Recent Developments In The Extra Territorial Application Of The U.S. Antitrust Laws

Author:Mr David Goldstein, Robert P. Reznick and Shannon C. Leong

    Many Japanese companies and executives have experienced the nightmare of criminal and civil legal proceedings in the United States arising from allegations that they violated U.S. antitrust law—the Sherman Act1—by participating in a price-fixing conspiracy. This includes, for example, a long-running group of cases in California involving electronics components such as dynamic random-access memory (DRAM), static random-access memory (SRAM), liquid crystal displays (LCD), cathode ray tubes (CRT), optical disc drives (ODD), lithium ion batteries, and capacitors. It also includes the many cases in Michigan involving automobile parts. These, and other cases, have resulted in criminal investigations in which Japanese companies have been compelled to pay fines to the U.S. government, and executives have been forced to serve prison sentences in the United States. In addition, Japanese companies have faced years of civil lawsuits and paid billions of U.S. dollars in settlements and legal fees to resolve private damages actions.

    In light of these substantial potential liabilities, it is critical that Japanese companies and executives understand the extent to which the Sherman Act can be applied to conduct that takes place outside the United States, but has effects in the United States. The extraterritorial reach of the Sherman Act is limited by the Foreign Trade Antitrust Improvements Act (FTAIA),2 which Congress passed in 1982. Since then, different appellate courts have applied the FTAIA in different ways. In 2014, long-awaited decisions from three different appellate courts addressed how the FTAIA limits application of the Sherman Act to non-U.S. conduct. Unfortunately, the decisions are not entirely consistent. This article attempts to provide some guidance by providing an overview of the Sherman Act and the FTAIA, giving a brief history of how courts have applied the FTAIA, analyzing the decisions issued in 2014 (one of which was significantly amended in January 2015), and offering some suggestions to reduce the risk of becoming ensnared in legal proceedings in the United States alleging violations of the Sherman Act.


    Section 1 of the Sherman Act provides that, "[e]very contract, combination . . . , or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is declared to be illegal."3 "The Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade. . . . . the policy unequivocally laid down by the Act is competition."4 Applied literally, the Sherman Act's language could be construed to prohibit every contract that regulates trade or commerce,5 but the U.S. Supreme Court has made clear that Section 1 is limited to conduct that restricts competition unreasonably.6

    The Sherman Act does not treat all agreements that restrain trade in the same manner. Some agreements that restrain trade can also promote competition, so they are subject to the "rule of reason," which considers the procompetitive and anticompetitive effects of the conduct at issue. This is the usual framework for analysis under Section 1 of the Sherman Act.7

    However, some agreements are considered to be so harmful to competition and unjustifiable that they are considered per se illegal—that is, the agreements automatically are considered to be a violation of the Sherman Act, with very few defenses available.8 Conduct that falls into this category includes agreements among competitors to fix prices, to limit output or production, to divide markets (for example, by geography or customer), or to fix bids for an opportunity, project or asset.9 These activities are the most serious violations of the Sherman Act, draw the most scrutiny from U.S. enforcement agencies, are most likely to result in criminal prosecution, and pose the greatest risk in private damages actions.10

    The penalties for violating the Sherman Act can be severe. A company that is criminally convicted of violating the Sherman Act may be punished by a fine not exceeding $100 million and a person can be fined up to $1 million.11 The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.12 For example, in the LCD price-fixing case AU Optronics was fined $500 million. A person who is convicted also may be punished by imprisonment not exceeding ten years for each count of conviction.13

    The primary U.S. enforcement agency for price-fixing violations, especially in cases involving foreign companies, is the Department of Justice (DOJ). Prosecuting companies and individuals that engage in price fixing is among the DOJ's highest priorities. In recent years the DOJ has obtained prison sentences averaging 25 months, and in each of 2012 and 2013 it recovered more than $1 billion in fines in price-fixing investigations.14 Currently, the DOJ's most active cases involve the auto parts industry. As of January 2015, 33 companies—some of them Japanese—had pleaded guilty or agreed to plead guilty and had agreed to pay a total of more than $2.4 billion in fines, and 50 individuals—again, some of them Japanese— have been criminally charged.15

    Prosecution by the DOJ is only one area of concern. The other area is private damages actions brought by consumers (or companies) harmed by purchasing price-fixed products. The nature of class action litigation in the United States is well known: an individual consumer (or company) who alleges he purchased a price-fixed product in many cases can bring a lawsuit on behalf of all consumers (or companies) who also bought that product.16 In addition, in the past ten years there has been an increasing trend of companies who purchased price-fixed products to file their own lawsuits.

    In lawsuits brought by private parties, damages generally are trebled and each party that engaged in the unlawful conduct is fully liable for all of the damages caused by the conduct, even damages flowing from the sales of co-conspirators.17 For example, assume five companies agree to fix prices for a product and the overall harm to purchasers of the product is $100 million. That amount would be trebled to $300 million, and each company would be potentially liable for the full $300 million regardless of its size. Accordingly, if the smallest of the five companies received only $5 million of the $100 million, it still would be liable for the full $300 million, although it would receive credits toward the $300 million for amounts the other defendants pay in settlements.

    Damages in private actions can be staggering. In the liquid crystal display (LCD) price-fixing case, the consumer class action plaintiffs obtained a total...

To continue reading