Standing in the way of the FTAIA: exceptional applications of Illinois Brick.

• Author: Fischell, Jennifer
• Position: Foreign Trade Antitrust Improvements Act of 1982

In 1982, Congress enacted the Foreign Antitrust Trade Improvements Act (FTAIA) to resolve uncertainties about the international reach and effect of U.S. antitrust laws. Unfortunately, the FTAIA has provided more questions than answers. It has been ten years since the Supreme Court most recently interpreted the FTAIA, and crucial questions and circuit splits abound. One of these questions is how to understand the convergence of the direct purchaser rule (frequently referred to as the Illinois Brick doctrine) and the FTAIA. Under the direct purchaser rule, only those who purchase directly from antitrust violators are typically permitted to sue under section 4 of the Clayton Act for treble damages. There are several court-created exceptions to this rule that allow indirect purchasers to sue under section 4. This Note addresses the open question of whether courts should apply these exceptions in the FTAIA context. The Seventh Circuit recently discussed this question in Motorola Mobility LLC v. AU Optronics Corp., implying that courts should not recognize Illinois Brick's exceptions in the FTAIA context. This Note argues for a different interpretation of the case--one that supports the effective deterrence of antitrust violations while vindicating the need to compensate American consumers who are foreseeably, substantially, and directly damaged by foreign anticompetitive conduct. Based on an analysis of the purpose of the Illinois Brick doctrine and the text of the FTAIA, this Note concludes that when an exception to Illinois Brick would permit indirect purchasers to sue in the domestic context, U.S. courts should also allow indirect purchasers to sue under the FTAIA.

TABLE OF CONTENTS INTRODUCTION I. ANTITRUST STANDING UNDER THE FTAIA A. Private Plaintiff Standing in Antitrust Law B. The FTAIA: Interpretation and Controversy II. CONTROLLERS, CO-CONSPIRATORS, AND CALMING ILLINOIS BRICK CONCERNS A. Exceptional Definitions: Two as One B. Exceptional Policies: Applying Illinois Brick. III. THE APPLICATION OF ILLINOIS BRICK EXCEPTIONS UNDER THE FTAIA A. "Directly" Interpreting the FTAIA B. Interpreting Motorola II: Comity and Implications C. International Policy: Justifying Exceptions CONCLUSION INTRODUCTION

The following hypothetical implicates many of the concerns this Note confronts:

At the annual Computer Speaker Manufacturers' Conference, the producers of computer speakers in Europe and Asia conspire to price fix, forming an international cartel artificially inflating the price of computer speakers. (1) After the formation of the conspiracy, one of the conspirators, Mono Polly Speakers, Inc. (the supplier), sells its artificially expensive product to Computer Direct, a computer manufacturer in a small Asian country. Once it purchases the overcharged goods, Computer Direct is a direct purchaser from Mono Polly. This means that, if all of the parties were in the United States, Computer Direct would have standing (2) to sue Mono Polly for antitrust damages under the Illinois Brick doctrine, (3) Computer Direct could accrue damages in one of three ways. First, Computer Direct might keep its computer prices the same, sell the same number of computers, and lose profits equivalent to Mono Polly's overcharge on the speakers. Second, it could increase sales prices by the exact amount of the overcharge. In this scenario, Computer Direct would pass on the overcharge to its customers. (4) Although this would bring in the same per-unit profits, the increased price may diminish demand for the computers, thereby reducing sales numbers. Finally, Computer Direct might take a middle path: increase the sales price by some amount less than the total overcharge, losing some profits and losing some sales. Mono Polly's anticompetitive conduct also reaches American commerce because Computer Direct and other similar foreign manufacturers sell computers to consumers and department stores in the United States. Assuming that Computer Direct and others pass on a portion of the overcharge by increasing their sales prices, American purchasers are damaged because they pay more for the product than they would have absent the price fixing. Since the U.S. consumers and department stores did not buy directly from Mono Polly, they are indirect purchasers in antitrust terms. (5) In the typical case in which all parties are located in the United States, indirect purchasers (and, accordingly, the U.S. consumers in this case) would generally be unable to sue Mono Polly under the Illinois Brick doctrine. (6) When Computer Direct discovers the speaker price-fixing conspiracy, it wants to recover damages from Mono Polly. Unfortunately, Mono Polly's home nation does not allow civil damages for antitrust violations, and the laws in Computer Direct's home nation are similarly unhelpful. Knowing that the United States has particularly aggressive civil remedies for antitrust violations, Computer Direct would like to sue Mono Polly there. (7) Once Computer Direct brings suit in the United States, the major department stores and their customers become interested in recovering damages as well. Because the antitrust activities originated abroad, all parties seeking to bring suit must fit their cases within the confines of the Foreign Trade Antitrust Improvements Act (FTAIA). (8) The indirect purchasers in the United States, if not confronted with the direct purchaser rule, might have standing. As long as they could demonstrate the requisite statutory effects on American commerce, they would likely be able to show that those effects gave rise to their claim. (9) Computer Direct and other foreign direct purchasers would be unable to do that, however, because foreign conduct, independent of any effect on American commerce, caused their harm. (10) Although there were effects on American commerce, these effects (increased prices in the United States) were not the cause of Computer Direct's antitrust injury--"[r]ather, it was the foreign effects of the price fixing scheme (increased prices abroad)." (11) This hypothetical implicates two major issues in federal antitrust law: indirect purchaser standing (12) and the application of U.S. antitrust laws to foreign conduct. Indirect purchaser standing evolved from an interpretation of section 4 of the Clayton Act. ((13P Section 4 permits any "person ... injured in his business or property by reason of anything forbidden in the antitrust laws" to bring suit to recover treble damages (amounting to three times actual compensatory damages) for antitrust violations. (14) In Hanover Shoe, Inc. v. United Shoe Machinery Corp. (15) and Illinois Brick Co. v. Illinois, (16) the Supreme Court generally limited the definition of such persons to direct purchasers, thereby denying indirect purchasers standing to sue for monetary damages under section 4. (17) American scholars and states alike have intensely criticized this standing requirement--but it still applies to federal antitrust claims. (18) The direct purchaser rule is not absolute, however; many exceptions have evolved since the Court decided Illinois Brick in 1977. (19) When one of these exceptions applies, indirect purchasers may be permitted to sue. Although there are many exceptions to the direct purchaser rule with varying degrees of judicial acceptance, this Note focuses on two that are particularly relevant in the FTAIA context: (1) when a direct purchaser is owned or controlled by its supplier (the "defendant control exception"), and (2) when the direct purchaser conspires with its supplier in violation of antitrust laws (the co-conspirator exception). (20)

While the direct purchaser rule is relatively straightforward, the international frame of the hypothetical complicates the application of U.S. antitrust law. Almost every product in modern America takes a transnational route to its final destination. (21) Like Mono Polly's speakers, many of these international goods are exposed to overseas antitrust activities. (22) In 1982, Congress enacted the FTAIA to resolve uncertainties about the "scope and effect" of U.S. antitrust laws over foreign conduct. (23) The FTAIA exempts all foreign nonimport commercial activity from the application of the antitrust laws (24) unless two conditions are met: (1) the activity sufficiently impacted American commerce, and (2) the impact on American commerce caused the plaintiffs antitrust injury. (25) Courts have struggled to interpret and apply the FTAIA, with minimal assistance from the Supreme Court. (26) This complexity is demonstrated by the Seventh Circuit's recent opinions in Motorola Mobility LLC v. AU Optronics Corpafter vacating its first decision, it reheard the case and issued a second opinion, only to amend and reissue that opinion several months later. (27) On June 15, 2015, the Supreme Court denied a petition for a writ of certiorari. (28) The Court nevertheless seems likely to take an FTAIA case in an upcoming term, given the inconsistency that currently plagues the area. (29) Much of this Note untangles the various interpretations of the FTAIA.

The FTAIA is often invoked when foreign businesses like Computer Direct make purchases from price-fixing foreign suppliers like Mono Polly. (30) In these cases, neither party is located in the United States, but effects may still be felt in the United States (for example, by indirect purchasers)--and foreign businesses want to take advantage of U.S. antitrust laws. A plaintiff has standing to sue under the FTAIA when the effects on American commerce are substantial, and those effects cause the plaintiff's injury. (31) So under the FTAIA, even if Computer Direct could show the Mono Polly international cartel substantially affected American commerce, Computer Direct would probably still lack standing because it could not demonstrate that the effects on American commerce caused its injury. (32)

The Supreme Court has never addressed the convergence of indirect purchaser...