Sunday, July 29, 2018

Kenneth Todd Wallace, Post: In dispute arising from the standards for USB connectors, Second Circuit reviews the extraterritorial reach of U.S. antitrust law


In dispute arising from the standards for USB connectors, Second Circuit reviews the extraterritorial reach of U.S. antitrust law

Lotes Co., Ltd. (“Lotes”), a Taiwanese corporation specializing in the design and manufacture of electronic components for notebook computers, including Universal Serial Bus (“USB”) connectors, alleged that the defendants, a group of five companies that compete with Lotes in making and selling USB connectors, have attempted to leverage their ownership of certain key patents to gain control of a new technological standard for USB connectors and to gain monopoly power over the entire USB connector industry. 

Lotes manufactures USB connectors in factories located in China and sells them to other Taiwanese firms with facilities in China known as Original Design Manufacturers (“ODMs”). ODMs make and assemble computer products incorporating USB connectors for many well-known computer brands that sell them to consumers and businesses around the world, including the United States.
The dispute arose out of the development of the industry standard for USB connectors known as USB 3.0. Common technological standards like USB 3.0 carry pro-competitive benefits and anticompetitive risks because they enable different firms to produce products that are compatible with one another. Since they can interoperate with many other products, standard-compliant products can be more valuable and provide greater benefits to consumers, which in turn simulate increased investment from manufacturers. However, the process of developing standards requires extensive cooperation and coordination among competitors, which can be subverted to anticompetitive ends. To avoid these risks, the standard-setting organizations restrain the behavior of parties participating in the standard by contract. They typically secure agreements wherein parties who contribute proprietary technology to the standard promise to license that technology on reasonable and nondiscriminatory (“RAND”) terms. Absent such an agreement, the standard-setting organization will omit the technology in question from the standard. 

The USB Implementers Forum, Inc. (“USB-IF”) is the standard-setting organization responsible for developing the standards for USB connectors. The parties contributing to the USB 3.0 standard are required by USB-IF to sign the USB 3.0 Contributors Agreement (the “Contributors Agreement”), which Lotes and the defendants have signed. Furthermore, Lotes and the defendants signed USB 3.0 Adopters Agreement with the required Adoption Period, which makes them both contributors to and adopters of the USB 3.0 standard.

Paragraph 3.4 of the Contributors Agreement “obligates ‘Contributor[s]’ to grant to any ‘Adopter’ 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....’J.A. 79 (emphasis omitted)”. Therefore, the defendants were obliged to provide RAND-Zero licenses to Lotes for all patent claims needed to practice the USB 3.0 standard. 

The Contributors Agreement also contains provisions designed to prevent the USB-IF from becoming a forum for antitrust violations, a New York choice-of-law clause and an exclusive choice-of forum clause providing that all disputes arising out of the Agreement shall be heard in the state and Federal courts of New York.
In its complaint, Lotes claims that the defendants have brazenly flouted their obligation to provide RAND-Zero licenses to adopters of the USB 3.0 standard. Lotes alleged that Hon Hai and Foxconn (two of the defendants) have contacted Lotes’ customers and distributors to allege that they had the sole patent rights on USB 3.0 connectors and would sue them if they did not buy from Foxconn. Foxconn reported in a Taiwanese trade press publication that it was the first to obtain patents related to USB 3.0 products which would enable it to enjoy a monopolistic position.
As Lotes attempted to secure a RAND-Zero license, on March 25, 2011, at Hon Hai’s request, it executed and returned a non-disclosure agreement to enable licensing negotiations to proceed. Although Hon Hai’s U.S. outside counsel informed Lotes that it was in the process of developing licensing agreements, Lotes never received a draft licensing agreement or any other further communication.
On February 10, 2012, in-house counsel for Foxconn Electronics sent a letter, on Hon Hai letterhead, to the USB-IF’s President and Chief Operating Officer, stating that Hon Hai and Foxconn were “pleased to be active contributors of the USB 3.0 project and early signers of the USB Contributors Agreement. The letter unequivocally affirmed Foxconn’s commitment to license patent claims necessary to practice the USB 3.0 standard on RAND-Zero terms required by the Contributors Agreement, and that Foxconn would provide RAND licenses for other intellectual property that is not strictly necessary to practice the USB 3.0 standard but that would be required to practice certain “optional features”.
On July 9, 2012, Foxconn Kunshan filed patent infringement suits in China against two Chinese subsidiaries of Lotes, requesting orders enjoining two key Lotes factories from making and selling certain USB 3.0 connectors; and orders for the destruction of all existing infringing inventory and specialized manufacturing equipment. According to Lotes, these patents fall within the defendants’ licensing obligations under the Contributors Agreement and must be licensed to Lotes on RAND-Zero terms.
Lotes alleged that defendants’ action endangered all of Lotes’ existing and prospective business relations and that curbing competition in China will have downstream effects worldwide, including in the United States.
On October 4, 2012, Lotes filed suit against the defendants, and on December 21, 2012, filed the operative First Amended Complaint. The defendants filed a motion to dismiss, which Lotes opposed. The District Court issued an Opinion and Order dismissing the First Amended Complaint for a lack of subject matter jurisdiction, holding that the FTAIA restrictions are jurisdictional. The clerk entered final judgement on May 20, 2013. Lotes appealed.
The United States Court of Appeals for the Second Circuit affirmed the District Court’s decision.
The question presented in this case is the extraterritorial reach of U.S. antitrust law. To answer this question, the Court considers whether plaintiff’s allegation suffice to state a viable claim under the Sherman Act, 15 U.S.C. §§ 1, 2, including: whether the restrictions Congress has imposed on antitrust claims based on foreign conduct under the Foreign Trade Antitrust Improvements Act (“FTAIA”), 15 U.S.C. § 6a, are jurisdictional in nature; whether the defendants have waived the requirements of the FTAIA by contract; whether the defendants’ alleged anticompetitive conduct has a “direct, substantial, and reasonably foreseeable effect” on U.S. domestic or import commerce under the FTAIA; and whether any such effect “gives rise to” the plaintiff’s claims.
“As codified in section 6a of the Sherman Act, the FTAIA provides:”
“‘*404 Sections 1 to 7 of this title 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 —
(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 sections 1 to 7 of this title, other than this section.’”
“If sections 1 to 7 of this title apply to such conduct only because of the operation of paragraph (1)(B), then sections 1 to 7 of this title shall apply to such conduct only for injury to export business in the United States. 15 U.S.C. § 6a.” [753 F. 3d at 404]
The Court cites the Supreme Court’s explanations of this provision in F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 162, 124 S.Ct. 2359, 159 L.Ed.2d 226 (2004) (quoting 15 U.S.C. § 6a(1), (2)), which states:
“‘This technical language initially lays down a general rule placing all (nonimport) activity involving foreign commerce outside the Sherman Act’s reach. It then brings such conduct back within the Sherman Act’s reach provided that the conduct both (1) sufficiently affects American commerce, i.e., it has a “direct, substantial, and reasonably foreseeable effect” on American domestic, import, or (certain) export commerce, and (2) has an effect of a kind that antitrust law considers harmful, i.e., the “effect” must “giv[e] rise to a [Sherman Act] claim.’”
“Congress enacted this statute with two principal purposes in mind. First, the statute seeks to boost American exports by ‘mak[ing] clear to American exporters (and to firms doing business abroad) that the Sherman Act does not prevent them from entering into business arrangements (say, joint-selling arrangements), however anticompetitive, as long as those arrangements adversely affect only foreign markets.’ Empagran, 542 U.S. at 161, 124 S.Ct. 2359 (citing H.R.Rep. No. 97-686, at 1-3, 9-10 (1982), 1982 U.S.C.C.AN. 2487). Second, Congress sought to clarify the legal standard determining when American antitrust law governs foreign conduct, which different courts had articulated in somewhat different ways. See H.R.Rep. No. 97-686, at 5-6 (1982), 1982 U.S.C.C.A.N. 2487. Congress thus ‘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.’ Empagran, 542 U.S. at 169, 124 S.Ct. 2359 (emphasis omitted).” [753 F. 3d at 404]
The Court accepts Lotes’ argument that the district court’s ruling that the FTAIA’s requirements are jurisdictional was erroneous. Lotes argued that Filetech is no longer good law in light of the Supreme Court’s decisions in Arbaugh and its progeny.
“In Arbaugh, the Supreme Court confronted the question of whether a particular requirement in Title VII of the Civil Rights Act of 1964 affects federal courts’ subject matter jurisdiction or is instead a substantive element of a claim on the merits. See 546 U.S. at 503, 126 S.Ct. 1235. In particular, Title VII prohibits any ‘employer’ from discriminating on protected grounds, 42 U.S.C. § 2000e-2(a)(1), and defines ‘employer’ to include only those having ‘fifteen or more employees,’ id. § 2000e(b). Reversing the lower courts, the Supreme Court held that this employee-numerosity requirement goes to the merits of a claim rather than the jurisdiction of the court. See Arbaugh, 546 U.S. at 504, 126 S.Ct. 1235. In so holding, the Court announced a ‘readily administrable bright line’ for when statutory requirements are jurisdictional:”
“‘If the Legislature clearly states that a threshold limitation on a statute’s scope shall count as jurisdictional, then courts and litigants will be duly instructed and will not be left to wrestle with the issue. But when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional in character.’”
“Id. at 515-16, 126 S.Ct. 1235 (footnote and internal citation omitted). In just eight years since Arbaugh, the Supreme Court has repeatedly applied this clear-statement rule to find statutory requirements substantive rather than jurisdictional. See, e.g., Auburn Reg’l, 133 S.Ct. at 824-26 (time limit for filing an appeal to the Provider Reimbursement Review Board under the Medicare statute); Morrison v. Nat’l Austrl. Bank Ltd., 561 U.S. 247, 254, 130 S.Ct. 2869, 177 L.Ed.2d 535 (2010) (extraterritorial reach of § 10(b) of the Securities and Exchange Act of 1934); Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 160-66, 130 S.Ct. 1237, 176 L.Ed.2d 18 (2010) (registration requirement under the Copyright Act).” [753 F. 3d at 405]
“Applying the teaching of the Arbaugh line of cases, we have little difficulty concluding that the requirements of the FTAIA go to the merits of an antitrust claim rather than to subject matter jurisdiction. Nothing in the statute ‘speak[s] in jurisdictional terms or refer[s] in any way to the jurisdiction of the district courts.’ Arbaugh, 546 U.S. at 515, 126 S.Ct. 1235 (quoting Zipes v. Trans World Airlines, Inc., 455 U.S. 385, 394, 102 S.Ct. 1127, 71 L.Ed.2d 234 (1982)). To the contrary, the statutory text refers to the ‘conduct’ to which the Sherman Act ‘appl[ies].’ As the Seventh Circuit has noted, ‘[t]his is the language of elements, not jurisdiction.’ Minn-Chem, 683 F.3d at 852. Moreover, both courts of appeals to have addressed this issue after Arbaugh have reached the same conclusion and have overruled their respective contrary pre-Arbaugh precedents. See id. at 851-52; Animal Sci. Prods., Inc. v. China Minmetals Corp., 654 F.3d 462, 467-68 (3d Cir.2011). To the extent it holds that the FTAIA’s requirements are jurisdictional, Filetech is no longer good law.” [753 F. 3d at 405-406]
The defendants argued that FTAIA imposes a unique, separately codified threshold requirement on antitrust claims involving foreign conduct. They noted that unlike claims involving purely domestic conduct, the FTAIA bars claims based on foreign conduct from proceeding unless the foreign conduct has a cognizable effect on the United States; and concluded that only if that prerequisite is satisfied may the plaintiff pursue a claim “under the provisions of section 1 to 7 of [the Sherman Act], other than [the FTAIA] 15 U.S.C. § 6a(2).”
“But it is hardly uncommon for Congress to impose threshold requirements or to codify those requirements in separate provisions. In the Copyright Act, for example, the threshold requirement for a plaintiff to register his or her copyright before filing an infringement action is codified at 17 U.S.C. § 411(a), separately from the general provisions governing infringement claims at 17 U.S.C. §§ 501-505. But that statutory structure did not prevent the Supreme Court in Reed from finding the registration requirement nonjurisdictional. See Reed, 559 U.S. at 160-66, 130 S.Ct. 1237. Here, the FTAIA unmistakably imposes unique threshold requirements on antitrust claims involving foreign conduct, but nothing in the statute even suggests—much less ‘clearly states,’ Arbaugh, 546 U.S. at 515, 126 S.Ct. 1235—that those requirements are jurisdictional.”
“The defendants’ reliance on the FTAIA’s legislative history fares no better. The statutory text plainly uses ‘the language of elements, not jurisdiction,’ Minn-Chem, 683 F.3d at 852, and courts ‘do not resort to legislative history to cloud a statutory text that is clear.’ Ratzlaf v. United States, 510 U.S. 135, 147-48, 114 S.Ct. 655, 126 L.Ed.2d 615 (1994). Moreover, when the Supreme Court has instructed that jurisdictional requirements must be ‘clearly state[d],’ Arbaugh, 546 U.S. at 515, 126 S.Ct. 1235, looking beyond an unambiguously substantive statutory text is doubly unwarranted.”
“Furthermore, while the defendants point out that portions of the legislative history employ jurisdictional language, other portions speak in merits terms. And even to the extent the legislative history mentions jurisdiction, ‘[j]urisdiction ... is a word of many, too many meanings.’ Arbaugh, 546 U.S. at 510, 126 S.Ct. 1235 (quoting Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 90, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998)). Indeed, ’the legal lexicon knows no word more chameleon-like than `jurisdiction,’” United States v. Yousef, 750 F.3d 254, 259, 2014 WL 1673281, at *3 (2d Cir. Apr. 29, 2014) (quoting United States v. Sabella, 272 F.2d 206, 209 (2d Cir.1959)), and the Supreme Court, ‘no less than other courts, has sometimes been profligate in its use of the term,’ Arbaugh, 546 U.S. at 510, 126 S.Ct. 1235. None of the jurisdictional references the defendants rely upon uses the term unambiguously to describe the adjudicative authority of U.S. courts rather than, somewhat less precisely, the prescriptive scope of U.S. law. See, e.g., H.R.Rep. No. 97-686, at 13 (1982), 1982 U.S.C.C.A.N. 2487, 2498 (explaining that the statute addresses ‘the subject matter jurisdiction of United States antitrust law’ (emphasis added)). Given that the judiciary often conflated these concepts until the Supreme Court began in recent years ‘to bring some discipline to the use of this term,’ Henderson ex rel. Henderson v. Shinseki, ___ U.S. ___, 131 S.Ct. 1197, 1202, 179 L.Ed.2d 159 (2011), Congress’s loose language is hardly surprising.” [753 F. 3d at 406-407]
The Court also does not accept defendants’ invocation of the cannon of statutory interpretation whereby court “ordinarily construe[] ambiguous statutes to avoid unreasonable interference with the sovereign authority of other nations.” Empagran, 542 U.S. at 164, 124 S.Ct. 2359. The Court states: “even assuming that construing the FTAIA to be jurisdictional would serve the interests of international comity, the statute is not ambiguous. And even if it were ambiguous, the Supreme Court has specifically instructed us to treat statutory limitations as nonjurisdictional unless Congress ‘clearly states’ otherwise. Arbaugh, 546 U.S. at 515, 126 S.Ct. 1235.” [753 F. 3d at 407]
“Finally, the defendants point to two arguably jurisdictional statements from the Supreme Court’s decision in Empagran. First, the Court quoted a statement from the FTAIA’s legislative history to the effect that ‘there should be no American antitrust jurisdiction absent a direct, substantial and reasonably foreseeable effect on domestic commerce or a domestic competitor.’ 542 U.S. at 163, 124 S.Ct. 2359 (quoting H.R.Rep. No. 97-686, at 9-10). And second, the Court approvingly quoted a statement from a Fifth Circuit decision, which reported finding ‘no case in which jurisdiction was found in a case like [Empagran].’ Id. at 170, 124 S.Ct. 2359 (quoting Den Norske Stats Oljeselskap As v. HeereMac Vof, 241 F.3d 420, 429 (5th Cir.2001)). We note that the Court also quoted a treatise arguing that Congress would not have intended the FTAIA to ‘provide worldwide subject matter jurisdiction to any foreign suitor wishing to sue its own local supplier’ for conduct that has independent effects on U.S. commerce. Id. at 166, 124 S.Ct. 2359 (quoting Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 273, at 51-52 (Supp. 2003)).”
“[…] Furthermore, the jurisdictional references in Empagran appear in quotations from other sources, and the opinion also contains language that describes the FTAIA in decidedly nonjurisdictional terms. As the Seventh Circuit has noted, the Court in Empagran ‘spoke, for example, of the FTAIA’s `removing from the Sherman Act’s reach’ certain types of conduct, and whether it was reasonable under the facts presented there `to apply this law to conduct that is significantly foreign.’” Minn-Chem, 683 F.3d at 852 (quoting Empagran, 542 U.S. at 161, 166, 124 S.Ct. 2359). The defendants’ reliance on Empagran is thus misplaced.” [753 F. 3d at 407-408]
Based on Arbaugh, the Court concludes that the requirements of the FTAIA are substantive and nonjurisdictional.
The Court then analyzes Lotes’ argument related to the five provisions of the Contributors Agreement that all establish that the defendants agreed to subject their conduct to the U.S. antitrust scrutiny. The Court finds two fundamental problems. First, Lotes did not raise this issue before the district court.
“Second, even if we were to exercise our discretion to consider this forfeited issue, see id., Lotes’s argument is meritless. Even assuming arguendo that the substantive requirements of the FTAIA are waivable, but see New York v. Hill, 528 U.S. 110, 116, 120 S.Ct. 659, 145 L.Ed.2d 560 (2000) (“[A] `right conferred on a private party, but affecting the public interest, may not be waived or released if such waiver or release contravenes the statutory policy.’” (emphasis omitted) (quoting Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 704, 65 S.Ct. 895, 89 L.Ed. 1296 (1945)) […]” [753 F. 3d at 408]
The Court agrees with Lotes’ statement that the district court erred by misinterpreting the FTAIA and applying the wrong legal standard when analyzing Lotes’ allegations that the defendants’ anticompetitive conduct has “direct, substantial, and reasonably foreseeable effect” on U.S. domestic or import commerce under the FTAIA, and states:
“In dismissing Lotes’s antitrust claims for failure to satisfy the FTAIA’s domestic effects exception, the district court relied heavily on the Ninth Circuit’s decision in [United States v. LSL Biotechnologies, 379 F.3d 672 (9th Cir. 2004)], which construed the statutory requirement of a ‘direct ... effect.’ See LSL, 379 F.3d at 680. Borrowing from a Supreme Court case interpreting a similar term in the Foreign Sovereign Immunities Act (‘FSIA’), 28 U.S.C. §§ 1602 -1611, the Ninth Circuit held that ‘an effect is `direct’ if it follows as an immediate consequence of the defendant’s activity.’ LSL, 379 F.3d at 680 (citing Republic of Arg. v. Weltover, Inc., 504 U.S. 607, 618, 112 S.Ct. 2160, 119 L.Ed.2d 394 (1992)). […]”
“In applying the interpretation of ‘direct ... effect’ set forth in LSL, whereby an effect is ‘direct’ if it follows as an immediate consequence, the district court appears not to have considered the alternative approach advocated by the United States and the FTC and adopted by the Seventh Circuit in its en banc decision in Minn-Chem. Under that approach, “the term `direct’ means only `a reasonably proximate causal nexus.’” Minn-Chem, 683 F.3d at 857 (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)). […]”
“The court in LSL relied on two interpretive sources for its contrary holding. First, it quoted Webster’s Third New International Dictionary, which defines ‘direct’ as ‘proceeding from one point to another in time or space without deviation or interruption.’ LSL, 379 F.3d at 680 (quoting Webster’s Third New Int’l Dictionary 640 (1981)). But the same dictionary also defines ‘direct’ as ‘characterized by or giving evidence of a close especially logical, causal, or consequential relationship.’ Webster’s Third New Int’l Dictionary 640 (1981). Although this is an alternative definition, ‘the relative order of the common dictionary definitions of a single term does little to clarify that term’s meaning within a particular context. When a word has multiple definitions, usage determines its meaning.’ Trs. of Chic. Truck Drivers, Helpers & Warehouse Workers Union (Indep.) Pension Fund v. Leaseway Transp. Corp., 76 F.3d 824, 828 n. 4 (7th Cir.1996).”
“The court in LSL also relied upon the Supreme Court’s interpretation of a ‘nearly identical term’ in the FSIA in Weltover. LSL, 379 F.3d at 680. But the Supreme Court has cautioned that courts ‘must be careful not to apply rules applicable under one statute to a different statute without careful and critical examination.’ Gross v. FBL Fin. Servs., Inc., 557 U.S. 167, 174, 129 S.Ct. 2343, 174 L.Ed.2d 119 (2009) (quoting Fed. Express Corp. v. Holowecki, 552 U.S. 389, 393, 128 S.Ct. 1147, 170 L.Ed.2d 10 (2008)). Indeed, ‘[m]ost words have different shades of meaning and consequently may be variously construed, not only when they occur in different statutes, but when used more than once in the same statute or even the same section.’ Env. Def. v. Duke Energy Corp., 549 U.S. 561, 574, 127 S.Ct. 1423, 167 L.Ed.2d 295 (2007) (quoting Atl. Cleaners & Dyers, Inc. v. United States, 286 U.S. 427, 433, 52 S.Ct. 607, 76 L.Ed. 1204 (1932)).” [753 F. 3d at 409-410]
“This textual difference between the FSIA and FTAIA is critically important. As Minn-Chem succinctly explains,”
“‘No one needs to read the words ‘substantial’ and ‘foreseeable’ into the FTAIA. Congress put them there, and in so doing, it signaled that the word ‘direct’ used along with them had to be interpreted as part of an integrated phrase. Superimposing the idea of ‘immediate consequence’ on top of the full phrase results in a stricter test than the complete text of the statute can bear.’”
“683 F.3d at 857. Indeed, LSL’s reading of the FTAIA would violate the ‘cardinal principle of statutory construction’ that statutes must be construed, if reasonably possible, so that ‘no clause, sentence, or word shall be superfluous, void, or insignificant.’ TRW Inc. v. Andrews, 534 U.S. 19, 31, 122 S.Ct. 441, 151 L.Ed.2d 339 (2001) (quoting Duncan v. Walker, 533 U.S. 167, 174, 121 S.Ct. 2120, 150 L.Ed.2d 251 (2001)). Reading ‘direct’ as ‘immediate’ would rob the separate ‘reasonabl[e] foreseeab[ility]’ requirement of any meaningful function, since we are hard pressed to imagine any domestic effect that would be both ‘immediate’ and ‘substantial’ but not ‘reasonably foreseeable.’ Furthermore, we must remember that ‘[i]mport trade and commerce are excluded at the outset from the coverage of the FTAIA in the same way that domestic interstate commerce is excluded.’ Minn-Chem, 683 F.3d at 854; see also 15 U.S.C. § 6a (providing that, unless an exception applies, the Sherman Act ‘shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations’ (emphasis added)). To demand that any domestic effect must follow as an immediate consequence of a defendant’s foreign anticompetitive conduct would all but collapse the FTAIA’s domestic effects exception into its separate import exclusion.”
“Interpreting ‘direct’ to require only a reasonably proximate causal nexus, by contrast, avoids these problems while still addressing antitrust law’s classic aversion to remote injuries. Indeed, ‘directness’ is one of the traditional formulations courts have used to talk about the common-law concept of proximate causation. See, e.g., Holmes v. Sec. Investor Prot. Corp., 503 *412 U.S. 258, 268, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992) (describing common-law proximate causation as ‘a demand for some direct relation between the injury asserted and the injurious conduct alleged’). And courts have long applied notions of proximate causation, using the language of ‘directness,’ in determining what types of injuries the antitrust laws may properly redress. In the early twentieth century, for example, before the Supreme Court’s regime-changing Commerce Clause decision in Wickard v. Filburn, 317 U.S. 111, 63 S.Ct. 82, 87 L.Ed. 122 (1942), courts commonly held that anticompetitive schemes whose effects on interstate commerce were merely “`incidental,’ `indirect,’ or `remote,’” were, ‘under the prevailing climate, beyond Congress’ [s] power to regulate, and hence outside the scope of the Sherman Act.’ Mandeville Island Farms, Inc. v. Am. Crystal Sugar Co., 334 U.S. 219, 230, 68 S.Ct. 996, 92 L.Ed. 1328 (1948). And today, courts continue to analyze antitrust standing by considering, among other factors, the ‘directness or indirectness of the asserted injury,’ Assoc. Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 540, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983), using familiar principles of proximate causation, see Blue Shield of Va. v. McCready, 457 U.S. 465, 476-77 & n. 13, 102 S.Ct. 2540, 73 L.Ed.2d 149 (1982).”
“Of course, proximate causation is a notoriously slippery doctrine. ‘In a philosophical sense, the consequences of an act go forward to eternity, and the causes of an event go back to the dawn of human events, and beyond.’ CSX Transp., Inc. v. McBride, ___ U.S. ___, 131 S.Ct. 2630, 2642, 180 L.Ed.2d 637 (2011) (quoting W. Page Keeton et al., Prosser and Keeton on Torts § 42, at 264 (5th ed.1984)). Proximate causation is thus ‘shorthand for a concept: Injuries have countless causes, and not all should give rise to legal liability.’ Id. at 2637. The doctrine of proximate causation provides the legal vocabulary for drawing this line—courts ask, for example, ‘whether the injury that resulted was within the scope of the risk created by the defendant’s [wrongful] act; whether the injury was a natural or probable consequence of the [conduct]; whether there was a superseding or intervening cause; whether the [conduct] was anything more than an antecedent event without which the harm would not have occurred.” Id. at 2652 (Roberts, C.J., dissenting). ‘The proximate-cause inquiry is not easy to define, and over the years it has taken various forms; but courts have a great deal of experience applying it, and there is a wealth of precedent for them to draw upon in doing so.’ Lexmark Int’l, Inc. v. Static Control Components, Inc., ___ U.S. ___, 134 S.Ct. 1377, 1390, 188 L.Ed.2d 392 (2014).”
“While Minn-Chem’s ‘reasonably proximate causal nexus’ standard incorporates all of this useful judicial experience, LSL’s ‘immediate consequence’ standard focuses narrowly on a single factor—the spatial and temporal separation between the defendant’s conduct and the relevant effect. Herein lies the error of the decision below, which placed near-dispositive weight on the fact that USB 3.0 connectors are manufactured and assembled into finished computer products ‘in China’ before being sold in the United States. J.A. 264. This kind of complex manufacturing process is increasingly common in our modern global economy, and antitrust law has long recognized that anticompetitive injuries can be transmitted through multi-layered supply chains. Indeed, the Supreme Court has held that claims by indirect purchasers are ‘consistent with the broad purposes of the federal antitrust laws: deterring anticompetitive conduct and ensuring the compensation of victims of that *413 conduct.’ California v. ARC Am. Corp., 490 U.S. 93, 102, 109 S.Ct. 1661, 104 L.Ed.2d 86 (1989).”
“There is nothing inherent in the nature of outsourcing or international supply chains that necessarily prevents the transmission of anticompetitive harms or renders any and all domestic effects impermissibly remote and indirect. Indeed, given the important role that American firms and consumers play in the global economy, we expect that some perpetrators will design foreign anticompetitive schemes for the very purpose of causing harmful downstream effects in the United States. Whether the causal nexus between foreign conduct and a domestic effect is sufficiently ‘direct’ under the FTAIA in a particular case will depend on many factors, including the structure of the market and the nature of the commercial relationships at each link in the causal chain. Courts confronting claims under the FTAIA will have to consider all of the relevant facts, using all of the traditional tools courts have used to analyze questions of proximate causation.”
“In this case, however, we need not decide the rather difficult question of whether the defendants’ foreign anticompetitive conduct has a “direct, substantial, and reasonably foreseeable effect” on U.S. domestic or import commerce, as that phrase is properly understood. That is because even assuming that Lotes has plausibly alleged a domestic effect, that effect did not ‘give[] rise to’ Lotes’s claims. 15 U.S.C. § 6a(2).” [753 F. 3d at 411-413]
The Court then explains why the domestic effect caused by the defendants’ foreign anticompetitive conduct did not “give[] rise to” Lotes’ claims.
“To review the statutory framework, the FTAIA generally excludes wholly foreign conduct from the reach of the Sherman Act, but brings such conduct back within the statute’s scope where two requirements are met: (1) the foreign conduct has a ‘direct, substantial, and reasonably foreseeable effect’ on U.S. domestic, import, or certain export commerce, id. § 6a(1); and (2) that effect ‘gives rise to a claim under’ the Sherman Act, id. § 6a(2). In Empagran, the Supreme Court held that the statutory phrase ‘gives rise to a claim’ means ‘gives rise to the plaintiff’s claim.’ See Empagran, 542 U.S. at 173, 124 S.Ct. 2359. After considering the legislative history and principles of international comity, the Court concluded that ‘Congress would not have intended the FTAIA’s exception to bring independently caused foreign injury within the Sherman Act’s reach.’ Id. The FTAIA thus includes two distinct causation inquiries, one asking whether the defendants’ foreign conduct caused a cognizable domestic effect, and the other asking whether that effect caused the plaintiff’s injury.”
“Under this second inquiry, in the wake of Empagran, three courts of appeals have considered what kind of causal connection is necessary for a domestic effect to ‘give[] rise to’ a plaintiff’s claim. Consistent with the comity canon and general antitrust principles, these courts have held that the domestic effect must proximately cause the plaintiff’s injury. See In re Dynamic Random Access Memory (DRAM) Antitrust Litig., 546 F.3d 981, 987 (9th Cir.2008) (‘Like the D.C. Circuit and the Eighth Circuit, we ... adopt a proximate causation standard.’); In re Monosodium Glutamate Antitrust Litig., 477 F.3d 535, 538 (8th Cir.2007) (‘[T]he statutory `gives rise to’ language requires a direct or proximate causal relationship....’); Empagran S.A. v. F. Hoffmann-LaRoche, Ltd., 417 F.3d 1267, 1271 (D.C.Cir.2005) (‘The statutory language—`gives rise to’—indicates a direct causal relationship, that is, proximate causation....’). Agreeing with our sister circuits, we adopt that standard here.”
“We thus must determine whether any domestic effect resulting from the defendants’ anticompetitive conduct proximately caused Lotes’s injury. We conclude that it did not. Lotes alleges that the 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 exclusionary foreign conduct. Lotes’s complaint thus seeks redress for precisely the type of ‘independently caused foreign injury’ that Empagran held falls outside of Congress’s intent. Empagran, 542 U.S. at 173, 124 S.Ct. 2359.”
“Indeed, to the extent there is any causal connection between Lotes’s injury and an effect on U.S. commerce, the direction of causation runs the wrong way. Lotes alleges that the defendants’ patent hold-up has excluded Lotes from the market, which reduces competition and raises prices, which are then passed on to U.S. consumers. Lotes’s injury thus precedes any domestic effect in the causal chain. And ‘[a]n effect never precedes its cause.’ Am. Home Prods. Corp. v. Liberty Mut. Ins. Co., 748 F.2d 760, 765 (2d Cir.1984).” [753 F. 3d at 413-414]
“Nor is this one of those rare cases in which an injurious event is ‘overdetermined’ by multiple sufficient causes. See Restatement (Third) of Torts: Phys. & Emot. Harm § 27 (2010) (‘If multiple acts occur, each of which ... alone would have been a factual cause of the physical harm at the same time in the absence of the other act(s), each act is regarded as a factual cause of the harm.’). Nothing in the complaint suggests that the defendants’ failure to license U.S. patents, standing alone, would have been sufficient to exclude Lotes from the market. Indeed, the U.S. patents are so incidental to the alleged scheme that the complaint does not even bother to mention them except as part of the background of the relevant Chinese patents. See J.A. at 51 (explaining that the Chinese patents ‘claim priority to’ the U.S. patents, and thus ‘the specifications of these U.S. patents must support all claims in the corresponding Chinese patents’); J.A. 54 (similarly discussing the U.S. patents as background). Read as a whole, the complaint makes perfectly clear that the true source of Lotes’s injury is the ‘[d]efendants’ willingness to bring suit against Lotes in contravention of the USB-IF RAND-Zero terms.’ J.A. 58.” [753 F. 3d at 415]
The Court affirmed the District Court’s decision.
Citation: Lotes Co., Ltd. v. Hon Hai Precision Industry Co., 753 F. 3d 395 (2nd Cir. 2014).


*** Mr. Kenneth Todd Wallace is an attorney and founding partner of the law firm. He has nearly 20 years of experience in the legal and business professions with established excellence in trial advocacy, negotiation, strategic and initiative planning, government relations, mergers and acquisitions, and team building. See http://www.walmey.com/