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."