Extraterritorial Application of U.S. Antitrust Law: What Is a "Direct, Substantial, and Reasonably Foreseesable Effect" under the Foreign Trade Antitrust Improvements Act?

I. INTRODUCTION Application of U.S. antitrust law continues to expand, for better or worse, with expansion of international commerce. The United States Department of Justice (DOJ) and Federal Trade Commission (FTC)-who are charged with mandate of ensuring open and free markets, protecting consumers, and preventing conduct that impedes competition-possess powerful enforcement powers, both criminal and civil, under Sherman Act(1) and other antitrust statutes. In recent years, DOJ has successfully brought criminal and civil actions under Sherman Act against foreign and U.S. corporations, and their individual directors and officers, for anticompetitive conduct that occurred outside United States. In this environment, it is crucial to understand extraterritorial scope and application of Sherman Act. The threshold issue for extraterritorial application of Sherman Act is subject matter jurisdiction. This article briefly reviews relevant statutory background and then focuses on how DOJ, FTC, and judiciary have interpreted Foreign Trade Antitrust Improvement Act's direct, substantial, and reasonably foreseeable test-- key to establishing Sherman Act subject matter jurisdiction over extraterritorial conduct.2 II. STATUTORY BACKGROUND A. Sherman Act Section 1 of Sherman Act declares illegal [e]very contract, combination in form of trust or otherwise, or conspiracy, in restraint of trade or commerce among several States, or with foreign nations.3 Sherman Act jurisdiction over anticompetitive conduct outside United States has been subject to a variety of interpretations.4 Over time, courts moved from a approach that looked at laws of locality where conduct occurred to an effects approach that examines conduct's on U.S. markets.5 Originally, courts used a strict territorial interpretation when applying Sherman Act to foreign conduct.6 This approach looked exclusively to law of country in which anticompetitive activity occurred.7 The U.S. Supreme Court applied this approach in American Banana Co. v. United Fruit Co.,8 holding that conduct occurring entirely in Central America was outside scope of Sherman Act. Justice Holmes IMAGE FORMULA11 stated, the general and almost universal rule is that character of an act as lawful or unlawful must be determined wholly by law of country where act is done.9 More than thirty years later, an effect test replaced Justice Holmes's territorial approach. In United States v. Aluminum Co. of America (Alcoa), Second Circuit recognized that any state may impose liabilities ... for conduct outside its borders that has consequences within its borders which state reprehends.10 Under this rationale, court found that Sherman Act covered agreements that were intended to affect imports and did affect them.11 Applying this test, Alcoa court found jurisdiction existed over acts that occurred entirely in Canada but had an anticompetitive in U.S.(12) Courts later developed different formulations of test.13 For instance, Ninth Circuit established following three-part test: (1) there must be some on American foreign commerce, (2) must be large enough so as to create a cognizable injury to plaintiff, and (3) interests of international comity and fairness justify an assertion of jurisdiction.14 The Second Circuit adopted its own formulation, requiring a foreseeable and appreciable on American commerce.15 The different versions of test eventually laid groundwork for current interpretations of Sherman Act, including Supreme Court's Hartford Fire test described below. B. Foreign Trade Antitrust Improvements Act In an attempt to end confusion resulting from various tests, Congress passed Foreign Trade Antitrust Improvements Act of 1982 (FTAIA). …

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