The long arm of American antitrust law can reach across oceans and penalize actions by foreign corporations, so long as those actions have a "reasonably proximate causal nexus" to effects in the United States. That is the finding of an en banc panel of the Seventh Circuit, reversing an earlier panel decision by the same court in Minn-Chem, Inc. v. Agrium, Inc. The decision potentially expands the foreign reach of U.S. antitrust laws and gives the Justice Department and FTC more leverage in its negotiations with foreign firms looking to do business in the United States.
Rising from the (pot)Ashes
The case concerned an international cartel of potash producers, mainly in Canada, Russia, and the former Soviet republics. Potash is the term for potassium rich mineral salts, mainly used in fertilizer and some consumer products. It is a commodity of which there are few deposits in the United States. Consequently, U.S. fertilizer producers and other manufacturers import the vast majority of their potash needs, to the tune of millions of tons per year. Approximately seven foreign companies account for more than 70 percent of the world's production.
The plaintiffs were U.S. purchasers of potash who alleged that seven foreign companies conspired to restrict output and raise prices in other countries, notably China, Brazil, and India. The plaintiffs allege that once the companies secured higher prices outside the U.S., the cartel used the higher price as a "benchmark" to raise U.S. prices. The complaint alleged the cartel was remarkably successful, raising the cost of potash 600 percent over five years, despite there being no significant upsurge in demand or production costs.
The complaint pointed out numerous statements and actions by the cartel that appeared to make a strong case for concerted, anticompetitive action, and the district court allowed the case to move forward, denying the defendants' motion to dismiss. A Seventh Circuit panel reversed, stating the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA) demanded dismissal because the conduct complained of was entirely foreign and did not fit into the FTAIA's "import commerce" exception.
The Seventh Circuit agreed to rehear the case sitting en banc, and in a well-reasoned opinion written by Judge Wood, reinstated the District Court's ruling.
Crossing the Threshold
The FTAIA has long been a subject of concern in the courts as a particularly poorly drafted statute. First, the courts had split as to whether the FTAIA was jurisdictional or elemental. If the former, Courts would have no competence or ability to hear complaints lodged about foreign anticompetitive conduct at all, unless it could be proven at the outset that such conduct had a "direct, substantial, and reasonably foreseeable effect . . . on import commerce." If the latter, the "direct effect" requirement is merely an element of the antitrust claim plaintiffs have to prove in order to prevail. The distinction matters because it makes it slightly easier for a plaintiff to keep an antitrust suit against foreign companies alive. Plaintiffs must prove jurisdiction affirmatively, meaning plaintiffs have the burden of persuasion at the outset to prove the court is allowed to hear the case. Furthermore, at any time the court's power to hear the case may be raised again by a judge or the defendants to dismiss the suit. As an elemental statute, however, plaintiffs must only win the argument once, at the motion to dismiss stage.  Additionally, as an elemental statute, plaintiffs get the benefit of procedural rules requiring the court to accept the facts alleged in the complaint as true when arguing their case at the motion to dismiss stage. In Minn-Chem, the Seventh Circuit, citing recent Supreme Court precedent, first reversed its previous decision in United Phosphorous and held the FTAIA is an elemental, not a jurisdictional, statute.
From a potential plaintiff or defendant's position, the decision means the FTAIA does not provide a shortcut out of court for foreign firms accused of anticompetitive conduct that affects the United States. Coming from a court known for the quality of its antitrust decisions (Judges Easterbrook and Posner, two of the leading antitrust jurists in the country, sat on the en banc panel and joined Judge Wood's opinion), the Seventh Circuit's interpretation is likely to hold significant persuasive authority with the other U.S. circuits.
However, deciding the FTAIA is not a jurisdictional statute did not end the inquiry. The true impact of Minn-Chem is likely the way the Seventh Circuit interpreted "direct, substantial, and reasonably foreseeable." In adopting the Justice Department's suggested interpretation and breaking with the Ninth Circuit, the Minn-Chem court solidified a circuit split, virtually guaranteeing plaintiffs seeking to sue foreign importers will file their cases in Chicago rather than San Francisco. The split also may force the Supreme Court to step in and resolve the issue at some point in the near future.
The entire case hinged on the definition of "direct." The foreign companies in Minn-Chem argued that their allegedly anticompetitive behavior did not cause prices to rise in the United States as an "immediate consequence," the standard adopted by the Ninth Circuit. Citing Congressional intent and the presence of the qualifying words "substantial" and "foreseeable" in the statute, the Minn-Chem court rejected the Ninth Circuit's definition and instead adopted the definition urged by the Justice Department: a "reasonably proximate causal nexus". On such a definition, the entire complexion of Minn-Chem (and future foreign antitrust cases) changed.
Rather than demanding an "immediate consequence," the causal nexus test takes a much broader, contextual view of foreign anticompetitive behavior. It is debatable, at best, whether an increase in potash prices in China and India would immediately cause an increase in U.S. prices. However, the Seventh Circuit found it eminently reasonable that such an increase was the proximate causal nexus leading to increased costs in the U.S. import market, thus bringing the foreign defendants' behavior within reach of the Sherman Act.
The court similarly dispensed with the foreseeable and substantial requirements by noting the millions of tons imported by U.S. purchases were substantial under any metric and, based on previous experience and the use of benchmarks in other industries (such as the London LIBOR rate for the banking industry), the effect on U.S. prices was reasonably foreseeable.
Sherman's Long(er) Arm
Minn-Chem is a relatively clear case that can have far reaching consequences. The Complaint alleged numerous instances of anticompetitive conduct that would have most likely raised the ire of U.S. authorities had such conduct been engaged in domestically. However, in expanding the reach of the Sherman Act to conduct that, admittedly, was undertaken entirely overseas, Minn-Chem could potentially grant the Department of Justice and the FTC significantly more authority over foreign companies hoping to do any business with the United States.
Entirely foreign actions with only tangential links to the United States will still remain beyond the reach of the Sherman Act. However, cartels operating globally that wish to engage in import commerce in the United States will have to carefully consider if their actions overseas could have a proximate causal nexus to effects in the United States; if the nexus exists, the cartel will have to consider the potential for U.S. antitrust liability based on such conduct.
Notably, the Seventh Circuit's decision does nothing to affect the Ninth Circuit's interpretation of the statute, meaning cases filed in the Ninth will continue to be subject to the "immediate consequence" requirement. There is no telling if or when the Ninth may reevaluate its stance, but veteran court watchers are not holding their breath.