United States: The Rapidly Changing Landscape Of Private Global Antitrust Litigation: Increasingly Serious Implications For U.S. Practitioners

I. INTRODUCTION

The center of gravity when it comes to private litigation of international antitrust disputes is still in the United States, but two trends affecting the legal landscape in the U.S., U.K., and EU are shifting it across the Atlantic. In this article, we address these trends and further discuss their implications for lawyers handling major antitrust disputes that have global footprints. Much of the discussion will focus on cartel litigation because those cases often involve global issues and present the most obvious examples for our discussion.

The first trend is the evolving jurisprudence of the Foreign Trade Antitrust Improvements Act ("FTAIA"). The FTAIA governs the scope of U.S. antitrust law over sales that implicate foreign comity concerns. While the FTAIA remains among the more baffling statutes to apply, circuit court decisions are multiplying and foreign jurisdictions are adding their own views in support of their own remedies. Complete clarity is likely to remain elusive, but there are categories of commerce involving foreign entities that are increasingly likely to be ruled out of bounds for U.S. courts with the result that foreign courts may be the only venues with jurisdiction over large amounts of sales.

The second key development is that, after many years of discussion, foreign remedies and procedures in the U.K. and other EU member states are finally being defined in ways that can be attractive for plaintiffs.1 In 2013, the European Commission ("Commission") adopted non-binding recommendations on collective redress.2 On November 26, 2014, the Commission also mandated additions to national laws ensuring uniform rules across the EU's 28 member states for private damage actions. These revisions must be implemented by December 27, 2016. National law modifications consequently are underway. There will be changes even in those jurisdictions that already have advanced systems and attract most private antitrust actions, such as the U.K., the Netherlands, and Germany.

Last year, the U.K. adopted rules in the Consumer Rights Act of 2015 that include for the first time an opt-out collective redress mechanism that is similar to a U.S.-style class action system. This law goes far beyond both the Commission's recommendations and what was required under the Directive. No other European Union Member State has followed suit so far.

In short, until recently, private cases were focused on U.S. remedies with few companion cases across the Atlantic. This dynamic has dramatically changed over recent years as cartels investigated in both the U.S. and the EU now routinely trigger private damages actions on both sides of the Atlantic. Many practitioners now assume that international cartel matters will prompt significant private cases filed by large customers either in the U.K., Germany, or the Netherlands. In the future, more European national courts are likely to be involved, especially if Brexit further shifts the balance toward continental Europe. International cartels already have attracted private actions across Europe including: auto glass, DRAM, CRT, LCD, batteries, and air cargo. Representative cases have started to emerge—despite predictions to the contrary. If there are any early successes, those cases are likely to proliferate soon.

We will begin with a brief overview of how we got to where we are now, move to an analysis of the current situation in the U.K. and the EU, and conclude with a discussion of what all of this may mean for practitioners. Specifically, we focus on the exponentially increasing complexity of decisions concerning arbitration, discovery, settlement, and case coordination.

II. EVOLVING LIMITS ON THE SCOPE OF U.S. LAW AND EMERGING FOREIGN REMEDIES

A. Limits on the Scope of U.S. Law

Traditionally, global cases were litigated almost exclusively in the U.S. Plaintiffs were inclined to pursue all of their damage claims in U.S. courts based on the availability of treble damages and attorney's fees. And the American rule on attorney's fees made this a no risk proposition. Moreover, the FTAIA case law was much less developed.

Now, maturing FTAIA jurisprudence has begun to clarify what sales may or may not be addressed in U.S. courts. While parties will continue to disagree about the scope of the U.S. Sherman Act, most would acknowledge that there is a serious risk that a U.S. court will not adjudicate disputes involving foreign sales of components to foreign subsidiaries of U.S. companies. If finished products then are made by those overseas subsidiaries and sold abroad, almost certainly U.S. law will not reach those sales.

The FTAIA was signed into law in 1982, but has not been applied and litigated in earnest until the last fifteen years. The entirety of the surprisingly short statute reads as follows:

Sections 1 to 7 of [the Sherman Act] shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless—

  1. such conduct has a direct, substantial, and reasonably foreseeable effect—

    1. on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or
    2. on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States; and
  1. such effect gives rise to a claim under the provisions of sections 1 to 7 of this title, other than this section.

If sections 1 to 7 of this title apply to such conduct only because of the operation of paragraph (1)(B), then sections 1 to 7 of this title shall apply to such conduct only for injury to export business in the United States.3

The FTAIA has two fundamental purposes. First, the statute codifies principles of international comity by limiting the reach of U.S. antitrust laws in order to avoid "interference with other nations' prerogative to safeguard their own citizens from anti-competitive activity within their own borders."4 Second, the FTAIA promotes "certainty in assessing the applicability of American antitrust law to international business transactions and proposed transactions" by articulating a "single, objective test" for "determining whether American antitrust law is to be applied to a particular transaction."5

The FTAIA establishes a general rule that the Sherman Act does not apply to conduct involving foreign commerce.6 The FTAIA then articulates two exceptions. First, under the "import commerce" exclusion, the statute provides that the Sherman Act does apply to conduct involving U.S. import commerce, which courts have defined to mean "transactions that are directly between [U.S.] plaintiff purchasers and [foreign] defendant cartel members."7 Second, the "domestic effects" exception applies only where (1) the foreign conduct at issue had a "direct, substantial, and reasonably foreseeable effect" on U.S. commerce, and (2) that domestic effect "gives rise to" the claim.8

Courts have had a remarkably difficult time applying the FTAIA to business situations that have become common in an increasingly global economy. Although there is still little consensus regarding the exact boundaries of the FTAIA, recent circuit court decisions have given practitioners some clarity over which sales may be out of bounds for U.S. courts.

For example, the FTAIA excludes anticompetitive conduct by foreign companies that only causes a foreign injury. In its first major ruling on the issue, the Supreme Court recognized that the purpose of the FTAIA is to "exclude from the Sherman Act's reach much anticompetitive conduct that causes only foreign injury."9 In Empagran I, a foreign purchaser brought claims in U.S. court for vitamins that were sold into foreign commerce. It was not disputed that the global Vitamins cartel had affected domestic commerce, but defendants argued that the foreign plaintiff's purchases did not give rise to a Sherman Act claim in the same way that a domestic plaintiff satisfied the "domestic injury" exception. The Supreme Court held that U.S. antitrust laws do not apply where "price-fixing conduct significantly and adversely affects both customers outside the United States and customers within the United States, but the foreign effect is independent of any adverse domestic effect."10 This case made clear that U.S. antitrust laws do not extend to independent foreign injuries, even if they were caused by an alleged global cartel that also caused domestic injuries.

The FTAIA also implicates foreign purchases made pursuant to a global purchasing agreement. In Motorola Mobility, LLC v. AU Optronic Corp., three sets of purchases of TFT-LCD panels (the major component of LCD screens) were at issue.11 The first set of purchases consisted of LCD panels that were sold directly to Motorola's U.S. parent. These purchases were "import commerce" subject to the Sherman Act, but they comprised only 1% of Motorola's claimed damages. The rest of the LCDs were purchased outside of the U.S. by Motorola's foreign subsidiaries and incorporated into cellphones that were either resold in the U.S. by the parent company ("Category 2" purchases) or sold abroad to foreign purchasers ("Category 3" purchases). The court ruled that Category 3 purchases—which were the majority of Motorola's claimed damages—"can't possibly support a Sherman Act claim" because "neither those cellphones nor their panel components entered the United States." The court also barred Motorola's Category 2 purchases because the added layer of a foreign subsidiary selling the cellphones back to Motorola for resale to U.S. consumers was too tenuous to "give rise" to Motorola's claim under the FTAIA. That the foreign purchases were subject to a master price agreement negotiated between Motorola and LCD manufacturers in the U.S. was not enough, on its own, to bring these purchases under the Sherman Act. Motorola's foreign subsidiaries were thus treated as the foreign purchaser in Empagran, rather than a single enterprise.

The law is still developing as to indirect sales of foreign sourced goods that are sold in the U.S. Take United States v. Hsiung et al.,12 which arose from the same LCD cartel as Motorola, as an example. In Hsiung, AU Optronics sold LCDs to foreign OEMs which then sold "substantial volume of goods" to U.S. consumers. In this criminal case, the Ninth Circuit determined that AUO's conduct, which "targeted" the LCDs "for sale or delivery in the United States," constituted "import commerce" that fell under the purview of the Sherman Act. The Ninth Circuit held that although the guilty verdict could be sustained under the domestic effects exception, there was no need to apply that exception because the DOJ had proved U.S. import commerce. The Supreme Court refused to hear the Hsiung and Motorola appeals, even though some argued that the decisions were in conflict.

As the FTAIA jurisprudence was evolving, many foreign nations were simultaneously developing more robust antitrust regimes that did not exist when the statute was first enacted in 1982. The FTAIA, of course, was explicitly enacted to embrace principles of international comity by limiting the reach of U.S. antitrust laws. U.S. courts have interpreted "interference" to apply to leniency programs, state enforcement actions, and private remedies.

Though not explicitly stated in the decisions, U.S. courts may be giving more deference to comity principles as they begin to understand the remedies that are available abroad. The Governments of Germany, the U.K. and Northern Ireland, Japan, Switzerland and the Netherlands submitted a joint brief as amicus curiae in the Empagran case arguing that "fundamental principles of international law and prescriptive comity limit U.S. court jurisdiction over foreign injuries" and that unrestricted U.S. jurisdiction "would shift private claims to U.S. courts and interfere with the policy choices made by other jurisdictions."13 They explained that the differences in private damages remedies—or lack thereof—should be treated as deliberate policy choices that should be respected by the United States' commitment to international comity."14 The Supreme Court recognized that "the comity concerns remain real as other nations have not in all areas adopted antitrust laws similar to this country's and, in any event, disagree dramatically about appropriate remedies."15

In the Motorola case, the Belgian Competition Authority and the Ministry of Economy, Trade and Industry of Japan ("METI") submitted amicus curiae briefs making even stronger comity arguments. The Belgian Competition Authority16 specifically highlighted changes in Belgium's competition regime since Empagran was decided, including adopting a leniency program, new rules on collective redress, the establishment of a new procedure for early settlement of investigations, and its directive to "build consensus . . . across the global antitrust community" through participation in the International Competition Network ("ICN"). The Belgian Competition Authority urged the U.S. not to interfere with its competition regime.

METI17 argued that allowing Motorola to pursue its Category 2 and 3 claims in the U.S. would have "international public policy implications which would adversely affect the ability of the government of Japan to regulate its own economy and govern its own society." One of METI's concerns was that "the applicability of treble damages, which are not common outside US, will be expanded through excessive extraterritorial application of US competition law, and that, as a result, Japan's ability to regulate its own commercial affairs will be interfered." METI added: in civil lawsuits based on injuries alleged to have been incurred as a result of foreign anticompetitive activities, plaintiffs often tend to insist on the remarkably enlarged scope of extraterritorial application." The Seventh Circuit seemed to agree:

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Footnotes

1 The changes in Europe resulted from a protracted process of consultation. In 2005 the Commission adopted a Green Paper on antitrust damages actions and a White Paper in 2008 which dealt among other things with collective redress. A subsequent public consultation on the proposed European framework for collective redress highlighted the divergence of views among the stakeholders across Europe and the difficulty to reach consensus on a Directive.

2 Recommendation of 11 June 2013 on common principles for injunctive and compensatory collective redress mechanisms in the Member States concerning violations of rights granted under Union Law, 11.6.2013 COM(2013) 401 final.

Originally published in Competition - The Journal of the Antitrust and Unfair Competition Law Section of the State Bar of California Vol. 25, No. 2 (Fall 2016).

3 15 U.S.C. § 6a.

4 Empagran S.A. v. F. Hoffmann-LaRoche, Ltd., 417 F.3d 1267, 1271 (D.C. Cir. 2005) ("Empagran II").

5 H.R. Rep. No. 97-686 at 2, 5, 8 (reprinted in 1982 U.S.C.C.A.N. 2487, 2488, 2490, 2493).

6 Empagran S.A. v. F. Hoffmann-LaRoche, Ltd., 542 U.S. 155, 158 (2004) ("Empagran I"); United States v. Hsiung, 778 F.3d 738, 757 (9th Cir. 2015).

7 Minn-Chem, Inc. v. Agrium Inc., 683 F.3d 845, 855 (7th Cir. 2012).

8 15 U.S.C. § 6a(1)-(2).

9 Empagran I, 542 U.S. at 158.

10 Id. at 164.

11 775 F.3d 816 (7th Cir. 2015).

12 778 F.3d 738 (9th Cir. 2015).

13 Brief of the Federal Republic of Germany, United Kingdom of Great Britain and Northern Ireland, Japan, the Swiss Confederation, and the Kingdom of the Netherlands as Amici Curiae in Support of Defendants-Appellees, Empagran, S.A. et al., v. F. Hoffman-La Roche Ltd., 2005 WL 3873712 (D.C. Cir. March 9, 2005).

14 Id.

15 Empagran I, 542 U.S. at 155.

16 Brief of the Belgian Competition Authority as Amicus Curiae in Support of Appellees, Motorola Mobility v. AU Optronics, 775 F.3d 816, Case No. 14-8003 Dkt. 113 (Oct. 16, 2014).

17 Brief of the Ministry of Economy, Trade and Industry of Japan as Amicus Curiae in Support of Appellees, Motorola Mobility v. AU Optronics, 775 F.3d 816, Case No. 14-8003 Dkt. 119 (Oct. 17, 2014).

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