The past several decades have seen a surge in trade deals, technology advancements and logistical developments that have culminated in the most liberalized markets in history. Today’s economies are inextricably interdependent. Businesses reach across hemispheres. Raw materials and component products cross numerous boundaries before making their way into the hands of end consumers. This puts arbitrators of antitrust laws in a quandary: how deep into foreign territory can their laws reach in order to protect fair competition at home?
This article discusses efforts to settle the boundaries of American and European antitrust regimes, and the unresolved matters that linger. It first explores the way American courts identify ‘import commerce’ subject to the Sherman Act when defendants are foreign participants in globalized supply chains. It then turns to the European Union’s (EU) expanding approach to enforcement of foreign conduct, and its increasingly aggressive participation in international efforts to prosecute cartel members.
THE U.S. — IDENTIFYING ‘IMPORT COMMERCE’ IN GLOBALIZED SUPPLY CHAINS
The Sherman Act, which is the primary U.S. antitrust law, applies sweepingly on its face, reaching virtually every form of agreement anywhere. Courts have long acknowledged that the text of the Sherman Act cannot be applied literally, yet they struggled to precisely define the Act’s extraterritorial boundaries. In response to this, Congress passed the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA)1 to codify limits on the Sherman Act’s reach.
The FTAIA has raised more questions than answers. The American judiciary has labored for nearly four decades to interpret and apply the FTAIA, which commentators have criticized as being poorly drafted,2 and which appellate courts have labeled “ambiguous,”3 “inelegantly phrased,”4 and “a web of words.”5 Nevertheless, the Supreme Court distilled the meaning of the FTAIA as follows: all ‘import commerce’ is within the scope of the Sherman Act; all other commerce falls beyond its scope, unless it (1) has a “‘direct, substantial, and reasonably foreseeable effect’ on American domestic, import, or (certain) export commerce” and (2) that effect “gives rise” to an antitrust claim.6
The upshot of this is that, once conduct falls within the scope of the FTAIA, plaintiffs must meet an exacting standard to pull it back into conduct regulated by the Sherman Act. Plaintiffs’ surest bet, then, is to characterize the conduct as ‘import commerce’ from the onset. Straightforward though it may sound, defining ‘import commerce’ is a tricky endeavor with today’s globalized supply chains. It is particularly difficult when price-fixed component products sold abroad are incorporated into finished goods abroad, and then imported into the United States for sale to American consumers. Two lines of opposing thought have developed in response to this task, as exemplified by two cases involving many of the same parties and facts, but reaching contrary conclusions.
The first is Motorola Mobility LLC v. AU Optronics Corp. 7 This case arose from a price-fixing conspiracy among foreign manufacturers of liquidcrystal display (LCD) panels, which are a necessary component of many cellphones. Motorola, a cellphone retailer, owned foreign subsidiaries that purchased price-fixed LCD panels from defendants at supracompetitive prices. Motorola alleged that — as owner of the subsidiaries and importer of cellphones — it absorbed those supracompetitive prices.
Writing for the Seventh Circuit, Judge Posner applied the Supreme Court’s test to determine whether the FTAIA barred Motorola’s claims. To start, he noted that defendants imported relatively few of their LCD panels — only about 1% of the panels sold to Motorola and its subsidiaries — into the United States. Judge Posner found that these panels were clearly ‘import commerce.’ However, the remainders of defendants’ LCD panels — the 99% — were sold to Motorola’s foreign subsidiaries abroad. Those subsidiaries then incorporated them into finished cellphones. And while some of these cellphones were sold to Motorola for import into the United States, most were sold abroad.
With regard to those LCD panels that made their way into cellphones imported into the United States, Judge Posner found that they were not ‘import commerce,’ because it was Motorola, not the defendants that imported them into the United States for retail sale to American consumers.8 Thus, defendants’ anti-competitive conduct qualified as ‘non-import commerce’ falling within the domain of the FTAIA. The inquiry then turned to whether it would fall within an exemption to the FTAIA. Finding that it did not, the court dismissed Motorola’s claims.9
The same year, the Ninth Circuit issued its decision in United States v. Hui Hsiung, 10 an appeal of a criminal price-fixing case brought by the Department of Justice (DOJ) against several of the same LCD panel manufacturers named as defendants in Motorola. The facts of this case are substantially similar to those of Motorola, in that defendants sold most of their LCD panels to foreign intermediaries that incorporated the panels into consumer goods, some of which were ultimately sold to American consumers.11 The DOJ’s criminal indictment specifically charged defendants with fixing prices “in the United States and elsewhere” (emphasis added).
Defendants argued that because they sold most of their LCD panels to third parties abroad, their conduct could not be characterized as relating to ‘import commerce.’ The court acknowledged that defendants “did not manufacture any consumer products for importation into the United States.” Nevertheless, it rejected defendants’ arguments, finding that any suggestion that defendants were not literal “importer[s]” “misses the point.”
It explained that defendants’ anti-competitive activities indicated a substantial nexus to United States commerce, including: selling some products to customers in the U.S., negotiating the prices at which companies in the U.S. would purchase panels and instructing U.S.-based employees to discuss pricing for U.S. customers.12 This, coupled with the substantial volume of goods ultimately sold to American consumers containing LCD panels, proved that defendants acted with intent to impact prices within the United States.13 As such, the court held that defendants’ activities were considered ‘import commerce’ beyond the scope of the FTAIA, and squarely within reach of the Sherman Act.
This divergence between Motorola and Hui Hsuing may be rationalized by several factors: Hui Hsuing was brought as a criminal action by the DOJ, which is sometimes granted more deference than private antitrust plaintiffs, and the volume of commerce represented in Hui Hsuing was substantially greater than that in Motorola. Nevertheless, it is significant to note that the same behavior — price-fixing LCD panels abroad — was characterized as ‘import commerce’ in one case, but dismissed as ‘non-import’ in the other.
The reasoning of Motorola has been adopted and expanded upon in other circuits,14 and so too has the holding of Hui Hsiung, deepening the apparent split.15 The Supreme Court denied requests to clarify the outer bounds of the import commerce standard, so the issue remains unsettled.16 Foreign manufacturers should be aware that until the divide is mended, antitrust liability remains possible when component parts, having been incorporated into finished goods, are imported into the United States by a third party.
THE EU — EXPANDING THE EXTRATERRITORIAL APPROACH
Although the basis of antitrust enforcement in the EU is Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), the TFEU does not state how these provisions apply extraterritorially, only that the conduct in question “must have an appreciable effect upon trade between member states.” The European Commission (EC), supported by the Court of Justice of the European Union (CJEU), has interpreted this increasingly broadly — considering this in detail most recently in September 2017 in the Intel 17 judgment.
For the EC to have jurisdiction, the focus of the EC and CJEU is on the doctrines of implementation and qualified effects. The implementation doctrine allows the EC to assert jurisdiction over non-EU companies that sell directly into the EU irrespective of the companies’ physical presence in the EU. The qualified effects doctrine — which has been recognized in both a merger and an abuse of a dominant position context — permits EC jurisdiction to extend to any conduct that has an immediate, foreseeable and substantial effect on competition in the EU. The Intel case applied this doctrine in a scenario where the effect on competition in the EU was indirect, illustrating the expanding reach of the EC.
The Intel case was an appeal by Intel against the €1.06 billion fine imposed on it by the EC for abuse of dominance concerning rebates offered by Intel in relation to its computer processing chips (CPUs). Intel argued that the EC did not have jurisdiction to investigate the alleged anti-competitive CPU manufacturing agreements because these agreements were concluded in China, involved only non-EU companies, and then the CPUs produced were sold outside of the EU. Although the Advocate-General in his opinion advised that the implementation test should be applied to assess jurisdiction, which would have meant there was no EU nexus to review these agreements, the CJEU disagreed and ruled that the qualified effects test — a much broader doctrine — should be applied. Therefore, because some computers containing the CPUs manufactured under the agreements were sold in the EU, this was enough to satisfy the qualified effects test and consequently for the EC to have jurisdiction to investigate. Companies therefore need to be aware that, even where there is no alleged anticompetitive conduct in the EU, this will not necessarily mean that the EC will not have jurisdiction — it is sufficient for the qualified effects doctrine for the effects to be more indirect, in this case because goods incorporating the cartelized product were sold in the EU.
Moreover, the scope of what will constitute an “immediate, substantial and foreseeable effect” in this context is still unclear. Some guidance has been offered by the General Court’s (GC) July 2018 judgements on appeals brought in relation to the Power Cables cartel; however, this guidance only emphasizes how broad the qualified effects doctrine is. In particular, as regards the ‘foreseeability’ aspect, the GC stated that it is sufficient to take into account the ‘probable effect of conduct’ on competition.18 Further, the GC held that effects must be assessed as a whole, and it is not a defense for undertakings to claim that — seen in isolation — an anticompetitive practice does not have an effect on competition in the EU if the total conduct does have such an effect.
Following the Capacitors cartel decision in March 2018, Commissioner Vestager reasserted that the Commission “will not tolerate anti-competitive conduct that may affect European consumers, even if all anti-competitive contact takes place outside Europe” — companies should expect the EC to continue with investigations that may at first glance appear to go beyond the scope of EU law, including by applying the qualified effects doctrine.
THE EU — SUPPORT FOR EXTRATERRITORIAL APPLICATION OF CRIMINAL CARTEL REGIMES
The EU has also shown that although the EU cartel regime is administrative rather than criminal in nature, in itself that does not protect EU nationals from extradition where the national laws of the Member State allows for extradition to take place.
In the April 2018 Pisciotti 19 judgment, concerning the first successful extradition of an EU citizen to the U.S. for criminal cartel proceedings, the CJEU paved the way for further successful extradition attempts. Pisciotti, an Italian national, was under investigation in the U.S. in relation to his involvement in the Marine Hose cartel. For this purpose, the U.S. authorities requested his extradition under the EU-U.S. extradition agreement. In June 2013, Pisciotti was arrested in Frankfurt’s airport on a flight stopover. Germany approved the extradition.
Following conviction and serving his prison sentence in the U.S., Pisciotti brought an action in the German courts seeking a declaration that Germany was liable for damages for granting his extradition, on the basis that Germany would not have extradited one of their own citizens and so had infringed the fundamental EU law principle of equal treatment of EU citizens.
However, the CJEU held that the key issue was whether Germany could have adopted a less prejudicial course of action by surrendering Pisciotti to Italy rather than extraditing him to the U.S. An extraditing Member State must notify the EU national’s home state of the imminent extradition. As required, the Italian authorities had been kept fully informed of Pisciotti’s situation by the German authorities and they had not sought his surrender. Further, the right of free movement can only be restricted by a legitimate objective, and in this case that objective was to ensure that Pisciotti did not escape prosecution. Given that the Italian authorities had not sought to intervene, this legitimate objective could not have been attained by less restrictive means and therefore the extradition was lawful.
Although the Pisciotti case is fact-specific, it serves as a timely reminder that jurisdictions with criminal cartel regimes such as the U.S. will prosecute against nationals of all states, and that the lack of an EU-wide criminal cartel regime and the existence of EU rights such as freedom of movement of which EU nationals benefit, do not prevent EU nationals from being extradited if such extradition is possible on the basis of the laws of the Member State where they are located and the proper procedures have been followed.