Foreign firms lose billions

Every year, non-U.S. firms overpay billions and billions of dollars for goods and services as a result of price-fixing, collusive market-splitting, and other restraints of trade. But many of the firms can get no relief in a U.S. court.

The reason? A U.S. statute — the Foreign Trade Antitrust Improvements Act (FTAIA) – generally exempts from U.S. antitrust law any "conduct involving trade or commerce (other than import trade or import commerce) with foreign nations". 15 U.S.C. 6a.

The FTAIA has an exception. It bars antitrust claims only "unless" the conduct (1) "has a direct, substantial, and reasonably foreseeable effect" on U.S. commerce and (2) "such effect gives rise to a claim under" U.S. antitrust law. Id.

Second Circuit case

The first court of appeals to address the scope of section 6a's exception read it narrowly. The Ninth Circuit construed "direct, substantial, and reasonably foreseeable effect" as requiring that the domestic effect occur as an "immediate consequence" of the defendant's conduct. United States v. LSL Biotechnologies, 379 F.3d 672, 680 (9th Cir. 2004).

Eight years later, the Seventh Circuit adopted an easier test. It heldthat section 6a(1) calls for only a "reasonably proximate causal nexus" between the foreign conduct and the domestic effect. Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845, 857 (7th Cir. 2012) (en banc) (quoting Makan Delrahim, Drawing the Boundaries of the Sherman Act: Recent Developments in the Application of the Antitrust Laws to Foreign Conduct, 61 N.Y.U. Ann. Surv. Am. L. 41, 430 (2005)).

A case involving third-generation USB connectors prompted the Second Circuit to weigh in on the circuit split. Lotes Company, a Taiwanese firm, alleged that competitors in Taiwan and China colluded to keep Lotes out of the USB 3.0 market. The anticompetitive pact, Lotes claimed, threatened to bankrupt Lotes and eliminate it as a competitor. 

The district court relied on the Ninth Circuit's approach to the "direct, substantial, and reasonably foreseeable effect" language in dismissing the case. Lotes appealed.

Good for overseas plaintiffs . . . and bad

The Second Circuit rejected the Ninth Circuit test and adopted the Seventh Circuit's more lenient one.

But the panel affirmed the dismissal of Lotes's case anyway. The court ruled that, although Lotes had alleged enough to show a "reasonably proximate causal nexus" for purposes of section 6a(1), it had not stated facts that demonstrated a nexus between the anticompetitive conduct and the effect of the conduct on Lotes in the U.S.:

We . . . must determine whether any domestic effect resulting from the anticompetitive conduct proximately caused Lotes's injury. We conclude that it did not. Lotes alleges that defendants' foreign conduct had the effect of driving up the prices of consumer electronics devices incorporating USB 3.0 connectors in the United States. But those higher prices did not cause Lotes's injury of being excluded from the market for USB 3.0 connectors — that injury flowed directly from the defendant's [sic] exclusionary foreign conduct. Lotes's complaint thus seeks redress for precisely the type of 'independently caused foreign injury" that . . .falls outside of Congress's intent.

Lotes Co., Ltd. v. Hon Hai Precision Industry Co., No. 13-2280, slip op. at 47 (2d Cir. June 4, 2014) (quoting F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 173 (2004)).


The Second Circuit's ruling in Lotes eases the first part of the FTAIA test (section 6a>1)) but strictly applies the second component (section 6a(2)). Anticompetitive conduct that takes place entirely overseas may (and in a global business almost always will) proximately cause an effect in the U.S., but the domestic effect still must "give[] rise" to the claim in the sense that it causes the injury for which the plaintiff seeks recovery.

A claim like Lotes's — that the defendants did things in Taiwan and China to destroy Lotes as a competitive manufacturer of USB 3.0 connectors in Taiwan — may pass the "direct" prong of the FTAIA test by alleging higher prices in the U.S.* but fails the "gives rise to" prong unless the plaintiff felt the effects of the anticompetitive behavior in the U.S.

The case may have come out differently if Lotes could have alleged that the anticompetitive conduct in Asia had foreseeably kept it out of the U.S. market.


*The panel declined to reach the question of whether Lotes's complaint satisfied section 6a(1).