Shearman & Sterling LLP | Antitrust Blog | Northern District Of California Applies FTAIA To Price-Fixing Claims Based On Various Extraterritorial Purchasing Scenarios<br >  
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  • Northern District Of California Applies FTAIA To Price-Fixing Claims Based On Various Extraterritorial Purchasing Scenarios

    On September 20, 2018, Judge James Donato of the United States District Court for the Northern District of California issued an order granting in part and denying in part defendants’ motion for summary judgment on the issue of the applicability of the Foreign Trade Antitrust Improvements Act, 15 U.S.C. § 6a (“FTAIA”) to specific categories of claims.  Judge Donato also addressed a question left open in a prior order regarding whether a state antitrust or consumer protection law might apply less broadly than the FTAIA.  In re Capacitors Antitrust Litig. (No.III), Case No. 17-md-02801-JD (N.D. Cal. Sept. 20, 2018).  Judge Donato’s decision clarifies the application of the FTAIA to various categories of extraterritorial transactions allegedly affected by a price-fixing conspiracy.  


    The FTAIA limits and defines the extraterritorial reach of the Sherman Act.  Specifically, the FTAIA excludes from the ambit of the Sherman Act “conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless -  
    (1) such conduct has a direct, substantial, and reasonably foreseeable effect—
    (A) on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or
    (B) on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States; and
    (2) such effect gives rise to a claim under the provisions of [15 U.S.C. §§ 1-7].

    In this case, plaintiffs alleged Sherman Act and state-law antitrust and consumer protection claims against manufacturers of capacitors arising out of an alleged price-fixing scheme.

    In an initial order, In re Capacitors Antitrust Litigation, 2016-1 Trade Cases P 79,777 (N.D. Cal.  Sept. 30, 2016) (the “Phase I Order”), Judge Donato laid out the legal standard for the application of the FTAIA to certain categories of transactions for which plaintiffs sought antitrust damages.  The Court found that transactions involving products invoiced directly to United States entities and products invoiced to foreign entities but imported into the United States by defendants would clearly fall within the “import commerce” exception to the FTAIA. 

    For transactions involving products both billed and shipped to a foreign entity, Judge Donato held that plaintiffs would have to show that the transactions “must have had a ‘direct, substantial and reasonably foreseeable’ effect on U.S. domestic commerce, and this domestic effect must have ‘given rise to’ the Sherman Act claim.”  The Court rejected plaintiffs’ proffered theory of “global pricing,” that alleged that the domestic effect of defendants’ conduct gave rise to their claims because defendants made U.S. and foreign sales pursuant to a global pricing system that resulted in inflated prices globally.  However, the Court indicated it would consider other factual theories proffered by plaintiffs during Phase II briefing.  Similarly, with respect to capacitors that were manufactured abroad and incorporated abroad into finished products destined for sale in the United States, the Court found that plaintiffs would have to show that the transaction had a direct, substantial and reasonably foreseeable effect on U.S. domestic commerce.
    Finally, the Court held that the FTAIA set the outer limit on the extraterritorial applicability of state-law antitrust and consumer protection laws, but declined to reach whether the applicability of certain state laws might be narrower than the FTAIA.

    The Court’s Phase II Order

    First, the Court considered an issue it had expressly reserved in addressing motions to dismiss certain indirect purchaser claims in its Phase I order:  whether state law claims asserted by indirect purchaser plaintiffs (“IPPs”) under the laws of New York and Florida had a “tighter” geographic reach than the FTAIA.  The Court concluded that New York’s Donnelly Act required a “very close nexus between the conspiracy and injury to competition in” New York, which resulted in a narrower reach for Donnelly Act claims than for Sherman Act claims under the FTAIA.  Nevertheless, the Court found that because one of the named IPPs was a New York company with a principal place of business in New York that purchased capacitors in New York from distributors who could allege a direct purchaser claim, IPPs had pled a nexus to New York that was sufficient to allow their claims to proceed.  Likewise, the Court found that while Florida law did not clearly address the scope of the geographic reach of its antitrust laws, it could not dismiss the IPPs claims at this stage of litigation.  The Court also allowed claims under other state laws to proceed.

    Next, the Court applied the standards it set out in the Phase I Order to specific categories of transactions involving a U.S.-based direct action plaintiff, which had brought claims based on its own purchases, as well as purchases by a number of its overseas affiliates who had assigned their rights to plaintiff.  The Court first considered whether capacitors that were sold and shipped by a foreign defendant to a foreign affiliate of plaintiff, and then incorporated abroad by another affiliate into finished goods that were sold into the United States, counted as “import commerce.”  This question, the Court found, turned on whether it was “essential for defendants to do the importing themselves for a transaction to count as import.”  Defendants argued that it was essential for a defendant to have imported the product because the proper focus was on defendants’ conduct, not the plaintiff’s, in causing the product to be imported into the United States.  The Court rejected this argument, finding that plaintiffs established a triable issue by alleging 1) that the alleged price fixing conspiracy “was intended to and did inflate the price of capacitors sold in the U.S.”; 2) that defendants acted in furtherance of the conspiracy in the United States; and 3) that defendants knew a substantial portion of the capacitors purchased by plaintiff’s affiliates were purchased with the intent that they would be incorporated into goods to be shipped to the United States.  Similarly, the Court found that there was a triable issue of fact regarding whether capacitors purchased by the affiliates abroad and shipped to Mexico for the purpose of manufacturing them into goods shipped to the United States pursuant to the IMMEX trade agreement were “import commerce” because Mexican law required the manufactured goods to be transported out of Mexico.

    Next, the Court considered whether capacitors sold and shipped by a foreign defendant to an affiliate of plaintiff, and then incorporated into a finished good that was ultimately sold outside of the United States fell under the domestic effects exception in the FTAIA.  The Court found that plaintiff did not establish that these transactions had the requisite effect in the United States because the capacitors involved were sold by defendants and incorporated into finished goods outside the United Sates, and the finished goods containing the capacitors were sold outside the United States.  The Court also rejected plaintiff’s argument that the conspiracy “inflated the price at which [plaintiff’s] U.S. management agreed on behalf of the affiliates to purchase capacitors following negotiations that took place in the U.S. and/or were directed and controlled by U.S. management,” as no more than a reworded version of the global pricing theory that the Court had already rejected.

    With regard to capacitors sold and shipped by a defendant in the United States to plaintiff’s affiliate outside the United States, the Court found that this was “precisely the kind of conduct that the FTAIA sought to free from the constraints of the Sherman Act” and that the Shearman Act does not forbid domestic businesses from entering into anticompetitive business agreements that only affect foreign markets.  The Court therefore found that plaintiff could not pursue claims for this category of transactions.

    With regard to capacitors sold by a foreign defendant to a foreign distributor, who then resold the capacitors to an affiliate of plaintiff, the Court found that plaintiff could not pursue these indirect purchaser claims for damages because they would be bared by the Illinois Brick doctrine.  The Court concluded by directing the parties to work together to apply this ruling to the categories and data more broadly at issue in the MDL.