Extraterritorial Application of U.S. Antitrust
Law: What Is a ““Direct, Substantial, and
Reasonably Foreseeable Effect”” Under the
Foreign Trade Antitrust Improvements Act?
RICHARD W. BECKLER†† AND MATTHEW H. KIRTLAND
SUMMARY
I.
INTRODUCTION............................................................................................................ 12
II.
STATUTORY BACKGROUND ......................................................................................... 12
A. Sherman Act ........................................................................................................ 12
B. Foreign Trade Antitrust Improvements Act......................................................... 13
C. The FTAIA Does Not Apply to Import Commerce——Hartford Fire Test .............. 14
III.
DISCUSSION................................................................................................................. 15
A. The Definition of a ““Direct, Substantial, and Reasonably Foreseeable
Effect”” is Uncertain ............................................................................................ 15
B. Agency Interpretation of ““Direct, Substantial, and Reasonably
Foreseeable Effect”” is a Useful Starting Point ................................................... 15
1. FTAIA Subsection (1)(A)——Domestic or Non-Direct Import
Commerce .................................................................................................... 16
2. FTAIA Subsection (1)(B)——U.S. Export Commerce ................................... 17
C. Judicial Interpretation of ““Direct, Substantial, and Reasonably
Foreseeable Effect””............................................................................................. 18
1. What is a ““Substantial”” Effect?——Individual Injury Is Insufficient ............. 18
2. What is a ““Direct”” Effect? ........................................................................... 19
3. U.S. Ownership of a Company, by Itself, Does Not Create a
““Direct, Substantial, and Reasonably Foreseeable Effect”” .......................... 20
4. Location of Negotiations or Signing the Agreement, by Itself, Does
Not Create a ““Direct, Substantial, and Reasonably Foreseeable
Effect”” .......................................................................................................... 20
5. The Effect Must Be to a U.S. Market——Either Domestic, Import, or
Export........................................................................................................... 21
6. Foreign Plaintiffs Can Establish Subject Matter Jurisdiction ...................... 21
7. There Must Be a Causal Connection Between the Plaintiff’’s Injury
and the ““Direct, Substantial, and Reasonably Foreseeable Effect””.............. 22
IV.
CONCLUSION ............................................................................................................... 24
†† Richard Beckler is a senior partner and head of the litigation group in the Washington, D.C. office of Fulbright
& Jaworski L.L.P. He has represented a wide array of corporate and individual clients in cases involving such matters
as criminal and civil antitrust, oil and gas pricing schemes, securities fraud, RICO, banking fraud, government
procurement fraud, the False Claims Act, and the Foreign Corrupt Practices Act. He was assisted in the preparation of
this article by Matthew Kirtland, a senior associate in Fulbright’’s Washington office litigation group who focuses his
practice on complex civil litigation and white collar civil and criminal defense.
11
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INTRODUCTION
Application of U.S. antitrust law continues to expand, for better or worse, with the
expansion of international commerce. The United States Department of Justice (DOJ) and
the Federal Trade Commission (FTC)——who are charged with the mandate of ensuring open
and free markets, protecting consumers, and preventing conduct that impedes
competition——possess powerful enforcement powers, both criminal and civil, under the
Sherman Act1 and other antitrust statutes. In recent years, the DOJ has successfully
brought criminal and civil actions under the Sherman Act against foreign and U.S.
corporations, and their individual directors and officers, for anticompetitive conduct that
occurred outside the United States. In this environment, it is crucial to understand the
extraterritorial scope and application of the Sherman Act.
The threshold issue for extraterritorial application of the Sherman Act is subject
matter jurisdiction. This article briefly reviews the relevant statutory background and then
focuses on how the DOJ, the FTC, and the judiciary have interpreted the Foreign Trade
Antitrust Improvement Act’’s ““direct, substantial, and reasonably foreseeable effect”” test——
the key to establishing Sherman Act subject matter jurisdiction over extraterritorial
conduct.2
II.
A.
STATUTORY BACKGROUND
Sherman Act
Section 1 of the Sherman Act declares illegal ““[e]very contract, combination in the
form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the
several States, or with foreign nations.””3 Sherman Act jurisdiction over anticompetitive
conduct outside the United States has been subject to a variety of interpretations.4 Over
time, courts moved from a ““territorial”” approach that looked at the laws of the locality
where the conduct occurred to an ““effects”” approach that examines the conduct’’s effect on
U.S. markets.5
Originally, courts used a ““strict territorial interpretation”” when applying the Sherman
Act to foreign conduct.6 This approach looked exclusively to the law of the country in
which the anticompetitive activity occurred.7 The U.S. Supreme Court applied this
approach in American Banana Co. v. United Fruit Co.,8 holding that conduct occurring
entirely in Central America was outside the scope of the Sherman Act. Justice Holmes
1. Sherman Act, 15 U.S.C. §§ 1––7 (1988).
2. This article does not address personal jurisdiction, a separate and distinct requirement for extraterritorial
application of the Sherman Act. For a general discussion of personal jurisdiction in the international antitrust context,
see A.B.A. SEC. OF ANTITRUST L., 2 ANTITRUST LAW DEVELOPMENTS 1010––17 (4th ed. 1997) [hereinafter
ANTITRUST LAW].
3. 15 U.S.C. § 1 (1988).
4. See ANTITRUST LAW, supra note 2, at 992 (describing the evolution of the different approaches used to
determine Sherman Act jurisdiction over foreign conduct).
5. See id.
6. Id.
7. Id.
8. 213 U.S. 347, 355––57 (1909). Given that the anticompetitive conduct occurred entirely in Central
America, the Supreme Court commented: ““It is surprising to hear it argued that [the conduct was] governed by the
act of Congress.”” Id. at 355.
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stated, ““the general and almost universal rule is that the character of an act as lawful or
unlawful must be determined wholly by the law of the country where the act is done.””9
More than thirty years later, an ““effect”” test replaced Justice Holmes’’s territorial
approach. In United States v. Aluminum Co. of America (Alcoa), the Second Circuit
recognized that ““any state may impose liabilities . . . for conduct outside its borders that has
consequences within its borders which the state reprehends.””10 Under this rationale, the
court found that the Sherman Act covered agreements that ““were intended to affect imports
and did affect them.””11 Applying this test, the Alcoa court found jurisdiction existed over
acts that occurred entirely in Canada but had an anticompetitive effect in the U.S.12
Courts later developed different formulations of the effect test.13 For instance, the
Ninth Circuit established the following three-part test: (1) there must be some effect on
American foreign commerce, (2) the effect must be large enough so as to create a
cognizable injury to the plaintiff, and (3) the interests of international comity and fairness
justify an assertion of jurisdiction.14 The Second Circuit adopted its own formulation,
requiring a foreseeable and appreciable effect on American commerce.15 The different
versions of the effect test eventually laid the groundwork for current interpretations of the
Sherman Act, including the Supreme Court’’s Hartford Fire test described below.
B.
Foreign Trade Antitrust Improvements Act
In an attempt to end the confusion resulting from the various effect tests, Congress
passed the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA).16 The FTAIA
amended the Sherman Act to expressly limit those circumstances in which the Act applies
to foreign conduct. The limitations reflect Congress’’s goal of facilitating the domestic
export of goods by exempting certain export trade from the Sherman Act’’s reach.17 The
FTAIA provides that the Sherman Act:
shall not apply to conduct involving trade or commerce (other than import trade
or import commerce) with foreign nations unless——
9. Id. at 356.
10. 148 F.2d 416, 443 (2d Cir. 1945).
11. Id. at 444.
12. See id. at 444––45.
13. See, e.g., The ‘‘In’’ Porters, S.A. v. Hanes Printables, Inc., 663 F. Supp. 494, 497 & n.3 (M.D.N.C. 1987)
(describing various formulations of the effect test); ANTITRUST LAW, supra note 2, at 993 (““Varying standards
developed . . . for determining the magnitude and type of domestic effect necessary for jurisdiction under U.S.
antitrust laws.””).
14. Timberlane Lumber Co. v. Bank of Am., 549 F.2d 597, 613 (9th Cir. 1976). The court held that the
dismissal of the suit was improper because the lower court failed to examine the comity issue despite a
determination that the conduct had a direct and substantial effect on foreign commerce. Id. at 615.
15. See Nat’’l Bank of Canada v. Interbank Card Ass’’n, 666 F.2d 6, 8––9 (2d Cir. 1981) (stating that the
““important question”” is whether the conduct ““can be foreseen to have any appreciable anticompetitive effects on
United States commerce””). Id. at 8.
16. Foreign Trade Antitrust Improvements Act of 1982, Pub. L. No. 97-290, 96 Stat. 1246 (1982). Congress
passed the FTAIA ““to eliminate the uncertainty that had arisen from the confusing array of standards employed by
federal courts for determining when United States antitrust jurisdiction attaches to international business
transactions.”” Eurim-Pharm v. Pfizer Inc., 593 F. Supp. 1102, 1105 (S.D.N.Y. 1984).
17. The FTAIA’’s declaration of purpose states: ““It is the purpose of this chapter to increase United States
exports of products and services by encouraging more efficient provision of export trade services to United States
producers and suppliers . . . by modifying the application of the antitrust laws to certain export trade.”” 15 U.S.C.
§ 4001(b) (2002). For a discussion of the legislative history of the FTAIA, see Eurim-Pharm, 593 F. Supp. at
1105––06.
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(1) such conduct has a direct, substantial, and reasonably foreseeable
effect——
(A) on trade or commerce which is not trade or commerce with
foreign nations, or on import trade or import commerce with foreign
nations; or
(B) on export trade or export commerce with foreign nations, of a
person engaged in such trade or commerce in the United States; and
(2) such effect gives rise to a claim under the provisions of sections 1 to
7 of [the Sherman Act], other than this section.
[Proviso] If sections 1 to 7 of this title apply to such conduct only because of
the operation of paragraph (1)(B), then section 1 to 7 of this title shall apply to
such conduct only for injury to export business in the United States.18
While the language of the FTAIA is somewhat clumsy, it boils down to the idea that
the Sherman Act does not apply to conduct involving non-import foreign commerce unless
the conduct has a ““direct, substantial, and reasonably foreseeable effect”” on either:
(1) domestic commerce, such as extraterritorial conduct or foreign agreements
having the effect of raising prices that U.S. consumers must pay for products in
the United States;19
(2) non-direct import commerce, such as inflated prices for foreign products
that reach the U.S. market through any mechanism other than direct sales;20 or
(3) export trade or commerce of a U.S. company, such as foreign agreements
that restrict or eliminate U.S. exports to a given market.21
Absent one of these three circumstances, the FTAIA eliminates subject matter jurisdiction
under the Sherman Act for non-import extraterritorial conduct.
C.
The FTAIA Does Not Apply to Import Commerce——Hartford Fire Test
Extraterritorial conduct that directly affects import commerce is analyzed under the
Supreme Court’’s Hartford Fire test, not the FTAIA. In Hartford Fire Insurance Co. v.
California, the Court abandoned the territorial approach of American Banana Co. in favor
18. 15 U.S.C. § 6(a) (1988) (emphasis added).
19. See, e.g., Caribbean Broad. Sys., Ltd. v. Cable & Wireless PLC, 148 F.3d 1080, 1087 (D.D.C. 1998)
(finding subject matter jurisdiction where a foreign radio station owner falsely claimed that its signal could reach
the entire Eastern Caribbean and filed sham objections to the plaintiff’’s license application thereby keeping the
plaintiff out of the market and increasing the prices paid by U.S. purchasers of radio advertising time); see also
discussion infra Part III.C.1.
20. See, e.g., Carpet Group Int’’l v. Oriental Rug Importers Ass’’n, 227 F.3d 62, 64, 75 (3d Cir. 2000) (finding
subject matter jurisdiction where foreign rug wholesalers thwarted the plaintiff’’s efforts to make rugs available to
U.S. retailers from foreign manufacturers by eliminating the wholesaler in the chain of distribution thereby
lowering rug prices to U.S. consumers); see also discussion infra Part III.C.1.
21. See, e.g., United States v. Time Warner, Inc., No. Misc.A.94-338(HHG), 1997 WL 118413 at *1, *4––5
(D.D.C. Jan. 22, 1997) (finding subject matter jurisdiction where U.S. broadcasters were forced to pay fixed fees to
licensing bodies in the country where they sought to air their programs thereby impeding the broadcasters from
exporting their programs); see also discussion infra Part III.C.2.
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of the extraterritorial approach set forth by the Second Circuit in Alcoa.22 The Court stated
that the Sherman Act applies to ““foreign conduct that was meant to produce and did in fact
produce some substantial effect in the United States.””23
Under Hartford Fire, if import commerce is at issue a court will not apply the ““direct,
substantial, and reasonably foreseeable effect”” test of the FTAIA.24 A good example of this
is the First Circuit’’s decision in United States v. Nippon Paper Industries Co.,25 where the
court refrained from applying the FTAIA to a Japanese corporation charged with
conspiring to fix prices of facsimile paper sold in the United States. The court stated,
““[C]ase law now conclusively establishes that civil antitrust actions predicated on wholly
foreign conduct which has an intended and substantial effect in the United States come
within Section One [of the Sherman Act’’s] jurisdictional reach.””26
III.
A.
DISCUSSION
The Definition of a ““Direct, Substantial, and Reasonably Foreseeable Effect”” is
Uncertain
For non-import commerce, courts apply the FTAIA’’s ““direct, substantial, and
reasonably foreseeable effect”” test to determine whether subject matter jurisdiction exists.
However, determining exactly what constitutes a ““direct, substantial, and reasonably
foreseeable effect”” has created uncertainty.27 Even the Supreme Court in Hartford Fire
recognized that it was unclear whether Congress intended the ““direct, substantial, and
reasonably foreseeable effect”” test to codify or amend the caselaw holding that the Sherman
Act covered foreign conduct.28 Agency guidelines and caselaw interpreting the FTAIA
nonetheless provide some clarity.
B.
Agency Interpretation of ““Direct, Substantial, and Reasonably Foreseeable Effect”” is
a Useful Starting Point
The Department of Justice and the Federal Trade Commission (the ““Agencies””) have
issued guidelines for interpreting the FTAIA.29 The Agencies sought to provide guidance
22. Hartford Fire Ins. Co. v. California, 509 U.S. 764, 795––96 (1993).
23. Id. at 796. The Court found that the plaintiff alleged that British reinsurers conspired to coerce U.S.
primary insurers to limit coverage of certain risks with the effect of eliminating coverage for those risks. Id. at
795. This produced substantial effects on the U.S. market for insurance. Id. at 796.
24. Id. at 796 n.23 (citing 15 U.S.C. § 6a(1)(A)).
25. 109 F.3d 1, 2 (1st Cir. 1997). Specifically, the Japanese manufacturers of the paper agreed to sell the
paper to trading houses in Japan on the condition that the trading houses’’ subsidiaries in the United States charge
inflated prices to American consumers. Id. at 2.
26. Id. at 4; see also Carpet Group Int’’l, 227 F.3d at 71––72 (holding that the FTAIA does not apply, by its
terms, to import trade or commerce).
27. See, e.g., Nippon Paper, 109 F.3d at 4 (““The FTAIA is inelegantly phrased.””); Caribbean Broad Sys.,
Ltd. 148 F.3d at 1085 (““The precise effect of the FTAIA is yet to be determined.””); Den Norske Stats Oljeselskap
AS v. Heeremac VOF, No. H-98-4274, at 9 (S.D. Tex. July 12, 1999) (order dismissing for lack of subject-matter
jurisdiction) (recognizing no ““clear, rigid test for determining extraterritorial subject-matter jurisdiction under the
federal antitrust statutes””) (citation omitted).
28. Hartford Fire, 509 U.S. at 796––97 n.23.
29. See U.S. DEP’’T OF JUSTICE AND FEDERAL TRADE COMM’’N, ANTITRUST ENFORCEMENT GUIDELINES FOR
INTERNATIONAL OPERATIONS, 4 Trade Reg. Rep. (CCH) ¶ 13,107 (1995), reprinted in ANTITRUST LAW, supra
note 2, app. D, available at http://www.usdoj.gov/atr/public/guidelines/internat.htm [hereinafter GUIDELINES].
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to businesses involved in international transactions on issues relating to subject matter
jurisdiction.30 These guidelines include a number of illustrative examples which assist in
determining what constitutes a ““direct, substantial, and reasonably foreseeable effect.””
1.
FTAIA Subsection (1)(A)——Domestic or Non-Direct Import Commerce
Illustrative Example C, Variant (1) of the Enforcement Guidelines states that a nonU.S. company that agrees outside the United States to price fix in a foreign country, with no
intent to price fix in or otherwise affect the U.S. market, does not fall within the jurisdiction
of subsection (1)(A) of the FTAIA.31 In this example, there is an agreement among nonU.S. companies to fix prices of materials sold in countries other than the United States with
an explicit agreement that U.S. sales are outside the scope of the agreement. The
agreement does enable cartel participants to charge less for their product in the United
States——““several U.S. . . . manufacturers curtail their production, overall domestic output
falls, and remaining manufacturers fail to invest in new or improved capacity””32——and thus
causes an indirect effect on U.S. commerce. In addition, the anticompetitive cartel
agreement could cause the price in the world market to stabilize or even rise, which also
could indirectly affect U.S. prices. However, the guidelines provide that this conduct does
not create the ““direct, substantial, and reasonably foreseeable effect”” necessary to trigger
subject matter jurisdiction under the FTAIA:
The mere fact that the existence of U.S. sales or the level of U.S. prices may
ultimately be affected by the cartel agreement is not enough for either Hartford
Fire jurisdiction or the FTAIA. Furthermore, in the absence of an agreement
with respect to the U.S. market, sales into the U.S. market at non-predatory
levels do not raise antitrust concerns.33
Variant (2) of Example C produces the opposite result. In this variant, ““the cartel
agreement specifically provides that cartel members will set agreed prices for the U.S.
market at levels designed to soak up excess quantities that arise as a result of price
increases in foreign markets.””34 Here, according to the guidelines, subject matter
jurisdiction under subsection (1)(A) of the FTAIA exists:
The critical element of a foreign price-fixing agreement with direct, intended
effects in the U.S. is now present. The fact that the cartel believes its U.S. prices
are ““reasonable,”” or that it may be exerting downward pressure on U.S. price
levels, does not exonerate it. Variant 2 presents a case where the Agencies
would need clear evidence of the prohibited agreement before they would
consider moving forward. They would be particularly cautious if the apparent
effect in the U.S. market appeared to be beneficial to consumers.35
30. The Agencies caution, however, that the guidelines ““do not . . . provide a complete statement of the
Agencies’’ general enforcement policies”” because ““[n]o set of guidelines can possibly indicate how the Agencies
will assess the particular facts of every case.”” GUIDELINES, supra note 29, § 1.
31. See id. § 3.121 (Illustrative Example C).
32. Id.
33. Id.
34. Id.
35. Id.
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These examples show that indirect or de minimis effects on the U.S. domestic market
will create subject matter jurisdiction only when there is an agreement to intentionally
affect the domestic U.S. market.
2.
FTAIA Subsection (1)(B)——U.S. Export Commerce
The FTAIA contains a proviso that if subsection (1)(B) is the only paragraph that
applies to the foreign conduct, then the offender is subject to the Sherman Act ““only for
injury to export business in the United States.””36 Illustrative Example E of the Enforcement
Guidelines states that under this proviso, ““[T]he jurisdictional question is whether these
actions create a direct, substantial, and reasonably foreseeable effect on the exports of U.S.
companies.””37 If a proposed agreement were to interfere with U.S. companies exporting a
product to a foreign nation, the agreement would escape subject matter jurisdiction only if
the interference was so de minimis that it did not have the necessary ““substantial”” effect on
U.S. export commerce.38
In addition, it is important to note that the agency guidelines also state that the FTAIA
can apply to U.S. exports that have ““a direct, substantial, and reasonably foreseeable effect
on trade or commerce within the United States, or on import trade or commerce.””39 The
guidelines contain two examples:
First, if U.S. supply and demand were not particularly elastic, an agreement
among U.S. firms accounting for a substantial share of the relevant market,
regarding the level of their exports, could reduce supply and raise prices in the
United States.40
Second, conduct ostensibly export-related could affect the price of products sold
or resold in the United States. This kind of effect could occur if, for example,
U.S. firms fixed the price of an input used to manufacture a product overseas for
ultimate resale in the United States.41
It also should be noted that when Section (1)(B) is invoked, the proviso requires that
there be actual ““injury”” to U.S. export business, as opposed to the mere ““effect”” on
commerce required under Section (1)(A).42 Thus, while under Section (1)(A) conduct that
actually benefits competition can trigger subject matter jurisdiction, under Section (1)(B)
such beneficial conduct would be insufficient.43
36. 15 U.S.C. § 6(a) (1988).
37. GUIDELINES, supra note 29, § 3.122 (Illustrative Example E).
38. Id.
39. Id. § 3.122 (emphasis added).
40. Id.
41. Id.
42. 15 U.S.C. § 6(a)(1)(B).
43. But cf. McElderry v. Cathay Pac. Airways, Ltd., 678 F. Supp. 1071, 1077––78 (S.D.N.Y. 1988) (rejecting
plaintiffs’’ argument that defendant’’s conduct was sufficient to trigger Section (1)(A) jurisdiction since alleged
conduct would benefit, not injure, U.S. airlines operating in foreign markets).
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Judicial Interpretation of ““Direct, Substantial, and Reasonably Foreseeable Effect””
For the most part, the courts have addressed the issue of what is a ““direct, substantial,
and reasonably foreseeable effect”” on a case-by-case basis and have not promulgated any
definite test. There are, however, some general guidelines evident from the caselaw.
1.
What is a ““Substantial”” Effect?——Individual Injury Is Insufficient
Courts have held that, with one exception, an individual or a specific corporation
suffering an adverse financial effect from a foreign anticompetitive agreement is
insufficient by itself to create subject matter jurisdiction under the FTAIA. For example, in
McGlinchy v. Shell Chemical Co., the Ninth Circuit found that injury only to customers or
potential customers located in a foreign nation and consequential injury to one U.S. export
company was insufficient for extraterritorial subject matter jurisdiction.44 Instead, the court
stated, a plaintiff must allege antitrust ““injury to the market or to competition in general, not
merely injury to individuals or individual firms.””45
This reasoning was followed in McElderry v. Cathay Pacific Airways to dismiss
allegations that ““thousands of American passengers have been overcharged for their
baggage by [a foreign airline].””46 According to the court, this was insufficient to create
subject matter jurisdiction because ““an allegation of mere monetary injury is not enough to
state a Sherman Act claim: A Sherman Act plaintiff must ‘‘show injury to a market or to
competition in general, not merely injury to individuals.’’””47
The exception to this general rule is where injury to an individual causes injury to an
entire marketplace. This injury can occur where there is a limited number of competitors in
a given market and injury to one, by definition, injures the market. In these circumstances,
courts likely will find a direct, substantial, and reasonably foreseeable effect.48
In defining what constitutes a substantial effect, some courts also focus on the size of
the affected market and the relative harm of the anticompetitive foreign conduct. A good
example of this is Access Telecom, Inc. v. MCI Telecommunications Corp. where the
plaintiff identified a substantial effect on its own business and the business of other
companies as well.49 The Fifth Circuit characterized the relevant U.S. export market as
““definite and sizable”” with the plaintiff alone posting revenues of $3 million per year.50
44. 845 F.2d 802, 812––13 (9th Cir. 1988).
45. Id. at 812 (citations omitted).
46. 678 F. Supp. at 1077.
47. Id. at 1078 (quoting Fine v. Barry & Enright Prods., 731 F.2d 1394, 1399 (9th Cir. 1984)); see also
American Aerospace Indus., Inc. v. Cahners, No. 87-1231, 1988 U.S. Dist. LEXIS 16899, at *3 (D.D.C. Jan. 20,
1988) (““Furthermore, the effect on commerce must be anticompetitive; the plaintiff must show injury to a market
or competition in general.””).
48. See, e.g., Coors Brewing Co. v. Miller Brewing Co., 889 F. Supp. 1394, 1398 (D. Colo. 1995) (finding
subject matter jurisdiction when an agreement between two brewing companies significantly harmed third-party
brewing company thereby substantially weakening domestic competition); infra Part III.C.2 (discussing the facts of
Coors Brewing).
49. 197 F.3d 694, 712 (5th Cir. 1999). Specifically, the plaintiff alleged that the defendant restrained the
export market for U.S. telephone services to Mexico. The plaintiff allowed customers to place U.S.-based phone
calls from Mexico——customers in Mexico first called a number in Texas and then entered the phone number they
wished to call. Id. at 701. This ““two-legged”” call cost less than a direct call. Id. The defendant sought to protect
its government-granted monopoly over Mexican phone services by disconnecting the lines used by the plaintiff.
See id. at 701––02.
50. Id. at 712.
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Evidence of the collapse of eighty businesses further persuaded the court that the
defendant’’s conduct produced a significant effect on the U.S. export market.51
2.
What is a ““Direct”” Effect?
Although the courts have not specifically defined what constitutes a ““direct”” effect
under the FTAIA, there are certain instructive examples. For instance, ““paying higher
prices is certainly a direct harm to customers.””52 Further, (1) artificial inflation of prices of
a given product; (2) artificial limits on the volume of imported products; (3) an artificial
reduction in prices of a given product; and (4) artificial limits on the volume of products
exported from the U.S. have been cited as examples of a ““direct, substantial, and reasonably
foreseeable effect.””53
However, even if an anticompetitive cartel agreement applies worldwide and causes
ripple effects within the United States, a plaintiff must prove a specific link to
anticompetitive effect within the United States for a court to exercise extraterritorial
jurisdiction. For instance, in Eurim-Pharm GmbH v. Pfizer, Inc., the court found that a
cartel involved in worldwide price-fixing did not have a direct, substantial, or reasonably
foreseeable effect on U.S. commerce.54 The court reasoned that the plaintiff failed to
establish a causal connection between the foreign activities and the price increase in the
United States.55 In addition, the plaintiff failed to show that the conduct prevented U.S.
companies from manufacturing and selling.56
An important indicia of a ““direct, substantial, and reasonably foreseeable effect”” is the
elimination or significant reduction of competition in an appropriate market. For example,
in Coors Brewing, the court found subject matter jurisdiction when the plaintiff alleged that
extraterritorial anticompetitive conduct would effectively limit the domestic beer market to
only two competitors.57 Specifically, plaintiff Coors Brewing Company alleged that
defendants’’ anticompetitive conduct ““threatens [Coors’’s] status as principal competitor to
Miller and Anheuser––Busch in the United States beer market which, given the
concentration in that market, weakens domestic competition and promotes a
Miller/Anheuser––Busch duopoly.””58
Elimination of competition can create a ““direct, substantial, and reasonably
foreseeable effect”” even if only one individual is injured. In General Electric Co. v. Latin
American Imports, S.A., the plaintiff sued for antitrust violations involving export trade.59
The defendant moved to dismiss, arguing that the court lacked subject matter jurisdiction
51. See id. at 703.
52. Caribbean Broad. Sys., Ltd., 148 F.3d at 1087.
53. Ferromin Int’’l Trade Corp. v. UCAR Int’’l, Inc., 153 F. Supp. 2d 700, 705 (E.D. Pa. 2001).
54. 593 F. Supp. 1102, 1106––07 (S.D.N.Y. 1984).
55. Id. There is, however, limited contrary authority on whether indirect effects are sufficient. In Galavan
Supplements, Ltd. v. Archer Daniels Midland Co., No. C97-3259FMS, 1997 WL 732498, at *3 (N.D. Cal. Nov. 18,
1997), the district court found that subject matter jurisdiction did exist over an international cartel whose
anticompetitive conduct had ““spillover”” effect on U.S. price and production of certain goods. Id. at *3. This case
appears to contradict Illustrative Example C, Variant (1) of the Enforcement Guidelines.
56. Eurim-Pharm, 593 F. Supp. at 1107.
57. Coors Brewing Co. v. Miller Brewing Co., 889 F. Supp. 1394, 1397––98 (D. Colo. 1995).
58. Id. at 1398; cf. American Aerospace Indus., Inc. v. Cahners, No. 87-1231, 1988 U.S. Dist. LEXIS 16899,
at *5 (D.D.C. Jan. 20, 1988) (finding no ““direct, substantial, and reasonably foreseeable”” injury to export trade
because plaintiff did not allege that ““absent [plaintiff’’s] participation in the Exhibition no American manufacturer
would be able to market its products in Asia””).
59. 187 F. Supp. 2d 749, 751 (W.D. Ky. 2001).
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because the complaint failed to allege a direct, substantial, and reasonably foreseeable
effect on export trade or export commerce: ““Even when [plaintiff’’s] allegations are taken
as true, [defendant] argues, the export market for U.S.-branded appliances to Peru was not
shut down; it remained the same before and after [defendant’’s] conduct, with the only
change being the identity of the party who did the exporting.””60 The court disagreed:
While this argument is attractive, the court must give credence to [plaintiff’’s]
allegation that it was [defendant’’s] only potential competition in Peru, and that,
had it not been ““crippled,”” as it alleges, it would have formed alliances with
other U.S. exporters to compete with [defendant]——in other words, even though
[defendant’’s] actions affected only one business, its conduct was aimed at
shutting down the market completely.61
3.
U.S. Ownership of a Company, by Itself, Does Not Create a ““Direct,
Substantial, and Reasonably Foreseeable Effect””
Courts interpreting the FTAIA have held that a U.S.-owned company’’s participation
in the agreement, absent other evidence of a ““direct, substantial, and reasonably foreseeable
effect,”” does trigger FTAIA jurisdiction. For example, in Phillips Petroleum Co. v.
Heeremac, the United States District Court for the Southern District of Texas found that the
foreign-based subsidiary of a U.S. corporation that sustained injuries abroad did not have a
direct and substantial effect on U.S. commerce.62 The court stated, ““Although Phillips
Norway was incorporated under the law of Delaware, the mere fact that an injured party
might be a U.S. citizen or corporation is not enough to establish jurisdiction; the primary
injury to that party must be caused in the United States and substantially affect U.S.
commerce.””63 Thus, neither the nationality of the company causing the restraint on
commerce nor that of the corporation sustaining injury confers jurisdiction on
anticompetitive conduct that does not have the requisite domestic effects.64
4.
Location of Negotiations or Signing the Agreement, by Itself, Does Not Create a
““Direct, Substantial, and Reasonably Foreseeable Effect””
Courts also have held that the location of negotiations or any conduct leading to the
anticompetitive agreement does not alter the jurisdictional inquiry.65 The court in United
60. Id.
61. Id. at 751––52.
62. Phillips Petroleum Co. v. Heeremac, No. H-98-1698 (S.D. Tex. Jan. 22, 1999).
63. Id. at 181.
64. See McGlinchy v. Shell Chem. Co., 845 F.2d 802, 814 (9th Cir. 1988) (finding no extraterritorial subject
matter jurisdiction absent requisite effects, even over conduct in which U.S. company is involved); The ‘‘In’’
Porters, S.A. v. Hanes Printables, Inc., 663 F. Supp. 494, 496 (M.D.N.C. 1987) (finding no subject matter
jurisdiction over agreement made with U.S. company absent evidence of injury in the United States); Den Norske
Stats Oljeselskap AS, No. H-98-4274 at 9, n.5 (order dismissing for lack of subject matter jurisdiction) (stating that
the FTAIA ““was intended to exempt from United States antitrust law any conduct that lacks the requisite domestic
effect, even where such conduct . . . involves United States-owned entities operating abroad”” (quoting EurimPharm, 593 F. Supp. at 1106)).
65. See McGlinchy, 845 F.2d at 814 (finding FTAIA exempts from U.S. antitrust laws conduct lacking
domestic effects, ““even where such conduct originates in the United States”” and ““regardless of whether there was
anticompetitive conduct in the United States””); McElderry v. Cathay Pac. Airways, 678 F. Supp. 1071, 1077
(S.D.N.Y. 1988) (““An anticompetitive effect on [U.S.] commerce is required for jurisdictional nexus, regardless of
whether there was anticompetitive conduct in the United States.””); The ‘‘In’’ Porters, 663 F. Supp. at 496 (finding
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Phosphorus, Ltd. v. Angus Chemical Co. recognized this principle, stating that ““conduct on
American soil is not always sufficient to prove effect on domestic commerce because it is
the situs of the effect, not the conduct, which is crucial.””66 Courts, therefore, may exercise
jurisdiction regardless of whether the anticompetitive conduct occurred in the United
States.
5.
The Effect Must Be to a U.S. Market——Either Domestic, Import, or Export
It is worth emphasizing that the requisite ““direct, substantial, and reasonably
foreseeable effect”” must occur in a U.S. market——either domestic, import, or export. For
example, in Caribbean Broadcasting Systems, Ltd. v. Cable & Wireless, PLC, the court
held that a plaintiff satisfied his pleading requirements by alleging the following: (1) a
““significant market for the sale of English-language radio advertising in the Eastern
Caribbean, which includes Puerto Rico and the U.S. Virgin Islands,”” (2) ““that many
companies based in the United States are customers”” in this market, (3) ““that there are
substantial barriers to entry into the market,”” and (4) that defendants ““engaged in
intentional conduct that gave them ‘‘monopoly power’’ and injured consumers in this
market.””67
6.
Foreign Plaintiffs Can Establish Subject Matter Jurisdiction
In some circumstances, subject matter jurisdiction does exist for foreign plaintiffs
who suffer injuries abroad as the result of antitrust violations committed by domestic U.S.
firms. This was explained by the district court in In re Microsoft Corp. Antitrust
Litigation.68 The court cited the following legislative history:
This test, however, does not exclude all persons injured abroad from recovering
under the antitrust laws of the United States. A course of conduct in the United
States——e.g., price fixing not limited to the export market——would affect all
purchasers of the target products or services, whether the purchaser is foreign or
domestic. The conduct has the requisite effects within the United States, even if
some purchasers take title abroad or suffer economic injury abroad.69
Based on this, the district court stated: ““Congress did contemplate that the effects test
would encompass not only conduct committed outside of the United States having effects
within the United States, but also conduct committed within the United States having
effects both within and outside of the United States.””70
no subject matter jurisdiction arising from exclusive distribution agreement between U.S. manufacturer and French
distributor despite ““bulk”” of negotiations occurring in the United States).
66. 131 F. Supp. 2d 1003, 1009 (N.D. Ill. 2001).
67. 148 F.3d at 1086––87; see also Coors Brewing, 889 F. Supp. at 1398 (explaining that ““the Sherman Act
will not apply to conduct affecting foreign markets, consumers or producers unless there is also a direct,
substantial, and reasonably foreseeable effect on the domestic market (subsection (1)(A)) or on opportunities to
export from the United States.””); Liamuiga Tours v. Travel Impressions, Ltd., 617 F. Supp. 920, 922––23 (E.D.N.Y.
1985) (court lacked jurisdictional nexus under the FTAIA where restraint of trade and conspiracy claims involved
exclusively lost business and anticompetitive effects in St. Kitts, not in the United States).
68. 127 F. Supp. 2d 702, 715 (D. Md. 2001).
69. Id. (citing H.R. REP. NO. 97-686, at 10 (1982)).
70. Id.; see also United Phosphorus, 131 F. Supp. 2d at 1009 (““When the activity complained of has a
demonstrable effect on United States domestic commerce, foreign corporations injured abroad may seek recovery
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In an earlier case, the U.S. Supreme Court allowed a foreign plaintiff to bring an
antitrust action, citing policy reasons in support of its decision.71 The Court stated that the
ultimate purpose of the antitrust laws is to protect U.S. consumers. Excluding foreign
plaintiffs would defeat this purpose because it would encourage businesses to participate in
““anticompetitive conspiracies affecting American consumers in the expectation that the
illegal profits they could safely export abroad would offset any liability to plaintiffs at
home.””72 On the other hand, allowing foreign victims to bring suit forces businesses to
consider the domestic as well as the international effects of their conduct.73
7.
There Must Be a Causal Connection Between the Plaintiff’’s Injury and the
““Direct, Substantial, and Reasonably Foreseeable Effect””
A much-discussed issue in recent caselaw on the subject is whether a plaintiff must
allege an injury that is caused by the requisite effect on the U.S. market. The weight of
authority says ““yes.””74 Courts reason that requiring such a connection between the injury
and the domestic effect is proper given the purpose of the FTAIA——to protect American
exporters from liability when conducting transactions abroad.75 Congress adopted the
FTAIA because American exporters could not compete on the foreign market——they feared
liability under the Sherman Act if they engaged in anticompetitive conduct necessary to
succeed in foreign markets.76 In light of the purpose to protect American exporters, it does
not make sense to protect foreign plaintiffs injured by effects felt abroad, and not by effects
to the U.S. market, by allowing them to recover (which is contrary to the rule in In re
Microsoft Corp.).
The ‘‘In’’ Porters decision is instructive. In this case, the court dismissed a claim for
lack of subject matter jurisdiction under FTAIA because the plaintiff was not within the
class of U.S. export manufacturers allegedly injured by the foreign anticompetitive
under the Sherman Act.””). But see In re Copper Antitrust Litig., 117 F. Supp. 2d 875, 887 (W.D. Wis. 2000) (““It is
not reasonable to think that Congress wanted to provide a forum for mostly foreign plaintiffs who were injured
abroad by effects felt abroad and not in American markets, even if the wrongdoer's conduct produced other
anticompetitive effects in the United States.””); see also discussion infra Part III.C.7.
71. Pfizer, Inc. v. Gov’’t of India, 434 U.S. 308, 314––15 (1978) (holding that a foreign plaintiff injured by an
antitrust violation has the right to sue). One commentator noted that the Court’’s concern about deterrence in Pfizer
no longer holds up given the development of antitrust laws in other countries. See Ronald W. Davis, International
Cartel and Monopolization Cases Expose a Gap in Foreign Trade Antitrust Improvements Act, 15 ANTITRUST 53,
54 (2001). (““[I]n view of the spectacular growth of antitrust in Europe and elsewhere, international cartels are
sufficiently deterred without the need to extend U.S. treble damage protection to all victims around the world.””).
In addition, Davis argues that the Pfizer court failed to consider the risk of flooding the federal courts with claims
by foreign plaintiffs and undermining ““the trend toward international antitrust harmonization”” by forcing cartels to
pay damages to both foreign plaintiffs and U.S. purchasers. Id.
72. Pfizer, Inc., 434 U.S. at 315.
73. See id.
74. Interestingly, one commentator noted that an approach allowing recovery only where the plaintiff was
injured by the domestic effect ““could introduce an unexplained dichotomy between domestic and international
antitrust law”” because of current doctrines of antitrust standing that allow parties to bring claims regardless of
whether they were injured. Salil K. Mehra, Deterrence: The Private Remedy and International Antitrust Cases, 40
COLUM. J. TRANSNAT'L L. 275, 292 (2002). Mehra describes, as an example, the case of an intermediary who passes
on the overcharge and is thus not injured. Some courts nevertheless will allow the uninjured intermediary to bring
an antitrust claim. Id.
75. See, e.g., In re Copper Antitrust Litig., 117 F. Supp. 2d at 887 (““Congress extends domestic jurisdiction
to extraterritorial conduct only when the plaintiffs have been injured by the effects on the domestic market. This is
consistent with the main purpose of the Foreign Trade Antitrust Improvements Act, which was to protect American
exporters from liability under the Sherman Act where the exporters were operating abroad.””).
76. See id.; Eurim-Pharm, 593 F. Supp. at 1105 (explaining the legislative history of the FTAIA); see also
supra note 17 and accompanying text.
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conduct.77 The court did not disagree with the fact that the anticompetitive agreement in
question affected U.S. export commerce. To the contrary, the court acknowledged that the
exclusive distribution agreement required the foreign plaintiff to cease conducting business
with certain U.S. exporters.78 Such injured U.S. exporters, however, did not file suit
claiming an effect on the U.S. market; instead, the foreign distributor did. Regardless of
any direct, substantial, and reasonably foreseeable effect on the U.S. exporters’’ commerce,
therefore, the court held that a foreign company could not ““‘‘piggy-back[]’’ onto the injury
of a United States exporter.””79
A similar result was reached by the United States District Court for the Southern
District of Texas in Den Norske Stats Oljeselskap v. Heeremac.80 The plaintiff in this case
invoked a worldwide conspiracy argument, claiming that the defendants owned or
controlled most of the heavy-lift derrick barges in the world and conspired to eliminate
competition worldwide ““by price fixing, bid rigging, dividing markets, and allocating
customers, [which] result[ed] in higher prices and limited alternative access to [their]
services.””81 The court rejected this argument and dismissed for lack of subject matter
jurisdiction under the FTAIA, reasoning that the plaintiff’’s injury must occur within the
context of injury to the U.S. market and not merely be ancillary to injury to U.S. commerce.
This was true even though the alleged conspiracy had some effect on U.S. commerce:
While the alleged foreign, global anticompetitive conspiracy to fix prices, rig
bids, and allocate markets in the North Sea and resulting injuries to [plaintiff’’s]
projects in the North Sea may have very indirectly had an attenuated effect on
projects in the United States . . . they did not have a direct, substantial, and
reasonably foreseeable anticompetitive effect on United States trade or
commerce.82
The court further stated that ““United States antitrust laws do not extend to protect foreign
markets from anticompetitive effects and ‘‘do not regulate the competitive conditions of
other nations’’ economies.’’””83
The Ninth Circuit reached the same conclusion in McGlinchy v. Shell Chemical Co.84
There, the plaintiffs did allege that the anticompetitive conduct had an effect on foreign
export sales. However, the plaintiffs never alleged that they were exporters.85 There was
no link, therefore, between the alleged anticompetitive effect——injury to the U.S. export
market——and the plaintiffs’’ injury. According to the court, mere monetary injury standing
77. The ‘‘In’’ Porters S.A., 663 F. Supp. at 500.
78. Id. at 499.
79. Id. at 500.
80. Den Norske Stats Oljeselskap AS, No. H-98-4274 (order dismissing for lack of subject matter
jurisdiction). This decision was affirmed by the Fifth Circuit. Den Norske Stats Oljeselskap AS v. Heeremac VOF,
241 F.3d 420 (5th Cir. 2001). The plaintiff filed a certiorari motion before the Supreme Court. The Government filed
an amicus brief opposing certiorari and agreeing with the Fifth Circuit that for subject matter jurisdiction to exist, a
plaintiff’’s injury must be caused by the ““direct, substantial, and reasonably foreseeable effect”” on U.S. commerce. The
Supreme Court declined certiorari. Statoil ASA v. Heeremac V.O.F, 534 U.S. 1127 (2002).
81. Den Norske Stats Oljeselskap AS, No. H-98-4274, at 5.
82. Id. at 13.
83. Id. at 15 (citation omitted); see also In re Microsoft Corp., 127 F. Supp. 2d 702, 715 (D. Md. 2001) (““I
therefore have no difficulty in concluding that foreign consumers who have not participated in any way in the U.S.
market have no right to institute a Sherman Act claim.””).
84. 845 F.2d 802 (9th Cir. 1988).
85. Id. at 815.
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alone is not enough to trigger subject matter jurisdiction; instead, a plaintiff’’s alleged injury
must stem from the alleged anticompetitive effect.86
A further example is the Ferromin Int’’l Trade Corp. decision.87 Here, foreign
company plaintiffs brought actions against various entities for alleged violations of the
Sherman Act caused as a result of price fixing and market allocation in the worldwide
market for graphite electrodes. The court held that ““under Section 6(a)(2) of the FTAIA,
the plaintiffs must show not only that the conduct which caused the injury has direct,
substantial and reasonably foreseeable effect on the United States market place [sic], but
also must show that it is the effects of this conduct which gives rise to their claims.””88
Accordingly, the court dismissed the claims of those plaintiffs who alleged they were
injured by having to pay inflated prices abroad for graphite electrodes: ““these alleged
purchases had no connection whatsoever to the United States——the electrodes were all
manufactured outside the United States, shipped to plaintiffs’’ locations outside the United
States, invoiced outside the United States and used in steel mills outside the United
States.””89
Contrary to the cases described above, the Second Circuit recently interpreted the
FTAIA as not requiring that the domestic effect give rise to the plaintiff’’s injury. In
Kruman v. Christie’’s International, the foreign plaintiffs alleged that the defendants fixed
prices at auctions held outside the United States.90 The Second Circuit held that ““the
‘‘effect’’ on domestic commerce need not be the basis for a plaintiff’’s injury.””91 In reaching
its decision, the court focused on the language of subsection two: ““such effect gives rise to
a claim under the provisions of sections 1 to 7 of [the Sherman Act].””92 The court first
explained that the phrase ““gives rise to a claim”” only requires that the domestic ““effect””
violate the substantive provisions of the Sherman Act, not that the domestic ““effect”” be the
basis of the plaintiff’’s injury.93 The court then argued that adopting the defendant’’s
interpretation (which was similar to that of the court in Den Norske) would mean replacing
the word ““a”” with the words ““the plaintiff’’s.””94
IV. CONCLUSION
The FTAIA as well as the agency and judicial interpretations govern whether
extraterritorial conduct will violate the Sherman Act. The FTAIA provides that the
proposed agreement must have a ““direct, substantial, and reasonably foreseeable effect”” on
U.S. commerce, either domestic, non-direct import or export, to trigger subject matter
86. See id.
87. 153 F. Supp. 2d 700 (E.D. Pa. 2001).
88. Id. at 704.
89. Id. at 702.
90. 284 F.3d 384, 389 (2d Cir. 2002). The Second Circuit vacated the district court’’s dismissal of the suit.
The district court had held that ““the FTAIA permits suit . . . only where the conduct complained of had ‘‘direct,
substantial and reasonably foreseeable effects’’ in the United States and the effects giving rise to jurisdiction also
are the basis for the alleged injury.”” Kruman v. Christie’’s Int’’l, 129 F. Supp. 2d 620, 625 (S.D.N.Y. 2001).
91. Kruman, 284 F.3d at 400.
92. Id. at 399.
93. See id.
94. Id. at 400. Judge Higginbotham made a similar argument in his dissent in Den Norske Stats Oljeselskap
AS v. Heeremac VOF, 241 F.3d 420, 432 (5th Cir. 2001), stating: ““The word ‘‘a’’ has a simple and universally
understood meaning. It is the indefinite article. There are many terms of art about which one can debate . . . but this
word is not one of them. If the drafters of the FTAIA had wished to say ‘‘the claim’’ instead of ‘‘a claim,’’ they certainly
would have.”” This reading of what ““gives rise to a claim”” is an easier test for plaintiffs to meet because the domestic
effect ““need only give rise to an antitrust claim for someone, not necessarily the plaintiff.”” Mehra, supra note 74, at
291––92.
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jurisdiction. This effect requires injury to U.S. markets or competition in general. Mere
injury to an individual entity will be construed as having a de minimis effect as to not
constitute being ““direct”” or ““substantial,”” unless injury to an individual entity also injures
the entire market. A trickle-down effect of raising prices in a foreign nation leading to
increased prices in the United States likely will not be found either ““reasonably
foreseeable,”” ““direct,”” or ““substantial.”” Elimination or significant reduction of competition
in an appropriate market likely is sufficient. It is the situs of the ““effect”” that controls, not
the location of negotiations or citizenship of the affected entity. Finally, the weight of
authority holds that a plaintiff’’s injury must be caused by the alleged ““effect”” for subject
matter jurisdiction to exist.
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