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/
