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Getting Out from Under Antitrust Litigation: How it just got harder for foreign entities to stay out of the U.S. antitrust labyrinth

Wednesday, October 12, 2011

Contributed by Michael B. Himmel and Jamie R. Gottlieb, Lowenstein

Making sense of U.S. antitrust law is a nearly impossible feat. If you have ever attempted it, you likely found yourself entangled in a labyrinth of intricate rules, followed by an even larger web of obscure exceptions to those rules. The murky nature of antitrust law is further exacerbated when foreign corporations, or foreign affiliates of U.S. corporations, find themselves in a U.S. court defending against allegations of anticompetitive conduct. While this may be of little consolation to foreign entities, the reality is that the existing case law is inconsistent. Nonetheless, the livelihood of a foreign entity may hinge on knowing how to defend against an antitrust lawsuit. To make matters worse, in the most recent antitrust case involving foreign companies, Animal Science Products, Inc. v. China Minmetals Corporation,1 the Third Circuit made it more complicated for foreign defendants to get out from under complex and expensive litigation. In that case, the court significantly tipped the scales against foreign entities defending against violations of antitrust law, particularly with respect to litigation exposure and costs. If this decision is any indication of the future for antitrust litigation, foreign defendants undoubtedly will face an increasingly uphill battle. Ironically, as the litigation stakes become higher, the law seems to become muddier. But it is not all doom and gloom – a strong line of defense is often the best strategy for a successful attack. This article aims to assist foreign entities with navigating the waters of U.S. antitrust law in order to effectively combat lawsuits. The following analysis of the principal statute governing this subject area, the Foreign Trade Antitrust Improvements Act (FTAIA),2 as well as its case law progeny, explains why U.S. courts have struggled to apply the law consistently – the FTAIA itself is marred by unwieldy language and, as a result, judicial interpretation has proven difficult to both predict and reconcile. By examining the statutory and case law, this article endeavors to set forth the governing legal framework, to forecast the implications of the Third Circuit’s decision on foreign defendants, and ultimately, to find the light at the end of the antitrust law tunnel. We conclude with strategic recommendations to foreign entities defending against antitrust suits in the United States.

A Primer on U.S. Antitrust Law

The Sherman Antitrust Act (Sherman Act) was the first attempt by Congress to regulate anticompetitive practices. The statute prohibits “restraint of trade,” as well as attempts or conspiracies to monopolize. In enacting the law, Congress cast a wide net of potential liability on the basis of anticompetitive conduct, both domestically and internationally. The Sherman Act was written using broad language, which failed to define crucial terms, such as “restraint of trade” and “commerce.” This wide net resulted in inconsistent case law regarding “the proper test for determining whether United States antitrust jurisdiction over international transactions exists.”3 In an effort to both clarify and demarcate the international reach of the Sherman Act, Congress enacted the FTAIA. The FTAIA sought to clean up the lingering confusion triggered by the Sherman Act and “to promote certainty in assessing the applicability of American antitrust law to international business transactions[.]”4 As the Supreme Court has explained, “the FTAIA’s 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.”5 Over the years, the FTAIA became known as a “limiting statute.” But how exactly does it limit the reach of U.S. antitrust law? Did Congress intend the statute to limit a U.S. court’s jurisdiction over extraterritorial activity? Or, did Congress hope to impose substantive merits-based limitations on antitrust lawsuits? Ferreting out the Sherman Act and its companion, “little sister” statute, the FTAIA, is tricky. We must begin with the general rule that U.S. antitrust law does not regulate extraterritorial anticompetitive conduct. The FTAIA articulates this general rule by broadly removing from the Sherman Act’s reach – but doing so in somewhat vague language – “all (non-import) activity involving foreign commerce[.]”6 In plain English, and as a general proposition, the United States does not, and cannot, regulate activity that occurs overseas. The FTAIA, however, then carves out a narrowly circumscribed exception – often referred to as the “domestic injury exception” – in instances where otherwise-immunized extraterritorial conduct will be swept back into the Sherman Act’s clutches. Under the two-prong domestic injury exception, foreign conduct will make its way back into the ambit of the Sherman Act where (1) “it has a direct, substantial, and reasonably foreseeable effect” on U.S. commerce, and (2) “such effect gives rise to a claim” under the Sherman Act.7 At first blush, the domestic injury exception seems simple enough: merely apply each prong to the facts at issue in the case and, voil

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