Foreign companies now more exposed to US antitrust law

Author: | Published: 26 Jul 2012
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Foreign companies are more exposed to US antitrust law following a recent appellate court decision that overturned precedent. More extraterritorial class action civil suits and higher fines are expected.

The ruling is of particular concern for foreign companies that sell products or materials to companies that export to the US. They were previously shielded from US antitrust enforcement because they were not considered to have a direct impact on US consumers. The Court of Appeals for the Seventh Circuit has now said otherwise.

The court reached an en banc decision in favour of the collective plaintiffs in Minn-Chem v Agrium on June 27. The judgment relied on a less restrictive interpretation of the Foreign Trade Antitrust Improvements Act (FTAIA), a statute used by defendants to have cases dismissed since it was passed in 1982. Now the FTAIA can serve plaintiffs as well.

The FTAIA defines the extraterritoriality of US antitrust laws as limited to import commerce with a direct, substantial and reasonably foreseeable effect on domestic or export commerce. The ability of US plaintiffs to file claims against foreign companies relies on interpretation of the word ‘direct’.

Niall Lynch, an antitrust and competition partner with Latham & Watkins, told IFLR that circuit courts have traditionally used a more restrictive definition of direct effect, as one that flows as an immediate consequence of the defendant’s activity, thereby limiting the type of foreign activities subject to US antitrust laws.

Direct effect can pass through intermediaries if there is a reasonably proximate causal nexus, according to Judge Diane Wood’s opinion.

“[The decision] makes it easier for antitrust plaintiffs to sue foreign companies in US courts in class actions,” Jeremy Evan, an antitrust litigation partner with Paul Hastings said. “That presumably will be a concern [for foreign companies] because you don’t have anywhere else in the world with the same type of private antitrust regime as the US.”

“I think many global companies are concerned about US class action practice and the amount of damages that a company can be forced to pay in civil law suits [because] that type of mechanism doesn’t exist in other jurisdictions,” Evans added.

Department of Justice

Minn-Chem v Agrium also makes foreign companies more vulnerable to criminal probes by the US Department of Justice (DoJ) and Federal Trade Commission, and the court’s interpretation largely mirrors a DoJ amicus brief submitted to the court.

“With its amicus brief, the DoJ is trying to shape the development of the law to go after more foreign anticompetitive activity and criminally prosecute more foreign conduct under the US antitrust laws,” Lynch said.

Evans believes the decision will strengthen the DoJ’s hand in reaching larger plea agreements with foreign antitrust law violators.

“There just aren’t that many criminal antitrust trials,” Evans said. “I think the impact is going to be felt more when the DoJ is negotiating plea deals with companies and there is a fight over the volume of commerce.”

Circuit conflicts

The Seventh Circuit’s decision referenced an earlier decision by the Third Circuit, Animal Science Products v China Minmetals, which also found that the FTAIA was a required part of a claim rather than a jurisdictional limitation.

Other courts, most notably the Ninth Circuit in United States v LSL Biotechs, have used a more narrow definition of ‘direct’ and considered the FTAIA a jurisdictional limitation.

As a result of the Seventh Circuit decision, Lynch said plaintiffs may have the opportunity to conduct full discovery on the merits in these cases if FTAIA is considered part of the claim, which can be very costly for defendants.

The Agrium case might request the US Supreme Court to decide whether the claims are allowed and resolve differences at the circuit level.