Protection Against Foreign Anticompetitive Practices Affecting U.S. Activities

29 July 2014 Manufacturing Industry Advisor Blog

Antitrust laws, like the Sherman Act, protect American markets from anticompetitive practices. But, under the Foreign Trade Antitrust Improvements Act (FTAIA), American antitrust laws only reach foreign conduct in specific circumstances. For example, an anticompetitive act committed abroad must, among other things, “directly” affect U.S. domestic, import, or certain export activities and the effect must give rise to a Sherman Act claim before U.S. courts may address it.

Two federal appellate courts recently addressed what it means to “directly” affect U.S. activities and give rise to a Sherman Act claim in the framework of a global supply chain. In one case before the Seventh Circuit, a manufacturer alleged that a foreign cartel fixed the price of a certain component part. Such a practice typically gives rise to a federal antitrust claim. But in this case, the alleged price fixers were not selling the products in the U.S. or to a U.S. company. Instead, the alleged price fixers sold the components abroad to foreign subsidiaries of a U.S. company. The subsidiaries incorporated the component into the end product while manufacturing abroad. Then, the subsidiaries imported many of the end products for sale in the states. The court decided that the injuries suffered by the manufacturer were too indirect to support a claim under the Sherman Act. This ruling suggests that an injury at one level in the foreign supply chain does not create a “direct” effect in U.S. activity.

Notably, the Seventh Circuit will hear the same case again on rehearing. After the court requested and received the United States’ position on the issues, it agreed to reconsider its decision. The United States argued that the manufacturer should be allowed to prove the link between its injuries and the cartel’s effect on U.S. commerce. Still, there is no certainty that the court will deviate from its previous decision.

Another circuit court did not read the FTAIA as narrowly as the Seventh. In a case before the Second Circuit, another manufacturer sued co-members of an international standard-setting organization developing a new generation of a component part in an everyday product. The manufacturer claimed that its co-members refused to provide the manufacturer with a license even though the organization’s rules required the license be given, which would cause prices to rise worldwide, including in the United States. In this case, the court explained that anticompetitive injuries can be recoverable through multi-layered supply chains. Nevertheless, the Second Circuit decided that there was no Sherman Act claim because the plaintiff’s injuries occurred overseas. The foreign anticompetitive conduct did not cause, directly or indirectly, a domestic injury to the plaintiff. In other words, the true injury to the plaintiff was the denial of the license abroad, not the effects of that act.

These decisions impact the reach of U.S. antitrust laws relative foreign conduct by defining a “direct” effect under the FTAIA. Of course, the Supreme Court could take up this issue in the future. Until then, circuit courts will have to determine if a company can seek redress for injuries, in U.S. courts, based on foreign anticompetitive conduct in the global supply chain.

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