U.S. Impact of Potash Price Fixing Conspiracy Adequately Alleged

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

An alleged conspiracy among foreign producers of potash — a naturally occurring mineral used in agricultural fertilizers and other products — to fix prices charged to U.S. purchasers was not outside the scope of the Sherman Act, the U.S. Court of Appeals in Chicago, sitting en banc, ruled earlier this week.

The purchasers satisfied the requirements of the Foreign Trade Antitrust Improvements Act 1982 (FTAIA) with respect to challenged transactions that were not straightforward import transactions subject to the more general antitrust rules for effects on commerce.

The FTAIA makes clear that “the Sherman Act does not apply to every arrangement that literally can be said to involve trade or commerce with foreign nations.” The FTAIA excludes foreign activities, other than import trade or commerce, from the scope of the Sherman Act, unless the conduct has a “direct, substantial, and reasonably foreseeable effect” on domestic or import commerce.

The complaint alleged an international cartel in a commodity, and it asserted that the cartel succeeded in raising prices for direct U.S. purchasers of potash. The FTAIA’s requirements of substantiality and foreseeability were easily met. The complaint alleged that 5.3 million tons of potash were imported into the United States in one year alone and the vast majority of these imports came from the defendants. Over a five-year period, the price of potash allegedly increased by over 600 percent. Moreover, the effects alleged were a rationally expected outcome of the challenged conduct. It was objectively foreseeable that an international cartel with a grip on 71 percent of the world’s supply of a homogeneous commodity would charge supracompetitive prices, and in the absence of any evidence showing that arbitrage was impossible, those prices (net of shipping costs) would be uniform throughout the world.

Further, the effects were “direct” and not too remote, the court ruled. This was not a case where an action was undertaken in a foreign country and filtered through many layers, finally causing a few ripples in the United States. The court followed the Department of Justice approach with respect to the meaning of "direct" in the statute.

The Justice Department had suggested in a friend-of-the-court brief that the direct effects exception should not be limited to effects that follow as an immediate consequence of the challenged conduct. "Direct" is best defined as "reasonably proximate," according to the government brief.

Thus, the allegations stated a claim, as required by Federal Rule of Civil Procedure 8, and were enough to withstand a motion to dismiss under Rule 12(b)(6).

The case was before the appellate court because a district court decision (2010-2 Trade Cases ¶77,112), denying the defendants’ motion to dismiss, was certified for interlocutory appeal. An earlier decision of a three-judge panel, which reversed the lower court’s ruling after concluding that the complaint failed to meet the requirements of the FTAIA (2011-2 Trade Cases ¶77,611), was vacated in December 2011. The panel had suggested that the issue of whether the FTAIA was an element of a Sherman Act claim or jurisdictional in nature was ripe for reconsideration.

FTAIA as Element of Sherman Act Claim

Before taking on the particular issues in this case, the full appellate court considered whether the FTAIA was an element of a Sherman Act claim or was jurisdictional in nature. The court overruled a 2003 en banc decision of the Seventh Circuit, (United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 2003-1 Trade Cases ¶73,971) and held that the FTAIA was an element of the Sherman Act. The FTAIA did not use the word “jurisdiction” or any commonly accepted synonym, it was noted. Instead, it spoke of the “conduct” to which the Sherman Act (or the Federal Trade Commission Act) applied.

Thus, a party contesting the propriety of an antitrust claim implicating foreign activities was required, at the outset, to use Federal Rule of Civil Procedure 12(b)(6), not Rule 12(b)(1). Because foreign connections were unlikely to be difficult to detect, parties who wanted to argue that a particular claim failed the requirements of the FTAIA would be able to do so within these generous time limits, the court reasoned.

The June 27, 2012, decision in Minn-Chem, Inc. v. Agrium Inc., No. 10-1712, will appear at 2012-1 Trade Cases ¶77,943.

Global Price Fixing Conspiracy Claim Barred by Foreign Trade Antitrust Improvements Act

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

Federal antitrust claims asserted by direct and indirect purchasers of potash—alleging a global price fixing conspiracy among producers—were beyond the subject matter jurisdiction of a federal court in Illinois, the U.S. Court of Appeals in Chicago has ruled.

The Foreign Trade Antitrust Improvements Act (FTAIA) applied to bar the suit regardless of whether the FTAIA was construed to state a jurisdictional requirement or an element of the plaintiffs’ Sherman Act claim. A federal district court’s refusal to dismiss the suit on jurisdictional or pleading grounds was vacated and remanded.

Import Commerce, Direct Effects

The lower court found that FTAIA’s "import commerce" exception applied because the defendants’ importation of potash and purported conspiracy to fix the price of potash globally created a sufficiently tight nexus between the alleged illegal conduct and the defendants’ import activities.

The lower court’s reasoning essentially conflated the FTAIA’s "import commerce" exception and its "direct effects" exception, the appellate court explained. If foreign anticompetitive conduct were deemed to involve U.S. import commerce even if directed entirely at markets overseas, then the "direct effects" exception would be effectively rendered meaningless.

Reading the FTAIA to mean that a foreign company doing any import business in the United States would violate the Sherman Act whenever it entered a joint-selling arrangement overseas—regardless of its impact on the American market— "would produce the very interference with foreign economic activity that the FTAIA seeks to prevent," according to the appellate court.

The complaint contained no factual allegations to support application of the import commerce exception, the appellate court said. Its specific allegations described anticompetitive conduct aimed at the potash markets in Brazil, China, and India—not the U.S. import market.

The general assertion that the defendants "conspired to coordinate potash prices and price increases so as to fix, raise, maintain, and stabilize the price at which potash was sold in the United States at artificially inflated and anticompetitive levels" was wholly conclusory and insufficient to satisfy the pleading standards established by the U.S. Supreme Court in Bell Atlantic Corp. v. Twombly (2007-1 Trade Cases ¶75,709) and Ashcroft v. Iqbal (2009-2 Trade Cases ¶76,785).

Overseas, Domestic Prices

Moreover, the connection asserted in the complaint between the alleged cartelized prices of potash overseas and the domestic price of potash was too speculative and indirect to state an actionable claim under the FTAIA’s "direct effects" exception, the court stated. The complaint’s general allusion to a link between the prices in the Brazilian, Chinese, and Indian markets and American potash prices was insufficient on its own to permit a plausible inference of direct effects.

The "cryptic" chain-of-events allegation offered by the plaintiffs relied on too many intervening variables to support application of the direct effects exception.

The decision is Minn-Chem, Inc. v. Agrium Inc., 2011-2 Trade Cases ¶77,611.

Settlement Preliminarily Approved in Cathode Ray Tube Price Fixing Class Action

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The federal district court in San Francisco has given preliminary approval to a $10 million settlement resolving price fixing claims brought on behalf of indirect purchasers of products contain cathode ray tubes (CRTs) against manufacturer Chunghwa Picture Tubes, Ltd.

A special master will hold a hearing to determine the sufficiency, fairness, reasonableness, and adequacy of the proposed settlement in March 2012.

Indirect Purchaser Claims

The indirect purchaser claims were brought on behalf of all persons or entities who or which indirectly purchased in the United States CRT products manufacture red or sold by defending CRT makers or their subsidiaries between March 1995 and November 2007. The net settlement fund will be no less than $5 million. The settlement calls for $2.5 million in attorneys’ fees and sets aside $2.5 million for costs, including costs of notice and administration of the settlement funds.

Last year, the court refused to dismiss the indirect purchasers’ claims based on an alleged failure to adequately plead a conspiracy, the Foreign Trade Antitrust Improvements Act (FTAIA), or an alleged lack of standing.

The complaint met the pleading standards articulated by the U.S. Supreme Court in Bell Atlantic Corp. v. Twombly (550 U.S. 544, 2007-1 Trade Cases ¶75,709) and Ashcroft v. Iqbal (129 S. Ct. 1937, 2009-2 Trade Cases ¶76,785).

The plaintiffs were not required to plead detailed, defendant-by-defendant allegations. It was sufficient that they made allegations that plausibly suggested that each defendant participated in the alleged conspiracy. The complaints contained allegations concerning certain defendants’ participation in alleged unlawful meetings and agreements.

Regarding the FTAIA argument, the indirect purchasers alleged a conspiracy that was carried out both in the United States and abroad, that involved a substantial amount of import and domestic commerce, and that targeted and injured American consumers.

Illinois Brick Repealer Statutes

The court also ruled that the indirect purchasers adequately alleged standing to assert state antitrust violations predicated on the Illinois Brick repealer statutes of Arizona, California, Iowa, Kansas, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Mexico, North Carolina, North Dakota, South Dakota, Tennessee, Vermont, West Virginia, and Wisconsin.

The indirect purchasers alleged that they paid higher prices for CRT products than they would have paid in the absence of the conspiracy and that prices of CRT products were directly correlated to the prices of CRTs.

CRTs purportedly account for approximately 60 percent of the cost of manufacturing computer monitors and a slightly smaller percentage of the cost of manufacturing televisions.

The decisions are Cathode Ray Tube (CRT) Antitrust Litigation, 2011-2 Trade Cases ¶77,592 and 2011-2 Trade Cases ¶77,593.

Price Fixing Claims Against Transpacific Air Carriers Dismissed

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Although a federal district court in San Francisco has determined that a conspiracy to fix the prices of transpacific air passenger travel was plausibly alleged, a motion to dismiss the Sherman Act claims based on the Foreign Trade Antitrust Improvements Act (FTAIA) was granted.

The action was brought on behalf of a class of individuals who purchased air transportation services from one or more of the 26 defending airlines that included at least one flight segment between the United States and Asia/Oceania.

The plaintiffs alleged that, beginning around January 2000, the airlines agreed, and began, to impose air passengers air fare increases, including fuel surcharge increases, that were in substantial lockstep both in their timing and amount. They sought to recover overcharges associated with flights originating in Asia.

Plausible Conspiracy

The plaintiffs specifically alleged that the defending airlines reached various agreements to coordinate pricing. They detailed certain communications between the airlines which supported an inference of conspiracy.

Among other things, the plaintiffs alleged that

(1) The defendants participated in various code-sharing agreements and professional alliances “reinforce and facilitate the conspiracy”;

(2) There was a “pattern of identical or virtually identical pricing by [D]efendants’ closest competitors on routes between the United States and Asia and Oceania”;

(3) The defending airlines charged “identical fuel surcharges for passenger traffic from Hong Kong, including to the United States”; and

(4) The U.S. Department of Justice, the European Commission, and other competition authorities were investigating price fixing of passenger and cargo fares.

Foreign Trade Antitrust Improvements Act

The court ruled that it lacked subject matter jurisdiction over the claims of foreign injury. The FTAIA limited a court’s subject matter jurisdiction over Sherman Act claims involving foreign commerce, according to the court. Under the FTAIA, the Sherman Act does not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless the conduct had a direct, substantial, and reasonably foreseeable effect on domestic commerce, and such effect gives rise to the plaintiff's claim.

The challenged conduct did not fall within the “import trade or commerce” or “domestic effects” exception to the FTAIA. The plaintiffs' price fixing claims (1) did not involve import commerce; and (2) did not have domestic effects that give rise to the complaining individuals’ foreign claims.

The term “import” generally denoted a product or service that had been brought into the United States from abroad. It was too great a leap to equate air passenger travel with the importing of people, or to characterize air passengers as a product or service.

Domestic Effect, Harm

Moreover, the complaining individuals' allegations of domestic effect and, indeed, their overall theory of harm, were insufficient, the court decided. While a direct effect on U.S. trade or commerce could be based on the fact that U.S. residents and citizens paid more for air passenger transportation as a result of the alleged conspiracy, the complaining individuals could not establish that the domestic effect actually caused the foreign injury.

The foreign injury was the result not of the domestic effect, but of the global price fixing conspiracy that caused the domestic effect. The domestic effects exception required proximate causation. The plaintiffs contended that “the prices for travel originating in foreign countries and travel originating in the U.S. are inextricably bound up with and dependent on each other”; however, “bound up” was not proximate causation.

The fact that the plaintiffs' foreign injuries were not caused by the domestic effect of the global conspiracy also prevented them from establishing standing. Their claims for foreign injuries were not the type of injury Congress intended to prevent through the Sherman Act, in the court's view.

The airlines, individually and jointly raised a number of other bases for dismissal. The court rejected assertions that the act of state doctrine, state action doctrine, and the implied preclusion doctrine barred the price fixing claims.

The May 9 decision, In Re Transpacific Passenger Air Transportation Antitrust Litigation, will appear at 2011-1 Trade Cases ¶77,446.

Dell’s Price Fixing Claims Against Display Panel Suppliers Survive Dismissal

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The Foreign Trade Antitrust Improvements Act (FTAIA) did not require dismissal of Dell Inc.’s claims that suppliers of thin film transistor-liquid crystal display (TFT-LCD) panels engaged in a global price fixing conspiracy, the federal district court in San Francisco has ruled.

Generally, the FTAIA excludes from the reach of the Sherman Act anticompetitive conduct that causes only foreign injury.

Dell, a direct purchaser of both TFT-LCD panels and finished products that incorporate TFT-LCD panels, brought claims against numerous domestic and foreign defendants. The complaint alleged that defendants Sharp Corp., Hitachi Displays Ltd., and Epson Imaging Devices Corp. had pled guilty to criminal charges of conspiring to fix TFT-LCD panel prices, and that Sharp and Hitachi admitted that they conspired to fix prices as to Dell.

Dell asserted that it was an intended victim of the price fixing conspiracy and that the conspiracy was carried out, in part, in the United States.

Foreign Transactions

Some of the claims were based on master purchase agreements (MPAs) between Dell and certain of the defendants, the terms of which made clear that the transactions included foreign transactions between the defendants and Dell’s foreign affiliates.

The defending suppliers did not dispute that the federal district court had jurisdiction over claims based on products that they imported into the United States. However, they unsuccessfully argued that the court lacked jurisdiction over any claim based on a transaction that occurred outside the United States.

Foreign Injury, Domestic Effect of Conspiracy

The court rejected the defending supplier's contentions that Dell did not allege sufficient facts to establish that its foreign injury (paying higher prices abroad) was proximately caused by any domestic effect of the alleged conspiracy. Dell alleged that an important domestic effect of the conspiracy was the setting of a global price for all TFT-LCD products purchased from the defendants, which was negotiated at the technology company's Texas headquarters.

The negotiated worldwide price applied to all TFT-LCD products, wherever purchased, and was binding on the technology company and its subsidiaries. These allegations established a link between the challenged conduct, its domestic effect, and the technology company’s foreign injury.

The technology company pleaded sufficient facts to establish that the MPAs and subsequent price negotiations were a domestic effect of the alleged conspiracy that proximately caused its foreign injury, according to the court.

The March 16 decision is In re: TFT-LCD (Flat Panel) Antitrust Litigation, 2011-1 Trade Cases ¶77,382.