Foreign Cartels & U.S. Courts: How the FTAIA Exceptions Apply
By Barbara Hart, Vincent Briganti & Geoffrey Horn
Posted: 5th August 2014 10:28While there is some controversy about whether U.S. courts should police global conspiracies, there are vibrant and noteworthy remedies available when foreign conduct gives rise to a Sherman Act claim. The United States Congress passed the Foreign Trade Antitrust Improvements Act in an effort to limit the foreign reach of the Sherman Act, 15 U.S.C. § 6a, “exclud[ing] from [its] reach much anti-competitive conduct that causes only foreign injury.” It does so by setting forth a general rule stating that the Sherman Act ‘shall not apply to conduct involving trade or commerce… with foreign nations…’” F. Hoffman-LaRoche, Ltd. v. Empagran (Empagran I), 542 U.S. 155, 158 (2004) (citing 15 U.S.C. § 6a) (emphasis supplied). However, the FTAIA contains two significant exceptions:
1. When the foreign conduct (1) has a direct, substantial, and reasonably foreseeable effect on U.S. commerce … and (2) has an effect of a kind that antitrust law considers harmful, the FTAIA “direct effects” exception allows the application of the Sherman Act.
2. When foreign conduct targets import goods or services, the FTAIA“import trade or import commerce” exception allows the application of the Sherman Act.
The FTAIA Direct Effects Exception
The “direct effects” exception allows the application of the Sherman Act when defendants’ “conduct both (1) has a direct, substantial, and reasonably foreseeable effect on U.S. commerce… and (2) has an effect of a kind that antitrust law considers harmful, i.e., the ‘effect’ must ‘giv[e] rise to a [Sherman Act] claim.” Empagran I, 542 U.S. 161-162 (quoting 15 U.S.C. §6a(1), (2)). The FTAIA’s direct effects exception “imposes an objective standard.” Animal Sci. Prods. v. China Minmetals Corp., 654 F.3d 462, 471 (2011). For the direct effects exception to apply, the conduct must have had ““direct” and “substantial” effect [in the U.S. market] and must have been “foreseeable” to an objectively reasonable person.” Id.
In Minn-Chem, Inc. v. Agrium Inc., 683 F.3d 845, 857 (7th Cir. 2012), the Seventh Circuit explained that “Congress put [substantial and foreseeable] to signal that the word “direct” … had to be interpreted as part of an integrated phrase” and that “direct” means only “a reasonably proximate causal nexus.” Id. In Minn-Chem, the plaintiffs alleged that the defendants’ price fixing of potash in foreign countries served as a benchmark for the prices for potash in U.S. markets. The Seventh Circuit found that the plaintiffs’ allegations were sufficiently detailed as to how prices in foreign markets directly and substantially affected U.S. prices. The Seventh Circuit held that the price increases in China were the proximate cause of the subsequent price increases in the United States. Id. at 859. The Court’s ruling in Minn-Chem provides future litigants with the ability to advance claims on conduct that defendants have often urged is barred from the Sherman Act’s reach under the FTAIA.
The FTAIA Import Commerce Exception
Under the “import commerce” exception, the Sherman Act is applicable to defendants’ conduct that targets import goods or services. Animal Sci. Prods., Inc. v. China Minmetals Corp., 654 F.3d 462, 470 (3d Cir. 2011). Import trade and commerce are included within the Sherman Act because “the applicability of U.S. law to transactions in which a good or service is being sent directly into the United States, with no intermediate stops, is both fully predictable to foreign entities and necessary for the protection of U.S. consumers.” Minn-Chem, Inc. v. Agrium Inc., 683 F.3d 845, 854 (7th Cir. 2012) (internal citations omitted). “Congress recognized that there was no need for this self-restraint with respect to imports, even though they represent part of the foreign commerce of the United States.” Id.
The FTAIA’s “import commerce” exception applies whenever the defendants are directly involved in the importation of goods or services into the United States. Animal Sci. Prods., Inc. v. China Minmetals Corp., 654 F.3d 462, 471 (3d Cir. 2011); see also Precision Assocs. v. Panalpina World Transp. (Holding) Ltd., 2011 U.S. Dist. LEXIS 51330, 2011 WL 7053807 (E.D.N.Y. Jan. 4, 2011) (“Import commerce” is the business of bringing goods into the United States.). Where foreign plaintiffs have adequately demonstrated that defendants’ conduct was directed at a U.S. import market and produced a substantial intended effect in the U.S., the import commerce exception applies.
What is an Import?
Although the FTAIA does not define the term ‘import,’ the term generally denotes a product or service that has been brought into the U.S. from abroad. Turicentro, S.A. v. American Airlines Inc., 303 F.3d 293, 3030 (3d Cir. 2002) (citing Webster’s Third New International Dictionary (1986) (defining “import” as “something (as an article of merchandise) brought in from an outside source (as a foreign country)”). Courts have held that functioning as a physical importer may satisfy the import trade or commerce exception, but it is not a necessary prerequisite. See Animal Science, 702 F. Supp. 2d at 369 n.52.
The Delivery Location of the Import
The Third Circuit considers the delivery location of goods sold by a foreign seller to be relevant to whether the seller’s actions were directed at a United States import market, rather than a foreign market. For example, in Turicentro, foreign travel agent plaintiffs sued an airline trade association and U.S. airline members alleging that the defendants conspired to lower their sales commissions. The plaintiffs argued that the defendants “imported” their travel agent services for the purposes of selling airline tickets. Turicentro, 303 F.3d at 303. The Third Circuit held that the defendants’ conduct did not involve “import commerce” because defendants did not bring goods or services into the United States.” Id. However, the Third Circuit directed the District Court, in considering the import exception, to give weight to “any well-pled allegations that the defendants in this action made direct sales of the [good] for delivery in the United States during the time period of the alleged conspiracy.” Id. at 372.
Public Policy Warrants Both Exceptions
Allowing a claim involving foreign conduct to be heard in U.S. courts is consistent with public policy of the Sherman Act. In Pfizer, Inc. v. Gov’t of India, the Supreme Court noted that American antitrust laws have two purposes: “to deter violators and deprive them of ‘the fruits of their illegality,’” and “to compensate victims of antitrust violations for their injuries.” 434 U.S. 308 (1978) (“The fact that Congress’ foremost concern in passing the antitrust laws was the protection of Americans does not mean that it intended to deny foreigners a remedy when they are injured by antitrust violations… [S]uits by foreigners who have been victimised by antitrust violations clearly may contribute to the protection of American consumers.”). The FTAIA exceptions allow significant remedies under the Sherman Act because they serve as a protection against blanket rejections of claims involving foreign conduct, which would defeat the goal of deterrence and permit Defendants to escape full liability for their illegal actions.
Barbara Hart is the Chief Operating Officer of Lowey Dannenberg Cohen & Hart. She represents a broad range of clients in complex securities and antitrust class action litigation. Ms. Hart is Vice-Chair of the Executive Committee of the New York State Antitrust Committee. Ms. Hart was appointed Co-Lead counsel in the In re Air Cargo Antitrust Litigation (E.D.N.Y) one of the largest collusion cases in history involving major airlines. Ms. Hart’s notable settlements include: In re Beacon Associates, ($219 million settlement); In re Brand Name Drug Litigation, ($65 million settlement); and In re Warfarin Sodium Antitrust Litigation, ($44.5 million settlement), and In re Waste Management Securities Litigation, ($457 million settlement (third-largest securities class action settlement in history)).
Ms. Hart can be contacted by phone on +001 914 733 7227 or alternatively via email at email@example.com
Vince Briganti is a partner at Lowey Dannenberg Cohen & Hart, P.C. Mr. Briganti heads the firm’s commodity litigation practice group and works extensively on antitrust, manipulation, and securities fraud matters. Some notable current matters include: Laydon v. Mizuho Bank, Ltd. et al., (prosecuting action involving manipulative and anticompetitive conduct in the setting of Yen-LIBOR and Euroyen TIBOR against 30 of the world’s largest financial institutions); Sullivan v. Barclays PLC et al., (prosecuting action involving manipulative and anticompetitive conduct in the setting of EURIBOR against some of the world’s largest financial institutions); and In re North Sea Brent Crude Oil Futures Litig., (prosecuting action against the world’s largest oil companies).
Mr. Briganti can be contacted by phone on +001 914 733 7221 or alternatively via email at firstname.lastname@example.org
Geoffrey Horn is a partner at Lowey Dannenberg Cohen & Hart, P.C. Mr. Horn heads the firm’s commodity litigation practice group, works extensively on antitrust, manipulation, and securities fraud. Mr. Horn represents third-party payers including major health insurers and HMOs, employers, and health and pharmacy benefits plans, and recovers on their behalf from manufacturers and providers who overcharge for prescription drugs, medical devices or services. Some notable matters and settlements include: Laydon v. Mizuho Bank, Ltd. et al., (prosecuting action involving manipulative and anticompetitive conduct in the setting of Yen-LIBOR and Euroyen TIBOR against 30 of the world’s largest financial institutions); In re: Amaranth Natural Gas Commodity Litigation, ($77.1 million settlement); and In re: Natural Gas Commodity Litigation, ($100 million settlement).
Mr. Horn can be contacted by phone on +001 914 733 7259 or alternatively via email at email@example.com