Program on Information Justice and Intellectual Property
U.S. JURISDICTION TO PROSECUTE ANTICOMPETITIVE LICENSING PRACTICES THAT IMPACT
FOREIGN AID PROGRAMS
Sean Flynn and Swati Rawani
Program on Information Justice and Intellectual Property
April 3, 2007
One of the key legal issues raised by KEI’s recent complaint to the FTC regarding Gilead’s
restrictive licensing terms, see http://www.keionline.org/misc-docs/ftcgilead12feb07.pdf, is
whether Sherman Act antitrust liability can extend to foreign practices where the main U.S. impact is
to taxpayers through government foreign aid programs, rather than to U.S. consumers directly.
Specifically, the main U.S. impact alleged in the KEI complaint is that the practice “imposes higher
costs for AIDS drugs in more than 150 developing country markets” and the “United States
government is the largest purchaser of AIDS drugs in the developing world, and is harmed by this
anticompetitive practice.”
Anticompetitive conduct that affects U.S. domestic or foreign commerce may violate the U.S.
antitrust laws regardless of where such conduct occurs or the nationality of the parties involved.
With respect to foreign import commerce, "the Sherman Act applies to foreign conduct that was
meant to produce and did in fact produce some substantial effect in the United States." With
respect to foreign commerce other than imports, the Foreign Trade Antitrust Improvements Act of
1982 ("FTAIA") applies to foreign conduct that has a direct, substantial, and reasonably foreseeable
effect on U.S. commerce.
Case law and U.S. enforcement agency practice indicates that the U.S. impact test for Sherman Act
application may be met by U.S. taxpayer purchases through foreign aid programs.
In the lead case, United States v. Concentrated Phosphate Export Ass'n, 393 U.S. 199, 208 (1968), Supreme
Court upheld an action to enjoin price fixing and business allocation activities with regard to sales
through USAID to the Republic of Korea. The Court held that sales to USAID bound for Korea
were not “exports” within the meaning of the Webb-Pomerene Act, which makes the antitrust laws
inapplicable to export trade. The Court explained:
We must look at the economic reality of the relevant transactions.
Here, although the fertilizer shipments were consigned to Korea and
although in most cases Korea formally let the contracts, American
participation was the overwhelmingly dominant feature. The burden
of noncompetitive pricing fell, not on any foreign purchaser, but on
the American taxpayer. The United States was, in essence, furnishing
fertilizer to Korea. AID selected the commodity, determined the
amount to be purchased, controlled the contracting process, and paid
the bill. The foreign elements in the transaction, were, by
comparison, insignificant.
WASHINGTON COLLEGE OF LAW
4801 MASSACHUSETTS AVENUE, NW
WASHINGTON, DC 20016-8192 202-274-4157
HTTP://WWW.WCL.AMERICAN.EDU/PIJIP
FAX: 202-274-0659
U.S. antitrust enforcement agencies have used the logic of Concentrated Phosphate in several cases
involving anticompetitive practices in foreign sales to and through the U.S. government.
In United States v. Standard Tallow Corp., 1988-1 Trade Cas. (CCH) 67,913 (S.D.N.Y. 1988) (consent
decree) the U.S. obtained an injunction against fixing prices or rigging bids for the sale of tallow
financed in whole or in part through grants or loans by the U.S. Government.
In United States v. Anthracite Export Ass'n, 1970 Trade Cas. (CCH) 73,348 (M.D. Pa. 1970) (consent
decree), the government received a consent decree banning price-fixing, bid- rigging, and market
allocation in a Army foreign aid program.
This line of cases clearly shows that U.S. enforcement agencies can and do prosecute
anticompetitive activity when the primary or only U.S. impact is to government purchasing agencies.
Accordingly, it appears that there is no jurisdictional barrier to the FTC bringing an enforcement
action against Gilead for its allegedly anticompetitive practices that raise the price of drugs
purchased through the U.S. government for foreign consumption.
WASHINGTON COLLEGE OF LAW
4801 MASSACHUSETTS AVENUE, NW
WASHINGTON, DC 20016-8192 202-274-4157
HTTP://WWW.WCL.AMERICAN.EDU/PIJIP
FAX: 202-274-0659