THE FTAIA’S "DOMESTIC EFFECTS" EXCEPTION: WHY THE NINTH CIRCUIT GOT IT RIGHT
By Stephen McIntyre1
Four decades ago, Congress took on a deceptively simple task: deciding when U.S. antitrust laws apply to conduct that occurs in foreign nations. The question was not a new one; the Supreme Court had grappled with it at least as early as 1909.2 But it was a question that had evaded clear and consistent answers, despite having cropped up repeatedly in the 90 years since the Sherman Act’s passage. And so Congress stepped in to settle the matter once and for all.
The resulting legislation was called the Foreign Trade Antitrust Improvements Act, or the "FTAIA." The FTAIA said that conduct involving foreign trade or commerce is not subject to the Sherman Act unless one of two conditions were met. First, if the conduct involves imports to the United States, it remains within the Sherman Act’s reach. Alternatively, if the conduct has a "direct, substantial, and reasonably foreseeable effect" on domestic commerce, and that effect "gives rise to a claim," the Sherman Act applies. Simple enough, right?
Not so much. As courts and litigants struggled to decipher the FTAIA, disagreements arose. The so-called "domestic effects" exception—the provision saying that foreign conduct is actionable if it has a direct, substantial, and reasonably foreseeable effect on U.S. commerce—has been a subject of psarticularly heated litigation and debate. In fact, the courts cannot even agree on what makes an effect "direct."
Hence this article. The Ninth Circuit, the first Court of Appeals to step into the thicket, holds that an effect is "direct" if it follows as an "immediate consequence" of the foreign conduct. The Second and Seventh Circuits disagree; they both hold that there need only be a "reasonably proximate causal nexus" between the conduct and the effect. Who is right?
This article argues that the Ninth Circuit has adopted the correct approach. The "immediate consequence" rule is not only truer to the FTAIA’s statutory text, but also more consistent with how a similar provision in the Foreign Sovereign Immunity Act— another law dealing with the extraterritorial application of U.S. law—is construed. The "reasonably proximate causal nexus" rule, in contrast, derives from irrelevant doctrinal principles and creates a risk of doctrinal confusion.
This circuit split has persisted for nearly a decade. It is time to resolve it—and time to embrace the Ninth Circuit’s interpretation as controlling.
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I. THE FTAIA: AN "INELEGANT" STATUTE
Congress passed the Foreign Trade Antitrust Improvements Act in 1982. According to the legislative history, one of the Act’s chief purposes was to resolve disagreement among the lower courts concerning "the proper test for determining whether United States antitrust jurisdiction over international transactions exists," and to enact a "single, objective test—the ‘direct, substantial, and reasonably foreseeable effect’ test."3
Despite Congress’s characterization of this standard as a "straightforward clarification" of American antitrust law,4 the resulting statute has accurately but diplomatically been described as "inelegant."5 As the Supreme Court explained in 2004 in F. Hoffmann-La Roche Ltd. v. Empagran S.A.,6 still the only case in which the High Court has construed the FTAIA, the statute sets forth a "general rule placing all (nonimport) activity involving foreign commerce outside the Sherman Act’s reach."7 The FTAIA then "brings such conduct back within the Sherman Act’s reach"8 where (1) the conduct has a "direct, substantial, and reasonably foreseeable effect" on U.S. commerce, and (2) that effect "gives rise to" the plaintiff’s antitrust claim.9
The FTAIA was largely overlooked for the first 20 years following its enactment. In its first decade of existence, just one federal appellate court construed the FTAIA.10 Remarkably, in two major decisions involving the Sherman Act’s extraterritorial effect, the Supreme Court and the First Circuit conspicuously avoided offering any interpretation of the FTAIA.11 It was not until the early twenty-first century that the FTAIA began to pick up currency in antitrust litigation.12
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II. DEBATING THE FTAIA
Once the courts took notice of the FTAIA, a number of debates soon arose. This article will address two, both relating to the statute’s "domestic effects" exception.
A. The "Gives Rise To" Prong
One dispute centered on the FTAIA’s "gives rise to" clause. Some courts initially held that the FTAIA’s requirement that the domestic effect "give rise to a claim"13 could be satisfied so long as the requisite effect gave rise to a claim "by someone, even if not the . . . plaintiff who is before the court."14 In Empagran, the Supreme Court rejected this view, holding that the domestic effect must specifically give rise to the plaintiff’s antitrust claim.15 However, the Court declined to elaborate on what that meant.16 The Empagran plaintiffs—foreign purchasers of vitamins—had asserted that "because vitamins are fungible and readily transportable, without an adverse domestic effect (i.e., higher prices in the United States), the sellers could not have maintained their international price-fixing arrangement and respondents would not have suffered their foreign injury."17 Put another way, the Empagran plaintiffs argued that the domestic effect (higher U.S. prices) was a "but for" cause of the higher prices they paid in foreign markets.18
On remand, in a decision that has come to be known as Empagran II, the D.C. Circuit rejected the plaintiffs’ proposed "but for" standard.19 The court reasoned that "[t]he statutory language—’gives rise to’—indicates a direct causal relationship, that is, proximate causation, and is not satisfied by [a] mere but-for ‘nexus.’"20 Judged against this stricter standard, the plaintiffs’ claims were found lacking. The D.C. Circuit held that although the maintenance of "super-competitive prices in the United States may have facilitated the appellees’ scheme to charge comparable prices abroad," the charging of supracompetitive prices in the United States did not proximately cause the plaintiffs to pay higher prices in other countries.21 Because of this, the court held, the domestic effect did not "give rise to" a valid antitrust claim.22
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Since then, three federal appellate courts have adopted Empagran II’s proximate causation standard for the FTAIA’s "gives rise to" prong,23 and none have disagreed with it.
B. The "Direct Effects" Prong
Another debate—which supplies the basis for this article—centered on the meaning of "direct," as in "direct, substantial, and reasonably foreseeable effect." Just three U.S. Courts of Appeals have weighed in on this question, and two interpretations have emerged.
The Ninth Circuit: The Ninth Circuit was the first federal appellate court to venture a definition of "direct" under the FTAIA. The issue arose in United States v. LSL Biotechnologies, a civil enforcement action in which the U.S. Department of Justice (the "DOJ") alleged that LSL Biotechnologies and Hazera, an Israel-based competitor and erstwhile business partner of LSL, had entered into a naked agreement not to compete.24 The challenged restraint, which was embedded in a settlement agreement, provided that Hazera would not compete with LSL in the development, production, or marketing of seeds for tomatoes that had long shelf lives, which were needed to maintain a supply of tomatoes to grocery stores in the United States during the winter months.25 According to the government, Hazera "would likely" have been a "significant competitor of [LSL] in North America" if not for the non-compete agreement.26
LSL moved to dismiss the complaint, asserting a lack of subject matter jurisdiction pursuant to the FTAIA.27 The district court granted the motion with prejudice,28 and the Ninth Circuit affirmed. In so doing, the Ninth Circuit first rejected the DOJ’s contention that the FTAIA merely codified Judge Learned Hand’s famous Alcoa "effects" test, which provided that extraterritorial agreements in restraint of trade fall beyond the Sherman Act’s reach unless their "performance is shown actually to have had some effect upon" U.S. imports or exports.29 The Ninth Circuit noted that, "[u]nlike the FTAIA, the Alcoa test does not require the effect to be ‘direct.’"30 Since the court’s task was "to give meaning to the words used by Congress," and to "avoid constructions that render words meaningless," the court was obliged to apply the test prescribed by the FTAIA: namely, whether the defendants’ conduct caused a "direct, substantial, and reasonably foreseeable effect" on U.S. commerce.31
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But what does that actually mean? Drawing on the Supreme Court’s antitrust standing jurisprudence in private damages actions, the DOJ argued that the FTAIA’s "direct effect" language invokes "the common law concept of ‘proximate cause.’"32 According to the DOJ, all it had to do was "allege[] a proximate cause relationship" between the LSL/Hazera non-compete agreement and the effect on U.S. commerce33—the lack of competition in the United States for long shelf-life tomatoes.
The Ninth Circuit disagreed. The court first pointed to the 1982 edition of Webster’s Third New International Dictionary, which defined "direct" as "proceeding from one point to another in time or space without deviation or interruption."34 Perhaps recognizing the unhelpfulness of that definition in resolving the dispute at bar,35 the court next considered the Supreme Court’s construction of a "nearly identical term in the Foreign Sovereign Immunities Act (‘FSIA’)."36 Similar to the FTAIA, the FSIA provides that immunity does not extend to a foreign sovereign’s extraterritorial commercial conduct unless that conduct "causes a direct effect in the United States."37 In Republic of Argentina v. Weltover, Inc.,38 the Ninth Circuit noted, "the Supreme Court unanimously declared that an effect is ‘direct’ if it follows as an immediate consequence of the defendant’s activity."39
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This, it seems, was good enough for the Ninth Circuit. Without further analysis, the panel majority matter-of-factly adopted the Weltover definition as governing the FTAIA: an effect is "direct" if it "follows as an immediate consequence" of the defendant’s foreign conduct. Applying this standard, the Ninth Circuit held that the LSL/Hazera agreement could not have had a "direct" effect on U.S. commerce.40 The DOJ had alleged that the agreement made it "less likely" that Hazera would develop "heartier tomato seeds," thereby depriving U.S. consumers of the ability to buy "higher quality, better tasting winter tomatoes" and U.S. farmers of the opportunity to grow them, and further that the agreement "may" have allowed LSL to "charge more for [its] seeds" than it otherwise could have.41 According to the Ninth Circuit, none of these effects was "direct" because each depended on "innovations" that might or might not have ever occurred.42 The court reasoned that it was "speculative at best and doubtful at worst" to assume that Hazera would have figured out how to bring long shelf-life seeds to the North American market.43 "An effect cannot be ‘direct,’" the court held, "where it depends on such uncertain intervening developments."44
The LSL Biotechnologies decision was not unanimous. Writing in dissent, Judge Aldisert endorsed the DOJ’s interpretation of "direct" as a "synonym for proximate cause."45 Like the DOJ, Judge Aldisert expressly invoked the doctrine of antitrust standing.46 In his view, the DOJ’s claims should have been allowed to proceed past the pleading stage.47
The Seventh Circuit: So far, other circuits have not followed the Ninth Circuit’s lead in LSL Biotechnologies. Most notably, in Minn-Chem, Inc. v. Agrium Inc.,48 the Seventh Circuit, sitting en banc, disagreed with the Ninth Circuit’s interpretation of "direct."49
The Seventh Circuit pointed out that in Weltover, the case on which the Ninth Circuit relied, the Supreme Court "reached its definition of ‘direct’ for FSIA purposes only after refusing to import from the legislative history of that statute the notion that an effect is ‘direct’ only if it is both ‘substantial’ and ‘foreseeable.’"50 Observing that Congress used the words "substantial" and "reasonably foreseeable" in the FTAIA, but not in the FSIA, the Seventh Circuit reasoned that "[s]uperimposing the idea of ‘immediate consequence’ on top of the full phrase [in the FTAIA] results in a stricter test than the complete text of the statute can bear."51 As the Seventh Circuit explained, "[t]o demand a foreseeable, substantial, and ‘immediate’ consequence on import or domestic commerce comes close to ignoring the fact that straightforward import commerce has already been excluded from the FTAIA’s coverage."52
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Expressly relying upon the DOJ’s approach and Judge Aldisert’s dissent in LSL Biotechnologies, the Seventh Circuit defined "direct" to require only "’a reasonably proximate causal nexus’" between the defendant’s conduct and the domestic effect.53
The Second Circuit: In Lotes Co. v. Hon Hai Precision Industry Co., the Second Circuit sided with the Seventh Circuit in adopting the "reasonably proximate causal nexus" standard.54
Like the Seventh Circuit, the Second Circuit felt it was inappropriate to draw any connection between the FSIA’s use of "direct" and that of the FTAIA. The Second Circuit distinguished the text and purpose of the two statutes: "With respect to purpose, the FSIA codifies foreign nations’ sovereign immunity from suit, and ‘provides the sole basis for obtaining jurisdiction over a foreign state in this country’. . . . The boundaries of the statutory exceptions to sovereign immunity, including the ‘direct effect’ exception construed in Weltover, must be carefully patrolled to preserve the FSIA’s ‘general rule of immunity.’"55 In contrast, the court described the FTAIA as "a substantive antitrust statute designed ‘to clarify . . . the Sherman Act’s scope as applied to foreign commerce.’"56 The Second Circuit also focused on the fact that the FSIA does not refer to substantiality or foreseeability.57 The court expressed concern that "[r]eading ‘direct’ as ‘immediate’ would rob the separate ‘reasonabl[e] foreseeab[ility]’ requirement of any meaningful function, since we are hard pressed to imagine any domestic effect that would be both ‘immediate’ and ‘substantial’ but not ‘reasonably foreseeable.’"58
The Second Circuit went further than the Seventh Circuit in grounding its reasoning in antitrust standing jurisprudence. "Interpreting ‘direct’ to require only a reasonably proximate causal nexus," the court explained, "address[es] antitrust law’s classic aversion to remote injuries."59 The court pointed to the Supreme Court’s decisions in Associated General Contractors of California, Inc. v. California State Council of Carpenters (or "AGC") and Blue Shield of Virginia v. McCready as holding that antitrust standing is analyzed "using familiar principles of proximate causation."60
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In the wake of Minn-Chem and Lotes, even the Ninth Circuit has expressed doubt about its interpretation of "direct" in LSL Biotechnologies. In United States v. Hsiung, the Ninth Circuit’s most recent precedential decision addressing the FTAIA, the court took note of the Second and Seventh Circuits’ divergent view, but resignedly stated that it was "not within the province of this panel" to "reconsider the stricter standard we impose."61
III. WHY THE NINTH CIRCUIT’S INTERPRETATION IS CORRECT
The Ninth Circuit should not be having second thoughts about the "immediate consequence" standard enunciated in LSL Biotechnologies. The FTAIA may be a "web of words,"62 but that does not mean all interpretations of the statute are created equal. As compared to the "reasonably proximate causal nexus" rule adopted in Minn-Chem and Lotes, the Ninth Circuit’s "immediate consequence" standard is more firmly grounded in the statutory text. Not only that, the foreign affairs and comity concerns that motivated both the FTAIA and the FSIA support construing the statutes in harmony. Finally, it makes little sense to imbue the "direct effects" prong with antitrust standing principles, as the DOJ and Second Circuit have done; if anything, the "reasonably proximate causal nexus" test risks unnecessary doctrinal confusion.
Simply put, the Ninth Circuit got it right.
A. The Textual Argument
The first and most straightforward argument for why the Ninth Circuit’s interpretation is correct is that it flows from the FTAIA’s text—which is where we are supposed to start when construing a statute.63 Insofar as possible, our construction of the FTAIA must "give a function to each word in [the] statute, thereby avoiding linguistic superfluity."64 In enacting the FTAIA, Congress provided that three distinct conditions must be met under the statute’s "domestic effects" exception: the effect on U.S. trade or commerce must be (1) direct, (2) substantial, and (3) reasonably foreseeable. The Ninth Circuit’s "immediate consequence" rule gives a discrete meaning to "direct" that does not render "substantial" or "reasonably foreseeable" redundant.
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The Second and Seventh Circuits’ rule does not comport with this canon. In Minn-Chem and Lotes, the courts construed "direct" as synonymous with "proximate cause." In American jurisprudence, however, the "dominant test" for proximate cause is foreseeability.65 To accept that "direct" is shorthand for "proximate cause" would make the FTAIA’s "reasonably foreseeable" prong superfluous. While the rule against avoiding surplusage is "not absolute,"66 this "most basic of interpretive canons"67 favors construing the FTAIA so as to not render any of its operative language superfluous. The Minn-Chem and Lotes view muddies a distinction Congress deliberately drew.
Of course, as this author must acknowledge, the Seventh and Second Circuits engaged in their own textual analyses in Minn-Chem and Lotes—and still disagreed with the Ninth Circuit. What gives?
The Seventh Circuit and Second Circuit each pointed out that in Weltover, the Supreme Court’s construction of "direct" was driven, in part, by the fact that the FSIA does not impose any "requirement of ‘substantiality’ or ‘foreseeability.’"68 True enough—but it is not clear why that militates against, rather than in favor of, construing the FTAIA’s "direct effect" element consistent with that of the FSIA. The Supreme Court’s point in Weltover was that because Congress chose not to require a showing of substantiality or foreseeability, the Court would not interpret "direct" to encompass either of those concepts. In enacting the FTAIA, Congress did choose to require a showing of substantiality and foreseeability—and that is only all the more reason to avoid construing "direct" in a manner that encompasses those distinct statutory requirements. Put another way, the FSIA’s exclusion of "substantial" and "reasonably foreseeable" phraseology and the FTAIA’s inclusion of those terms are both consistent with the conclusion that "direct" should be given a meaning that preserves the distinction between the three concepts.
In Lotes, the Second Circuit went so far as to suggest that construing "direct" to mean "immediate," as the Ninth Circuit does, would render the FTAIA’s substantiality and foreseeability elements "’superfluous, void, or insignificant.’"69 The court said it was "hard pressed" to think of an "immediate" and "substantial" effect that was not also "reasonably foreseeable."70 With all respect, this author does not feel quite so "hard pressed." By way of illustration: most law students learn about the "eggshell skull" doctrine—that is, the principle that tortfeasors are "liable for any physical injury they cause, no matter how unforeseeable."71 A plaintiff with an "unusually thin skull"72 or other unseen medical condition may suffer a harm that is "immediate" and "substantial"—say, death or permanent disfigurement—but which is not "reasonably foreseeable."73 This is not intended as a commentary on the eggshell skull doctrine; it just goes to show that, as a matter of logic and linguistics, the Ninth Circuit’s construction of "direct" does not create the redundancy the Second Circuit feared.
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All said, the Second and Seventh Circuits’ textual analyses are subject to at least some disagreement. In this author’s view, the Ninth Circuit’s "immediate consequence" standard best serves to give meaning to each word in the FTAIA’s statutory text.
B. The Foreign Affairs Rationale
As shown, the Ninth Circuit’s interpretation of the FTAIA’s "direct effects" prong was driven by the Supreme Court’s reading of similar language in the FSIA. Concededly, the fact that the Supreme Court has interpreted the FSIA’s use of "direct" in one way does not, by itself, mandate that the FTAIA’s use of "direct" be construed in the same manner. "The same words can have different meanings in different statutes."74
That said, "when Congress uses the same language in two statutes having similar purposes, particularly when one is enacted shortly after the other, it is appropriate to presume that Congress intended that text to have the same meaning in both statutes."75 Applying this canon of construction, there is good reason to believe that the FTAIA and the FSIA—enacted just a few years apart76—should be read in harmony with one another.
For one, the FTAIA and the FSIA were both enacted pursuant to Congress’s authority to regulate foreign commerce. As the Supreme Court stated in Verlinden B.V. v. Central Bank of Nigeria,77 "in enacting the Foreign Sovereign Immunities Act, Congress expressly exercised its power to regulate foreign commerce."78 In Empagran, the Court similarly explained that "Congress designed the FTAIA to clarify [and] perhaps to limit . . . the Sherman Act’s scope as applied to foreign commerce."79
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Not only that, both the FTAIA and the FSIA embody the principle of international comity. The Supreme Court has long held that "foreign sovereign immunity is a matter of grace and comity on the part of the United States."80 The "FSIA’s objective is to give ‘protection from the inconvenience of suit as a gesture of comity.’"81 Consistent with that purpose, foreign sovereigns generally enjoy immunity from suit in the United States, subject only to "certain express exceptions" enumerated in the FSIA82—such as where the sovereign engages in foreign commercial activity that "causes a direct effect in the United States."83
Similar considerations animate the FTAIA. In Empagran, the Supreme Court reasoned that "if America’s antitrust policies could not win their own way in the international marketplace for such ideas, Congress, we must assume, would not have tried to impose them, in an act of legal imperialism, through legislative fiat."84 In keeping with "principles of comity," "Congress sought to release . . . anticompetitive conduct from Sherman Act constraints when that conduct causes foreign harm."85 Foreign anticompetitive conduct only becomes subject to U.S. antitrust law where "causes domestic harm."86
Given that the "direct effect" provisions of the FSIA and the FTAIA target substantially similar questions of comity—the circumstances in which conduct that occurs outside of the United States, and subject to the jurisdiction of foreign sovereigns, can support legal liability in the United States—it would be incongruous to construe similar statutory language in an inconsistent manner.87 When it comes to "regulating commercial relations with foreign governments," after all, "the Federal Government must speak with one voice."88
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C. The Irrelevance of Antitrust Standing Jurisprudence
The DOJ and the Second Circuit each relied on antitrust standing jurisprudence in construing "direct effect" as referring to a "reasonably proximate causal nexus."89 It is true, of course, that antitrust standing incorporates the common-law understanding of proximate causation.90 But there is a problem: neither the DOJ nor the Second Circuit explained why antitrust standing bears any connection to the FTAIA’s "direct effect" prong. Nothing in the statute suggests that antitrust standing should inform the construction of "direct effect."
To the extent there is any relation between antitrust standing and the FTAIA, it is found not in the "direct effects" prong, but in the "gives rise to" prong, which deals with the viability of plaintiffs’ "claims." As noted at the outset, it is not enough that foreign conduct has a direct, substantial, and reasonably foreseeable effect on U.S. commerce—that effect must also "give rise to" the plaintiff’s "claim."91 Consistent with the Supreme Court’s antitrust standing precedent, courts have roundly construed the FTAIA’s "gives rise to" prong as requiring that the domestic effect proximately cause the plaintiff’s injury.92
As Judge Posner pointed out in Motorola Mobility LLC v. AU Optronics Corp.,93 the "direct effect" prong "establishes that there is an antitrust violation," while the "gives rise to" prong "determines who may bring a suit based on it."94 Determining "who may bring a suit" is the province of the antitrust standing doctrine; as the Supreme Court stated in AGC, antitrust standing inquires "whether the plaintiff is a proper party to bring [the] private antitrust action."95 In Motorola, the Seventh Circuit was willing to assume that there had been a direct, substantial, and reasonably foreseeable effect on U.S. commerce—higher U.S. prices for products incorporating TFT-LCD screens—but nonetheless held that the domestic effect did not "give rise to" a valid "claim," in part because Motorola, as an indirect purchaser, did not have antitrust standing.96
And so, while the antitrust standing doctrine does embody a proximate causation standard, there is no statutory basis for applying antitrust standing principles to the FTAIA’s "direct effect" prong. If anything, those principles should come into play when assessing whether a domestic effect "gives rise to" the plaintiff’s "claim."
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D. Layering Proximate Cause on Proximate Cause Creates a Doctrinal Morass
Construing "direct effect" as requiring only a "reasonably proximate causal nexus" poses another doctrinal problem: it layers proximate cause upon proximate cause.
Consider the following: under the Lotes / Minn-Chem reading of the FTAIA, (1) the defendant’s conduct must proximately cause an effect on U.S. commerce, and (2) that effect must proximately cause ("give rise to") the plaintiff’s injury. There are two separate proximate causal links separating the defendant’s conduct from the plaintiff’s injury.
Injecting two proximate causation requirements into the FTAIA analysis obscures the fact that, under AGC, the defendant’s conduct must also proximately cause the plaintiff’s injury. Put more simply, Minn-Chem and Lotes say that the A must proximately cause B, and B must proximately cause C—while AGC says that A must proximately cause C.
This is a recipe for doctrinal confusion. When it comes to proximate causation, there is not a "transitive property." If A causes B and B causes C, A is not necessarily the proximate cause of C. As the Supreme Court stated in AGC, quoting Justice Holmes, "'[t]he general tendency of the law . . . is not to go beyond the first step.’"97 In AGC itself, for instance, the plaintiff union alleged that the defendant employers had coerced third parties into doing business with nonunion contractors (to the exclusion of union contractors), thereby injuring the union.98 The Court found this causal theory too attenuated.99 The defendants’ alleged coercion may have had an effect on union contractors from whom business was diverted, and that effect may in turn have impacted the union—but the link between the coercive conduct and the union’s injury was "indirect" at best.100
By construing the FTAIA as encompassing two proximate cause inquiries—the foreign conduct must proximately cause a domestic effect, and the domestic effect must proximately cause the plaintiff’s injury—Lotes and Minn-Chem risk blurring AGC‘s mandate that plaintiffs prove a "direct" causal link between the conduct and the injury. Requiring a tighter nexus between the conduct and the domestic effect, as the Ninth Circuit does, helps ensure that the FTAIA does not conflict with or undermine the separate requirement that the conduct also proximately cause the plaintiff’s injury.
IV. CONCLUSION
It is unclear how soon we can hope for a resolution of this internecine dispute. Since the Ninth Circuit decided Hsiung in early 2015, only one other Court of Appeals has addressed the FTAIA in a published opinion.101 The circuit split created by LSL Biotechnologies and Minn-Chem is now eight years old.
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That does not make the divide any less concerning. District courts continue to grapple with the clumsily worded "domestic effects" test.102 The "clarity" that Congress hoped to provide in enacting the FTAIA nearly 40 years ago remains elusive.
One can hope that resolution is on the distant horizon—if not by coalescence among the Courts of Appeals, then by dictate of the Supreme Court. If and when that happens, this author is confident the Justices will agree: the Ninth Circuit got it right.
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Notes:
1. Stephen McIntyre is a Counsel in O’Melveny & Myers LLP’s Los Angeles office, and a member of the firm’s Antitrust & Competition Practice. The opinions expressed in this article are those of the author and do not necessarily reflect the views of the firm or its clients.
2. See Am. Banana Co. v. United Fruit Co., 213 U.S. 347, 355-59 (1909).
3. H.R. Rep. No. 97-686, at 2 (1982), reprinted at 1982 U.S.C.C.A.N. 2487.
4. Id. at 2, 7.
5. See, e.g., Den Norske Stats Oljeselskap As v. HeereMac Vof, 241 F.3d 420, 438 (5th Cir. 2001); Coors Brewing Co. v. Miller Brewing Co., 889 F. Supp. 1394, 1397 (D. Colo. 1995); see also United States v. Hui Hsiung, 778 F.3d 738, 751 (9th Cir. 2015) (describing FTAIA as "a web of words").
6. F. Hoffmann-La Roche Ltd. v. Empagran S.A. ("Empagran I"), 542 U.S. 155 (2004).
7. Empagran I, 542 U.S. at 162 (emphasis in original).
8. Id.
9. 15 U.S.C. § 6a; Sun Microsystems Inc. v. Hynix Semiconductor Inc., 608 F. Supp. 2d 1166, 1174 (N.D. Cal. 2009); see Empagran I, 542 U.S. at 173—74 (FTAIA’s reference to "a claim" means the "plaintiff’s claim" or "the claim at issue").
10. McGlinchy v. Shell Chem. Co., 845 F.2d 802, 813—15 (9th Cir. 1988); see also United States v. LSL Biotechnologies, 379 F.3d 672, 678 (9th Cir. 2004) ("Federal courts did not shower the FTAIA with attention for the first decade after its enactment."). The Second Circuit acknowledged the FTAIA in O.N.E. Shipping Ltd. v. Flota Mercante Grancolombiana, S.A., 830 F.2d 449 (2d Cir. 1987), but did not rely on it in affirming dismissal of the plaintiff’s claims. See id. at 451—54.
11. See Hartford Fire Ins. Co. v. California, 509 U.S. 764, 796 n.23 (1993); United States v. Nippon Paper Indus. Co., 109 F.3d 1, 4 (1st Cir. 1997).
12. See, e.g., Turicentro, S.A. v. Am. Airlines Inc., 303 F.3d 293, 298—308 (3d Cir. 2002); Kruman v. Christie’s Int’l PLC, 284 F.3d 384, 393—403 (2d Cir. 2002); Den Norske, 241 F.3d at 421—31.
13. 15 U.S.C. § 6a(2) (emphasis added).
14. Empagran S.A. v. F. Hoffman-LaRoche, Ltd., 315 F.3d 338, 350 (D.C. Cir. 2003), vacated, 542 U.S. 155 (2004); see also Kruman, 284 F.3d at 400 (rejecting view that "a claim" refers to "the plaintiff’s claim").
15. Empagran I, 542 U.S. at 173-74.
16. See id. at 175.
17. Id.
18. Id.
19. Empagran S.A. v. F. Hoffman-LaRoche, Ltd. ("Empagran II"), 417 F.3d 1267, 1270-71 (D.C. Cir. 2005).
20. Id. at 1271.
21. Id.
22. Id.
23. See, e.g., Lotes Co. v. Hon Hai Precision Indus. Co., 753 F.3d 395, 414 (2d Cir. 2014); In re Dynamic Random Access Memory (DRAM) Antitrust Litig., 546 F.3d 981, 987-90 (9th Cir. 2008); In re Monosodium Glutamate Antitrust Litig., 477 F.3d 535, 538-39 (8th Cir. 2007).
24. LSL Biotechnologies, 379 F.3d at 674-76.
25. Id.
26. Id. at 675 (alteration in original).
27. Id. at 676—77. In recent years, courts have come to view the FTAIA not as limiting a federal court’s subject matter jurisdiction, but as setting forth substantive elements of a Sherman Act Claim. See, e.g., Hsiung, 778 F.3d at 751-53; Lotes, 753 F.3d at 403-08; Animal Sci. Prods., Inc. v. China Minmetals Corp., 654 F.3d 462, 466—69 (3d Cir. 2011). The impetus for this about-face was a series of Supreme Court decisions discouraging "drive-by jurisdictional rulings." Arbaugh v. Y&H Corp., 546 U.S. 500, 511 (2006). In Arbaugh, the Court announced a "readily administrable bright line" rule: unless Congress "clearly states that a threshold limitation on a statute’s scope shall count as jurisdictional, . . . courts should treat the restriction as nonjurisdictional in character." Id. at 515-16. Applying that rule, the Court ruled in Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), that the Securities Exchange Act’s limit on extraterritoriality is a "merits question," not a jurisdictional one. Id. at 253—54. The distinction between substantive and jurisdiction requirements may affect the parties’ burdens in cases involving the FTAIA. On a motion to dismiss for failure to state a claim, for example, courts must accept as true well-pleaded factual allegations plausibly demonstrating that the alleged anticompetitive conduct satisfies the FTAIA. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-56 (2007). If the FTAIA’s criteria were jurisdictional, however, the proponent of jurisdiction could be required to affirmatively demonstrate its existence under Federal Rule of Civil Procedure 12(b)(1). See, e,g., GBForefront, L.P. v. Forefront Mgmt. Grp., LLC, 888 F.3d 29, 35 (3d Cir. 2018); Super. MRI Servs, Inc. v. Alliance Healthcare Servs, Inc., 778 F.3d 502, 504 (5th Cir. 2015); Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004).
28. LSL Biotechnologies, 379 F.3d at 676.
29. United States v Aluminum Co. of Am. ("Alcoa"), 148 F.2d 416, 443-44 (2d Cir. 1945); see LSL Biotechnologies, 379 F.3d at 679 ("The government contends that the FTAIA merely codified the existing common law regarding when the Sherman Act applies to foreign conduct and that we should continue to employ the Alcoa effects test. We reject this contention.").
30. LSL Biotechnologies, 379 F.3d at 679.
31. Id. at 679-80 (quoting 15 U.S.C. § 6a(1)).
32. Brief for Appellant United States of America at 36—37, United States v. LSL Biotechnologies, No. 02-16472 (9th Cir. Sept. 23, 2002) (relying on Blue Shield of Va. v. McCready, 457 U.S. 465 (1982)), available at https://www.justice.gov/atr/case-document/file/501551/download.
33. Id. at 15.
34. LSL Biotechnologies, 379 F.3d at 680 (quoting Webster’s Third New International Dictionary 640 (1982)).
35. Indeed, writing in dissent, Judge Aldisert cited a different definition of "direct" that he perceived to be more relevant: "c. LOGIC. Proceeding immediately from the consequent to antecedent, from cause to effect." Id. at 692 (Aldisert, J., dissenting) (citing The Oxford Dictionary of the English Language (1800—1829)).
36. Id. at 680.
37. Id. (quoting 28 U.S.C. §1605(a)(2)) (emphasis added).
38. Repub. of Arg. v. Weltover, Inc., 504 U.S. 607 (1992).
39. LSL Biotechnologies, 379 F.3d at 680 (citing Weltover, 504 U.S. at 618) (emphasis added).
40. Id. at 680-83.
41. Id. at 680-81.
42. Id. at 681.
43. Id.
44. Id.
45. Id. at 693 (Aldisert, J., dissenting).
46. See id. (Aldisert, J., dissenting) ("A definition of "direct" that focuses on consequential relationships draws support from another area of antitrust law—private plaintiffs’ antitrust standing.") (citing McCready, 457 U.S. at 478 nn.12-13).
47. Id. at 696-701 (Aldisert, J., dissenting).
48. Minn-Chem, Inc. v. Agrium Inc., 683 F.3d 845 (7th Cir. 2012) (en banc).
49. See id. at 857 ("In our view, the Ninth Circuit jumped too quickly to the assumption that the FSIA and the FTAIA use the word ‘direct’ in the same way.").
50. Id. (quoting Weltover, 504 U.S. at 617).
51. Id. ("No one needs to read the words ‘substantial’ and ‘foreseeable’ into the FTAIA. Congress put them there, and in doing so, it signaled that the word ‘direct’ used along with them had to be interpreted as part of an integrated phrase.").
52. Id.
53. Id. at 856—57 (quoting Makan Delrahim, Drawing the Boundaries of the Sherman Act: Recent Developments in the Application of the Antitrust Laws to Foreign Conduct, 61 N.Y.U. Ann. Surv. Am. L. 415, 430 (2005)).
54. Lotes, 753 F.3d 395, 410—13 (2d Cir. 2014).
55. Id. at 410—11 (quoting Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 443 (1989), and In re Terrorist Attacks on Sept. 11, 2001, 741 F.3d 109, 114 (2d Cir. 2013)).
56. Id. at 411 (quoting Empagran I, 542 U.S. at 169; ellipsis in original).
57. Id. at 410—11.
58. Id. at 411 (alterations in original); see also id. ("Indeed, LSL’s reading of the FTAIA would violate the ‘cardinal principle of statutory construction’ that statutes must be construed, if reasonably possible, so that ‘no clause, sentence, or word shall be superfluous, void, or insignificant.’") (quoting TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001)).
59. Id.
60. Id. at 412 (citing Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters ("AGC"), 459 U.S. 519, 540 (1983); and McCready, 457 U.S. at 476—77 & n.13).
61. Hsiung, 778 F.3d at 758 n.9. Nor did the Ninth Circuit need to step into the thicket. The court noted that, "even disregarding the domestic effects exception, the evidence that the defendants engaged in import trade was overwhelming," and "alone was sufficient to convict the defendants of price-fixing in violation of the Sherman Act." Id. at 760.
62. Id. at 751.
63. See Ross v. Blake, 136 S. Ct. 1850, 1856 (2016) ("Statutory interpretation, as we always say, begins with the text.").
64. Scheidler v. Nat’l Org. for Women, Inc., 547 U.S. 9, 21 (2006).
65. Meiring de Villiers, Foreseeability Decoded, 16 Minn. J.L. Sci. & Tech. 343, 344 (2015); see Nelson v. Monroe Reg’l Med. Ctr., 925 F.2d 1555, 1563 (2d Cir. 1991) (observing that foreseeability is "the test of proximate cause ‘currently prevailing in this country’") (quoting 4 Fowler V. Harper et al., The Law of Torts § 20.5 (2d ed. 1986)).
66. Lamie v. U.S. Trustee, 540 U.S. 526, 536 (2004).
67. Corley v. United States, 556 U.S. 303, 314 (2009).
68. Weltover, 504 U.S. at 618; see Lotes, 753 F.3d at 411; Minn-Chem, 683 F.3d at 857.
69. Lotes, 753 F.3d at 411 (quoting TRW, 534 U.S. at 31).
70. Id.
71. Gibson v. Cty. of Washoe, Nev., 290 F.3d 1175, 1192-93 (9th Cir. 2002) (emphasis added), overruled on other grounds, Castro v. Cty. of L.A., 833 F.3d 1060, 1076 (9th Cir. 2016)); see also Vosburg v. Putney, 50 N.W. 403 (Wisc. 1891) (most well-known American case exemplifying the doctrine).
72. See Dulieu v. White & Sons, 2 K.B. 669, 679 (1901) ("If a man is negligently run over or otherwise negligently injured in his body, it is no answer to the sufferer’s claim for damages that he would have suffered less injury, or no injury at all, if he had not had an unusually thin skull. . . .").
73. See, e.g., McCahill v. N.Y. Transp. Co., 94 N.E. 616, 617-18 (N.Y. 1911) (defendant held liable where one of its taxicabs struck a pedestrian who, due to a "pre-existing alcoholic condition," "rapidly developed delirium tremens" and died).
74. United States v. Sterling Nat’l Bank & Trust Co. of N.Y., 494 F.2d 919, 923 (2d Cir. 1974).
75. Smith v. City of Jackson, Miss., 544 U.S. 228, 233 (2005) (citing Northcross v. Bd. of Educ. of Memphis City Schs., 412 U.S. 427, 428 (1973) (per curiam)).
76. The FSIA was enacted in 1976, just six years before the FTAIA was enacted. See Foreign Sovereign Immunities Act of 1976, Pub. L. No. 94-583; Foreign Trade Antitrust Improvements Act of 1982, Pub. L. No. 97-290, § 401.
77. Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480 (1983).
78. Id. at 496.
79. Empagran I, 542 U.S. at 169; see also 128 Cong. Rec. 18,952 (1982) (statement of Rep. Rodino) ("The bill has a simple and straightforward purpose: to clarify application of our antitrust laws to the foreign commerce of the United States.").
80. Verlinden, 461 U.S. at 486 (citing The Schooner Exch. v. McFaddon, 7 Cranch 116 (1812)).
81. Bolivarian Repub. of Venez. v. Helmerich & Payne Int’l Drilling Co., 137 S. Ct. 1312, 1322 (2017) (quoting Dole Food Co. v. Patrickson, 538 U.S. 468, 479 (2003)).
82. Rubin v. Islamic Repub. of Iran, 138 S. Ct. 816, 822 (2018).
83. 28 U.S.C. § 1605(a)(2).
84. Empagran I, 542 U.S. at 169.
85. Id. at 165—66 (emphasis omitted).
86. Id. at 166.
87. See City of Jackson, 544 U.S. at 233.
88. Michelin Tire Corp. v. Wages, 423 U.S. 276, 285 (1976).
89. See Lotes, 753 F.3d at 412 (citing AGC, 459 U.S. at 540; McCready, 457 U.S. at 476-77 & n.13); Brief for Appellant United States of America, supra note 32, at 36—37; see also Minn-Chem, 683 F.3d at 857 ("Just as tort law cuts off recovery for those whose injuries are too remote from the cause of an injury, so does the FTAIA exclude from the Sherman Act foreign activities that are too remote from the ultimate effects on U.S. domestic or import commerce.").
90. See AGC, 459 U.S. at 531—37.
91. 15 U.S.C. §§ 6a(1), (2).
92. See supra notes 19—23 and accompanying text.
93. Motorola Mobility LLC v. AU Optronics Corp., 775 F.3d 816 (7th Cir. 2015).
94. Id. at 818.
95. AGC, 459 U.S. at 535 n.31.
96. Motorola, 775 F.3d at 819—24. The Seventh Circuit also rejected Motorola’s contention that the company and its foreign subsidiaries were a single entity, holding that the foreign subsidiaries were more immediate victims of the price-fixing cartel, and that their alleged injuries could not be imputed to the U.S. parent company. Id. at 818—20.
97. AGC, 459 U.S. at 534 (quoting S. Pac. Co. v. Darnell-Taenzer Lumber Co., 245 U.S. 531, 533 (1918) (Holmes, J.)).
98. Id. at 521—24.
99. Id. at 540—43.
100. Id.
101. See BiocadJSC v. F. Hoffman-La Roche, 942 F.3d 88, 94—101 (2d Cir. 2019) (addressing FTAIA’s "import commerce" exclusion). In 2016, the Ninth Circuit addressed the FTAIA in a short unpublished decision. See In re TFT-LCD (Flat Panel) Antitrust Litig., 637 F. App’x 981, 984 (9th Cir. 2016).
102. See, e.g., Shields v. Federation Internationale de Natation, 419 F. Supp. 3d 1188, 1218—19 (N.D. Cal. 2019); Sonterra Capital Master Fund Ltd. v. Credit Suisse Grp. AG, 277 F. Supp. 3d 521, 568—69 (S.D.N.Y. 2017).