United States: New Circuit Court Decision in Empagran

In June of last year, we wrote of the Supreme Court’s decision in F. Hoffman-LaRoche, Ltd. v. Empagran S.A. which held that a plaintiff could not recover for the "independent foreign effect" of conduct that has a substantial effect on both foreign and domestic markets. ¹ The Supreme Court remanded the case to the District of Columbia Circuit Court of Appeals to decide the plaintiffs’ alternative argument that its injuries were not independent of the domestic effect of the defendants’ actions. Now, in a decision important to potential antitrust defendants, the D.C. Court of Appeals rejected that argument and affirmed the district court’s dismissal of the Sherman Act claims.² Unless a plaintiff can establish a direct causal relationship – a proximate cause standard – between the domestic effects and the foreign harm, the court lacks jurisdiction over foreign antitrust claims.

The plaintiffs in Empagran, a class of direct purchasers of vitamins who made their purchases abroad, alleged that the defendant vitamin manufacturers and distributors created a global cartel that artificially raised the prices of vitamins throughout the world. Before the Supreme Court, the plaintiffs argued that they were entitled to recover damages under the Sherman Act for supracompetitive prices that they paid in foreign markets.

The Supreme Court framed the issue as whether purchasers could recover for "an independent foreign effect" of the defendants’ foreign activity, or whether their suit was barred by the Foreign Trade Antitrust Improvements Act ("FTAIA").³ The FTAIA excludes most foreign economic activity from the reach of the Sherman Act. The FTAIA, however, excepts from that exclusion cases where 1) foreign activity has a substantial effect on domestic commerce, and 2) that domestic effect gives rise to a claim under the Sherman Act. The Court found that the legislative history of the FTAIA and the necessity to afford deference to other nations’ antitrust laws prohibited recovery by plaintiffs under the Sherman Act for an independent foreign effect of the defendants’ anticompetitive conduct.

The Supreme Court therefore held that an "independent foreign effect" was insufficient to surmount the FTAIA. The Court remanded to the D.C. Circuit to determine whether the plaintiffs could recover under their alternate theory that their damages were not independent of the foreign activity.

On remand, the plaintiffs argued that their injuries were not independent of the domestic effect of defendants’ conduct and, therefore, they could recover under the Sherman Act. According to the plaintiffs, vitamins are a fungible and globally-marketed product so the defendants could not have established supracompetitive prices in foreign markets without maintaining supracomptetive prices in domestic markets. Without a domestic effect of supracometitive prices, foreign purchasers would have simply bought vitamins from suppliers in the United States and sold them abroad at market prices. The plaintiffs’ injuries, therefore, were contended to be dependent on the domestic effects of defendants’ anticompetitive conduct.

The D.C. Circuit rejected plaintiffs’ argument. The court conceded that the plaintiffs might be able to prove that, "but-for" the domestic effects of the defendants’ anticompetitive activity, the defendants would not have been able to maintain supracompetitive prices in foreign markets.⁴ But the court found that such "but-for" causation is not sufficient under the FTAIA. The FTAIA’s "domestic-injury exception" applies only in limited circumstances.⁵ The language of the statute – "gives rise to" – requires that the plaintiffs show "a direct causal relationship, that is, proximate causation," in order to recover.⁶ Because the plaintiffs’ injuries were not directly caused by the domestic effects of the defendants’ activity, the court affirmed the district court’s dismissal of the Sherman Act claims.

The D.C. Circuit’s decision confirms that the FTAIA means essentially what it says: the courts of the United States lack jurisdiction over claims by foreign plaintiffs related to price fixing damages if the direct purchases in question take place outside of the U.S. economy. If the D.C. Circuit had accepted the plaintiffs’ argument, it could have reopened doors to U.S. courthouses (at least for fungible goods) that the Supreme Court’s decision had appeared to close.

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