Case Information
*3 Before WILKINS and MOTZ, Circuit Judges, and James H. MICHAEL, Jr., Senior United States District Judge for the Western District of Virginia, sitting by designation. ____________________________________________________________
Affirmed by published opinion. Judge Motz wrote the opinion, in which Judge Wilkins and Senior Judge Michael joined.
COUNSEL COUNSEL COUNSEL COUNSEL
ARGUED: Joel Davidow, MILLER & CHEVALIER, CHAR- ARGUED: ARGUED: ARGUED: TERED, Washington, D.C., for Appellants. Christopher M. Curran, WHITE & CASE, L.L.P., Washington, D.C., for Appellees. ONONONON BRIEF: Alan I. Horowitz, Michael T. Brady, MILLER & CHEVA- BRIEF: BRIEF: BRIEF: LIER, CHARTERED, Washington, D.C.; William T. Rikard, Jr., PARKER, POE, ADAMS & BERNSTEIN, L.L.P., Charlotte, North
Carolina; Daniel Small, Mary Strimel, COHEN, MILSTEIN, HAUS- FELD & TOLL, P.L.L.C., Washington, D.C., for Appellants. J. Mark Gidley, Jaime M. Crowe, Eric Grannon, WHITE & CASE, L.L.P., Washington, D.C., for Appellees.
OPINION OPINION OPINION OPINION
DIANA GRIBBON MOTZ, Circuit Judge:
Two United States companies that purchase rubber thread brought this private antitrust action, alleging a price-fixing conspiracy led by Southeast Asian producers of the thread. After an eight-day trial, the jury returned a special verdict, finding that although one or more of the producers engaged in a conspiracy to fix prices that was intended to affect United States commerce, that conspiracy had no "substantial effect" on this country's commerce. The district court then entered judgment on the verdict for the producers. The purchasers appeal, principally contending that the substantial-effect test applies only to "wholly" foreign conduct, and so does not govern this case because the rubber-thread conspiracy resulted in the sale of price-fixed goods directly into the United States. Because the conspiracy involved pri- marily foreign conduct, we hold that the district court did not abuse its discretion in applying the substantial-effect test. Accordingly, we affirm.
I.
In 1997, Dee-K Enterprises, Incorporated, and Asheboro Elastics Corporation (collectively Dee-K), United States corporations that pur- chase rubber thread to make elastic fabric, brought this class action, alleging a conspiracy to fix the price of rubber thread in the United States, in violation of the Sherman Act. See 15 U.S.C.A. § 1 (West 1997). Rubber thread, also called extruded rubber thread or elastic rubber thread, and sometimes abbreviated as "ERT," is manufactured in Southeast Asia and used to make elastic fabric, bungee cords, toys, and other products.
Dee-K named as defendants nine Southeast Asian producers of rubber thread and some of their subsidiaries and distributors in the
United States. Five of the producers are Malaysian companies: Heveafil Sendirian Berhad, Filmax Sendirian Berhad, Rubfil Sendirian Berhad, Rubberflex Sendirian Berhad, and Filati Lastex Sendirian Berhad. (The suffix "Sendirian Berhad," used in Malaysia and abbreviated "Sdn. Bhd.," translates as "private limited com- pany.") Two are Indonesian: PT. Bakrie Rubber Industries and PT. Perkebunan III. Two are Thai: Longtex Rubber Industries Company, Limited, and Natural Rubber Thread Company, Limited. Dee-K also named as defendants the United States subsidiaries of three Malaysian producers (Rubfil USA, Incorporated, Flexfil Corporation of Rhode Island, Flexfil Corporation, and Filati Lastex Elastofibre USA, Incor- porated) and two United States independent distributors used by other producers (Consortium International and JPS Elastomerics).
In its complaint, Dee-K alleged that the members of the class it sought to represent, domestic purchasers of rubber thread, paid "artifi- cially high and non-competitive prices" for rubber thread, that they "were deprived of free and open competition in the market" for rubber thread, and that "competition among defendants" in the United States sale of rubber thread "was restrained." As to injury, Dee-K contended that "plaintiffs . . . purchased substantial quantities of extruded rubber thread from defendants."
Dee-K originally filed this action in the Eastern District of Vir-
ginia. Following a number of early rulings not relevant to our disposi-
tion of this appeal, the district court determined that venue did not lie
in Virginia and transferred the case to the Western District of North
Carolina. See Dee-K Enters. v. Heveafil Sdn. Bhd.,
Dee-K introduced substantial evidence at trial of horizontal price
fixing among the producers. This price fixing apparently originated at
least in part in reaction to 1991 threats by the United States govern-
ment to punish Southeast Asian rubber-thread producers for violating
antitrust prohibitions against "dumping." "Dumping" occurs when a
*6
foreign producer injures a United States producer by selling a product
in the United States at less than what would be "fair value" in the for-
eign producer's home market. See 19 U.S.C.A. § 1673 (West 1999)
(authorizing an "antidumping duty"). The United States Department
of Commerce may impose tariffs on dumpers to bring the United
States price into line with the price in the producer's home market.
See id. Thus, if a product sells for $1 in the home market, it warrants
dumping duties if it sells for less than $1 in the United States. Of
course, avoidance of dumping penalties in itself does not provide for-
eign producers with a license to fix prices in violation of United
States antitrust laws. Although to avoid dumping a company must
price goods at or above the price in its own home market, it may not
agree with its competitors to fix prices, restricting the market move-
ment of prices in the United States market. See Dee-K Enters. v.
Heveafil Sdn. Bhd.,
In December 1991, responding to the dumping accusations, offi- cials of the Malaysian producers representing Heveafil, Rubfil, Rub- berflex, and Filati Lastex met with a Malaysian government official and agreed to fix rubber-thread prices throughout the world. Later joined by other rubber-thread producers from Malaysia, Indonesia, and Thailand, they continued to meet for several years, at conventions and in other settings, to discuss and implement these and other efforts to fix prices. They met regularly between 1992 and 1995 — in Kuala Lumpur, in Columbo, in Bali, and in Penang. They never met in the United States.
Throughout the period during which they met to fix prices, the Malaysian producers sold their rubber thread around the world, dis- tributing it to the United States market in three different ways. Hevea- fil and Filmax sold to the United States through a division of Heveafil based in the United States. Rubfil, Rubberflex, and Filati Lastex all sold to large United States customers directly and to smaller custom- ers through wholly owned subsidiaries incorporated in the United States, all four of which were named as defendants. See Dee-K, 982 F. Supp. at 1142. The record does not disclose the United States share of the global market.
From 1991 to 1996, United States prices for rubber thread (adjusted for inflation using the producer price index) generally rose, with some decreases on various scales. Dee-K attributes these increases to the price-fixing conspiracy. The producers attribute them to an antidumping order entered by the United States Department of Commerce in 1992 that imposed a duty on rubber thread and to increases in the price of raw materials, particularly the price of latex.
At the conclusion of an eight-day trial, the district court submitted a special verdict form to the jury. The verdict form included two questions: (1) Was there "a conspiracy . . . to fix the prices of extruded rubber thread, which was intended to have a substantial effect in the United States"? (2) If so, did "the conspiracy have a sub- stantial effect in the United States"?
The jury answered the first question in the affirmative, finding a conspiracy to fix prices with the intent of affecting the United States. But the jury answered the second question in the negative, finding that the conspiracy did not have a substantial effect in the United States. In accordance with this verdict, the court entered judgment for the producers.
Dee-K moved for a new trial pursuant to Rule 59, arguing that the jury's verdict as to the lack of a substantial effect on United States commerce was contrary to the weight of the evidence. The district court denied the motion and simultaneously denied a late-filed Rule 50 motion for judgment as a matter of law on the substantial-effect question. Dee-K appeals, contending that the substantial-effect test (at least as stated in the jury instructions and special verdict) does not govern this case. [1] [11] [1]
[1] [11] [1] Dee-K does not appeal the denial of its Rule 50 motion. It does, how- ever, appeal the denial of its motion for a new trial, asserting that the jury's finding of no substantial effect was against the weight of the evi- dence. In fact, the producers provided the jury with a good deal of evi- dence supporting the challenged finding, including evidence that increased latex prices or antidumping duties, or both, accounted for rubber-thread price increases. Given these alternatives, nothing about this case presents the "exceptional circumstances" that might lead us to con- clude that the verdict was against the weight of the evidence. See Bristol
II.
In Hartford Fire Insurance Co. v. California, the Supreme Court
noted that "it is well established that the Sherman Act applies to for-
eign conduct that was meant to produce and did in fact produce some
substantial effect in the United States."
Ford, Inc.,
The producers respond that Hartford Fire is "analytically indistin- guishable" from Dee-K's case. Thus, they maintain that the district court correctly applied Hartford Fire when it required Dee-K to show a "substantial effect in the United States" before concluding that "the Sherman Act applies" to the "foreign conduct" that Dee-K alleged. The mixture of foreign and domestic elements in this case makes its analysis challenging; either an entirely foreign or an entirely domestic conspiracy would present a comparatively easy jurisdic- tional question. If the conspiracy had involved participants with
Steel & Iron Works, Inc. v. Bethlehem Steel Corp.,
v. Zenith Radio Corp.,
pants with foreign affiliations but a few who also had United States affiliations; acts that range from a series of conspiratorial meetings,
[2]
[22]
[2]
We recognize that the Ninth Circuit has suggested that the foreign-
conduct question affects the substantive analysis of a particular offense
under the antitrust laws. See Metro Indus. v. Sammi Corp.,
territoriality in an Age of Globalization: The Hartford Fire Case, 1993 Sup. Ct. Rev. 289, 290-92. But this is one of the few cases to date that involves an import market and presents such a mixed fact pattern, and neither the statutory scheme nor the case law provides clear guidance.
Although the Supreme Court noted in Hartford Fire,
Vof,
[3] [33] [3] Not even the producers suggest that we should, by analogy or other- wise, borrow the FTAIA standard in this import case. *11 rect, substantial, and reasonably foreseeable effect" provision "amends existing law or merely codifies it"); Kruman v. Christie's
Int'l P.L.C.,
We thus must rely on case law, which provides some, albeit lim- ited, assistance. Only a few cases give any hint of how to decide whether conduct is foreign.
In cases that date from the early twentieth century, silence on this point is hardly surprising, because the Supreme Court then rejected any exercise of jurisdiction based only on acts committed abroad, on the theory that the law of the country where an act occurred should govern it. See American Banana Co. v. United Fruit Co., 213 U.S. 347, 356 (1909); IA Areeda & Hovenkamp § 272b at 350-51 (describ- ing post-American Banana Supreme Court cases in which jurisdiction depended on finding "actions within the United States"). Laws § 2.10 at 68-69 (5th ed. 1996). The case, Alcoa, thus introduced
Co. (Alcoa),
Trade Comm'n v. Superior Ct. Trial Lawyers Ass'n,
at 393-94 ("Under [Alcoa's] . . .`effects test,' foreign conduct was actionable under our antitrust laws if it was intended to affect domes- tic commerce and actually did so." (emphasis added)). Yet Alcoa does not discuss how to assess whether conduct is "foreign," rather than domestic and therefore subject to McLain's test. In the decades after Alcoa, courts and commentators analyzed not how to assess whether conduct is foreign, but how to interpret and apply Alcoa's effects test. They disagreed as to whether antitrust jurisdiction over foreign conduct requires both "an effect" on United States commerce and an "intent to affect United States commerce," or just effect or just intent, and as to the magnitude of any effect. See,
e.g., Matsushita,
Although Hartford Fire itself does not discuss how to define "for- eign conduct" either, it gives us some guidance by characterizing cer- tain conduct as foreign. The complaint in Hartford Fire alleged multiple, partially overlapping conspiracies among reinsurers and their insurers (that is, insurers of reinsurers, also known as providers *13 of retrocessional insurance) to limit the kinds of policies written for general corporate coverage in the United States market. See 509 U.S. at 770-78. Three counts specifically alleged that companies in London agreed among themselves to refuse to reinsure policies covering the United States market unless the policies contained certain restrictions on liability. Two of these alleged conspiracies involved only interna- tional participants, see id. at 776, 778 & n.7, but one involved both international and United States participants. See id. at 775-77.
It was in its discussion of these three counts that the Hartford Fire
Court stated that "it is well established by now that the Sherman Act
applies to foreign conduct that was meant to produce and did in fact
produce some substantial effect in the United States."
III.
Dee-K seeks to rely on the Hartford Fire Court's silence on these issues to argue that it need not satisfy the substantial-effect test described in Hartford Fire. Specifically, Dee-K maintains that, even if the Hartford Fire statement does set forth minimal requirements for antitrust jurisdiction over foreign conduct, those requirements govern only antitrust violations involving "wholly" foreign conduct — and do not govern foreign conspiracies that result in the sale of price-fixed goods directly into United States commerce. Meanwhile, the produc- ers argue that Hartford Fire directly controls here, without acknowl- edging any distinctions between the two cases. They insist that the only relevant consideration in assessing whether conduct is foreign is the location of actual conspiratorial meetings. We ultimately reject both sides' rigid views of Hartford Fire and apply a more nuanced analysis.
A. We begin with Dee-K's contention that the standard set forth in
Hartford Fire does not govern this case because the conduct at issue
here is not foreign enough. Dee-K offers two arguments in support of
this contention. Neither is persuasive.
First, Dee-K relies on the fact that two of our sister circuits have
characterized Hartford Fire as involving "wholly foreign" conduct.
See Carpet Group Int'l v. Oriental Rug Importers Ass'n,
Hartford Fire,
Fire as involving "wholly foreign" conduct may, however, simply have been a shorthand description of the case, for in neither Carpet Group nor Nippon Paper does the holding turn on this characteriza- tion or otherwise assist Dee-K. Indeed, the analysis of the Third Cir- cuit in Carpet Group is directly contrary to that suggested by Dee-K. The Third Circuit did refuse to apply the Hartford Fire test to a con- spiracy among United States and foreign entities to protect the role of distributors in the United States market for imported carpets. How- ever, the Carpet Group court did not simply point to the existence of some domestic contacts and end its analysis, as Dee-K would have us do. Rather, before applying the McLain domestic-conduct jurisdic- tional standard, the Carpet Group court determined that the alleged conduct "deal[t] primarily with conduct in the United States," because of the United States location of most participants, several targets of
their pressure, and several of their meetings.
Hartford Fire, although the district court had used the term "wholly
foreign" in a related context, see In re Ins. Antitrust Litig., 723 F.
Supp. at 486, the Supreme Court never described the conduct before
it as "wholly" foreign. Moreover, some of the participants in one of
the conspiracies alleged in Hartford Fire were entities based in the
United States, see
Dee-K's other foreign-conduct argument, although reiterated sev- eral times, fares no better. Dee-K repeatedly contends that whenever conspirators "sell price-fixed goods directly into U.S. commerce," the conspiracy must be regarded as domestic rather than foreign conduct, because these goods by definition are then "in" United States com- merce. This single-factor test — under which even a conspiracy hatched and planned entirely on foreign soil by foreign entities would be domestic if it resulted in direct sales of price-fixed goods into a United States import market — comes perilously close to clear con-
flict with Hartford Fire. After all, there the Supreme Court character- ized as "foreign conduct" a conspiracy to refuse to sell reinsurance policies directly into United States markets. The Hartford Fire con- spiracy had a direct, anticompetitive impact on a United States import market — just like the direct anticompetitive impact that Dee-K attri- butes to the rubber-thread price-fixing conspiracy.
Dee-K apparently hopes to distinguish Hartford Fire simply because that case concerned a refusal to sell to, rather than a sale to, purchasers in the United States. We acknowledge that in some cir- cumstances this factual distinction may have significance. [6666] When we consider actual harm to United States consumers, however, we see no distinction between the impact of refusing to sell and that of fixing the price of imported goods, both of which may seriously and directly harm United States consumers. Both situations involve harmful con- duct affecting a transaction in which a United States participant takes place. In refusal cases, courts have not hesitated to require antitrust plain- tiffs to allege and prove a substantial effect on the United States. In addition to the Hartford Fire Court itself, the Ninth Circuit required such proof in a case involving allegations that competitors had divided up the right to sell directly to United States consumers, even though market division rings the same alarm bells as price fixing; indeed, both constitute per se Sherman Act violations. See Metro
Indus.,
Moreover, given complex global trade patterns of sale, resale, and
distribution, Dee-K's formulation would grant United States courts
jurisdiction over a great variety of foreign conduct. Cf. Den Norske
[6]
[66]
[6]
The Hartford Fire Court specifically declined to decide whether the
FTAIA governed a refusal to sell a service into the United States, even
though the lower courts had held that the FTAIA did not apply to such
conduct. See In re Ins. Antitrust Litig.,
Stats Oljeselskap,
Antitrust Litig.,
Enforcement Guidelines for International Operations § 3.11 (1995), available at http://www.usdoj.gov/atr/public/guidelines/internat.htm (as of July 2, 2002) (advising that "[i]mports into the United States by definition affect the U.S. domestic market directly" but that they yet must "produce the requisite substantial effects," while comment- ing that effects are likely to be "clear" in such a case).
For these reasons, we reject Dee-K's contention that Hartford Fire never applies when a conspiracy involves price-fixed goods sold directly into United States commerce.
B. We likewise reject the producers' equally rigid view as to the applicability of Hartford Fire. The producers contend that in assess- ing whether "conduct" is "foreign" (and thus subject to the substantial-effect, rather than the domestic McLain test), we should consider only the location of acts that themselves independently vio- late the Sherman Act. According to the producers, "the Hartford Fire test . . . is based solely upon the situs of a conspiratorial agreement." The producers thus turn Dee-K's argument back upon it: even if Hart-
ford Fire does apply just to "wholly foreign conduct," the only rele- involved goods not directly sold into the United States market by the price-fixers themselves. However, Dee-K can point to no authority applying per se condemnation to foreign price fixing simply because the price fixing was on directly imported goods. Moreover, nothing in Nip- pon Paper suggests that the corporate layer between the price-fixers and the United States market protected the price-fixers from full domestic treatment, i.e., that the case might have been analyzed as domestic con- duct if the price-fixing scheme had not been indirect. Indeed, the com- mentators see Nippon Paper as novel, not because it applied an effects test as a prerequisite for jurisdiction, but because it asserted jurisdiction at all in a criminal context. See Fugate § 2.14 at 14, 15 (Supp. 2002); IA Areeda & Hovenkamp § 272i at 364-68.
vant "conduct" is the conspiratorial meetings themselves. In this case, they argue, we should therefore focus only on the location of the meetings at which the conspirators agreed to fix prices — and all of those meetings were held outside the United States.
The producers' suggested rule eliminates any examination of the national affiliation of the participants in the conduct, the scope and location of the target market, and the location of all acts other than the actual conspiratorial acts. This rigidity troubles us. A noted com- mentary has warned against an overly rigid approach in this area of antitrust law: "to say that domestic per se rules are not necessarily and automatically applicable in the international context is not to say that an antitrust court needs to hesitate very long before condemning restraints with significant and obvious effects on United States com- merce, and without any plausible purpose other than the suppression of competition with and in the United States." IA Areeda & Hovenkamp § 273 at 371. In short, the flexibility that permits a court not to apply domestic rules to a defendant engaging in foreign con- duct should be balanced by a court's ability to allow a plaintiff to pur- sue foreign conduct that does harm United States interests — even if the defendants scrupulously entered into their illegal agreements only outside the United States.
The suggestion that we consider only the location of certain acts
concerns us particularly given that ever since Alcoa, the Supreme
Court's jurisdictional analysis has emphasized above all else the
effects, i.e., the intended location, actual location, and magnitude of
those effects. See, e.g., Kruman,
still require special proof of the conspiracy's effect before a United States court could assert jurisdiction.
We reject this overly narrow view. McLain might well apply to
such a conspiracy, even though the acts that constituted the illegal
agreement took place exclusively abroad. Conversely, as the Second
Circuit has noted, meetings in the United States to negotiate "an
agreement to fix prices in an overseas foreign market that had no
effect on domestic commerce" do not yield antitrust jurisdiction in
our courts. See Kruman,
C.
Instead of the parties' bright-line rules, we believe a court should properly engage in a more flexible and subtle inquiry. In determining which jurisdictional test (Hartford Fire or McLain) applies, a court should consider whether the participants, acts, targets, and effects involved in an asserted antitrust violation are primarily foreign or pri- marily domestic.
This inquiry will best accommodate the cases with mixed fact pat- terns, defying ready categorization as "foreign" or "domestic" con- duct, which our increasingly global economy will undoubtedly produce. We cannot begin to foresee the scope or complexity of future transactions. To adopt the simplistic rules the parties favor might well yield unintended and unfortunate results.
Moreover, this area of antitrust law has historically been marked by
change, and remains a subject of serious debate. Not only the courts,
but also numerous commentators and even representatives of various
other countries (as frequent amici), have presented differing views,
focusing on various elements of conduct as crucial in addressing
whether assertion of jurisdiction is appropriate. Given these concerns,
we believe courts should remain able to consider the full range of fac-
tors that may appropriately affect the exercise of our antitrust jurisdic-
tion in any given case.
We note that this approach echoes that of the Third Circuit in Car-
pet Group and finds support in several of the treatises. See Carpet
Group,
Nippon Paper, the agreements here were all formed entirely outside the United States — in several other countries. The target of the con- spiracy was a global market, and the participants monitored prices in many markets around the world. Although dozens of people partici- pated in the meetings over the years, Dee-K can only point to two who held office in United States companies, and both of them also had important and in fact primary roles in Southeast Asian compa- nies.
To be sure, the producers sold rubber thread in the United States to United States consumers. In particular, Heveafil sold through a United States division of the parent producer, directing pricing by communications from Southeast Asia, while Rubfil sold through a wholly owned United States subsidiary and co-defendant. In addition, a handful of faxes from the producers describe pricing in the United States. It further appears that a United States distributor was made aware, by a fax sent "FYI," of a group commitment not to hire an executive whom one producer had fired for his opposition to price increases. But these links to the United States are mere drops in the sea of conduct that occurred in Southeast Asia (and around the world). See
In re Uranium Antitrust Litig.,
In closing, we note that even when a conspiracy constitutes "for- eign conduct," an antitrust plaintiff still has access to the federal courts to challenge it. The district court did not dismiss Dee-K's law- suit because its claim involved foreign conduct. The court merely required Dee-K to prove that the foreign conduct had a substantial effect on United States commerce in order to recover. Other litigants who claim that foreign conduct, which violates our antitrust laws, has harmed them may also have their day in court, and the federal courts will provide redress for those who can show that the harm of which they complain had a substantial effect on our commerce. For Dee-K, that day in court has come and gone.
IV. For the reasons given herein, the judgment of the district court is
AFFIRMED.