This short paper – which can be found here – looks at case law on the US Foreign Trade Antitrust Improvements Act (FTAIA), which regulates the extra-territorial effects of US antitrust law.
A first section provides an overview of how US law has dealt with the issue of extraterritoriality of its antitrust law over time. It notes that: ‘The antitrust laws protect U.S. consumers from foreign and domestic conduct alike; since Judge Hand’s landmark opinion in Alcoa, the U.S. antitrust laws have applied extraterritorially when foreign conduct has a domestic effect. ’ However, effects-based jurisdictional tests are quite broad, and can catch in their net many foreign conducts with limited impact on the US. As a result: ‘In the 1970s, the exercise of jurisdiction by U.S. courts over foreign defendants in antitrust cases caused a good deal of international tension; some of the nation’s major trading partners, including Canada, France, and the United Kingdom, passed “blocking” and “clawback” statutes to resist the exercise of jurisdiction by United States courts in antitrust cases. ’
Courts attempted to defuse this tension through comity, but it was widely understood that judges were poorly equipped to address this issue on their own.
In 1982, US Congress adopted FTAIA, which limited the extra-jurisdictional scope of private damages claims under the Sherman Act to conduct that: ‘has a direct, substantial, and reasonably foreseeable effect on [domestic trade or commerce], or on import trade or import commerce with foreign nations (…).’
Courts have subsequently decided that a defendant is engaged in “import commerce” (i.e. subject to US antitrust law) if: ‘it “directly bring[s] items or services into the United States” from abroad but not if it sells a good that reaches the United States by subsequent movement.’
The tricky part of the FTAIA, however, is how it treats non-import foreign commerce, i.e. a foreign company’s sale of goods or services outside the United States. The test here is whether such commerce has: ‘a direct, substantial, and reasonably foreseeable effect on [domestic trade or commerce]’. In this regard, the Supreme Court has determined that the Sherman Act reaches the foreign conduct only if it: “both (1) sufficiently affects American commerce, i.e., it has a direct, substantial, and reasonably foreseeable effect on American domestic, import, or (certain) export commerce, and (2) has an effect of a kind that antitrust law considers harmful, i.e., the effect must give rise to a Sherman Act claim.”
The question of whether US antitrust law applies to foreign conduct ultimately boils down to the relationship between the illegal foreign conduct and the means by which the affected products reach the US. Following a 2014 decision by the 7th Circuit (Motorola Mobility), the law is now that sales into the United States by a foreign seller are subject to US antitrust law as import commerce, while sales by a foreign entity to another foreign entity outside the United States are not actionable under the FTAIA regardless of their effect upon U.S. commerce. In other words: ‘a foreign company will not be liable for private antitrust damages under federal law if it does not ship either to U.S. addressees or to U.S. citizens abroad.’
This approach is endorsed by the authors. It sets ‘bright line rules that are easily administrable by the courts’; it provides rules which can be used by counsel to advise companies as to the legality of a company’s conduct; and it respects prescriptive comity, which requires sovereign nations to show respect to each other by limiting the reach of their laws.
One criticism of this approach is that it creates an enforcement gap, since under Illinois Brick indirect purchasers do not have standing to bring claims for antitrust damages. It has been argued that there should be an exception to the Illinois Brick rule for the first purchaser affected in US commerce. The authors consider this unnecessary: ‘To the extent one might worry about a foreign seller fraudulently insulating itself from antitrust damages by, for example, selling through an intermediary shell company, the lower courts have rightly recognized an exception to Illinois Brick when the defendant owns or controls the intermediary. Even when private remedies are unavailable, however, American consumers remain protected by their national competition agencies. The Department of Justice may (…) continue to prosecute foreign defendants for criminal conduct, such as price fixing, that has a direct, substantial, and reasonably foreseeable effect upon U.S. commerce.’
At this point, the paper looks at the intra-territoriality of US antitrust law – i.e. issues regarding the simultaneous application of (often incompatible) state antitrust statutes. This is very specific to the US, so I am not going to cover it here. I will merely say that those interested on the topic will find in this paper a cogent analysis of applicable case law and of the problems that the extra-jurisdictional reach of competition law can give rise to for companies engaged in inter-state commerce.
In short, the paper contains a very readable description of the way the US approaches matters of (federal) antitrust jurisdiction over foreign conduct. The main caveat is that the paper may give rise to the impression that the US’ approach is much stricter than in other jurisdictions that apply ‘effects-based’ jurisdictional tests. This may or may not be the case, but one cannot arrive at such a conclusion on the basis of the FTAIA alone, particularly because FTAIA does not extend either to criminal prosecutions of competition law infringement or to merger control.