The Rapidly Changing Landscape of Private Global Antitrust Litigation: Increasingly Serious Implications for U.s. Practitioners

• Publication year: 2016
• Author: By James L. McGinnis, Oliver Heinisch, and Nadezhda Nikonova

THE RAPIDLY CHANGING LANDSCAPE OF PRIVATE GLOBAL ANTITRUST LITIGATION: INCREASINGLY SERIOUS IMPLICATIONS FOR U.S. PRACTITIONERS

By James L. McGinnis, Oliver Heinisch, and Nadezhda Nikonova¹

I. INTRODUCTION

The center of gravity when it comes to private litigation of international antitrust disputes is still in the United States, but two trends affecting the legal landscape in the U.S., U.K., and EU are shifting it across the Atlantic. In this article, we address these trends and further discuss their implications for lawyers handling major antitrust disputes that have global footprints. Much of the discussion will focus on cartel litigation because those cases often involve global issues and present the most obvious examples for our discussion.

The first trend is the evolving jurisprudence of the Foreign Trade Antitrust Improvements Act ("FTAIA"). The FTAIA governs the scope of U.S. antitrust law over sales that implicate foreign comity concerns. While the FTAIA remains among the more baffling statutes to apply, circuit court decisions are multiplying and foreign jurisdictions are adding their own views in support of their own remedies. Complete clarity is likely to remain elusive, but there are categories of commerce involving foreign entities that are increasingly likely to be ruled out of bounds for U.S. courts with the result that foreign courts may be the only venues with jurisdiction over large amounts of sales.

The second key development is that, after many years of discussion, foreign remedies and procedures in the U.K. and other EU member states are finally being defined in ways that can be attractive for plaintiffs.² In 2013, the European Commission ("Commission") adopted non-binding recommendations on collective redress.³ On November 26, 2014, the Commission also mandated additions to national laws ensuring uniform rules across the EU's 28 member states for private damage actions. These revisions must be implemented by December 27, 2016. National law modifications consequently are underway. There will be changes even in those jurisdictions that already have advanced systems and attract most private antitrust actions, such as the U.K., the Netherlands, and Germany.

Last year, the U.K. adopted rules in the Consumer Rights Act of 2015 that include for the first time an opt-out collective redress mechanism that is similar to a U.S.-style class action system. This law goes far beyond both the Commission's recommendations and what was required under the Directive. No other European Union Member State has followed suit so far.

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In short, until recently, private cases were focused on U.S. remedies with few companion cases across the Atlantic. This dynamic has dramatically changed over recent years as cartels investigated in both the U.S. and the EU now routinely trigger private damages actions on both sides of the Atlantic. Many practitioners now assume that international cartel matters will prompt significant private cases filed by large customers either in the U.K., Germany, or the Netherlands. In the future, more European national courts are likely to be involved, especially if Brexit further shifts the balance toward continental Europe. International cartels already have attracted private actions across Europe including: auto glass, DRAM, CRT, LCD, batteries, and air cargo. Representative cases have started to emerge—despite predictions to the contrary. If there are any early successes, those cases are likely to proliferate soon.

We will begin with a brief overview of how we got to where we are now, move to an analysis of the current situation in the U.K. and the EU, and conclude with a discussion of what all of this may mean for practitioners. Specifically, we focus on the exponentially increasing complexity of decisions concerning arbitration, discovery, settlement, and case coordination.

II. EVOLVING LIMITS ON THE SCOPE OF U.S. LAW AND EMERGING FOREIGN REMEDIES

A. Limits on the Scope of U.S. Law

Traditionally, global cases were litigated almost exclusively in the U.S. Plaintiffs were inclined to pursue all of their damage claims in U.S. courts based on the availability of treble damages and attorney's fees. And the American rule on attorney's fees made this a no risk proposition. Moreover, the FTAIA case law was much less developed.

Now, maturing FTAIA jurisprudence has begun to clarify what sales may or may not be addressed in U.S. courts. While parties will continue to disagree about the scope of the U.S. Sherman Act, most would acknowledge that there is a serious risk that a U.S. court will not adjudicate disputes involving foreign sales of components to foreign subsidiaries of U.S. companies. If finished products then are made by those overseas subsidiaries and sold abroad, almost certainly U.S. law will not reach those sales.

The FTAIA was signed into law in 1982, but has not been applied and litigated in earnest until the last fifteen years. The entirety of the surprisingly short statute reads as follows:

Sections 1 to 7 of [the Sherman Act] shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless—

1. such conduct has a direct, substantial, and reasonably foreseeable effect—

(A) on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or
(B) on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States; and

2. such effect gives rise to a claim under the provisions of sections 1 to 7 of this title, other than this section.

If sections 1 to 7 of this title apply to such conduct only because of the operation of paragraph (1)(B), then sections 1 to 7 of this title shall apply to such conduct only for injury to export business in the United States.⁴

The FTAIA has two fundamental purposes. First, the statute codifies principles of international comity by limiting the reach of U.S. antitrust laws in order to avoid "interference with other nations' prerogative to safeguard their own citizens from anti-competitive activity within their own borders."⁵ Second, the FTAIA promotes "certainty in assessing the applicability of American antitrust law to international business transactions and proposed transactions" by articulating a "single, objective test" for "determining whether American antitrust law is to be applied to a particular transaction."⁶

The FTAIA establishes a general rule that the Sherman Act does not apply to conduct involving foreign commerce.⁷ The FTAIA then articulates two exceptions. First, under the "import commerce" exclusion, the statute provides that the Sherman Act does apply to conduct involving U.S. import commerce, which courts have defined to mean "transactions that are directly between [U.S.] plaintiff purchasers and [foreign] defendant cartel members."⁸ Second, the "domestic effects" exception applies only where (1) the foreign conduct at issue had a "direct, substantial, and reasonably foreseeable effect" on U.S. commerce, and (2) that domestic effect "gives rise to" the claim.⁹

Courts have had a remarkably difficult time applying the FTAIA to business situations that have become common in an increasingly global economy. Although there is still little consensus regarding the exact boundaries of the FTAIA, recent circuit court decisions have given practitioners some clarity over which sales may be out of bounds for U.S. courts.

For example, the FTAIA excludes anticompetitive conduct by foreign companies that only causes a foreign injury. In its first major ruling on the issue, the Supreme Court recognized that the purpose of the FTAIA is to "exclude from the Sherman Act's reach much anticompetitive conduct that causes only foreign injury."¹⁰ In Empagran I, a foreign purchaser brought claims in U.S. court for vitamins that were sold into foreign commerce. It was not disputed that the global Vitamins cartel had affected domestic commerce, but defendants argued that the foreign plaintiff's purchases did not give rise to a Sherman Act claim in the same way that a domestic plaintiff satisfied the "domestic injury" exception. The Supreme Court held that U.S. antitrust laws do not apply where "price-fixing conduct significantly and adversely affects both customers outside the United States and customers within the United States, but the foreign effect is independent of any adverse domestic effect."¹¹ This case made clear that U.S. antitrust laws do not extend to independent foreign injuries, even if they were caused by an alleged global cartel that also caused domestic injuries.

The FTAIA also implicates foreign purchases made pursuant to a global purchasing agreement. In Motorola Mobility, LLC v. AU Optronic Corp., three sets of purchases of TFT-LCD panels (the major component of LCD screens) were at issue.¹² The first set of purchases consisted of LCD panels that were sold directly to Motorola's U.S. parent. These purchases were "import commerce" subject to the Sherman Act, but they comprised only 1% of Motorola's claimed damages. The rest of the LCDs were purchased outside of the U.S. by Motorola's foreign subsidiaries and incorporated into cellphones that were either resold in the U.S. by the parent company ("Category 2" purchases) or sold abroad to foreign purchasers ("Category 3" purchases). The court ruled that Category 3 purchases—which were the majority of Motorola's claimed damages—"can't possibly support a Sherman Act claim" because "neither those cellphones nor their panel components entered the United States." The court also barred Motorola's Category 2 purchases because the added layer of a foreign subsidiary selling the cellphones back to Motorola for resale to U.S. consumers was too tenuous to "give rise" to Motorola's claim under the FTAIA. That the foreign purchases were subject to a master price agreement negotiated between Motorola and LCD manufacturers in the...