In class action suit by vitamin buyers against vitamin distributors, U.S. Supreme Court holds that Sherman Act does not reach foreign antitrust activity occurring within and outside United States that causes injury to foreign customer where that injury is independent of any injury to domestic customer
The Foreign Trade Antitrust Improvement Act of 1982 (FTAIA) [15 U.S.C. Section 6a, a 1982 amendment to the Sherman Act] excludes from the reach of the Sherman Act anticompetitive conduct that merely causes injury abroad. The statute initially creates a blanket provision stating that the Sherman Act "shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations." 15 U.S.C. Section 6a. It provides for exceptions, however, to the general rule where that conduct significantly harms imports, domestic commerce, or American exporters.
The foreign buyers of vitamins and related products brought this action against several U.S. and foreign companies which were distributing those vitamin products internationally and which were allegedly conspiring to control prices for these products. See 2003 International Law Update 20. The district court dismissed the foreign plaintiffs for lack of subject matter jurisdiction under FTAIA since their alleged injuries lacked a connection to U.S. commerce.
On appeal, the U.S. Court of Appeals for the District of Columbia Circuit reversed. It held that where the anticompetitive conduct does the requisite harm to U. S. commerce, FTAIA does permit suits by foreign plaintiffs who are injured solely by that conduct's effect on foreign commerce.
Because of a split among the Circuits in this area, the Supreme Court granted certiorari on two questions. "First, does that conduct fall within the FTAIA's general rule excluding the Sherman Act's application? That is to say, does the price-fixing activity constitute "conduct involving trade or commerce ... with foreign nations'? We conclude it does."
"Second, we ask whether the conduct nonetheless falls within a domestic-injury exception to the general rule, an exception that applies (and makes the Sherman Act nonetheless applicable) where the conduct (1) has a "direct, substantial, and reasonably foreseeable effect' on domestic commerce, and (2) "such effect gives rise to a [Sherman Act] claim.' Sections 6a(1)(A). We conclude that the exception does not apply where a plaintiff's claim rests solely on the independent foreign harm." [Slip op. 6-7]
The Petitioners (the original defendants) argued that the FTAIA does not apply. The relevant language of the FTAIA reads, "Sections 1 to 7 of this title [the Sherman Act] shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations." 15 U.S.C. Section 6a. According to the Petitioners, this language implies that the FTAIA only applies to conduct involving export trade or commerce because this is the only other type of commerce that can occur "with foreign nations" other than import trade or commerce, which the statute specifically exempts.
The Court rejects this argument based in part on the legislative history of the FTAIA. "... [T]he FTAIA originated in a bill that initially referred only to "export trade or export commerce.' H. R. 5235, 97th Cong., 1st Sess., Section 1 (1981). But the House Judiciary Committee subsequently changed that language to "trade or commerce (other than import trade or import commerce).' 15 U.S.C. Section 6a. And it did so deliberately to include commerce that did not involve American exports but which was wholly foreign." [Slip op. 13].
After rejecting Petitioners' threshold argument, the Court set out to resolve the issue based on the exception to the FTAIA on which it granted certiorari. It finds the Petitioners' argument unpersuasive and that the FTAIA exception does not apply (and thus the Sherman Act does not apply) for two main reasons.
First, prescriptive comity dictates that courts construe unclear statutes to avoid unreasonable interference with the sovereign authority of other nations. This rule of construction reflects principles of customary international law, which Congress ordinarily seeks to follow.
In enacting the FTAIA, Congress intended to protect against domestic injury regardless of the situs of the anticompetitive activity. It is unreasonable, however, to validate a cause of action based on the current scenario; protecting foreign plaintiffs against an injury they do not share with domestic plaintiffs would interfere with the foreign state's sovereignty where the U.S. has little or no legal interest. In the absence of clear Congressional intent to the contrary, the Court reasons that the FTAIA exception does not apply to the current case.
The Court then rejects Respondents' two counter arguments to its comity analysis. First, the Respondents argued that applying the exception to this case would not unduly interfere with foreign sovereign power because foreign countries have similar antitrust laws. Citing amicus briefs from Germany and Japan to the contrary, however, the Court points to the many differing foreign laws. Second, the Respondents maintained that comity does not require an across-the- board rejection of this type of case, but rather it encourages a case-by-case analysis. On the contrary, the Court finds this approach too costly and time-consuming.
To reinforce its holding, the Court examines the legislative history of the FTAIA. "[T]he language and history suggest that Congress designed the FTAIA to clarify, perhaps to limit, but not to expand in any significant way, the Sherman Act's scope as applied to foreign commerce." [Slip op. 24]. After distinguishing prior cases, the Court can find "no pre-1982 case [that] provides significant authority for application of the Sherman Act in the circumstances we here assume." [Slip op. 30].
The Court leaves open the possibility that a valid cause of action under the Sherman Act might arise if the Respondents could show that a foreign injury depends on the domestic injury. The Court, however, leaves this determination to the lower court.
Citation: F. Hoffmann-La Roche Ltd. v. Empagran S.A., 124 S. Ct. 2350 (U.S. 2004).
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