Extraterritorial Application of U.S. Antitrust Law: What Is a "Direct, Substantial, and Reasonably Foreseesable Effect" under the Foreign Trade Antitrust Improvements Act?
Beckler, Richard W., Kirtland, Matthew H., Texas International Law Journal
Application of U.S. antitrust law continues to expand, for better or worse, with the expansion of international commerce. The United States Department of Justice (DOJ) and the Federal Trade Commission (FTC)-who are charged with the mandate of ensuring open and free markets, protecting consumers, and preventing conduct that impedes competition-possess powerful enforcement powers, both criminal and civil, under the Sherman Act(1) and other antitrust statutes. In recent years, the DOJ has successfully brought criminal and civil actions under the Sherman Act against foreign and U.S. corporations, and their individual directors and officers, for anticompetitive conduct that occurred outside the United States. In this environment, it is crucial to understand the extraterritorial scope and application of the Sherman Act.
The threshold issue for extraterritorial application of the Sherman Act is subject matter jurisdiction. This article briefly reviews the relevant statutory background and then focuses on how the DOJ, the FTC, and the judiciary have interpreted the Foreign Trade Antitrust Improvement Act's "direct, substantial, and reasonably foreseeable effect" test-- the key to establishing Sherman Act subject matter jurisdiction over extraterritorial conduct.2
II. STATUTORY BACKGROUND
A. Sherman Act
Section 1 of the Sherman Act declares illegal "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations."3 Sherman Act jurisdiction over anticompetitive conduct outside the United States has been subject to a variety of interpretations.4 Over time, courts moved from a "territorial" approach that looked at the laws of the locality where the conduct occurred to an "effects" approach that examines the conduct's effect on U.S. markets.5
Originally, courts used a "strict territorial interpretation" when applying the Sherman Act to foreign conduct.6 This approach looked exclusively to the law of the country in which the anticompetitive activity occurred.7 The U.S. Supreme Court applied this approach in American Banana Co. v. United Fruit Co.,8 holding that conduct occurring entirely in Central America was outside the scope of the Sherman Act. Justice Holmes
stated, "the general and almost universal rule is that the character of an act as lawful or unlawful must be determined wholly by the law of the country where the act is done."9
More than thirty years later, an "effect" test replaced Justice Holmes's territorial approach. In United States v. Aluminum Co. of America (Alcoa), the Second Circuit recognized that "any state may impose liabilities ... for conduct outside its borders that has consequences within its borders which the state reprehends."10 Under this rationale, the court found that the Sherman Act covered agreements that "were intended to affect imports and did affect them."11 Applying this test, the Alcoa court found jurisdiction existed over acts that occurred entirely in Canada but had an anticompetitive effect in the U.S.(12)
Courts later developed different formulations of the effect test.13 For instance, the Ninth Circuit established the following three-part test: (1) there must be some effect on American foreign commerce, (2) the effect must be large enough so as to create a cognizable injury to the plaintiff, and (3) the interests of international comity and fairness justify an assertion of jurisdiction.14 The Second Circuit adopted its own formulation, requiring a foreseeable and appreciable effect on American commerce.15 The different versions of the effect test eventually laid the groundwork for current interpretations of the Sherman Act, including the Supreme Court's Hartford Fire test described below.
B. Foreign Trade Antitrust Improvements Act
In an attempt to end the confusion resulting from the various effect tests, Congress passed the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA). …