The return of Timberlane?: the Fifth Circuit signals a return to restrictive notions of extraterritorial antitrust.

Author:Tuttle, William J.
Position:Case Note
 
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ABSTRACT

Over the past 100 years, the United States has remained ambivalent regarding the potential extraterritorial application of its antitrust laws. The executive, legislative, and judicial branches began with a doctrine of strict territoriality but promptly shifted toward an examination of the effects of the antitrust activity on U.S. commerce. Since the 1970s, the branches of government have reframed the question as one of statutory interpretation, embraced considerations of international comity, modified those considerations, and eventually rejected many of those same considerations.

Throughout this chaos, however, the results reached by the various branches of government have typically been consistent with the economic theory of international antitrust. This theory suggests that a country will use its domestic antitrust laws to regulate foreign conduct when that country is both a net importer and maintains the political power to compel international compliance. Thus, with one major deviation in the 1970s, the United States, since becoming a net importer, has extended jurisdiction over foreign parties for antitrust activity organized and occurring abroad whenever it has maintained sufficient international political power.

The Fifth Circuit has now entered the debate on extraterritorial application of U.S. antitrust law. In Den Norske Stats Oljeselskap As v. HeereMac v.o.f., the court, in an opinion rooted solely in statutory interpretation, declined to exercise jurisdiction over the claims of a foreign plaintiff injured by cartel activity occurring exclusively outside of the United States. While this result may seem consistent with traditional notions of the role of U.S. courts, it is inconsistent with both the economic theory of international antitrust and the antitrust laws' goal of protecting the U.S. consuming public. This Note argues that the Fifth Circuit should have exercised jurisdiction over the foreign plaintiff's claims, thereby protecting U.S. consumers from rising prices and avoiding further uncertainty regarding the extraterritorial application of U.S. antitrust law.

TABLE OF CONTENTS I. INTRODUCTION II. THE ECONOMIC THEORY OF INTERNATIONAL ANTITRUST A. The Conceptual Framework B. Implications to a Trading Marketplace III. THE ORIGINS OF EXTRATERRITORIAL ANTITRUST IN THE UNITED STATES A. Congress Legislates B. The Courts Interpret 1. The Courts Consider Extraterritorial Jurisdiction 2. The Court Reconsiders 3. The Court Adopts a New Approach IV. THE TIMBERLANE PROGENY A. Considerations of International Comity B. Rejecting the Timberlane Rationale C. The Restatements Address Timberlane and Laker Airways D. Implications on the Economic Theory of International Antitrust V. THE FTAIA AND NEW DOJ GUIDELINES A. Congress Attempts to Eliminate Ambiguity B. The 1988 Guidelines C. Hartford Fire and Firm Rejection of Broad Interpretations of International Comity D. The Ineffective IAEAA and Clinton's Guidelines E. Implications on the Economic Theory of International Antitrust VI. THE FIFTH CIRCUIT REJECTS EXPANSIVE NOTIONS OF EXTRATERRITORIALITY A. The Alleged Cartel and the District Court's Holding B. The Fifth Circuit Affirms C. A Poignant Dissent D. Subsequent Developments E. Den Norske's Outlook VII. CONCLUSION I. INTRODUCTION

Despite the stated goal of protecting the U.S. consuming public, the United States has remained ambivalent regarding the potential extraterritorial application of its antitrust laws. In domestic cases, the courts and legislature have oscillated between the per se and rule of reason tests to determine antitrust violations. The debate regarding extraterritorial application, meanwhile, has been far more complex. The various branches of government began with a doctrine of strict territoriality that required that the antitrust activity occur in U.S. territory but promptly shifted toward an examination of the effects of the antitrust activity on U.S. commerce to determine violations. Since the 1970s, the branches of government have reframed the question as one of statutory interpretation, embraced considerations of international comity, modified those considerations, and eventually rejected many of those same considerations.

Throughout this chaos, however, the results of extraterritorial antitrust enforcement have been remarkably consistent with the economic theory of international antitrust. This theory suggests that a country will use its domestic antitrust laws to regulate foreign antitrust activity when that country is both a net importer and maintains the political power to compel international compliance. Thus, with one major deviation in the 1970s, the United States, since becoming a net importer, has extended jurisdiction over foreign defendants for antitrust activity organized and occurring abroad whenever it has maintained sufficient international political power.

The U.S. Court of Appeals for the Fifth Circuit has now entered the debate on extraterritorial application of U.S. antitrust law. In Den Norske Stats Oljeselskap As v. HeereMac v.o.f., the court declined to exercise jurisdiction over the claims of a foreign plaintiff injured by cartel activity organized and occurring exclusively outside of U.S. territory. While this result may seem consistent with traditional notions of the role of U.S. courts, it is inconsistent with both the economic theory of international antitrust and the antitrust laws' goal of protecting the U.S. consuming public. This Note examines Den Norske and attempts to place it within the context of the history and continuing debate regarding extraterritorial application of U.S. antitrust law.

Part II develops the economic theory of international antitrust that guides the analysis of later sections. Part III describes the origins of extraterritorial antitrust in the United States while Part IV traces the more recent history. Part V discusses the statutory and executive developments of the last 20 years, which attempt to clarify the government's position on the use of U.S. law to regulate foreign antitrust conduct. Part VI examines the Fifth Circuit's recent decision in Den Norske that exemplifies the confusion and discomfort that U.S. courts feel in exercising subject matter jurisdiction in claims involving extraterritorial antitrust activity. Finally, Part VII recapitulates and shares some parting thoughts.

  1. THE ECONOMIC THEORY OF INTERNATIONAL ANTITRUST

    Scholars reason that there is a globally efficient level of antitrust activity. (1) This level, equilibrium, theoretically occurs when the marginal benefits of economies of scale from the creation of larger firms and cartels equal the marginal costs of those activities. (2) Countries, however, typically pursue independent, national antitrust policies, thereby maximizing national welfare rather than cooperating to maximize global welfare. (3) Therefore, despite greater overall economic cooperation through the North American Free Trade Agreement and the European Union, the level of global antitrust remains skewed from its optimal level. (4) Nevertheless, economics provides several predictions regarding how and when competing countries will manage their national antitrust policies. (5) Although they are only a small subset of antitrust activity, mergers are used in this Note as a framework for developing more general economic-based antitrust policy predictions.

    1. The Conceptual Framework

      The basic economic model of international antitrust (Model 1) assumes a world consisting of two countries. (6) Country A is home to all of the producers of the traded good while Country B is home to all of the consumers. (7) Country A attempts to maximize profits for its producers while Country B seeks to maintain low prices for its consumers. (8) Tension between these competing interests can arise when two firms in the producer country plan a merger. (8) Although this merger may be desirable from a global perspective, antitrust policy is pursued at the national level. (10) Thus, the producer country will always approve the merger (11) while the consumer country will try to block the combination if higher prices could reduce consumer welfare. (12) Therefore, the ultimate disposition of the merger depends on the relative political power of the two countries. (13)

      The isolation of producers and consumers in Model 1, however simple, fails to accurately portray the world marketplace. (14) Model 2 relaxes this assumption of isolation as Country A continues to produce the market good while Country B both produces and consumes the good. (15) Country A continues to act in the same manner as in Model 1; it will approve any merger proposal to maximize the country's welfare through an increase in domestic producer surplus. (16) Country B's policymakers, on the other hand, must make a more complex evaluation based on an analysis of the proposed merger's impact on both producers and consumers. (17) Country B will allow the merger if the net change to domestic producer and consumer surplus is positive; without domestic efficiency gains, Country B will not approve the combination. (18) The result is that "Country B will never allow an activity that reduces global welfare because its own consumers are the ones who would bear the loss." (19) However, some activities that increase global welfare will also be blocked because Country B's policymaking does not account for the welfare gains in Country A. (20)

      Model 3 alters Model 2's assumptions, as Country A consumes rather than produces while Country B continues to both produce and consume. (21) Under this model, Country A does not approve any mergers that reduce global welfare because its consumers would suffer the negative effects. (22) Moreover, Country A will also block some mergers that increase global welfare because Country A fails to account for the increase in profits for Country B's producers. (23) Country B, on the other hand, approves all activities in...

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