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.
Implications
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.
Conclusion
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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.