SCHOOL OF LAW

B.Tech [E.T] +LL.B (Hons.) IPR

SEMESTER 12

ACADEMIC YEAR: 2017-18 SESSION: JANUARY-MAY

Under the Supervision of: Asst. Prof. Pranshu Kaushal

Submitted By: Ishan Tiwari Dhruv Mathur

R840212012 R840212003
500023684 500023681
 Empagran (v) F. Hoffman-La Roche,

417 F.3d 1267 (D.C. Cir. 2005)

FACTS

Foreign corporations that purchased vitamin products outside of United States from foreign
manufacturers for distribution in foreign countries brought action asserting, inter alia, price
fixing in violation of Sherman Act.

The United States District Court for the District of Columbia, Thomas F. Hogan, J.,
dismissed Sherman Act claim for lack of subject matter jurisdiction under Foreign Trade
Antitrust Improvements Act (FTAIA), 2001 WL 761360. Plaintiffs appealed. The Court of
Appeals reversed, 315 F.3d 338. Certiorari was granted. The Supreme Court vacated and
remanded to the Court of Appeals.

The appellants, foreign corporations that purchased vitamin products outside of the United
States for distribution in foreign countries from the appellate foreign manufacturers, brought
this action asserting, inter alia, price fixing in violation of the Sherman Act, 15 U.S.C. § 1.1
The district court dismissed the Sherman Act claim for lack of subject matter jurisdiction
under the Foreign Trade Antitrust Improvements Act (FTAIA), which makes the Sherman
Act inapplicable to conduct involving non-import foreign trade or commerce with one
exception: when "such conduct has a direct, substantial, and reasonably foreseeable effect" on
domestic trade or commerce and "such effect gives rise to a claim under [the Sherman Act]."2

1
This section provides in relevant part: "Every 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."

2
The FTAIA provides in full: 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
The United States Supreme Court granted certiorari and vacated this court's decision
concluding that under the FTAIA the Sherman Act does not apply where "price-fixing
conduct significantly and adversely affects both customers outside the United States and
customers within the United States, but the adverse foreign effect is independent of any
adverse domestic effect." However, after assessing the appellants' alternate theory for
Sherman Act liability, namely, that "because vitamins are fungible and readily transportable,
without an adverse domestic effect (i.e., higher prices in the United States), the sellers could
not have maintained their international price-fixing arrangement and respondents would not
have suffered their foreign injury." Supreme Court rejected the appellants' alternate theory
and concludes that we are without subject-matter jurisdiction under the FTAIA.3

While the FTAIA excludes from the Sherman Act's reach most anti-competitive conduct that
causes only foreign injury, it creates exceptions for conduct that "significantly harms imports,
domestic commerce, or American exporters."

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.
3
In light of our decision on FTAIA subject matter jurisdiction, we need not consider the appellees' alternative
argument that the appellants lack standing.
RULES

Foreign Trade Antitrust Improvement Act

Foreign Antitrust Liability - World Trade Organization added antitrust cooperation to the list
of issues to be negotiated in the Doha Round of multilateral trade talks.4 This development
reflects the realization that increasing economic interdependence creates opportunities for a
multinational corporation to harm consumers from beyond a nation's borders, often with the
tacit approval of that corporation's home country.5

The United States has long been aware of this phenomenon. U.S. courts have routinely
extended the Sherman Act beyond our shores to encompass anticompetitive behaviour abroad
that affects prices in the American market.6

One of the main issue pertaining to rules in this case was the meaning of a single article - "a"
in the Foreign Trade Antitrust Improvement Act of 19827 (FTAIA). The FTAIA, generally
excludes from the Sherman Act any anticompetitive behaviour arising from foreign trade. 8 It
does, however, contain a two-pronged exception to this exclusion:

 foreign trade is actionable under the Sherman Act if that trade has a "direct,
substantial, and reasonably foreseeable effect" on U.S. trade or commerce and;
 if the effect would give rise to "a claim" under the Sherman Act.

4
Edward T. Swaine, Against Principled Antitrust, 43 VA. J. INT'L L. 959, 959-6o (2003).

5
Export Trading Company Act of 1982, Pub. L. No. 97-290, 96 Stat. 1233 (codified in scattered sections of 12,
15, and 30 U.S.C.) (exempting from U.S. antitrust prosecution companies whose anticompetitive activities harm
only foreign markets); Hartford Fire Ins. Co. v. California, 509 U.S. 764, 779 (1993) (holding that British
reinsurance agencies violated the Sherman Act through anticompetitive activities that were legal in the United
Kingdom).

6
Hartford Fire, 509 U.S. at 779; Timberlane Lumber Co. v. Bank of Am., 549 F.2d 597, 612 (9th Cir. 1976).

7
I5 U.S.C. § 6a (2000).

8
15 U.S.C. § 6a
The plaintiffs, a consortium of foreign and domestic consumers, alleged that the defendants
comprised a worldwide cartel to fix the price of vitamins in violation of the Sherman Act. 9
The plaintiffs contended that Congress's use of "a claim" rather than "the claim" in the
FTAIA permitted them to sue for anticompetitive injury suffered abroad, as long as the injury
stemmed from conduct that also affected U.S. commerce.10 The district court disagreed,
finding that "the effect providing the jurisdictional nexus must also be the basis for the injury
alleged under the antitrust laws.”11

The D.C. Circuit reversed, seeking a middle ground between the two then-existing
interpretations of the FTAIA.12

The D.C. Circuit explained that it found the Fifth Circuit's test "overly rigid" and that the
Second Circuit's test "seem[ed] to reach too far" in the other direction.13 After determining
that the plain language of the statute "does not clearly resolve the question whether 'a claim'
means the plaintiff's claim," the court looked to legislative history and to the importance of
deterring anticompetitive behaviour. Although both parties were able to find some support in
the legislative history, the court reasoned that the only way to read the otherwise conflicting
history consistently was to conclude that, "as a whole," it "support[ed] the less restrictive
interpretation of the FTAIA.”

After finding that the FTAIA exempts import commerce in general from Sherman Act
jurisdiction, the Court then determined whether the FTAIA exception resurrected the
plaintiffs' claim. In deciding that it did not, the Court relied heavily on the notion that it
"ordinarily construes ambiguous statutes to avoid unreasonable interference with the
sovereign authority of other nations.

9
Empagran S.A. v. F. Hoffman-La Roche, Ltd., Civ. No. oo-1686, 2001 U.S. Dist. LEXIS 2o9io, at (D.D.C.
June 7, 2001).

10
Empagran S.A. v. F. Hoffman-LaRoche, Ltd., 315 F3d 338, 340-41 (D.C. Cir. 2003).

11
Empagran, 2oo U.S. Dist. LEXIS 2o9Io,

12
Empagran, 315 F.3d at 341.

13
Empagran, 315 F.3d at 341.
The FTAIA's purpose was to release from Sherman Act prosecution any conduct causing
foreign harm, and while there is an exception if that conduct also causes domestic harm, "any
independent domestic harm the foreign conduct causes here has, by definition, little or
nothing to do with the matter."

At first glance, Empagran's reliance on comity seems to fit within the jurisprudence of an
increasingly cosmopolitan Court. But the international flavour of the decision masks the
dissonance between this case and previous antitrust opinions.

QUESTION RAISED

Under the Foreign Trade Antitrust Improvements Act of 1982, do Sherman Act claims apply
to the effects of foreign price-fixing schemes if those schemes do not have domestic effects?

CONCLUSION

Applying the proximate cause standard, Supreme Court concluded that the domestic effects
the appellants cite did not give rise to their claimed injuries so as to bring their Sherman Act
claim within the FTAIA exception. While maintaining super-competitive prices in the United
States may have facilitated the appellees' scheme to charge comparable prices abroad, this
fact demonstrates at most but-for causation.

It does not establish that the increased prices in the United States — proximately caused the
foreign appellants' injuries. Nor do the appellants otherwise identify the kind of direct tie to
U.S. commerce found in the cited cases.

Although the appellants claim that the, vitamin market is the only global market that is
facilitated by market sharing arrangements so that their injury arises from higher prices due to
global conspiracies, (not due to super competitive prices in a particular market) and that this
satisfies the requirements of the FTAIA and that the effects of the United States on this
conduct result in their claims. The cause that the appellants give is only establishing an
indirect relationship between the price of the United States and the price they pay when they
buy vitamins abroad.

The Court unanimously ruled that Congress' intent in passing the FTAIA was to prevent
American courts from interfering in foreign commerce. Congress made an exception for
foreign commerce that affected domestic commerce, but the exception should not be read as a
general prohibition against price-fixing in all parts of the world. In the majority opinion
(Justices Clarence Thomas and Antonin Scalia filed a separate opinion concurring in
judgment), Justice Stephen G. Breyer wrote, "Why should American law supplant, for
example, Canada's or Great Britain's or Japan's own determination about how best to protect
(their own) customers from anticompetitive conduct engaged in" by their own companies?

Since the 1940s, the Court has not wavered from the belief that the congressional intent
underlying the Sherman Act was to protect American consumers from the ill effects of
anticompetitive behaviour, regardless of formalities such as the defendant's nationality or the
location of the conduct at issue.14

Empagran also increases the government's costs when prosecuting its own antitrust claims.
The Department of Justice, of course, is not limited by the second prong of the FTAIA test as
private plaintiffs are: the government can prosecute any Sherman Act violation without
identifying an American victim.15 But resource constraints are a substantial limit on the
Justice Department's Antitrust Division. The D.C. Circuit's rule would have alleviated this
problem: expanding FTAIA jurisdiction widens the scope of potential whistle-blowers who
stand to gain from the Sherman Act's punitive damages provisions. As foreign whistle-
blowers come forward, the Justice Department can more easily identify worldwide cartels
and gain inexpensive access to the information required to defeat them. Empagran denies the
government access to that treasure trove of information by destroying the incentive for
foreign whistle-blowers to come forward, on the ground that doing so might offend foreign
nations' notions of sovereignty.

14
Pfizer Inc. (v) Govt. of India, 434 U.S. 308, 313-15 (0978).

15
15 U.S.C. §§ I5(a), 45(m) (2000).