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Antitrust law - Second Circuit interprets the Foreign Trade Antitrust Improvements Act as requirement for establishing jurisdiction in U.S. courts.

ANTITRUST LAW--SECOND CIRCUIT INTERPRETS THE FOREIGN TRADE ANTITRUST IMPROVEMENTS ACT AS REQUIREMENT FOR ESTABLISHING JURISDICTION IN U.S. COURTS--Lotes Co., Ltd. v. Hon Hai Precision Indus. Co. Ltd., 12 CIV. 7465 SAS, 2013 WL 2099227 (S.D.N.Y 2013).

The Foreign Trade Antitrust Improvements Act of 1982 (FTAIA) provides that the Sherman Act "shall not apply to conduct involving trade or commerce ... with foreign nations," but sets forth exceptions when "conduct has a direct, substantial, and reasonably foreseeable effect" on foreign imports, domestic commerce, or American exports. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) in Lotes Co., Ltd. v Hon Hai Precision Indus. Co. Ltd., (NOTEREF _Ref256116482 \h \* MERGEFORMAT) the Plaintiff, Lotes Co. Ltd. (Lotes), alleged the Defendants, Hon Hai Precision Industry Co. Ltd (Hon Hai) and Foxconn (Kunshan) Computer Connector Co., Ltd. (Foxconn), violated sections one and two of the Sherman Act. (NOTEREF _ReC56116482 \h \* MERGEFORMAT) The United States District Court for the Southern District of New York considered whether the FTAIA defines the requirements for foreign businesses to establish jurisdiction in U.S. courts or identifies the substantive elements of an antitrust claim. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) The court then determined whether the defendant's conduct in refusing to issue Lotes RAND-Zero licenses could be seen as having a "direct, substantial, and reasonably foreseeable effect" on domestic

commerce. (NOTEREF _ReC56116482 \h \* MERGEFORMAT) The District Court ultimately decided that due to the existing precedent in the Second Circuit, the court had to apply the statute as jurisdictional in nature and dismissed the claim for lack of subject matter jurisdiction (NOTEREF _Ref256116482 \h \* MERGEFORMAT)

Lotes and the defendants, Hon Hai and Foxconn, are Chinese corporations. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) Lotes competes directly with Foxconn and Hon Hai in China by producing USB 3.0 connectors and selling them to manufacturers that design computer products. NOTEREF _Ref256116482 \h \* mergeformat Both Lotes and the Defendants signed a Contributors Agreement and an Adopters Agreement on December 11, 2007 through the USB Implementers Forum, Inc (USB-IF). (NOTEREF _Ref256116482 \h \* MERGEFORMAT) The USB-IF established the technology standards for USB 3.0 connectors and in order for parties to adopt these technology standards, the USB-IF "require[s] technology-contributing parties agree to license all [their] incorporated technology on reasonable and non-discriminatory (RAND) terms." (NOTEREF _Ref256116482 \h \* MERGEFORMAT) In signing the agreements, "contributors" must grant any "[a]dopter" a "non-exclusive world-wide license under any Necessary claim of a patent or patent application ... on a royalty-free basis and under otherwise reasonable and nondiscriminatory ('RAND-Zero') terms " (NOTEREF _Ref256116482 \h \* MERGEFORMAT)

Lotes tried to negotiate with Hon Hai on more than one occasion concerning the RAND-Zero licensing terms in the Contributors and Adopters Agreement. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) Hon Hai, however, refused to license the USB 3.0 standard patents to Lotes and instead, Foxconn brought two patent infringement suits against two of Lotes' subsidiaries in China, which prevented Lotes from manufacturing the USB connectors. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) in the proceedings, Foxconn only alleged infringement on two of the thirteen types of the USB 3.0 connectors Lotes manufactures. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) Lotes claimed that the alleged infringed patents are "Necessary Claims" and "Contributions" per the Contributors Agreement and "therefore must be licensed to Lotes [under] the RAND-Zero terms." (NOTEREF _Ref256116482 'h \* MERGEFORMAT) Additionally, while none of the parties "directly sell any USB 3.0 connectors in the United States," Lotes also argued that Defendants' antitrust conduct violated sections one and two of the Sherman Act pursuant to FTAIA because Lotes believed Defendants' conduct caused prices to rise and stifled competition in the Unites States' USB 3.0 market. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) Lotes believed that the Defendants' actions were aimed at keeping Lotes out of competitive markets and were capable of restraining competitive manufacturing of USB 3.0 connectors, which would cause price increases in United States' products incorporating the USB 3.0 connectors (NOTEREF _Ref256116482 \h \* MERGEFORMAT)

The court first addressed the issue of whether the FTAIA establishes a substantive element of an antitrust claim, or whether the FTAIA is meant to provide subject matter jurisdiction for the courts. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) Acknowledging that current sentiment in the circuit may be pointing to the contrary, the court stated it was bound to the existing precedent in the Second Circuit and determined that the FTAIA outlines the elements to establish subject matter jurisdiction. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) Next, the court applied the FTAIA as a jurisdictional rule to Lotes' claims and determined whether the defendants' conduct has a " 'direct, substantial, and reasonably foreseeable effect' on domestic commerce" in the United States. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) The court determined there was no subject matter jurisdiction because the defendants' conduct was too attenuated and the effect was not "direct, substantial or reasonably foreseeable" in the United States. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) in determining that the FTAIA defines a jurisdictional requirement, the court ruled in favor of the defendant's motion to dismiss and dismissed the case for lack of subject matter jurisdiction (NOTEREF _Ref256116482 \h \* MERGEFORMAT)

The U.S. Congress enacted the Sherman Antitrust Act in 1890 for the purpose of protecting consumers in the U.S. economy by prohibiting the creation of monopolies and restrictions on trade. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) Courts since have had difficulty defining and applying how, if at all, the statute should be applied to conduct occurring in foreign territories. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) The Supreme Court first applied the Sherman Act in American Banana Co. v. United Fruit Co., where the Court declined to extend the reach of the Act to anti-trust conduct in the banana industry in Costa Rica, stating that whether an act is lawful must be determined by the law of the country where the act occurred. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) As America became more involved in the international economy, the Supreme Court began to relax the strict rule expressed in American Banana and eventually began expanding the Sherman Act to apply outside of the United States in limited circumstances. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) After years without a decisive test, the Second Circuit sought to provide one and brought forth a two-pronged approach to analyze alleged extraterritorial Sherman Act violations, considering whether the conduct abroad was intended to affect U.S. imports and whether it actually did affect them. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) This analysis, provided in United States v. Aluminum Co. of America, shifted the focus from the location of the alleged conduct to the location of the conduct's effect (NOTEREF _Ref256116482 \h \* MERGEFORMAT)

In an effort to provide clarification for when antitrust liability attaches to international conduct and to reduce the number of cases brought by foreign parties involving only minor effects on domestic commerce, Congress enacted the FTAIA in 1982 as an exception to the Sherman Act. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) The FTAIA states that the Sherman Act does not apply to conduct involving (non-import) trade or commerce with foreign nations, unless the conduct has a "direct, substantial, and reasonably foreseeable effect" and the effect gives rise to a claim that falls within the Sherman Act's purview. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) However, the courts have shown difficulty in interpreting and applying this law. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) While Congress's goal in enacting the FTAIA was to improve clarity, its language has been described as "inelegantly phrased" and "[m]uddying the waters further" and has only created increased confusion. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) The foremost confusion exists in regards to whether the purpose of the FTAIA is to establish federal court subject-matter jurisdiction over a foreign antitrust controversy or to provide the elements required for establishing a claim. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) The Supreme Court addressed this discrepancy in its interpretation in Arbaugh v. Y & H Corp., ruling that in the absence of a clear legislative statement that the scope of a limitation is meant to be jurisdictional, limitations should be viewed as non-jurisdictional. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) Despite the decision, there is currently a circuit split on the interpretation of the FTAIA. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) Following the Supreme Court's general ruling on limitation statutes in Arbaugh, the Third and

Seventh Circuits have interpreted the FTAIA as setting forth the elements of an antitrust claim, not a jurisdictional limitation. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) The Second and Ninth Circuit, however, have applied the FTAIA much more restrictively and view it as providing the standard for establishing when subject matter jurisdiction exists over a foreign antitrust claim. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) Nevertheless, both the lower courts of the Second and issue. (NOTEREF _Ref256116482 \h \* MERGEFORMAT)

In Lotes Co., Ltd., the Second Circuit considered whether the FTAIA establishes jurisdiction requirements or elements for a foreign antitrust claim in U.S.

Courts. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) In determining which way to interpret and apply the statute, the district court discussed the contrasting views of the different circuits. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) While acknowledging that their interpretation may be considered contrary to current thinking, the district court deemed that they were bound by Second Circuit precedent to interpret the statute as jurisdictional. (NOTEREF _Ref256116482 * \* MERGEFORMAT) The court explained that the Second Circuit precedent instituting the FTAIA's limitations as a constraint on the courts' jurisdiction was established in Filetech S.A. v. France Telecom S.A. and has not been revisited by a higher court since the Supreme Court ruled on limiting statutes in Arbaugh v. Y & H Corp (NOTEREF _Ref256116482 \h \* MERGEFORMAT)

The district court then decided whether the offending antitrust conduct had a "direct, substantial, and reasonably foreseeable effect" on domestic commerce. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) The court ruled that while Lotes claimed that the anti-competitive conduct with the USB connectors would result in higher computer prices in the United States, the effects were too attenuated to establish proximate causation under the FTAIA. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) This conclusion came from the fact that the defendants' conduct did not include blatant price-fixing activity, the USB connectors are just one small component of the finished products, and the plaintiff did not allege that defendants were controlling a majority of the market share. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) Because the court determined that the effects of defendants' alleged misconduct, in making false representations to the USB-IF, in refusing to issue RAND-Zero licenses to Lotes, and in bringing patent enforcement proceedings against Lotes in China, was not direct, substantial or reasonably foreseeable in the United States, the court dismissed the claims for lack of subject matter jurisdiction (NOTEREF _Ref256116482 \h \* MERGEFORMAT)

The United States District Court for the Southern District of New York acquiesced to the existing precedent in the Second Circuit in Lotes Co., Ltd. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) However, while being "bound" by precedent, the court shrewdly insinuated its disagreement with the precedent, detailing all of the lower court decisions that have cast doubt on the Second Circuit's current interpretation of the issue. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) The court also admitted that its interpretation is against the current trend arising out of other circuits. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) Instead of just hinting at disagreement with the growing disparity in application of the statute, the court could have used this opportunity to depart from the existing interpretation, like the lower court in the Ninth Circuit recently did, forcing the Second Circuit appellate court to readdress the issue for the first time since Arbaugh was decided (NOTEREF _Ref256116482 \h \* MERGEFORMAT)

The decision in Lotes Co., Ltd., in light of the decisions from other jurisdictions, highlights the glaring inconsistency and need for a clear standard ruling. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) Arbaugh was intended to provide a clear and easy blanket standard for determining whether a statute governs jurisdiction or specifies an element of a substantive cause of action. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) However, because it did not directly address the FTAIA, courts continue to use their own discretion. (NOTEREF _Ref256116482 \h \* mergeformat) The policy and procedural impact of the varying interpretations from circuit to circuit is large and could promote forum shopping from foreign parties. (NOTEREF _Ref256116482 \h \* MERGEFORMAT)

Since the ruling in Arbaugh, it appears that U.S. antitrust law is generally broadening its reach with more courts taking the approach that the FTAIA establishes substantive elements to an antitrust claim regarding foreign conduct. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) This is a dramatic shift from the decades prior to Arbaugh, where courts and Congress tended to prefer a stricter approach. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) Based on the evolving current sentiment, circuits, including the Second Circuit, that have not overturned FTAIA subject matter jurisdiction rulings will most likely reevaluate the issue in the near future. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) This shift creates a more plaintiff friendly atmosphere, allowing foreign plaintiffs more leeway in initiating claims in U.S. courts because they will not be dismissed at the start through subject matter jurisdiction. (NOTEREF _Ref256116482 \h \* MERGEFORMAT) Due to this, courts should be cautious of the extraterritorial scope of U.S. antitrust laws because while applying the statue as substantive elements reduces the difficulty for foreign parties to seek relief, it increases the potential to effect foreign markets and the economic policies of other nations. (NOTEREF _Ref256116482 \h \* MERGEFORMAT)

In Lotes Co., Ltd. v. Hon Hai Precision Indus. Co. Ltd, the United States District Court for the Southern District of New York considered whether when dealing with antitrust conduct that occurred outside out of the U.S., the FTAIA established a jurisdictional limitation on federal courts, or set forth substantive elements for bringing a claim. The court begrudgingly followed the Second Circuit case precedent and determined that the FTAIA should be interpreted as a jurisdictional statute and dismissed the plaintiff's claim based on lack of subject matter jurisdiction. Although there is currently a circuit split in how to interpret and apply the FTAIA, the district court's decision conflicts with the changing sentiment of other circuits to broaden the scope of extraterritorial U.S. antitrust law. The shift to substantive elements from subject matter jurisdiction opens the U.S. courts to a more plaintiff-friendly atmosphere and goes against the historical intent of Congress. Regardless, the lack of consistency among the circuits, and even within the circuits themselves, illustrates the necessity of a clear and direct guideline for courts to follow regarding foreign antitrust conduct.

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See 15 U.S.C. [section] 6a (1982) (noting exception of when Sherman Act may be applied to foreign conduct).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) 12 CIV. 7465 SAS, 2013 WL 2099227 (S.D.N.Y. 2013).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at *1 (describing Lotes' complaint against Defendants). See 15 U.S.C. [section] 1 (2004) Section one of the Sherman Act states "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." Id. See 15 U.S.C. [section] 2 (2004). Section two states that, "[e]very person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony...." Id.

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See Lotes Co., Ltd., 12 CIV 7465 SAS, 2013 WL 2099227 at *6-7 (citing circuit split of opinion on issue).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at *5-10 (analyzing whether defendants' conduct has a "direct, substantial, and reasonably foreseeable effect"). See infra notes 10-11 and accompanying text (explaining RAND-Zero license).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Lotes Co., Ltd., 12 CIV 7465 SAS, 2013 WL 2099227 at *5, *10 (concluding conduct has indirect effect and providing reasoning for decision).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at *2 (establishing parties in case and country of incorporation).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at *2 (explaining parties' business relationship). "USB," the abbreviation for Universal Serial Bus, are connectors used primarily for connecting computer accessories or add-ons, such as "hard drives, printers and keyboards, to personal computers, smart phones and other electronic devices." Id. at *2. USB 3.0 is the most recent "generation" of these USB connectors. Id.

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at *2 (explaining agreements). USB Implementers Forum, Inc. (USB-IF) is a private standard-setting organization. Lotes Co., Ltd. v. Hon Hai Precision Indus. Co. Ltd, 12 CIV. 7465 SAS, 2013 WL 2099227, *1 (S.D.N.Y 2013).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at *1-2 (clarifying purpose of USB-IF and agreement requirements). A standard is "a common set of technological specifications" that are to be used throughout the industry for a specific type of technology, here, USB connectors. Id. at *1. In order to initiate and improve cooperation between the different companies that create the various components for computers, companies work together to create the technical standards. Id. These standards employ "patented technology" and additional "intellectual property rights." Id. at *1.

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at * 2 (quoting section 3.4 of Contributors Agreement). Both the Defendants and the Plaintiff are "contributors" and "adopters" according to the terms of the USB-IF. Lotes Co., Ltd., 12 CIV 7465 SAS at *6. According to the agreements, USB-IF promises all the "[a]dopters that it has secured royalty-free licenses for all patents and [intellectual property] needed to [utilize] the USB 3.0 standard. Id.

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at *2 (outlining basis of dispute).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. (discussing patent infringement claims brought against Lotes). In the first suit, Foxconn claimed infringement against the Lotes subsidiary, Lotes SuZhou, on two Chinese patents: the "608.0 patent" and the "623.1 patent." Id. The second patent claim was against the Lotes subsidiary, Lotes GuangZhou, for the same two patents. Id.

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Lotes Co., Ltd., 12 CIV 7465 SAS, 2013 WL 2099227 at *2 (detailing patent enforcement proceedings).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at *2-*3 (highlighting allegations by Lotes). Lotes further claimed that the Defendants lied "to the USB-IF during the standards-setting process" and were not following the requirements set forth by the USB-IF. Id. at *9. For the purposes of the motion, the court assumed Lotes' allegations were true and thus, the Defendants engaged in anti-competitive conduct. Id. at *5.

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at *3 (summarizing Lotes' anti-competitive allegations argument). Lotes argued that, "[a]nything that affects the price, quantity, or competitive nature of the production market for USB 3.0 connectors will therefore have a direct, substantial, and reasonably foreseeable effect on U.S. commerce in precisely the ways that the antitrust laws were created to prevent." Id. at *3.

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Lotes Co., Ltd., 12 CIV 7465 SAS, 2013 WL 2099227 at *3 (characterizing Lotes' interpretation of defendants' actions).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at 6-7 (evaluating legal standard and other circuit opinions). The language of the FTAIA states, "Sections 1 to 7 of this title [the Sherman Act] shall not apply to 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...." Id. at *5.

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at *7 (reestablishing circuit precedent).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at *6 (applying legal standard in Second Circuit to case at hand).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at *8 (reasoning there was no direct effect on United States).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at *11 (dismissing case for lack of subject matter jurisdiction).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See Deborah J. Buswell, Foreign Trade Antitrust Improvements Act: A Three Ring Circus-Three Circuits, Three Interpretations, 28 Del. J. Corp. L. 979, 981 (2003) (describing purpose of Sherman Act); supra note 3 (quoting text from Sherman Act sections one and two).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See, e.g., Am. Banana Co. v. United Fruit Co., 213 U.S. 347, 355-59 (1909) (holding acts occurring in Central America were not covered by scope of Sherman Act); United States v. Sisal Sales Corp., 274 U.S. 268, 276 (1927) (Sherman Act applied when established monopoly of imported sisal sales from Mexico raised U.S. market prices); United States v. Aluminum Co. of Am., 148 F.2d 416, 443-444 (2d Cir. 1945) (suggesting Sherman Act should cover actions intending to affect United States).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Am. Banana Co., 213 U.S. at 356 (ruling defendant's actions in Costa Rica were not within scope of statute). In American Banana, a U.S. defendant created a banana monopoly in Costa Rica and induced Costa Rican soldiers and officials to seize part of the U.S. plaintiff's plantation depriving him of his land. Id. at 355. The Court explained that no matter how ethically contrary the defendant's acts were to the Sherman Act, the acts did not fall under the Sherman Act, were not considered unlawful in Costa Rica, and the Court would not challenge the state's sovereignty. Id. at 357-58.

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See Sisal Sales Corp., 274 U.S. at 276 (1927) (determining appellees' restraint on trade brought forbidden results in United States thus falling within U.S. courts' jurisdiction). The Court compared the facts present in Sisal Sales Corp. to those of American Banana in making their decision. Id. at 275-76. The Court reasoned that the circumstances in this case fell under the Sherman Act because the appellees were conducting foreign imports intended to restrain trade specific to that commodity and to raise market prices in the United States. Id. See Daniel Wotherspoon, The "Element" of Surprise: The Third Circuit Bucks the Foreign Trade Antitrust Improvements Act Trend in Animal Science Products, Inc. v. China Minmetals Corp., 57 Vill. L. Rev. 785, 788 (2012) (discussing expansion of Sherman Act's extraterritorial reach). Although Sisal slightly expanded upon the Sherman Act exterritorialy, the ruling did not substantially change the way courts analyzed and applied the Act. Id. American Banana's facts were still used as the main basis of comparison or differentiation for rulings. Id.

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See Aluminum Co. of Am., 148 F.2d at 444 (asserting Act could apply to conduct abroad if intended to affect U.S. imports and did so). The court distinguished that while the Sherman Act requires intent and the intended result, conduct that is not intended to affect imports, but does or conduct that is intended to have an effect, but does not would not fall under the Act. Id.

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Compare Aluminum Co. of Am., 148 F.2d at 444 (asserting Sherman Act could apply to conduct abroad if intended to affect U.S. imports and did so), with Am. Banana Co., 213 U.S. at 356 (1909) (ruling defendant's actions outside of U.S. were not within scope of Act). This is known as the "effects test." United States v. LSL Biotechnologies, 379 F.3d 672, 677 (9th Cir. 2004).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) H.R. Rep. No. 97-686, at 5-7 (1982), reprinted in 1982 U.S.C.C.A.N. 2487, 2490-92 (explaining specific purpose of Sherman Act modification). The FTAIA was meant to "serve as a simple and straightforward clarification of existing American Law and the Department of Justice enforcement standards...." Id. See Edward D. Cavanagh, The FTAIA and Subject Matter Jurisdiction over Foreign Transactions Under the Antitrust Laws: The New Frontier in Antitrust Litigation, 56 SMU L. Rev. 2151, 2158 (2003) (describing legislative history and purpose for FTAIA).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) 15 U.S.C. [section] 6a (1982) (providing exception to ban on conduct involving foreign nations); see F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 162 (2004) (paraphrasing FTAIA).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See Den Norske Stats Oljeselskap As v. HeereMac Vof, 241 F.3d 420, 423-24 (5th Cir. 2001) (maintaining "history of this body of case law is confusing and unsettled"); Abbot Lipsky, Jr. & Kory Wilmot, The Foreign Trade Antitrust Improvements Act: Did Arbaugh Erase Decades of Consensus Building?, American Bar Association Antitrust Source, Aug. 2013, at 5 (commenting courts have struggled to standardize application of Sherman Act).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See Arbaugh v. Y&H Corp., 546 U.S. 500, 503 (2006) (noting commonly confused concepts within FTAIA); see Turicentro, S.A. v. Am. Airlines Inc., 303 F.3d 293, 300 (3d Cir.2002) (stating FTAIA has "rather convoluted language"); United States v. Nippon Paper Indus. Co., Ltd., 109 F.3d 1, 4 (1st Cir. 1997) (disregarding FTAIA language as "inelegantly phrased"). The court found the language in the statute so poorly written that they declined to take it into consideration in their decision stating, "[we] do not rest our ultimate conclusion about Section One's scope upon the FTAIA." Id. See Buswell, supra note 23, at 984 (describing FTAIA as "[m]uddying ... waters further").

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See Arbaugh, 546 U.S. at 503 (2006) (highlighting two different interpretations of limitation statutes). The way the FTAIA is applied determines whether the court would dismiss causes of action for lack of subject-matter jurisdiction or dismiss them for failure to state a claim. See Edward Valdespino, Shifting Viewpoints: The Foreign Trade Antitrust Improvement Act, A Substantive or Jurisdictional Approach, 45 Tex. Int'l L.J. 457, 464 (2009) (examining procedural issues arising from interpretation). Whether the motion to dismiss is interpreted through subject matter jurisdiction or failure to state a claim also affects which party carries the burden as well as the timing of when the issue will be addressed during litigation. See Lipsky, & Wilmot, supra note 31, at 1-2 (outlining relevance of distinction between whether FTAIA is interpreted substantively or jurisdictionally).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See Arbaugh, 546 U.S.at 515-516 (2006) (ruling generally without specifically stated intent, limitation statutes should be read as nonjuridictional in nature).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845, 852 (7th Cir. 2012) (affirming FTAIA sets forth elements of antitrust claims, not jurisdictional limits on power of federal courts); Animal Sci. Products, Inc. v. China Minmetals Corp., 654 F.3d 462, 466 (3d Cir. 2011) (holding FTAIA imposes substantive merits limitation rather than jurisdictional bar); Filetech S.A. v. France Telecom S.A., 157 F.3d 922, 931 (2d Cir. 1998) (applying FTAIA in terms of finding jurisdiction); but see United States v. LSL Biotechnologies, 379 F.3d 672, 683 (9th Cir. 2004) (determining FTAIA provides standard for establishing when subject matter jurisdiction exists over foreign restraint of trade).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See Minn-Chem, Inc, 683 F.3d at 852 (7th Cir. 2012) (overruling precedent stating FTAIA sets forth elements of antitrust claims, not jurisdictional limits on power of federal courts). The court overruled its decisions in United Phosphorus v Angus Chem., 322 F.3d 942, 952 (7th Cir. 2003) which stated that the FTAIA affected the subject-matter jurisdiction, relying on the legislative history of the statute, the vocabulary used by a number of commentators, and previous court decisions that used the word "jurisdiction" when describing the requirement that challenged conduct must affect interstate or import commerce in specified ways. Id. at 851. In overruling, the court stated, "The FTAIA, however, never comes close to using the word 'jurisdiction' or any commonly accepted synonym. Instead, it speaks of the 'conduct' to which the Sherman Act (or the Federal Trade Commission Act) applies. This is the language of elements, not jurisdiction." Id. at 852. See Animal Sci. Products, Inc., 654 F.3d at 466 (holding FTAIA imposes substantive merits limitation rather than jurisdictional bar). In Animal Sci. Products, Inc, the court said the statutory text in the FTAIA "is silent in regard to the jurisdiction of the federal courts." Id. at 468. "The FTAIA reads only that the Sherman Act 'shall not apply' if certain conditions are met." Id. Assessed using theArbaugh decision's "'clearly states' test, the FTAIA's language must be interpreted as imposing a substantive merits limitation rather than a jurisdictional bar." Id. at 468-69.

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See United States v. LSL Biotechnologies, 379 F.3d 672, 683 (9th Cir. 2004) (determining FTAIA provides standard for establishing when subject matter jurisdiction exists over foreign restraint of trade). The court looked at the FTAIA as more than a mere codification of the "effects test." Id. at 679. Quoting the House Report, the court explained that the "enactment of a single, objective test--the 'direct, substantial, and reasonably foreseeable effect' test--will serve as a simple and straightforward clarification of existing American law." Id. Congress's intent was to clearly establish when liability attaches to international business activity. Id. at 678. See Filetech S.A. v. France Telecom S.A., 157 F.3d 922, 931 (2d Cir. 1998) (applying FTAIA in terms of finding jurisdiction). But see In re TFT-LCD (Flat Panel) Antitrust Litig., 822 F. Supp. 2d 953, 958 (N.D. Cal. 2011) (disavowing jurisdictional application in Ninth Circuit). The most recent Ninth Circuit case, although only a district court decision, demonstrated that going forward, the Circuit will most likely accept and apply the Arbaugh elements standard. Id.

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See In re Vitamin C Antitrust Litig., 904 F. Supp. 2d 310, 315 (E.D.N.Y 2012) (exposing lack of opinion by the Second Circuit on whether FTAIA is jurisdictional since 2010); Boyd v. AWB Limited, 544 F. Supp. 2d 236, 243 n. 6 (S.D.N.Y 2008) (questioning Second Circuit's application of FTAIA). Although neither party brought up a jurisdictional challenge in this case, the court said that the FTAIA suggests a limitation on the substantive applicability of the statute and thus under Arbaugh, the restriction should be considered nonjurisdictional in character. Id. The court took note that "[b]ecause nothing in the statutory language of the FTAIA indicates that its limitations are jurisdictional, Arbaugh may require that the Second Circuit review its treatment of that issue." Id. See In re TFT-LCD (Flat Panel) Antitrust Litig., 822 F. Supp. 2d 953, 958 (N.D. Cal. 2011) (refusing following of jurisdictional application in Ninth Circuit).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See Lotes Co., Ltd. v. Hon Hai Precision Indus. Co. Ltd., 12 CIV. 7465 SAS, 2013 WL 2099227, *6-7 (S.D.N.Y. 2013) (stating circuit split in application of FTAIA exists).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at *6-7 (comparing and contrasting application of FTAIA in different circuits).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at *7 (holding FTAIA now regarded as jurisdiction-defining statute).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. (examining lower court decision explaining FTAIA's history in Second Circuit) (quoting Filetech S.A. v. France Telecom S.A., 157 F.3d 922, 931 (2d Cir. 1998) (establishing FTAIA as jurisdictional)). See also Arbaugh v. Y&H Corp., 546 U.S. 500, 503 (2006) (articulating interpretation of Congressional statutory language).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Lotes Co., Ltd. v. Hon Hai Precision Indus. Co. Ltd., 12 CIV. 7465 SAS, 2013 WL 2099227, *7 (S.D.N.Y. 2013) (applying FTAIA to defendant's conduct).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at *8 (contesting plaintiff's argument). The district court stated that, at most, the defendants' conduct might cause "ripple effects" and those were not enough to bring a foreign injury under the umbrella of the Sherman Act. Id. at *9.

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at *10 (distinguishing from circumstance where direct effects on U.S. commerce was found); see In re TFT-LCD (Flat Panel) Antitrust Litig., 822 F. Supp. 2d 953, 958 (N.D. Cal. 2011) (finding global price-fixing conspiracy had direct effects on U.S. commerce).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Lotes Co., Ltd., 12 CIV 7465 SAS, 2013 WL 2099227 at *10 (dismissing plaintiff's claims for lack of subject matter jurisdiction).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. at *7 (stating court bound by precedent until overruled).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) Id. (discussing lower court's decisions and relevance) (quoting Boyd v. AWB Limited, 544 F. Supp. 2d 236 (S.D.N.Y. 2008)); see supra note 38 (examining Second Circuit lower court decisions).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See Lotes Co., Ltd., 12 CIV 7465 SAS, 2013 WL 2099227 at *6-7 (acknowledging Second Circuit interpretation is contrary to current recent rulings).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See In re TFT-LCD (Flat Panel) Antitrust Litig., 822 F. Supp. 2d 953, 958 (N.D. Cal. 2011) (refusing to follow jurisdictional application in Ninth Circuit). Agreeing with the Third Circuit, the lower court stated that although it recognized that the existing precedent in the Ninth Circuit interpreted the FTAIA as jurisdictional, those decisions came before Arbaugh and could no longer withstand the Arbaugh "clearly states" test. Id. at 958-59.

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See Buswell, supra note 23, at 997 (concluding clear and consistent guidelines for applying FTAIA must be established); supra notes 35-38 and accompanying text (comparing varying precedent-setting cases in each circuit).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See Arbaugh v. Y&H Corp., 546 U.S. 500, 515-16 (2006) (creating and applying bright line test). The court recognized that it can be a close question when deciding whether a disputed matter concerns jurisdiction or the merits. Id. However, "when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional in character." Id.

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See supra notes 35-38 and accompanying text (discussing conflicting applications, even after Arbaugh).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See Wotherspoon, supra note 26, at 801-06 (considering procedural and policy concerns). Circuits interpreting the FTAIA jurisdictionally are more beneficial to defendants because the case can be dismissed at the onset, the burden is on the plaintiff, and they do not have an opportunity for discovery. Id. at 801-02. On the other hand, the defendant is worse off in jurisdictions where the FTAIA is a substantive statute because the burden shifts. Id. at 803. While one of the reasons Congress enacted the FTAIA was to reduce the amount of foreign issues brought into U.S. courts, the Supreme Court, by interpreting it as substantive, could make it easier for foreign plaintiffs to bring more cases into U.S. jurisdiction. See supra note 29 and accompanying text (outlining congressional reasoning); see also Wotherspoon, supra note 26, at 805 (explaining substantive approach allows for litigation with foreign nations).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845, 852 (7th Cir. 2012) (stating FTAIA sets forth elements of antitrust claims, not jurisdictional limits on power of federal courts); Animal Sci. Products, Inc. v. China Minmetals Corp., 654 F.3d 462, 466 (3d Cir. 2011) (holding FTAIA imposes substantive merits limitation rather than jurisdictional bar); Wotherspoon, supra note 26, at 807 (alleging there is evidence Animal Sci. Products, Inc., is part of complete overhaul of circuits' view of FTAIA).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 951 (7th Cir. 2003) (contending jurisdiction stripping is what Congress intended when enacting FTAIA); Cavanagh, supra note 29, at 2188 (arguing FTAIA was meant to limit, not expand, jurisdiction to foreign plaintiffs); see also supra note 29 (discussing legislative intent);.

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See supra note 38 (listing lower court cases which show disagreement with circuit precedent and need to reevaluate).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See Wotherspoon, supra note 26, at 803 (asserting procedural battle is in favor of plaintiff).

(NOTEREF _Ref256116482 \h \* MERGEFORMAT) See United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 952 (7th Cir. 2003) (supporting interpretation as jurisdictional). The Seventh Circuit reasoned that by interpreting the FTAIA as an issue of subject matter jurisdiction, it "limits the power of the United States courts (and private plaintiffs) from nosing about where they do not belong." Id. See also Wotherspoon, supra note 26, at 805 (stating jurisdictional treatment limits U.S. courts' ability to meddle in foreign economics).
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Author:Durkin, Ashley
Publication:Suffolk Transnational Law Review
Article Type:Case note
Date:Mar 22, 2014
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