Boon for International Business Community

In dismissing respondents' claims, the District Court applied the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA) and found none of its exceptions applicable. FTAIA provides that the Sherman Act “shall not apply to conduct involving trade or commerce … with foreign nations,” 15 U.S.C. ' 6a, but creates exceptions for conduct that significantly harms imports, domestic commerce or American exporters.

Reversal

The Court of Appeals reversed, concluding that the FTAIA's exclusionary rule applied, but so did its exception for conduct that has a “direct, substantial and reasonably foreseeable effect” on domestic commerce that “gives rise to a [Sherman Act] claim,” '' 6a(1)(A), (2). Assuming that the foreign effect, ie, higher foreign prices, was independent of the domestic effect, ie, higher domestic prices, the court nonetheless concluded that the act's text, legislative history and policy goal of deterring harmful price- fixing activity made the lack of connection between the two effects inconsequential.

The issue came before the Supreme Court via writ of certiorari. The issue before the Court concerned 1) significant foreign anticompetitive conduct with 2) an adverse domestic effect and 3) an independent foreign effect giving rise to the claim. Specifically, the case involved vitamin sellers around the world that agreed to fix prices, leading to higher vitamin prices in the United States, and independently leading to higher vitamin prices in other countries such as Ecuador. The Court concluded that where the price-fixing conduct significantly and adversely affected customers both outside and within the United States, but the adverse foreign effect was independent of any adverse domestic effect, the FTAIA exception did not apply, and thus, neither did the Sherman Act, to a claim based solely on the foreign effect. In this scenario, a purchaser in the United States could bring a Sherman Act claim under the FTAIA based on domestic injury, but a purchaser in Ecuador could not bring a Sherman Act claim based on foreign harm.

Respondents' threshold argument was that the transactions fell outside the FTAIA because its general exclusionary rule applies only to conduct involving exports was rejected. The Court noted, however, that the House Judiciary Committee changed the bill's original language from “export trade or export commerce,” H.R. 5235, to “trade or commerce (other than import trade or import commerce)” deliberately to include commerce that did not involve American exports but was wholly foreign.

The FTAIA exception did not apply here, the Court held, for two reasons. First, the Supreme Court ordinarily construes ambiguous statutes to avoid unreasonable interference with other nations' sovereign authority. This rule of construction reflects customary international law principles and cautions courts to assume that legislators take account of other nations' legitimate sovereign interests when writing American laws. It thereby helps the potentially conflicting laws of different nations work together in harmony.

While applying America's antitrust laws to foreign conduct can interfere with a foreign nation's ability to regulate its own commercial affairs, courts have long held such application nonetheless reasonable, and hence consistent with prescriptive comity principles, insofar as the laws reflect a legislative effort to redress domestic antitrust injury caused by foreign anticompetitive conduct. However, the Court held it would not be reasonable to apply American laws to foreign conduct when that conduct causes independent foreign harm that alone gives rise to a plaintiff's claim. The risk of interference is the same, but the Court found the justification for the interference insubstantial. While some of the anticompetitive conduct alleged in the suit took place in America, the higher foreign prices were not the consequence of any domestic anticompetitive conduct sought to be forbidden by Congress, which rather wanted to release domestic (and foreign) anticompetitive conduct from Sherman Act constraint when that conduct causes foreign harm.

The Court, noting that other nations have not all adopted antitrust laws similar to this country's – and, in any event, disagree dramatically about appropriate remedies – was not persuaded by respondents' alternative argument that case-by-case comity analysis is preferable to an across-the-board exclusion of foreign injury cases. This idea, the Court reasoned, would prove too complex to be workable.

The second basis on which the Court vacated the Court of Appeal's decision was that the FTAIA's language and history suggested that Congress designed the act to clarify and perhaps to limit, but not to expand, the Sherman Act's scope as applied to foreign commerce. There was no significant indication that at the time Congress wrote the FTAIA, courts would have thought the Sherman Act applicable in the circumstances of the F. Hoffmann-La Roche case, the Court concluded.

Conclusion

The case was therefore remanded to the Court of Appeals, which was instructed to consider whether respondents properly preserved their alternative argument that the foreign injury in this case was not in fact independent of the domestic effects. If the Court of Appeals does find so, that related claim can be considered and decided.

Multinational firms of all kinds can now breath a sigh of relief. In addition, the holding is undoubtedly a great relief to many foreign governments. Japan, Germany and Canada, for instance, all filed amicus briefs in the case, protesting the potential interference with their regulation of commerce within their own borders if the Court of Appeals' decision were allowed to stand. The governments of the United States, Germany and Canada also pointed out that the possibility of having treble damages levied against them could deter foreign whistleblowers from cooperating with antitrust authorities in exchange for prosecutorial amnesty.

Potential foreign plaintiffs and those with interests in reigning in corporate greed were disappointed with the decision, however, as U.S. courts, with their ability to award treble damages, are widely considered the best forum for deterring global price fixing. Many foreign antitrust plaintiffs will now find they have no satisfactory means to redress their injuries.

In a boon for the international business community, which had anxiously awaited the decision in the drug price-fixing case F. Hoffmann-La Roche Ltd. v. Empagran S.A., the U.S. Supreme Court held on June 14 that the Sherman Anti-Trust and Clayton Acts cannot be invoked by foreign individuals or entities to redress injuries suffered due to anti-competitive conduct when the price-fixing conduct complained of adversely affects customers inside and outside the United States, but the adverse foreign effect is independent of any adverse domestic effect. F. Hoffmann-La Roche Ltd. v. Empagran S.A., No. 03-724, 2004 U.S. LEXIS 4174; 72 U.S.L.W. 4501 (6/14/04).

About the Case

In the F. Hoffmann-La Roche case, foreign vitamin purchasers filed a class-action lawsuit alleging that vitamin manufacturers and distributors had engaged in a price-fixing conspiracy, raising vitamin prices in the United States and foreign countries, in violation of the Sherman and Clayton Acts. They brought their suit in district court in Washington, DC. Defendants (petitioners) moved to dismiss the suit as to the foreign purchasers (respondents), as they were foreign companies located abroad that had purchased vitamins only outside United States commerce.

In dismissing respondents' claims, the District Court applied the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA) and found none of its exceptions applicable. FTAIA provides that the Sherman Act “shall not apply to conduct involving trade or commerce … with foreign nations,” 15 U.S.C. ' 6a, but creates exceptions for conduct that significantly harms imports, domestic commerce or American exporters.

Reversal

The Court of Appeals reversed, concluding that the FTAIA's exclusionary rule applied, but so did its exception for conduct that has a “direct, substantial and reasonably foreseeable effect” on domestic commerce that “gives rise to a [Sherman Act] claim,” '' 6a(1)(A), (2). Assuming that the foreign effect, ie, higher foreign prices, was independent of the domestic effect, ie, higher domestic prices, the court nonetheless concluded that the act's text, legislative history and policy goal of deterring harmful price- fixing activity made the lack of connection between the two effects inconsequential.

The issue came before the Supreme Court via writ of certiorari. The issue before the Court concerned 1) significant foreign anticompetitive conduct with 2) an adverse domestic effect and 3) an independent foreign effect giving rise to the claim. Specifically, the case involved vitamin sellers around the world that agreed to fix prices, leading to higher vitamin prices in the United States, and independently leading to higher vitamin prices in other countries such as Ecuador. The Court concluded that where the price-fixing conduct significantly and adversely affected customers both outside and within the United States, but the adverse foreign effect was independent of any adverse domestic effect, the FTAIA exception did not apply, and thus, neither did the Sherman Act, to a claim based solely on the foreign effect. In this scenario, a purchaser in the United States could bring a Sherman Act claim under the FTAIA based on domestic injury, but a purchaser in Ecuador could not bring a Sherman Act claim based on foreign harm.

Respondents' threshold argument was that the transactions fell outside the FTAIA because its general exclusionary rule applies only to conduct involving exports was rejected. The Court noted, however, that the House Judiciary Committee changed the bill's original language from “export trade or export commerce,” H.R. 5235, to “trade or commerce (other than import trade or import commerce)” deliberately to include commerce that did not involve American exports but was wholly foreign.

The FTAIA exception did not apply here, the Court held, for two reasons. First, the Supreme Court ordinarily construes ambiguous statutes to avoid unreasonable interference with other nations' sovereign authority. This rule of construction reflects customary international law principles and cautions courts to assume that legislators take account of other nations' legitimate sovereign interests when writing American laws. It thereby helps the potentially conflicting laws of different nations work together in harmony.

While applying America's antitrust laws to foreign conduct can interfere with a foreign nation's ability to regulate its own commercial affairs, courts have long held such application nonetheless reasonable, and hence consistent with prescriptive comity principles, insofar as the laws reflect a legislative effort to redress domestic antitrust injury caused by foreign anticompetitive conduct. However, the Court held it would not be reasonable to apply American laws to foreign conduct when that conduct causes independent foreign harm that alone gives rise to a plaintiff's claim. The risk of interference is the same, but the Court found the justification for the interference insubstantial. While some of the anticompetitive conduct alleged in the suit took place in America, the higher foreign prices were not the consequence of any domestic anticompetitive conduct sought to be forbidden by Congress, which rather wanted to release domestic (and foreign) anticompetitive conduct from Sherman Act constraint when that conduct causes foreign harm.

The Court, noting that other nations have not all adopted antitrust laws similar to this country's – and, in any event, disagree dramatically about appropriate remedies – was not persuaded by respondents' alternative argument that case-by-case comity analysis is preferable to an across-the-board exclusion of foreign injury cases. This idea, the Court reasoned, would prove too complex to be workable.

The second basis on which the Court vacated the Court of Appeal's decision was that the FTAIA's language and history suggested that Congress designed the act to clarify and perhaps to limit, but not to expand, the Sherman Act's scope as applied to foreign commerce. There was no significant indication that at the time Congress wrote the FTAIA, courts would have thought the Sherman Act applicable in the circumstances of the F. Hoffmann-La Roche case, the Court concluded.

Conclusion

The case was therefore remanded to the Court of Appeals, which was instructed to consider whether respondents properly preserved their alternative argument that the foreign injury in this case was not in fact independent of the domestic effects. If the Court of Appeals does find so, that related claim can be considered and decided.

Multinational firms of all kinds can now breath a sigh of relief. In addition, the holding is undoubtedly a great relief to many foreign governments. Japan, Germany and Canada, for instance, all filed amicus briefs in the case, protesting the potential interference with their regulation of commerce within their own borders if the Court of Appeals' decision were allowed to stand. The governments of the United States, Germany and Canada also pointed out that the possibility of having treble damages levied against them could deter foreign whistleblowers from cooperating with antitrust authorities in exchange for prosecutorial amnesty.

Potential foreign plaintiffs and those with interests in reigning in corporate greed were disappointed with the decision, however, as U.S. courts, with their ability to award treble damages, are widely considered the best forum for deterring global price fixing. Many foreign antitrust plaintiffs will now find they have no satisfactory means to redress their injuries.