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Recent U.S. Cases May Allow New Antitrust Challenges to Foreign Conduct

Michael Sennett, Thomas Demitrack, and Paula W. Render, Jones Day Antitrust Alert, October 2011.
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Recent decisions by the Third Circuit and the Northern District of California make it easier for plaintiffs to bring claims under the Foreign Trade Antitrust Improvements Act (FTAIA). The FTAIA statute provides that the Sherman Act does not reach conduct outside the United States, with some exceptions. In Animal Science Products v. China Minmetals, the Third Circuit disagreed with the long-standing interpretation of the statute under which plaintiffs alleging violations of the Sherman Act for conduct occurring overseas shouldered the burden of establishing the court’s subject matter jurisdiction. In the Third Circuit, the FTAIA is no longer a jurisdictional bar to Sherman Act claims involving conduct abroad. The Northern District of California now has adopted the Third Circuit’s approach.

In jurisdictions that follow these opinions, a defendant no longer is automatically entitled to present facts as part of its motion to dismiss a claim on the basis of the FTAIA, but may need to limit its attack to what the plaintiff has pled – which may not be the same as what the plaintiff can ultimately prove. These opinions therefore may make it easier for plaintiffs to bring claims against corporations for purportedly anticompetitive conduct and effects occurring outside the United States.

Foreign Trade Antitrust Improvements Act

The FTAIA limits the reach of the U.S. antitrust laws by providing that the Sherman Act "shall not apply to conduct involving trade or commerce…with foreign nations." But the statute sets forth two exceptions that bring certain foreign conduct back under the Sherman Act. Under the first, when defendants are involved in "import trade or import commerce," anticompetitive conduct occurring in the import trade or commerce is reviewable under the U.S. antitrust laws. The second exception extends the Sherman Act’s reach to wholly foreign conduct that has a "direct, substantial, and reasonably foreseeable effect" on domestic commerce and "gives rise" to the Sherman Act claim.

Until recently, courts (such as the Seventh Circuit in the landmark decision in United Phosphorus v. Angus Chemical) typically treated the FTAIA as a limitation on the subject matter jurisdiction of federal courts. As such, defendants often brought motions to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1) – which they could supplement with a factual record – and these motions under the FTAIA were often successful in defeating a case before serious antitrust discovery was permitted to go forward.

However, in August 2011 the Third Circuit issued its Animal Science opinion, directly at odds with United Phosphorus. The Third Circuit reasoned that the FTAIA "is wholly silent" on the issue of federal jurisdiction and therefore does not impose a jurisdictional bar. On October 5, the Northern District of California explicitly agreed in the case In Re: TFT-LCD (Flat Panel) Antitrust Litigation.


While these Third Circuit and Northern District of California decisions have created a split among the federal courts, it is possible that others will follow. The Seventh Circuit itself has noted that its earlier United Phosphorus decision has been called into question, in its September 2011 decision in Minn-Chem v. Agrium.

These decisions also have tactical implications for defendants. By asserting that the court does not have subject matter jurisdiction under Rule 12(b)(1), a defendant has been able to force the plaintiff to prove that jurisdiction exists. That tool no longer is available in the Third Circuit and the Northern District of California. In those jurisdictions (and any that follow Animal Science) defendants now will have to bring 12(b)(6) motions to dismiss, where defendants carry the burden. Under 12(b)(1), a court may consider facts outside the four corners of the complaint. Under 12(b)(6), a court generally can only look to the complaint and accept the alleged facts as true. Therefore, under the Animal Science approach, plaintiffs do not have the burden to present persuasive evidence on the issue of jurisdiction early in the case. But all is not lost. Even under the Third Circuit’s and Northern District of California’s approach, it may be possible to present evidence outside the pleadings by converting a 12(b)(6) motion into a motion for summary judgment. If successful (but it will be hard to convince a court to allow this), plaintiffs will have to produce evidence on FTAIA early on the case – potentially allowing defendants to regain some of the tactical advantages previously enjoyed in a 12(b)(1) setting.

Further, the Third Circuit also offered instructions for the district court to implement on remand in ways that could favor plaintiffs in the interpretation of the FTAIA’s exceptions. First, the court advised that it is not necessary to show that the defendant actually functioned as a physical importer to satisfy the import trade exception, only that its conduct "be directed at an import market." Second, the court clarified that the "direct" and "substantial" effects standard should be determined on an objective basis – meaning that the Sherman Act will apply as long as the U.S. effect is foreseeable to a reasonable person, regardless of whether it was foreseeable to the defendant. The ripple effect of this part of the ruling is already being seen in other jurisdictions. For instance, the judge in Flat Panel found that companies’ foreign conduct had a direct effect on U.S. customers when the end products were ultimately sold in the U.S., even though several steps through foreign commerce preceded any sales in the U.S.


The Third Circuit and the Northern District of California have always been undesirable jurisdictions for antitrust defendants in multinational and foreign conduct cases, and these two decisions make them more so. It is too early to know whether other courts will follow their approach. Companies operating abroad should continue to take care to educate employees on conduct that is likely to violate the U.S. antitrust laws, to ensure that their exposure to the U.S. courts in antitrust matters is limited.

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