nonuse. Recognizing that an effects requirement is inconsistent with the per se presumptions, courts before Nippon Paper refused to apply the role to foreign criminal conspiracies. Instead, they explicitly adopted the rule of reason for offenses that, but for the foreign defendant, would have been prosecuted under the per se framework.(16) The result is an asymmetric doctrine: Foreigners are tried under the far more forgiving rule of reason for the same offense that subjects U.S. parties to the per se rule.(17)

The First Circuit, by contrast, broke new ground in deciding that Nippon Paper would be prosecuted under the per se standard, not the rule of reason.(18) The court even recognized the per se presumptions, stating that, "`conduct regarded as per se illegal'" has "'unquestionably anticompetitive effects.'"(19) The district court, however, precluded the use of those presumptions by including effects as an essential element, thereby requiring the government to prove the conspiracy's impact. Nippon Paper's doctrine thus is not only asymmetric, but internally inconsistent. A per-se-plus-effects test for only foreigners raises the burden of proof for their conviction. Moreover, a per se rule that requires proof of effects is not a per se rule at all; it is a rule of reason and should be acknowledged as such.(20)

Either way, the presence of a foreign defendant does not justify weakening the per se rule. Every indictment of a non-U.S. party follows an executive branch decision that "the importance of antitrust enforcement outweighs any relevant foreign policy concerns."(21) Once...