This article, available here, describes the US and EU positions on the territorial scope of public cartel enforcement – i.e. how far outside their territories can competition authorities reach to punish cartel conduct committed abroad by foreign undertakings – by reference to the LCD cartel.
Cartelised LCD panels were manufactured by a number of Asian producers with varying levels of direct and indirect imports into the EU and the USA. Both the European Commission (Commission) and the U.S. Department of Justice (DOJ) had to determine the territorial limits to their enforcement in respect of this international cartel, and to then defend their approach in court. In both jurisdictions, it is accepted that competition authorities benefit from long territorial reach and wide discretion in determining the amount of fines. It is submitted that the legal precedents created by decisions regarding this cartel are a cause for concern in view of the increasingly crowded global cartel enforcement arena. This argument is developed as follows:
Section II describes the LCD cartel and competition enforcement actions against it.
LCD panels are the main component of the flat screens used in televisions, computer monitors, and electronic notebooks. These panels are mainly produced in Korea, Japan, and Taiwan. Subsequently, they are either sold to third-party manufacturers of computers and TVs, or incorporated into finished products by the same corporate groups who produce them.
Following a leniency application in 2006, the European Commission and DOJ obtained evidence that six LCD manufacturers had fixed prices and exchanged sensitive information. To discuss and agree prices, these companies held around 60 so-called ‘Crystal meetings’, which took place mainly in hotels, tea houses and karaoke bars in Taiwan. The European Commission imposed fines of EUR 640 million, while the DOJ secured pleas amounting to USD 750 million. Fines were also imposed in relation to the LCD cartel by authorities in Japan, South Korea, China and Brazil. In the EU and the US, the cartelists appealed these decisions on the grounds, inter alia, that the competition authorities had exceeded their territorial jurisdiction by applying their competition law to conduct taking place solely in Asia.
Section III outlines the EU and US approaches to establishing jurisdiction.
In the EU, there are two main principles governing jurisdiction. Under the implementation test set out in Wood Pulp, what matters is not where a cartel agreement was formed, but where it was implemented. Under this test, international cartel conduct falls under the Commission’s jurisdiction if it was implemented in the Union by cartel members selling products at cartelised prices to customers in the EU. The second test, recently confirmed in Intel, is the qualified effects test, which considers whether foreign conduct ‘has immediate, foreseeable and substantial effect in the Union’. While each test, if met, suffices to established jurisdiction, in most cases the qualified effects test will be met if the implementation test is satisfied, and vice versa. In the LCD cartel, the Commission found that the implementation test was met. In addition, the Commission found that the LCD cartel had produced an immediate – on the basis of the direct influence on price setting resulting from the monthly fixing of prices –, foreseeable – on the basis of the evident consequences of the higher prices on the European customers – and substantial effect in the EEA.
In the US, section 1 of the Sherman Act only applies to wholly foreign conduct which has an intended and substantial effect in the United States (Hartford Fire). Second, the Foreign Trade Antitrust Improvements Act (FTAIA) excludes from the scope of the Sherman Act all non-import trade with foreign nations, except where such foreign trade has a direct, substantial, and reasonably foreseeable effect on domestic commerce. The LCD cartel included acts in the US, in particular sales of final products by the cartelists’ subsidiaries. The courts found that the conspirators had engaged in import commerce, because at least a portion of the transactions involved direct importation of LCD panels into the USA. Furthermore, the cartelists’ overall conduct was sufficiently direct, substantial, and reasonably foreseeable with respect to the effect on US commerce – because there was an integrated, close and direct connection between the purchases of the price-fixed panels, the United States as the destination for the products, and the ultimate inflation of prices in finished products imported to the United States.
In short, this means that in both the EU and the US the jurisdictional tests are similar. It is sufficient for there to have been at least some import of cartelised products by the cartel members to trigger competition law jurisdiction – even if there are some questions about whether indirect imports suffice to meet the relevant implementation threshold. As regards the application of the qualified effects test in particular, in both jurisdictions competition enforcers are allowed to consider the relevant conduct as a whole, and to take into account the overall intended strategy when determining whether particular conduct outside the jurisdiction is capable of producing sufficient effects within it.
Sections IV and V dig deeper into the US and EU’s approach to determining the territorial scope of the infringement.
Despite the similarities described above, there is a notable difference between the two jurisdictions as regards the territorial scope of sanctioned cartel conduct.
In the EU, the Commission was only concerned with the infringement that occurred within the EEA. Activities of the cartel relating to sales in countries outside the EEA were expressly considered to lie outside the scope of the Commission’s decision. The infringement identified by the Commission can hence be deemed to exclude indirect sales into the EEA, thereby aligning the scope of the sanctioned conduct with the applicable jurisdictional tests.
In the US, on the other hand, in a criminal context there appears to be no need to identify and delineate only that part of the cartel conduct that falls within the territorial scope of the Sherman Act. As long as at least some of the sales meet the applicable jurisdictional test(s), the conspiracy as a whole seems to be brought within the DOJ’s grasp. This makes it possible for overlaps to arise between the sanctioned conduct pursued by the DOJ and that targeted by the authorities of other states. On the other hand, this situation is clearly different in a civil context, where the courts award damages claims only to the extent to which they relate to sales that are within the scope of the Sherman Act – i.e. that relate to the US market.
Section V also looks at how jurisdictional concerns affect the calculation of fines.
There are also significant differences regarding the calculation of the fines. In the EU, a fine is calculated on the basis the undertaking’s sales of goods or services to which the infringement relates within the EEA. In the LCD cartel decision, the European courts seem to have decided that where the first sale of the cartelised products to a third party occurs outside the EEA, this sale cannot be taken into account to calculate a fine, even when products containing the cartelised product are ultimately sold in the EEA. On the other hand, the sales of final products incorporating the cartelised goods in the EEA can be taken into account to calculate the fine, but only in the proportion that corresponds to the value of the cartelized product – i.e. LCD panels – incorporated in the finished products.
In the US, the base fine is also linked to the volume of sales or commerce affected by the conspiracy. While on its face this is similar to the EU’s approach, the LCD decision revealed important differences. Unlike in Europe, the fine reflected the sales of all cartelised LCD panels that were shipped directly to the USA or that were incorporated into finished products shipped to the USA – including finished products sold by third-parties, and irrespective of the jurisdictional limitations that may be incumbent on the DOJ.
Section VI then looks at how the possibility of overlapping competition enforcement is taken into account in practice.
An international cartel can be subject to penalties in multiple jurisdictions simultaneously. Without any jurisdictional or territorial delineation between authorities on ‘who sanctions what and by how much’, domestic enforcement of international cartel conduct is bound to lead to potential or actual overlapping punishment.
It is easy to see how the fining methodologies used by the Commission and the DOJ can result in the same sales being taken into account more than once for the purposes of sanctioning the same overall conduct. The author submits that authorities targeting the same conduct in parallel should avoid unilaterally aiming for the maximum fine available without having any regard for the level of punishment and deterrence achieved by sanctions imposed elsewhere; and asks for increased international coordination of extraterritorial cartel enforcement.
Until international coordination is achieved, national self-restraint is desirable as regards any of the three elements assessed in this article: asserting jurisdiction, defining the territorial scope of punished conduct, and setting the fine. While it is true that the basis for asserting jurisdiction can be separated from the basis for calculating a fine, it is hard to justify partly relating a penalty to conduct that in itself would not have a sufficient territorial nexus to trigger potential prosecution.
This paper not only describes the principles governing extraterritoriality in competition enforcement, it also demonstrates that while the applicable tests may look similar on the surface, the way they are applied can lead to substantial differences in practice. While it has a clear pro-defendant stance, I found it to be fairly balanced, even as it takes a rather controversial topic – as shown by other pieces I have discussed before, such as this one.
I would only emphasise that the issues debated in this article are not relevant for public enforcement alone, but are also important for private enforcement, as this article correctly notes. For example, in iiyama (UK) Ltd and others v Samsung Electronics Co Ltd and others  EWCA Civ 220, iiyama’s submitted damages claims related to LCD panels and monitors it sold in Europe that incorporated LCD panels purchased outside the EEA. The Court of Appeal found that, even though the cartel was implemented in Asia and was solely the first step of the supply chain, the qualified effects test may nonetheless be satisfied in the case of a worldwide cartel which was intended to produce substantial indirect effects on the EU internal market. This judgment is just the first step in a process of establishing whether damages are due and in which amounts; in subsequent steps, questions of how to take foreign conduct into account will likely prove relevant.