Although cartels with a global reach are increasingly common, recent decisions from courts in both the United States and United Kingdom have narrowly interpreted the territorial scope of antitrust laws in both jurisdictions. In the United States, the Seventh Circuit held in Motorola Mobility LLC v. AU Optronics Corporation that indirect purchases do not fall under the domestic effects exception to the Foreign Trade Antitrust Improvement Act.[1] In the United Kingdom, the High Court gave further guidance on the territorial limitations of European Union (“EU”) law in Iiyama 1 and 2, in particular, the ability of an indirect purchaser to recover damages on the basis of a breach of EU antitrust law where the cartelist is not domiciled in the EU and the initial direct sale of the cartelized product was outside of the EU.[2] This article will explore the implications of the recent decisions in both jurisdictions, and will propose a way forward for courts and private parties confronting the conflict between the territorial limits of their antitrust laws and global violations of those laws.

The Decisions

United States

In the United States, the Foreign Trade Antitrust Improvement Act (“FTAIA”)[3] excludes from the reach of U.S. courts “anti-competitive conduct that causes only foreign injury.”[4] However, the statutory “domestic injury” or “domestic effects” exception brings back into U.S. jurisdiction conduct that “has a direct, substantial, and reasonably foreseeable effect” on domestic commerce, and “gives rise to” an antitrust claim.[5]

In Motorola, the Seventh Circuit narrowly interpreted the domestic effects exception in holding that a private claimant must have directly purchased a cartelized product in the United States.[6] Motorola sought antitrust damages from the Liquid Crystal Display panels (“LCDs”) cartel, which had sold price-fixed components to Motorola’s foreign subsidiaries that were incorporated into cellphones Motorola sold in the United States, alleging that this resulted in domestic injury.[7] The Seventh Circuit rejected this argument, holding that the FTAIA barred both the foreign subsidiaries’ and the U.S. parent’s antitrust claims.

In support of its determination that the foreign subsidiaries’ injuries were excluded under the FTAIA, the Seventh Circuit explained, “as we said in the Minn–Chem case ‘U.S. antitrust laws are not to be used for injury to foreign customers.’”[8] The court’s characterization of this language indicates an intent to extend the FTAIA exclusion to all foreign purchasers, regardless of the harm to U.S. commerce.[9] However, this interpretation would seem to be at odds with the Seventh Circuit’s full statement in Minn-Chem, and therefore the Supreme Court in Empagran I: “While Empagran I holds that the U.S. antitrust laws are not to be used for injury to foreign customers, it goes on to reaffirm the well-established principle that the U.S. antitrust laws reach foreign conduct that harms U.S. commerce.”[10]

The Seventh Circuit further determined that Motorola’s Sherman Act claims were excluded under the FTAIA because Motorola, as an indirect purchaser of the cartelized product, had only derivative injury and therefore lacked antitrust standing.[11] This holding appears to ignore the U.S. antitrust authorities’ position that the domestic effects exception should allow the first purchaser within the United States to act as a private enforcer of the antitrust laws:

“The Illinois Brick doctrine would ordinarily bar [the first purchasers of cellphones in affected U.S. commerce] from recovering damages under federal law because they did not purchase directly from the conspirators, but that doctrine should be construed to permit damages claims by the first purchaser in affected U.S. commerce when [the FTAIA] bars the direct purchasers’ claims."[12]

Following the Motorola decision, private enforcers in the U.S.[13] have increasingly limited their damages claims against global cartelists to purchases paid for or delivered within the United States—both factual scenarios that courts have consistently held fall within both the domestic effects exception and the import commerce exemption.[14] Nevertheless, an opening may remain for the federal courts to revive the domestic effects exception when foreign direct purchasers or indirect domestic purchasers demonstrate injury as a result of a global cartel’s direct, substantial, and reasonably foreseeable effects on domestic commerce.[15]

United Kingdom

Under EU competition law, one of the core elements of the cartel prohibition in Article 101 of the Treaty on the Functioning of the European Union is that the conduct in question must affect trade between member states. The impact of this territoriality requirement on antitrust damages claims is that, when the initial direct sale of the cartelized product occurred outside the EU, an indirect EU-domiciled purchaser can only recover damages for a breach of Article 101 if the claimant can establish that the cartel was implemented in the EU,[16] or had immediate, foreseeable and substantial effects in the EU.[17]

The “implementation” test was first set out in detail by the Court of Justice of the European Union (“CJEU”) in the Woodpulp decision[18], which concerned a cartel formed by non-European domiciled cartelists who sold the cartelized product to customers domiciled in the EU. The CJEU held that the Commission had jurisdiction to sanction a breach of Article 101 because the cartelized product was sold to EU-domiciled purchasers and thereby “implemented” in the EU. In Woodpulp, the CJEU stated that cartel conduct was “made up of two elements, the formation of the agreement, decision or concerted practice and the implementation thereof.” Noting that, if the applicability of antitrust law depended on the place where the agreement was formed, it would be easy to evade, the CJEU held that in determining the applicability of Article 101, “[t]he decisive factor is therefore the place where [the cartel] is implemented.[19] The European General Court (“EGC”)[20] considered the meaning of “implementation” in Gencor holding that the correct test for determining whether EU law applies to the transaction in question is whether “it is foreseeable that a proposed concentration [merger] will have an immediate and substantial effect in the Community.",[21] thereby introducing a new "qualified effects" test.[22]

In the English High Court in Iiyama 1, Mr Justice Mann treated the qualified effects test as an alternative test for determining the applicability of Article 101[23] in a case where the cartel involved foreign domiciled cartelists, the direct sales of the cartelized product took place exclusively outside the EU and the only sales in the EU were indirect purchases of the cartelized goods and transformed goods.[24] Having concluded that “there is no arguable case for saying that the cartels relied on were implemented in the EEA,” Mr Justice Mann stated that the key factor in determining whether the claimants ought to be able to rely on a breach of EU law in their claim for damages is the effect of the cartel on the pricing of the products ultimately purchased in the EU.[25] Mr Justice Mann concluded that the effect of the cartel on pricing of indirect EU was “anything but immediate,” as “the effect, if any, was by then remote.”[26] Of particular significance to Mr Justice Mann was the fact that, “[a]ll sales by the cartelists were some way down the supply chain from the ultimate purchase by the claimants.[27] Mr Justice Mann concedes that “immediacy” need not involve direct sales, but the consequences of the cartel must be felt in the EU market in a direct way and not only by way of a “knock-on effect. [28]

In Iiyama 2, Mr Justice Morgan was clear that the implementation test in Woodpulp is not satisfied in a claim by an indirect purchaser where the direct purchase of the cartelized product took place outside the EU, as such a claim is based on the implementation of the cartel outside the EU.[29] In allowing the claims in Iiyama 2, Mr Justice Morgan appears to have been influenced by the Commission's finding that the worldwide cartel was implemented in the EU. In addition, the claimants had pleaded that, if the cartel had not been implemented in the EU, then they would have purchased the cartelized products within the EU (at non-cartel prices) and as a result, even as indirect purchasers, they had suffered loss and damage as a result of the cartel.[30] On this basis, Mr Justice Morgan ruled that the claimants had established that the cartel infringement was within the territorial scope of Article 101, on the basis that if the prices in the EU had not increased as a result of the cartel, then the Claimants would have purchased within the EU without paying the overcharge. Accordingly, by purchasing outside the EU “at a price greater than they price that would have been available in the EU if the cartel had not been implemented in the EU,” they suffered appreciable loss and damage.[31] Referring to the EGC’s test in Gencor of “the foreseeable effect of the cartel and how immediate that effect in the EU will foreseeably be,[32] Mr Justice Morgan found that the precise manner in which the claim was pleaded was key, and noted that the points of law considered “raise important questions of policy as to the operation of Article 101” which may require a reference to the CJEU.[33]

The Way Forward

Going forwards, both claimants and courts in the United States and United Kingdom must carefully consider whether the anticompetitive conduct in question—and therefore the injury to claimants—has an “immediate, substantial and foreseeable” effect in the United Kingdom,[34] or a “direct, substantial, and reasonably foreseeable” effect in the United States.[35] Courts in both the United States and the United Kingdom have acknowledged that the so-called “effects” doctrine is dependent upon the specific facts of each case.[36] Nevertheless, there are clearly additional hurdles for an indirect purchaser to surmount in establishing the applicability of EU or US antitrust law when both the anticompetitive conduct and direct purchases of the cartelized product occur outside the relevant jurisdiction, and it is seemingly essential to establish that the cartel directly affects the pricing of the products ultimately purchased in the jurisdiction. When applying the relevant tests, courts should therefore carefully consider the extent to which purchases into the jurisdiction, whether direct or indirect, may still have direct effects on the forum.[37] In doing so, courts should balance the policy rationale of private enforcement, which aims to deter anticompetitive conduct,[38] with the comity concerns that may arise with an expansive interpretation of territoriality.[39]

In the meantime, claimants are becoming ever more sophisticated, and the prospect of filing damages claims in multiple jurisdictions has gained appeal for multinational claimants that have suffered damages as a result of a global cartel. However, in light of the burden for claimants and exposure to defendants implicated in litigation in multiple jurisdictions, parties are often turning to global settlement as the most efficient and effective method of resolving disputes across borders.

Conclusion

The restrictive nature of recent decisions regarding territoriality appears to be at odds with the increasingly global nature of anticompetitive conduct and therefore damages claims. Nevertheless, the globalization of private antitrust enforcement may provide an opening for parties to pursue international settlement discussions as an alternative to messy patchwork litigation.