Extraterritoriality of Antitrust Law: Applying the Supreme Court's Analysis in RJR Nabisco to Foreign Component Cartels

68 Am. U. L. Rev. 621 (2018).

*Senior Staff Member, American University Law Review, Volume 68; J.D. Candidate, May 2019, American University Washington College of Law; B.A., Spanish Studies and Business Studies, 2016, Bentley University. Thank you to the entire Law Review staff, and especially to Cecilia Diedrich and Samantha Primeaux, for their diligent review and valuable suggestions in preparing this Comment. I would also like to thank my faculty advisor, Professor Andrew Popper, for his continued guidance and feedback. To my incredible family and friends, I am truly grateful for your constant encouragement and unwavering support.

In an increasingly connected global economy, complicated by webs of supply chains and foreign subsidiaries, the impact of foreign conduct will inevitably trickle into countries around the globe, including the United States. Often, such foreign conduct will not abide by the strict laws and regulations enforced by the United States. In the recent cases surrounding foreign price-fixing cartels for liquid-crystal-display panels (LCD) panels, a common component in electronics, the question arose of whether such foreign conduct fell within the scope of U.S. antitrust law under the Sherman Act. If the extraterritorial arm of the law extended to allow foreign plaintiffs to bring a claim in these suits, it would leave the door wide open for the numerous foreign subsidiaries of U.S. parent companies, governed by foreign jurisdictions, to seek redress in the United States.
In 1982, Congress enacted the Foreign Trade Antitrust Improvements Act (FTAIA) seeking to ease concerns surfacing in the business community that the then-current antitrust laws hindered global operations. The purpose of enacting the legislation was to clarify the broad scope of the prominent antitrust law in the United States, the Sherman Act. Unfortunately, the FTAIA was ambiguous and has created even greater confusion among the courts regarding when foreign conduct is to be governed by U.S. antitrust law. The issue has grown particularly unclear in cases involving the activities of foreign component cartels where the link between foreign subsidiaries and their U.S. parent companies becomes interrupted by foreign manufacturers and incorporators along the way. As seen in two factually similar cases, the Seventh and Ninth Circuits have provided inconsistent interpretations of the language of the FTAIA, leaving many questions unanswered. Though the Supreme Court denied the opportunity to address the sharp contrast in approaches between the circuits, the Court has not been entirely silent on the reach of the U.S. laws.
In RJR Nabisco v. European Community, the Court analyzed the extraterritorial application of the Racketeer Influenced and Corrupt Organizations Act (RICO). In its discussion, the Supreme Court analogized to antitrust law and shed light on its view regarding extraterritorial application of U.S. laws. This Comment argues that RJR Nabisco is instructive on the extraterritorial scope of the FTAIA as it pertains to foreign component cartel activity. Further, the Seventh Circuit’s narrow interpretation of the FTAIA, as seen in Motorola Mobility v. AU Optronics Corp., is most consistent with the Supreme Court’s reasoning in RJR Nabisco and thus, should provide the standard in future cases. In applying such a standard, clarity, consistency, and predictability for these cases can be achieved, allowing companies to make reasoned decisions about where to do business and avoiding serious judicial capacity and foreign sovereignty concerns.

Introduction

Consider a product owned by ninety-five percent of American adults today: the cellphone.¹ Now consider all the small, technological parts that go into making that cellphone work. In a globalized market, where supply chains grow longer and technology capabilities grow larger, many products, or components of those products, are manufactured around the globe and all come together through layers of distribution to create the final product that ends up in the consumer’s hand.² As a result, production and sale of many of those components often do not adhere to the strict regulations of the U.S. antitrust laws. Some of those parts may have been subject to a foreign cartel’s anticompetitive conduct, such as price-fixed costs. The anticompetitive conduct did not occur in the United States, but the cellphone and all its pieces make its way to the consumer here in the United States. Should these foreign actions be subject to U.S. antitrust laws?

This question was scrutinized in cases surrounding the recent conspiracy by foreign manufacturers to price-fix liquid-crystal-display panels (LCDs) incorporated into cell phones, computers, and televisions.³ Foreign manufacturers sold LCD panels to foreign incorporators of the final products, and those incorporators eventually sold the panels to companies in the United States, including the well-known company, Motorola Mobility.⁴ Does U.S. antitrust law allow a domestic company to bring an antitrust claim against a foreign conspirator for foreign anticompetitive conduct that affected a product now being sold in domestic commerce? Such questions regarding the scope of U.S. antitrust law have created considerable confusion among the circuit courts.⁵ This uncertainty stems from courts’ differing interpretations of the application of the Foreign Trade Antitrust Improvements Act⁶ (FTAIA) in the context of foreign component cartel activity.⁷ The courts’ conclusions have been “mixed, unclear, and do not apply a consistent approach” to factually similar issues.⁸

When the Supreme Court had the opportunity to clear up the ambiguities surrounding the FTAIA, it denied certiorari, surprising the legal community and leaving many questions unanswered.⁹ However, in a separate decision, the Supreme Court shed light on its current thinking about the extraterritorial application of federal laws.¹⁰ This Comment argues that the recent decision in RJR Nabisco, Inc. v. European Community¹¹ and the Supreme Court’s analysis of the extraterritorial application of the Racketeer Influenced and Corrupt Organizations Act¹² (RICO) are instructive on the extraterritoriality of the FTAIA. Further, this Comment suggests that the Seventh Circuit’s interpretation of the FTAIA, as it relates to component cartels, is most consistent with the Court’s analysis in RJR Nabisco. Though the precedent does not bind antitrust cases, the Court analogizes to antitrust law in its decision, expressing a narrowing trend in the extraterritorial application and general reach of U.S. law.

Part I of this Comment explains the relevant background information, including a brief overview of the development and purpose of antitrust law. Part I continues with a discussion of the history and enactment of the FTAIA in 1982, along with the early jurisprudence that helped shape the law as it currently stands. Finally, Part I outlines the issues component cartels present. Part II follows, providing an overview of the confusions that have emerged among the courts, particularly between the Seventh and Ninth Circuits. Part III describes the recent developments in the law and how the Supreme Court’s denial of certiorari in two recent antitrust cases failed to meet the legal community’s expectations. Further, Part III highlights the recent case, RJR Nabisco, and the Court’s analysis of the extraterritorial application of the federal RICO statute. Part IV argues that the Court’s decision and analysis in RJR Nabisco is instructive on the issue of extraterritoriality of the FTAIA, as it concerns foreign component cartels, by drawing an analogy to RICO and looking to the statutory construction and legislative history of the statute. Part IV then explains why the Seventh Circuit’s interpretation is most analogous the Court’s reasoning and should provide the standard for future cases of its kind. Part V takes a brief look at policy considerations that arise in the debate of whether U.S. laws should apply extraterritorially. Finally, Part VI considers a simplified scenario presented by a component cartel and provides a roadmap for how a future court should approach the issue in light of the RJR Nabisco decision.

I. Background

A. Development and Purpose of Antitrust Law

In 1890, Congress enacted the Sherman Act laying the groundwork for antitrust law and what is currently the predominant law protecting against anticompetitive conduct in the United States.¹³ The Sherman Act broadly states that its purpose is “to protect trade and commerce against unlawful restraints and monopolies.”¹⁴ The Sherman Act’s major focus is competition, as Congress wanted to ensure that unreasonably restrictive conduct would not impede American businesses.¹⁵ Though Congress’s motivation was to clear the way for companies, the broad language of the Sherman Act created vast uncertainty among the courts about precisely which activities were included within its scope, particularly concerning foreign activity.¹⁶ The Sherman Act allows for both criminal and civil actions against anticompetitive conduct that affects domestic commerce, such as price-fixing or competition-reducing mergers and monopolization.¹⁷ The U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) jointly enforce antitrust law under the Sherman Act, protecting the market and consumers against such restrictive and anticompetitive conduct.¹⁸

B. Foreign Trade Antitrust Improvements Act

After Congress enacted the Sherman Act, courts consistently held that the foreign activities that arose were within the reach of U.S. antitrust laws, which aggravated foreign nations and raised considerable concerns about the principle of international comity.¹⁹ These concerns pushed Congress to impose limitations on the extraterritorial reach of the Sherman Act.²⁰ In 1982, Congress enacted the FTAIA, carving out an exception to the Sherman Act by excluding from its reach certain “non-import trade” activity.²¹ The general rule reflected in the FTAIA is that the Sherman Act will not govern conduct in foreign trade or commerce, or when the anticompetitive conduct at issue is foreign.²² The relevant language of the FTAIA states:

[The Sherman Act] shall not apply to conduct involving trade or 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 [the Sherman Act] other than this section.²³

The ambiguity of the FTAIA has resulted in various interpretations and conflict amongst lower courts over its precise meaning.²⁴ The language of the FTAIA is unclear at best, but ultimately the Sherman Act applies when the alleged anticompetitive conduct falls within certain parameters.²⁵ As a principal matter, the FTAIA lays out the “import commerce exclusion” that import activity will be governed exclusively by the Sherman Act and the FTAIA will not apply.²⁶ For example, if a foreign manufacturer conspires and sells a price-fixed product directly to a company in the United States for sale to consumers, the manufacturer directly imported that product into the United States and thus, the FTAIA would not apply.²⁷

Once the conduct classifies as non-import—meaning U.S. export or wholly-foreign commerce—the FTAIA applies, and the conduct is only brought back within the scope of the Sherman Act if it satisfies the “effects exception” and that effect “gives rise to a claim.”²⁸ The effects exception provides for Sherman Act coverage if the effect on U.S. domestic commerce is “direct, substantial, and reasonably foreseeable.”²⁹ The effects exception determines whether there is subject matter jurisdiction over the claim, whereas the second requirement determines whether the plaintiff has standing to bring that particular claim.³⁰ The FTAIA is inapplicable only when the effects exception is met and such domestic effect “gives rise to a claim.”³¹ A court must find both of these exceptions to the prohibition on extraterritorial application for the non-import conduct to fall back under the governance of the Sherman Act.³² Precisely what Congress meant by the terms “non-import,” “direct, substantial, and foreseeable,” and “gives rise to” has been contentiously debated.³³

1. Legislative history of the FTAIA

Legislative history provides some insight into the effect that Congress intended the FTAIA to have, including clarification of the Sherman Act’s scope.³⁴ The committee report for the enactment of the FTAIA outlined two primary purposes for the Act: (1) to promote American exports, and (2) to create one objective test to clear up the confusion.³⁵ For Congress, the legislation was crucial given the ambiguity that surfaced in trying to define the language of the Sherman Act; thus, Congress’s goal was to provide clarification by creating a “precise legal standard” to determine whether certain anticompetitive conduct fell within its reach.³⁶

Along with addressing ambiguity, Congress aimed to change a perception. During the period surrounding the enactment of the FTAIA, there was a general sense among American businesses that the antitrust laws, while intended to help, actually hurt their abilities to participate in export markets.³⁷ Congress wanted to combat this view through the FTAIA’s language, making it “explicit [that U.S. antitrust laws] appl[y] only to conduct having a ‘direct, substantial, and reasonably foreseeable effect’ on domestic commerce or domestic exports.”³⁸ Seeking to ensure businesses would not be excluded from export markets, Congress chose to narrow the application of antitrust law to conduct negatively affecting imports, and excluding export activity.³⁹

Further, the discussion preserved in the committee report makes clear that Congress intended to not only clarify when the Sherman Act applied to foreign conduct, but to restrain such application.⁴⁰ Unfortunately, the attempt to resolve the ambiguity was unsuccessful and led to greater discord among the courts.⁴¹ Foreign activity and the complicated considerations related to such activities continues to create headaches for courts and parties alike. This Comment addresses those considerations and hones in specifically on international component cartels and the typical scenario as presented in price-fixing cases.⁴²

C. Early FTAIA Jurisprudence

The FTAIA’s enactment created numerous problems, but a handful of cases have made significant developments that have helped to clarify the law. While many other cases have shaped FTAIA law since its inception, this Comment discusses the most impactful cases in detail below.⁴³

1. Indirect purchaser doctrine and Illinois Brick

First, an important concept considered in the discussion of the FTAIA is the indirect purchaser doctrine initially raised in Illinois Brick Co. v. Illinois⁴⁴ in 1977. The plaintiff’s claim in this case is still a source of controversy among the circuit courts today.⁴⁵ The case involved domestic manufacturers of concrete bricks, which sold the bricks to contractors, and those contractors in turn submitted bids to general contractors, who would ultimately use the bricks on local projects.⁴⁶ The general contractors brought an antitrust claim against the manufacturers alleging a conspiracy to fix the price of the bricks, violating the Sherman Act.⁴⁷

At the Supreme Court, the Justices’ discussion focused on the indirect purchaser doctrine, which allows only the direct purchaser to bring a suit.⁴⁸ The general contractors were indirect purchasers of the bricks because the link between the manufacturers and the general contractors was separated by two levels of distribution.⁴⁹ The Court barred the contractors’ claim because it was only the direct purchaser who was harmed by the overcharged bricks; the harm could not be passed down the chain of distribution for reasons of duplicative recovery and economic realities.⁵⁰ Some courts have discussed applying the doctrine in foreign component cartel cases involving the FTAIA, but the government previously contended that there should be an exception when the FTAIA bars recovery for the first purchaser in the United States.⁵¹ However, the American Bar Association (ABA), in advising on antitrust guidelines, noted that the government-proposed exception contradicts longstanding precedent and tradition.⁵² Thus, how the doctrine interacts with component cartel cases remains unsettled.

2. International comity and Hartford Fire

In the Supreme Court case Hartford Fire Ins. Co. v. California,⁵³ Justice Scalia’s dissent provides particular insight into extraterritorial analysis.⁵⁴ The issue in the case was whether the Sherman Act applied to a conspiracy by London reinsurance companies on the basis that the conspiracy affected the U.S. insurance market.⁵⁵ Defendants argued that the “principle of international comity” prevented the Court from exercising jurisdiction because the conduct occurred outside of the United States.⁵⁶

In his dissent, Justice Scalia discussed the extraterritorial application of the Sherman Act, highlighting that when determining if a statute has extraterritorial reach, the Court must look to two canons of statutory construction.⁵⁷ The first canon, the “presumption against extraterritoriality,” reflects the presumption that legislation is only to apply domestically unless rebutted by a contrary intent.⁵⁸ Justice Scalia, however, acknowledged that in some cases, the Sherman Act overcame this presumption and has been applied extraterritorially.⁵⁹ In situations where the presumption is overcome, courts must then look to the second canon, that, to the extent possible, congressional actions will not be construed in a way that violates foreign laws.⁶⁰ This concept is related to the principle of international comity, a principle historically used to limit the scope of U.S. law.⁶¹ Justice Scalia stated that it would be inconceivable to apply our laws to the context in Hartford Fire and noted that the majority’s “breathtakingly broad proposition” would force “the Sherman Act . . . into sharp and unnecessary conflict with the legitimate interests of other countries—particularly our closest trading partners.”⁶²

3. The Supreme Court and the “give rise to” requirement

Finally, the most recent FTAIA Supreme Court case, F. Hoffmann-LaRoche Ltd. v. Empagran S.A.,⁶³ was an important decision in the development of the FTAIA. The Court granted certiorari over the issue—foreign price-fixing causing domestic and foreign injuries—with the hopes of clearing up the great confusion over the meaning of the § 6a(2) “give[s] rise to” requirement.⁶⁴ The context of the case centered around a price-fixing conspiracy for vitamins in which the price of vitamins was allegedly increased globally, including in the United States.⁶⁵ In its decision, the Court emphasized the limiting nature of the FTAIA, signaling to U.S. exporters and businesses abroad that the Sherman Act would not prevent businesses from participating in anticompetitive conduct so long as the effect was only felt in the foreign market.⁶⁶ The Court also pointed to the committee report for the enactment of the FTAIA as being highly persuasive and stated that “[f]or those who find legislative history useful, [it] should end the matter.”⁶⁷

The Court held that the phrase “gives rise to” meant gives rise to “the plaintiff’s claim,” and not merely “a” claim, meaning that the domestic effect of the conspiracy must be the cause of the plaintiff’s injury.⁶⁸ In making this determination, the Court looked at the purpose, language, and history of the FTAIA to hold that where the “adverse foreign effect is independent of any adverse domestic effect,” the exception in the FTAIA that the effect must give rise to the claim is not met and therefore the conduct is beyond reach of the Sherman Act.⁶⁹ The Court’s reasoning was twofold. First, the statutory construction of the principle of international comity requires courts to act cautiously and consider the sovereign interests of foreign nations.⁷⁰ Second, “the FTAIA’s language and history suggest that Congress designed the FTAIA to clarify, perhaps to limit, but not to expand in any significant way, the Sherman Act’s scope as applied to foreign commerce.”⁷¹ The “gives rise to” issue was hotly debated and, despite the clarity of this holding, what constitutes the requisite casual connection is still unsettled.⁷² However, this decision was one of the most important developments of the FTAIA because it offered insight into the Justices’ thoughts regarding the application of U.S. antitrust law, just how far it should reach, and how much conduct the FTAIA excludes.

II. Component Cartels: What are They
and What is the Confusion?

International cartels occur when a group of manufacturers conspire to fix the price of a product and import that product into the United States and around the globe.⁷³ When a conspirator directly imports the product into the United States, the actors are subject to U.S. antitrust law under the Sherman Act because such conduct is classified as an “import,” and thus is removed from the FTAIA’s control.⁷⁴ Component cartels are similar in that manufacturers conspire to fix the price of a product; however, the product is a component that will go into the manufacture of another final product.⁷⁵ The manufacturers sell the component at the illegally fixed price to an incorporator—likely a foreign company or foreign subsidiary of an American company—which then sells the finished product to retailers located, for the purpose of this Comment, in the United States.⁷⁶

The DOJ and FTC Antitrust Guidelines provide an illustrative example of this problem:

Corporation 1 and Corporation 2 have factories in Country Alpha where they manufacture Component X, a piece of high-tech hardware used in electronic products. Corporation 1 and Corporation 2 agree to raise prices for Component X sold to finished product integrators. These integrators . . . incorporate Component X into finished electronic products sold in the United States.⁷⁷

So why is this confusing for courts? With an international component cartel, the threshold question is whether its activities—and given that its first sale is to a foreign entity—fall within the import requirement, and thus determining whether the conduct is governed by the Sherman Act or the FTAIA.⁷⁸ In the case of a domestic plaintiff purchaser, import commerce is evident because the plaintiff purchased the component directly from the cartel.⁷⁹ It is increasingly less clear, however, when one or more foreign entities, including U.S. owned foreign subsidiaries, serve as middle men between the cartel and the U.S. entity.⁸⁰ Should the foreign entity or the U.S. company on behalf of its foreign subsidiaries be able to recover for an injury—the increased price of the component purchased from the conspirator—suffered outside the United States simply because the products eventually entered the United States? Lower courts have failed to provide a consistent answer to this question.⁸¹

If the answer is yes and the conduct classifies as import commerce, the FTAIA does not apply; however, if the conduct is not import commerce because the conspirator was not the entity to bring the product into the United States, the FTAIA applies and necessarily begs the question: What qualifies as a “direct, substantial, and reasonably foreseeable” effect?⁸² Courts have inconsistently defined what a “direct” effect is, ranging from the narrow definition of “immediate consequence” to the broader “reasonably proximate casual nexus” interpretation.⁸³

To add to the confusion, scholars and judges have questioned if and how the indirect purchaser doctrine applies to antitrust claims.⁸⁴ This question is even more prevalent when a component cartel is involved, because “[n]othing is more common nowadays than for products imported to the United States to include components that the producers bought from foreign manufacturers.”⁸⁵ Given this current climate, it is less likely that U.S. entities are purchasing components directly from foreign manufacturers, but rather through a foreign subsidiary. If this is the case, the indirect purchaser doctrine would block the parent company in the United States from being able to bring a claim on behalf of its foreign subsidiary because the two are considered legally independent entities, and thus the U.S. company is an indirect purchaser.⁸⁶ Only a handful of cases have even brought up the indirect purchaser doctrine, and the government has proposed an exception.⁸⁷ Yet, the extent of the doctrine’s applicability, if any, to antitrust cases involving component cartels remains to be determined.⁸⁸

Legislative history provides minimal guidance on these issues, despite the explicit comments on “Imports and Purely Foreign Transactions” and “International Cartels” in the committee report.⁸⁹ On international cartels, the committee recognized that because international cartels often cause global shortages and artificial inflation, the conduct would likely have the necessary effect on U.S. commerce, and given this, the committee anticipated the DOJ to continue criminal enforcement against cartel activity.⁹⁰ Congress seemed to indicate that in certain circumstances, foreign conduct would have the requisite effect, and therefore, allow the government to pursue criminal charges; however, the report reflects no discussion of when the effect would be sufficient in a private action.⁹¹ Additionally, it is apparent from the report that the committee did not intend for the Sherman Act to reach claims solely because an American actor was involved.⁹² This may be an indication of how Congress anticipated the FTAIA to cover indirect purchasers.

A. Circuit Confusions

Despite several developments since the enactment of the FTAIA, the issues regarding its application to foreign component cartels, which limit the extraterritoriality of the Sherman Act, are unresolved.⁹³ Circuits have approached the problem differently and ruled on various grounds, leading to inconsistent outcomes on what appear to be factually similar cases.⁹⁴ One problematic inconsistency arises when a foreign purchaser alleges an international conspiracy to fix the price of components, later to be incorporated into final products and eventually sold in and affecting foreign and domestic markets. This issue arises because either the foreign purchaser, or parent company on its behalf, is harmed by the foreign conduct and is trying to bring a private claim under U.S. antitrust law, or the foreign defendant-conspirator argues against the ability of the U.S. government to pursue a criminal charge against them under U.S. antitrust law.⁹⁵

1. Seventh Circuit and Motorola Mobility v. AU Optronics Corp.

It is an economic reality that more frequently than not, a product being imported into the United States includes components that foreign manufacturers purchased before they were incorporated into final products and resold to retailers.⁹⁶ Against this backdrop, more situations like the one in Motorola Mobility v. AU Optronics Corp.⁹⁷ arise. The case was part of a series of cases alleging that Taiwanese and Korean manufacturers were involved in a large international conspiracy to fix the price of LCD panels in violation of § 1 of the Sherman Act.⁹⁸ Motorola, a U.S. company, and ten of its foreign subsidiaries bought LCD panels from the defendant, AU Optronics, to incorporate into cellphones.⁹⁹ Not at issue was the one percent of panels the manufacturers sold directly to Motorola in the United States because this portion of panels fell clearly within the classification of “import commerce.”¹⁰⁰ Of the other ninety-nine percent of panels AU Optronics produced, only forty-two percent were purchased by Motorola’s foreign subsidiaries, incorporated into cellphones, then sold and shipped to Motorola for resale in the United States.¹⁰¹

The issues discussed in the case were whether the conduct classified as “import commerce”; whether plaintiffs alleged an antitrust violation under the FTAIA; and whether Motorola, on behalf of its foreign subsidiaries, had antitrust standing to bring the claim.¹⁰² In addition to opining on these issues, the court also discussed concerns of international comity and made a distinction between criminal and private actions.¹⁰³

Regarding the classification as import commerce, the court held that a defendant must be the importer of the component into the United States.¹⁰⁴ It was Motorola, through its foreign subsidiaries, that imported forty-two percent of the LCD panels that eventually made their way into the United States.¹⁰⁵ Because Motorola, not the defendants, imported the panels, the claim did not fall within the “import exception,” and thus the FTAIA applied.¹⁰⁶

The court did not provide detail as to what is required for conduct to have a “direct, substantial, and reasonably foreseeable effect” on domestic commerce. However, it assumed that the conduct satisfied the requirement because, though probably modest, the effect of the conduct was “clearer” than in Minn-Chem, Inc. v. Agrium, Inc.,¹⁰⁷ a case where the effect was satisfied despite having a more tenuous impact.¹⁰⁸ Assuming the direct effect, the court next looked to whether Motorola satisfied the “gives rise to” exception, finding it did not.¹⁰⁹

From the outset of the opinion, the court referred to Motorola as a “derivative victim” and stated that the foreign subsidiaries were the true victims.¹¹⁰ The court ran through an analysis of potential harm that Motorola may have felt by the price increase, but said that such harm, if any, was “indirect” and that there was no evidence indicating a loss of business or customers as a result of having to raise its prices.¹¹¹ Because the purchase of the component as well as the increase to the price of the cellphone occurred entirely in foreign commerce, the conduct harmed Motorola’s foreign subsidiaries, and should be governed by the laws under which they incorporated and/or operated.¹¹² The court held that derivative victims do not have standing to bring a claim, not only because they cannot satisfy the “gives rise to” requirement, but because the “law does not collapse parents and subsidiaries” into a “single integrated” entity.¹¹³ In so holding, the result of the court’s interpretation was that foreign subsidiaries of U.S. companies injured by cartels outsides of the United States cannot satisfy the “gives rise to” provision.

The court continued, barring the claim on a separate, yet related ground, that allowing such a claim violated the indirect purchaser doctrine of Illinois Brick, and consumers (the indirect purchasers) cannot sue the conspirator even though the seller (the direct purchaser) passed on the increased cost to the consumers.¹¹⁴ The first sale of the price-fixed component was to the foreign subsidiaries, and there was nothing stopping those subsidiaries from suing the cartel in either their own country or the country of the cartel members.¹¹⁵ Motorola, on the other hand, was the indirect purchaser, having bought the incorporated product from the foreign subsidiary and thus could not bring suit. The difficulty in estimating the amount of harm to indirect purchasers, confirmed the “wisdom of the indirect purchaser doctrine” because the price Motorola charged its consumers mitigated any initial effect it felt.¹¹⁶ Motorola made the decision to do business with foreign subsidiaries and could not avoid the legal implications of that structure when it was convenient or in its interests to do so.¹¹⁷

After ruling against Motorola and its subsidiaries, the court moved into a discussion of international comity and the need for caution in allowing claims like that of Motorola because doing so would “enormously increase the global reach of the Sherman Act, creating friction with many foreign countries and ‘resent[ment at] the apparent effort of the United States to act as the world’s competition police officer.’”¹¹⁸ The court stressed the globalized supply chains and use of foreign subsidiaries in today’s economy, and that courts should not extend coverage of U.S. law to include foreign subsidiaries injured abroad by conduct that occurred in foreign commerce.¹¹⁹

In response to a government request, the court amended its opinion to ease concern regarding criminal enforcement by providing a distinction between private actions and criminal actions pursued by the DOJ.¹²⁰ Though Motorola’s claim could not move forward, the court assured that its holding would not prevent the DOJ from seeking criminal charges if the effect of the price-fixing scheme had the required effect on cellphone prices in the United States.¹²¹ The Motorola case was based on a private claim, and the court indicated that private claims involving international component cartels create more problems than criminal claims, and should thus be handled differently under antitrust law. The court reasoned that in the context of international component cartels, the U.S. government will weigh considerations of international comity and foreign sovereignty, whereas private plaintiffs will not.¹²² District courts within the Sixth Circuit have followed similar logic in approaching these types of cases, relying on the Motorola reasoning in their decisions.¹²³

2. Ninth Circuit and United States v. Hui Hsiung

The criminal case against Hui Hsiung and others (including AU Optronics Corp. and AU Optronics Corp. America, Inc.), United States v. Hsiung,¹²⁴ involved the same conspiracy at issue in Motorola.¹²⁵ In brief, the Federal Bureau of Investigation found proof of an international conspiracy between Taiwanese and Korean electronics manufacturers to fix the price of LCD panels sold to companies in the United States.¹²⁶ The court principally held that the manufacturers’ sales made directly to the U.S. retailer constituted import commerce, so the FTAIA did not need to be addressed for those portions of the sales.¹²⁷ Looking at several facts, including that the United States held one-third of the global market for personal computers with these LCD panels and that the evidence showed defendants specifically “targeted” U.S. companies, the court held that “import trade” could include defendants whose conduct was “directed” at American imports, thus bringing it back within the scope of the Sherman Act.¹²⁸

At the time of this case, the Ninth Circuit had not yet defined what was included within “import trade”; however, the court looked to the Seventh, Sixth, and Third Circuits for guidance.¹²⁹ To hold that conduct “directed” at U.S. imports could classify as “import commerce,” the court look at the Seventh and Sixth Circuits’ definitions stating that conduct could be an import trade if it pertained to a “direct” transaction between a U.S. purchaser and the cartel.¹³⁰ Despite determining that the case fell within “import commerce” and therefore, that the FTAIA would not apply, the government proceeded with a domestic effects theory.¹³¹ The court held that the FTAIA would not block the government from seeking a claim against foreign conspirators in this context.¹³² Speaking to the domestic effects theory, the court held that the conduct met the requirements because it had a “direct, substantial and reasonably foreseeable effect” on U.S. commerce.¹³³ Other courts dealing with similar issues have followed the reasoning that the Hsiung court set forth.¹³⁴

III. Recent Legal Developments

A. Certiorari Denials

Recently, the Supreme Court denied certiorari on two cases, which had it granted, could have resolved the circuit confusion and cleared up the ambiguities surrounding the extraterritoriality of the FTAIA. The Court denied certiorari to both Motorola Mobility LLC v. AU Optronics Corp. and United States v. Hsiung.¹³⁵ The denial shocked many in the antitrust community because “the conflict between the circuit courts’ interpretations of the FTAIA ‘could not be sharper’ [given that] [t]he two cases dealt with the same products, the same conspiracy, and the same FTAIA provisions—and yet the circuit courts arrived at diametrically opposite conclusions.”¹³⁶ In Motorola, the Seventh Circuit did not classify the conduct as “import commerce” because the product was imported through foreign subsidiaries.¹³⁷ Further, the court held that the injury did not arise from the effect on domestic commerce, failing to satisfy the requirements of the FTAIA necessary to bring the conduct back under the control of the Sherman Act.¹³⁸ Conversely, in Hsiung, the Ninth Circuit held that the same conduct classified as “import commerce” because the components were eventually sold, through final products, to U.S. customers and thus the FTAIA did not prevent the DOJ from pursuing a criminal case.¹³⁹

The issues surrounding these cases were ripe for review and, had the Supreme Court granted certiorari, it likely would have analyzed the issues together, addressing the questions asked by the parties in both cases.¹⁴⁰ In its petition, Motorola asked: “Is a cartel’s delivery of price-fixed goods overseas for incorporation into finished products imported directly to the United States immune from private suit under U.S. antitrust law?”¹⁴¹ The petition from Hsiung asked related questions: (1) “Whether a foreign seller’s conduct can ‘involv[e] . . . import trade or import commerce’ even when the seller himself does not import any goods into the United States;” and (2) “Whether a foreign price-fixing agreement can have an effect on U.S. commerce that is ‘direct’ and ‘gives rise to’ a Sherman Act claim even when the agreement fixes prices only in foreign sales.”¹⁴² The denials of certiorari have left these and many other questions unanswered; however, a recent Supreme Court decision may provide insight into the approach the Justices might have taken.

B. RJR Nabisco, Inc. v. European Community

Confusion among the courts persists after these denials, and although the Supreme Court has not handed down a decision directly interpreting the FTAIA, it recently decided RJR Nabisco, which concerned the extraterritoriality of RICO.¹⁴³ In 2000, the European Community, on behalf of itself and twenty-six-member states, filed suit in the Eastern District of New York alleging a global money-laundering scheme between traffickers to sell drugs throughout Europe, resulting in competitive harm to the respondents.¹⁴⁴ RJR Nabisco, a company alleged to have “engaged in a pattern of racketeering,” including conspiracy, money laundering, and supporting foreign terrorism, moved to dismiss the claim arguing that RICO did not apply to activity occurring outside of U.S. borders nor did it apply to a foreign enterprise.¹⁴⁵

1. The Racketeer Influenced and Corrupt Organizations Act

Section 1962 of the RICO statute provides in relevant part:

(a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal . . . to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.¹⁴⁶

Section 1964 of the RICO statute also adds that:

(c) Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit . . . .¹⁴⁷

The RICO statute created criminal offenses for activities of organized criminal groups in relation to enterprise.¹⁴⁸ RICO also set out a civil cause of action for violations of an act that injures any person’s business or property.¹⁴⁹

2. Procedural history

The district court dismissed the case, agreeing that the claim was “impermissibly extraterritorial,” but on appeal the Second Circuit reinstated the claim on the grounds that Congress intended the statute to apply extraterritorially to certain conduct provided that the violations serve as the basis for the liability under RICO.¹⁵⁰ Additionally, the Second Circuit held on a rehearing that a RICO claim did not require domestic injury.¹⁵¹ Seeing the importance of the issue, the Supreme Court granted certiorari to resolve the conflict.¹⁵² In its review, the Court addressed two questions: (1) whether the substantive provisions of § 1962 applied to conduct which occurred in foreign countries, and (2) whether the § 1964(c) private right of action applied to injuries suffered in foreign countries.¹⁵³

3. Analytical framework

Based on recent precedent, the Supreme Court followed a two-step framework for analyzing extraterritoriality issues generally: (1) the presumption against extraterritoriality; and (2) the statute’s “focus.”¹⁵⁴ The first step requires analysis of the presumption against extraterritoriality, a canon of statutory construction.¹⁵⁵ Absent a clear congressional intent to the contrary, the presumption against extraterritoriality stands and the law applies domestically.¹⁵⁶ If the court finds that the statute has extraterritorial effect, thus overcoming the presumption, it will have no need to consider the “focus” and the analysis ends.¹⁵⁷ However, if the presumption is not overcome, a court must move on to the second step and determine whether the case involves a domestic application of the statute by finding its “focus.”¹⁵⁸

4. Holdings

On the first issue, the Supreme Court held that the RICO statute clearly applied to some foreign conduct—thus rebutting the presumption—because Congress made specific reference to instances involving a domestic defendant and offenses taking place outside of the United States.¹⁵⁹ In agreement with the Second Circuit, the Court held that the inclusion of these instances provided an implicit indication that the law of § 1962 was to apply extraterritorially.¹⁶⁰ However, the Court clarified that although a domestic enterprise is not required, not “every foreign enterprise will qualify . . . [and RICO] requires proof . . . [that the enterprise is] ‘engaged in, or the activities of which affect, interstate or foreign commerce.’”¹⁶¹

On the second issue of whether the private right of action under RICO is available to plaintiffs with foreign injuries, the Court held that the plaintiff did not successfully overcome the presumption against extraterritoriality.¹⁶² The Court stressed that the presumption applied separately to both provisions of RICO, and in application to § 1964 it was not overcome because providing such private civil remedy “create[d] a potential for international friction beyond that presented by merely applying U.S. substantive law to that foreign conduct.”¹⁶³ The Court continued to explain its reasoning through an analogy to antitrust law.¹⁶⁴ Several respondents in the current case had also advised the Court in Empagran of the ramifications to their own antitrust schemes if U.S. remedies were applied to their citizens.¹⁶⁵ For this reason, a private right of action under RICO requires “[s]omething more” beyond a finding that the substantive provision reaches foreign conduct, and in this context “it [was] absent.”¹⁶⁶

Therefore, in holding that the presumption stands, the Court established a requirement for a private RICO plaintiff to prove a “domestic injury.”¹⁶⁷ The Court found support for this decision in the language of the statute: “‘[A]ny person injured’ . . . by a violation.”¹⁶⁸ Though the word “any” typically indicates broad inclusively, the Court said the word on its own cannot overcome the presumption.¹⁶⁹Finally, the Court expressly disagreed with respondent’s and Justice Ginsberg’s argument that the private right of action was modeled after the Clayton Act, and therefore, should allow for plaintiffs to sue for foreign injury.¹⁷⁰ While the Clayton Act often guided interpretations of § 1964(c), the Court was convinced that current doctrine and recent congressional actions advised against doing so here.¹⁷¹ Further, the Court dismissed earlier concerns that not applying U.S. antitrust law to foreign defendants would defeat its purpose because to use this concern as a justification would be to “divin[e] what Congress would have wanted” and such judicial approach should not be followed.¹⁷² The Court’s “reluctance” not to read § 1964(c) as broadly as the Clayton Act has been read previously is “[u]nderscor[ed] . . . [in] Congress’s more recent decision to define precisely the antitrust laws’ extraterritorial effect,” excluding “conduct that ‘causes only foreign injury.’”¹⁷³ Further, the Court states that the enactment of the FTAIA “counsel[ed] against importing into RICO those Clayton Act principles that are at odds with . . . current extraterritoriality doctrine.”¹⁷⁴

IV. Analysis

The RJR Nabisco decision is analogous to, and instructive on, the analysis of extraterritoriality of U.S. antitrust law relating to the FTAIA. The Seventh Circuit’s interpretation of the scope of the FTAIA, as it relates to component cartels, is in line with this recent Supreme Court decision. Though non-binding, the Court’s interpretation of the federal RICO statute provides insight into the proper way to interpret the FTAIA.¹⁷⁵

A. Analogizing RICO and the FTAIA

Drawing the analogy between RICO and the FTAIA is possible because the Supreme Court does so itself in RJR Nabisco by relying on antitrust law and previous decisions it has made regarding the extraterritorial reach of federal statutes.¹⁷⁶ The Court saw a similarity between the two issues—racketeering and antitrust law—in the RJR Nabisco case and relied on antitrust law and its precedent to determine the extraterritoriality of another federal statute (RICO).¹⁷⁷ Though the Court declined to apply the broad application found in the Clayton Act regarding a private right of action, it did so to balance against strong concerns of “international friction” and to rule in accordance with more recent congressional decisions to “reign in” the reach of such laws.¹⁷⁸ By not prescribing the scope of the Clayton Act, the Court acknowledged that the purpose of enacting laws like the FTAIA was to narrow the scope of U.S. antitrust law, and that to allow a foreign plaintiff’s recovery would go against current extraterritoriality jurisprudence.¹⁷⁹ Accordingly, the Court found that the enactment of the FTAIA, while not independently limiting on RICO, nonetheless discouraged using Sherman Act principles to discern the scope of RICO.¹⁸⁰ The Court’s holding to deny a private action for foreign injury from racketeering activity in RJR Nabisco reflects this analysis.¹⁸¹

Additionally, the similarities between RICO and the Sherman Act, to which the FTAIA limits, are apparent—both are federal statutes aimed at counteracting corrupt activity at home and abroad having significant impacts on the commerce of the United States. Further, the relevant discussion surrounding both these statutes centers around the extraterritoriality of a federal U.S. law regarding corrupt practices, whether it be racketeering or price-fixing.¹⁸² It is true that the two statutes pertain to separate issues—the RICO statute deals with racketeering activity and the FTAIA with antitrust violations.¹⁸³ Reducing the laws to their differences, however, is an oversimplified comparison. When reviewing the extraterritoriality of U.S. law, the analysis is the same in every situation, requiring the court to run through the same two-steps outlined in RJR Nabisco.¹⁸⁴ Further, in both statutes, the conduct at issue is not the focus of that analysis, but rather the impact of the conduct—the effect on U.S. commerce.¹⁸⁵ In fact, the laws do prohibit overlapping conduct, such as conspiracy, and both require a substantive showing that the conduct at issue had a requisite effect on domestic commerce.¹⁸⁶

Further, for a private plaintiff to bring a claim under either law, the plaintiff must make a showing of “domestic injury” because neither law intends to give relief for all foreign injuries occurring outside the United States.¹⁸⁷ Lastly, both statutes allow for criminal and private causes of action.¹⁸⁸

B. Incorporating RJR Nabisco

1. Statutory construction

In many of its decisions, the Court highlighted the importance of congressional intent and use of the statutory canons of construction when analyzing the presumption against extraterritoriality.¹⁸⁹ The Court in RJR Nabisco discussed the presumption of all statutes against extraterritoriality, unless there is congressional indication otherwise; therefore, the presumption would apply to an analysis of the extraterritoriality of the FTAIA.¹⁹⁰ Further, the presumption applies to each part of a statute.¹⁹¹ Just as the Court separately analyzed the presumption against the two provisions of the RICO statute in RJR Nabisco, courts must look at each requirement of the FTAIA to determine whether the presumption has been overcome.¹⁹²

Similar to RJR Nabisco, the substantive provisions of the FTAIA overcome the presumption.¹⁹³ Separating the two provisions, § 6a(1) provides the substantive law of the FTAIA, determining whether the conduct at issue falls within the Sherman Act’s reach by having a “direct, substantial, and reasonably foreseeable effect” on U.S. commerce.¹⁹⁴ The FTAIA and Sherman Act would likely be a similarly “rare statute,” like RICO, because neither expressly states extraterritoriality, but context clearly provides for it.¹⁹⁵ Congress enacted the FTAIA to specifically address when the Sherman Act should apply extraterritorially, indicating that, provided the criteria have been met, there are circumstances where the law brings foreign conduct within reach.¹⁹⁶

Also consistent with the reasoning of RJR Nabisco, the FTAIA can be read to have a separate private right of action because § 6a(1) describes what claims plaintiffs can bring, whereas § 6a(2) describes which plaintiffs can bring those claims.¹⁹⁷ By looking at criminal and private civil claims differently under the FTAIA, a division taken by the RJR Nabisco Court in the analysis of RICO, one would find that § 6a(2) is applicable to private claims.¹⁹⁸ In the criminal context, when the government brings an action for an antitrust violation, it does so “on behalf of the United States” seeking to stop conduct that had “a direct, substantial, and reasonably foreseeable effect on U.S. commerce,” thus giving rise to the government’s claim.¹⁹⁹ When the government brings a claim and the conduct satisfies the substantive requirements, that effect will conceivably always satisfy § 6a(2); and thus, the section would only bar private actions that do not arise from a domestic injury.²⁰⁰ Provided this, as in RJR Nabisco, foreign plaintiffs claiming foreign injury could not rebut the presumption because such claims create the same international friction.²⁰¹ As the RJR Nabisco court discussed, providing private remedies for foreign anticompetitive conduct to foreign plaintiffs creates a greater problem of international friction than it does when criminally prosecuting that foreign conduct because it allows foreign citizens to bypass the potentially less generous antitrust laws of their own nations.²⁰² If the plaintiff cannot prove a domestic injury in addition to the requisite effect on domestic commerce, the court cannot entertain the private claim.²⁰³ Further, the Sherman Act defines a “claimant” as “a person . . . that has brought . . . a civil action alleging a violation of section 1 or 3 of the Sherman Act.”²⁰⁴ The term “a person” is comparable to the term “any person” as used in RICO, and similar to the reasoning in RJR Nabisco, the use of the term “a person,” while ordinarily broad in scope, does not overcome the presumption against extraterritoriality.²⁰⁵

2. Legislative history

Absent a statute’s express showing of intent, legislative history can be instructive to find the purpose and intent behind its enactment.²⁰⁶ The legislative history for the FTAIA illustrates its intended extraterritorial applicability and supports a position consistent with the reasoning in RJR Nabisco.²⁰⁷ The Court in RJR Nabisco relied on recent congressional actions, reflecting the modern extraterritorial doctrine (referencing the enactment of the FTAIA), to narrow the extraterritorial scope of a private claim under RICO.²⁰⁸ In doing so, the Court nods to Congress’s intention behind the enactment, supporting a narrower reading of antitrust laws.

The application of the rationale from the RJR Nabisco decision is consistent with the legislative intent behind the enactment of the FTAIA. The purpose of the FTAIA was to clarify and potentially limit the reach of the Sherman Act.²⁰⁹ As reflected in the committee report, Congress did not intend to broaden the scope of U.S. antitrust law for cases of foreign injury to foreign plaintiffs caused by foreign conduct.²¹⁰

In enacting the FTAIA, Congress sought to ease the concerns of U.S. exporters about liability under the Sherman Act for participating in a foreign market where anticompetitive conduct may be necessary to succeed.²¹¹ Congress wanted to encourage U.S. exporters by addressing concerns from the business community that establishment of antitrust law would bar joint export activities.²¹² Bearing this purpose in mind, “to protect American exporters, it does not make sense to protect foreign plaintiffs injured by effects felt abroad, and not by effect to the U.S. market.”²¹³ This sentiment is consistent with the Supreme Court’s emphasis on the principle that U.S. federal law is not meant to govern the world and will not intend to bring foreign plaintiffs’ injuries within the reach of its jurisdiction.²¹⁴ Put another way, foreign plaintiffs cannot merely “piggy-back” off of a U.S. entity to seek recovery under U.S. law.²¹⁵

C. Seventh Circuit and Motorola

In addition to being able to draw a comparison between the statutes, the Seventh Circuit’s interpretation of the FTAIA is most analogous to the interpretation of the RICO statute in this recent Supreme Court decision. Further, the Court’s distinction between the substantive law and private right of action leads to the conclusion that the Seventh Circuit is more in line with the reasoning and current thinking of the Court and its precedent regarding extraterritoriality of federal statutes.

Concerns of international comity and friction aligned with those the Court expressed in RJR Nabisco. The Seventh Circuit in Motorola correctly stated that the purpose behind the FTAIA, in consideration of international comity, was to limit the scope of U.S. antitrust law.²¹⁶ The potential for international friction weighed heavily on both the Seventh Circuit and the Supreme Court, which received several amicus briefs from foreign countries expressing their concern about the implications of applying U.S. law would have on their own antitrust policies.²¹⁷ Further marking the importance of this consideration, both courts quoted Empagran, supporting the view that allowing foreign entities to benefit from U.S. antitrust law would “be an unjustified interference” with foreign nations and likely cause “resentment at the apparent effort of the United States to act as the world’s competition police officer.”²¹⁸

Just as the RJR Nabisco Court analyzed the statute as two separate requirements—looking at its substantive provision apart from the provision allowing for a right of action—the Seventh Circuit in Motorola noted the essentiality of looking at the two requirements separately, providing that one establishes the existence of a claim, and the other establishes whether the plaintiff has standing to bring that claim.²¹⁹ Assessing the first requirement, the holding in Motorola, that there could be such an effect for foreign conduct, is consistent with the holding in RJR Nabisco, that the substantive provision overcame the presumption and therefore, some conduct, though foreign, will be within scope of U.S. federal law in certain circumstances.²²⁰

In assessing the second requirement of the FTAIA, the Seventh Circuit in Motorola determined that the foreign subsidiaries of Motorola could not, through Motorola, seek damages under the Sherman Act.²²¹ Just as the Supreme Court held in RJR Nabisco, the presumption against extraterritoriality was not overcome regarding the provision of who can bring a claim, and required a foreign plaintiff show domestic injury.²²² The Motorola court similarly did not find domestic injury for a foreign plaintiff who was injured by foreign conduct occurring abroad.²²³

Lastly, the Motorola decision—holding that the foreign plaintiff did not have a private right of action—did not hinder the DOJ in criminally pursuing illegal activity directly affecting commerce of the United States.²²⁴ This holding reflects the understanding that there is a critical distinction between private actions and those brought by the DOJ.²²⁵ Such a concept is consistent with the Supreme Court’s clear distinction between the application of substantive law and existence of a private right of action under RICO, and courts should treat them differently in determining the extraterritoriality of the law.²²⁶ To underscore this distinction, the Seventh Circuit made clear that to deny the private claim would not inhibit the DOJ’s ability to seek a criminal claim, provided the impact to cellphone prices in the Unites States met the statutory requirements.²²⁷ This holding not only aligns with Supreme Court precedent, but did not directly conflict with outcome in Hsiung, in which the Ninth Circuit allowed the DOJ to bring the cause of action.²²⁸

V. Policy

In RJR Nabisco, the Supreme Court applied its reasoning in Empagran, which declined to extend the extraterritorial application of antitrust law in certain cases, to analyze the extraterritorial application of the federal RICO statute.²²⁹ Citing Empagran, the Court highlighted that the application of U.S. private damages to foreign conduct sparked controversy with foreign nations which said the application allows its citizens to bypass the foreign nations’ laws.²³⁰ The Court wrote in its opinion that “[a]llowing recovery for foreign injuries in a civil RICO action, including treble damages, presents the same danger of international friction.”²³¹ Ignoring the analogy to antitrust law would be ignoring the clearly expressed concern about infringing on a foreign nation’s ability to enforce its own antitrust scheme. In an amicus brief, France expressed concern that extraterritorial application of U.S. antitrust law would “upset that delicate balance and offend the sovereign interests of foreign nations.”²³² Many other nations shared this concern, and the Supreme Court made clear that it should be a major consideration and antitrust precedent in its discussion of this issue agrees.²³³

Some commentators argue that the United States needs to bring within the reach of its law anything that affects the United States, and that broadening the scope of laws such as RICO and the FTAIA is necessary because of globalization and complicated chains of production.²³⁴ However, that very argument can be turned on its head. The more complicated and more connected the world becomes, the more inevitable it is that nearly all foreign conduct or every foreign component will make its way to or its impacts will trickle into the United States, and the United States cannot police the world.²³⁵ Not having the U.S. antitrust laws available to them is a risk companies take by doing business in or with companies located in countries where the laws are more forgiving.²³⁶

Because “virtually every product sold in the United States has some foreign-made component,” and because so many U.S. companies take advantage of the use of global supply chains and foreign subsidiaries, it is inevitable that companies will do business where anticompetitive conduct is not enforced to the same extent as in the United States.²³⁷ In turn, it would be ignorant not to recognize that anticompetitive conduct, such as price fixing, touches many products that make their way into the United States. However, the foreign subsidiary is the only entity overcharged, who passes the cost along to the U.S. purchaser, who passes it along to their customers, and customers cannot bring such a suit.²³⁸ If courts allowed a U.S. purchaser, such as Motorola, to bring suit, it would open the gates to floods of private litigation on behalf of all foreign subsidiaries.²³⁹ The “enormous potential for suits of this character,” underscores the need to treat criminal and private claims differently.²⁴⁰ In determining whether to pursue a claim, “the U.S. Government has reason to weigh comity and sovereignty concerns . . . but private plaintiffs do not.”²⁴¹

Additionally, the position that foreign subsidiaries should not be able to “piggy-back” off of their U.S. parent company to seek damages because it does not satisfy the “gives rise to” exception of the FTAIA is supported in case law and in the American Law Reports.²⁴² The American Law Report asserts that despite attaching itself to a domestic entity, a foreign entity’s injury remains just that: foreign.²⁴³

Further, while the Supreme Court in RJR Nabisco did not answer specific questions—such as how to define “direct,” what classifies as an import, or whether the indirect purchaser doctrine applies—the inclination to read statutes narrowly regarding extraterritoriality, as evidenced in the decision as well as the guidelines from the ABA, encourage definitions that limit foreign injuries to enter U.S. courts. For example, the ABA, in a request for clarification regarding the Proposed Update of the Antitrust Guidelines published by the DOJ, suggested that the proposed update “implies that cases involving component price-fixing do not necessarily involve ‘import commerce.’”²⁴⁴ In its request, the ABA urged the DOJ to make this statement explicitly and to openly adopt the Motorola decision on the issue of “import commerce” for component price-fixing, but it did not.²⁴⁵

Lastly, the Supreme Court’s emphasis on limiting the scope of U.S. law supports the application of the indirect purchaser doctrine to American antitrust law, and the ABA agrees. Acknowledging that the DOJ has pushed for an exception to the doctrine, the ABA states that an exception to the doctrine would go against “long-standing” precedent and the principle of international comity; thus, there should not be an exception for businesses that make the choice to do business abroad.²⁴⁶

VI. Future of Antitrust Claims under the FTAIA

Taking the decision in RJR Nabisco as instructive on the extraterritoriality of antitrust claims under the Sherman Act and FTAIA, courts can bring FTAIA claims in-line with each other to create greater uniformity. No recent antitrust cases have cited to the RJR Nabisco decision; however, consideration of the typical scenario similar to those in Motorola and Hsiung can be used to illustrate how the issue should be analyzed consistent with current Supreme Court precedent and the extraterritoriality doctrine.

Take the following scenario: Companies A, B, and C conspire to fix the price of component X. Company B sells component X to Company D, a foreign subsidiary of Company E, which produces the final product incorporating component X. Company D then sells the final product to Company E. Company E is a U.S. retailer that receives the final product and sells it to consumers. The question is whether Company D can bring a claim on its own behalf and/or through Company E claiming conspiracy on behalf of its foreign subsidiary, Company D.

Following the reasoning of RJR Nabisco and consistent with Motorola, the court should acknowledge and analyze the substantive and private claims separately to decide whether there is a claim in the first place, and then, whether Company D—or Company D on behalf of Company E—can bring the claim. The specific facts of the case would determine whether there is a substantive claim based on a “direct, substantial, and reasonably foreseeable effect” on domestic commerce.²⁴⁷ Secondly, if Company E is trying to bring the claim for itself based on the downstream increase in the price paid for the final product, application of the indirect purchaser doctrine would bar the claim. Because Company E purchased the final product with the incorporated component from Company D, who bought it from conspirators (Companies A, B, and C), Company E is the indirect purchaser of a component that went through at least two layers of the supply chain. Lastly, if Company E is bringing the claim on behalf of Company D, its foreign subsidiary, the FTAIA would bar the claim because it does not fall within the “gives rise to” exception.²⁴⁸ U.S. law separates the entities into two distinct legal entities, and therefore, Company E cannot bring a claim for the injury Company D suffered in foreign commerce. Company D was harmed by the increase in price for component X prior to Company E selling the final product in the United States, so such effect on the U.S. domestic commerce does not “give rise to” Company D’s claim; Company D will have to seek redress in the country where it is incorporated.²⁴⁹

As the Motorola court noted, while there may be no right to a private claim, the DOJ would not be precluded from bringing a claim against Companies A, B, and C for direct, substantial, and reasonably foreseeable effects on the domestic commerce of the United States. If the DOJ could make such showing, it could hold the conspirators criminally liable as it did successfully in Hsiung.

Conclusion

Current law cautions against the extraterritorial application of federal statutes as reflected in the recent Supreme Court decision, RJR Nabisco, which is instructive on the extraterritoriality and scope of other federal laws, including U.S. antitrust laws. To bring jurisprudence in-line with this reasoning, courts should look to the decision in Motorola when deciding whether the arm of antitrust law extends to reach certain foreign injuries from component cartel price-fixing schemes.

In making the analogy to antitrust law, the Court stressed that the analysis of extraterritoriality applies to all federal statutes and therefore, determining the scope of one law (RICO) will be relevant to the scope of another (FTAIA). Courts must look to the same two-step analysis outlined in RJR Nabisco, to determine the statute’s reach when the claim is a private right of action by a foreign plaintiff for recovery from foreign injury. To do otherwise would be against current extraterritoriality doctrine, which advises the “reigning in” of foreign application of U.S. laws out of a concern for international comity.²⁵⁰

Not only is the analogy relevant, but making such comparison is consistent with statutory construction and legislative history. The presumption against extraterritoriality is a principle that applies to all federal statutes and must be applied to each separate provision of a statute, both the substantive provisions and right of action provisions. Determining whether the presumption is rebutted first establishes whether an action exists, and second whether or not the specific plaintiff has standing to bring that action. Further, the legislative history behind the enactment of the FTAIA is consistent with the narrowing trend the Court expressed in RJR Nabisco and incorporating that rationale would uphold Congress’s intention to clarify, and likely limit, the scope of the Sherman Act given the concerns raised about its reach.

Looking to recent jurisprudence, the Seventh Circuit’s interpretations in Motorola are most in accord with the reasoning of the Supreme Court, and courts should use it as a guide in future antitrust cases involving foreign component cartels. The Seventh Circuit reflects the same limiting mindset due to concerns of international friction as expressed by the Court. The Seventh Circuit in Motorola also began to discuss the separation of the substantive provision from the right of action provision in the FTAIA in relation to rebutting the presumption against extraterritoriality. The presumption is likely rebutted on the substantive provision if the effect meets the “direct, substantial, and reasonably foreseeable”²⁵¹ requirement; however, the absent a domestic injury, the effect will not give rise to the plaintiff’s claim, barring recovery. As the court points out, the DOJ may still hold foreign conspirators accountable because a criminal claim by the government will meet the “gives rise to” requirement²⁵² claiming injury to the United States and its commerce.

Lastly, policy considerations support the narrow scope of U.S. antitrust laws as suggested by the Supreme Court and the Seventh Circuit. Foreign nations have raised valuable concerns that allowing foreign plaintiffs to recover under U.S. law allows them to bypass the laws of the country under which they are incorporated. For those who feel a globalized society calls for the extension of such reach, it is important to bear in mind that the United States cannot and should not police the world. It is simply the price of doing business: if a company choses to conduct its business in foreign countries or with foreign enterprises, it must seek redress under such laws. To allow claims like Motorola’s would open the floodgates to domestic companies bringing private claims on behalf of the thousands of foreign subsidiaries owned by U.S. companies.

While many issues are left to be resolved, using the RJR Nabisco decision and its general limiting nature as instructive, courts can provide be more uniform rulings on the applicability of the FTAIA and antitrust laws to foreign component cartel cases in the future—an issue of high importance and one courts are sure to continue to see in the current, globalized economy.

Extraterritoriality of Antitrust Law: Applying the Supreme Court's Analysis in RJR Nabisco to Foreign Component Cartels

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