United States: Jurisdiction of U.S. Antitrust Laws under the Foreign Trade Antitrust Improvements Act: A Question for the Court, Not a Jury

The 1982 Foreign Trade Antitrust Improvements Act ("FTAIA") provides that the Sherman Act "shall not apply" to matters involving foreign commerce unless the challenged conduct had a "direct, substantial, and reasonably foreseeable impact" on domestic commerce.1

When two Indian chemical companies and their United States-based supplier filed suit against our client ANGUS Chemical Company and others in federal court in Chicago in April 1994, there had been only a handful of decisions interpreting the FTAIA. In the years since then, antitrust suits involving foreign plaintiffs have been common, triggering widespread invocation of the FTAIA. In March 2003 , the Seventh Circuit, sitting en banc and by a 5 to 4 vote, affirmed the District Court’s dismissal of the case for lack of a domestic impact, agreeing that the question whether the conduct of a defendant in an antitrust case involving foreign commerce had the requisite impact on domestic commerce was for the Court to decide as a preliminary matter, as a question of subject matter jurisdiction.2 That decision became final in November 2003, when the Supreme Court declined to take the case.3

ANGUS is headquartered in the Chicago area. It makes, among other things, a product that its German subsidiary further processes into an ingredient (amino butanol or AB) used in the manufacture of ethambutol, one of the drugs used to treat tuberculosis. Most of the world’s ethambutol is made in India, where tuberculosis is rampant.

The dispute between the parties traces to 1991, when ANGUS learned that the plaintiff Indian chemical companies planned to acquire technology for making AB from an entity which had as a principal Dr. John Miller, ANGUS’s former head of research and development. In that position, Dr. Miller had supervised ANGUS’s efforts to improve its processes for the manufacture of AB. When ANGUS learned of Dr. Miller’s involvement with the Indian plaintiffs, it filed suit in the Circuit Court of Cook County seeking to enjoin Dr. Miller and the Indian entities from misappropriating ANGUS’s trade secrets. ANGUS ultimately dismissed that action voluntarily in the face of a discovery ruling that would have forced it to disclose the very details of the technology that it had sued to protect.

Plaintiffs thereafter sued ANGUS and others in federal court in Chicago, alleging that by its filing and pursuit of the Cook County trade secrets action – which plaintiffs labeled as a "sham" – and other related conduct, ANGUS and the other defendants had attempted to monopolize, monopolized and conspired to monopolize various chemical markets. But for the alleged anti-competitive acts, plaintiffs alleged, the Indian plaintiffs would have manufactured and sold AB and other products.

ANGUS first moved to dismiss the complaint for lack of subject matter jurisdiction on the ground that the face of the complaint did not sufficiently allege a "direct, substantial, and reasonably foreseeable impact" on domestic commerce, as required by the FTAIA. The District Court denied that motion on the ground that the "broad, conclusory allegations" in the complaint of a supposed impact in the United States permitted plaintiffs to proceed to the discovery phase.4 After an exhaustive discovery process, ANGUS renewed its motion to dismiss for lack of subject matter jurisdiction, on the ground that the factual record revealed in dispositive fashion that plaintiffs’ plans were to make a product in India, for sale to pharmaceutical companies in India, that would produce a drug consumed largely in India by people suffering from tuberculosis – in other words, that the challenged conduct had no meaningful impact on U.S. commerce.

The District Court granted that motion, finding first that "the case law and legislative history" made it "clear that the FTAIA is a matter of subject matter jurisdiction" for resolution by the Court.5 In doing so, the Court rejected plaintiffs’ argument that (1) the FTAIA merely added an additional element that a plaintiff must prove in an antitrust case, and (2) because issues of fact supposedly existed about the impact of defendants’ conduct, it was for a jury to decide whether they had met that requirement. The Court reviewed the evidence in great detail, finding that even indulging in the assumption that plaintiffs had been injured as a result of the pursuit of the trade secret litigation, "the Indian Plaintiffs would have only been injured abroad," and the defendants’ conduct "can have had no effect on any United States commerce in the chemicals that Plaintiffs state they would have manufactured." Accordingly, based on the conclusion that that factual finding was its to make, the Court granted defendants’ Rule 12 (b) (1) motion to dismiss for lack of subject matter jurisdiction.6

Plaintiffs appealed, raising as their sole issue the proposition that compliance with the FTAIA was a matter for the finder of fact to resolve, as another element of an antitrust claim. Our briefs emphasized that ANGUS’s position, and the judgment of the District Court, was supported by the plain language and legislative history of the FTAIA, the views of the federal antitrust enforcement authorities, and the growing body of case law under the FTAIA.7

A panel of the Seventh Circuit heard oral argument on the appeal in April 2002. In an unusual procedural move, before the panel issued a decision, the full Court withdrew the case from the panel and rescheduled it for oral argument before the Court sitting en banc. On March 10, 2003, by a vote of 5 to 4, the Seventh Circuit affirmed the decision below.

The opinion for the Court by Judge Evans reviewed the legislative history and case law, both before and after enactment of the FTAIA, and noted that "the argument that the statute sets out an element of the claim . . . has not gained approval."8 When other circuits have applied the FTAIA, "all have treated the issues as one of subject matter jurisdiction." 9 The majority opinion also cited the basic principle that Congress "has the power to limit the jurisdiction of the federal courts," and that the legislative history "shows that jurisdiction stripping is what Congress had in mind in enacting FTAIA."10

The majority opinion also observed that "there are good policy reasons" for the "prevailing approach" that the question is a matter of subject matter jurisdiction that the Court (not the jury) must resolve.11 Specifically, because application of the antitrust laws of the United States to conduct or parties abroad "touches our relations with foreign governments, . . . it is prudent to tread softly in this area. If FTAIA sets out an issue on the merits, resolution of the issue could be delayed until late in the case, and the potential for a lawsuit to have an effect on foreign markets would exist while the case remained pending. In contrast, if this important issue goes to subject matter jurisdiction, it can be resolved early in the litigation.... Treating the matter as one of subject matter jurisdiction reduces the potential for offending the economic policies of other nations."12 Because the District Court properly treated the issue as one of subject matter jurisdiction, and its findings of fact regarding that issue were not clearly erroneous, the Court of Appeals affirmed.13

The four dissenting judges, in an opinion written by Judge Wood, took issue with each aspect of the majority’s reasoning. For example, the dissent dismissed the significance of the prior cases that had treated the FTAIA standard as a question of subject matter jurisdiction by stating that the issue had not been "analyzed thoroughly by any other court."14 The dissent acknowledged that Congress indeed has the power to deprive the federal courts of subject matter jurisdiction in a particular area, but disagreed with the majority’s conclusion that Congress had done so expressly enough in the FTAIA. According to the dissent, "[i]t is up to Congress to decide how broad or narrow a law it is enacting, and what the plaintiff must prove to be entitled to relief. That is what Congress did in the FTAIA: it established the ‘direct, substantial, and reasonably foreseeable’ effect on commerce test as an element of the plaintiff’s claim."15 The dissent also foresaw complications from treating the question as a threshold issue of subject matter jurisdiction, leading it to disagree with the majority’s view that public policy considerations supported that treatment.16

Perhaps predictably in light of the divisions reflected in the opinions of the Seventh Circuit, plaintiffs filed a petition for writ of certiorari. The Supreme Court denied that petition on November 10, 2003.17

As both opinions in the Seventh Circuit noted, the courts in several other circuits also have treated the domestic impact requirement of the FTAIA as a matter of subject matter jurisdiction. 18 None of those opinions analyzes the issue in as much detail, and from as many perspectives, as the Seventh Circuit did in United Phosphorus. The decision should be of significant interest to businesses in an increasingly global economy: before a foreign plaintiff may pursue an antitrust claim in the U.S. courts, it must prove, as a preliminary matter and to the satisfaction of the court as finder of the facts relating to subject matter jurisdiction, that the challenged conduct indeed had a "direct, substantial, and reasonably foreseeable" impact on U.S. commerce.19


1 15 U.S.C. § 6a.

2 United Phosphorus, Ltd., et al. v. ANGUS Chemical Company, et al., 322 F.3d 942 (7th Cir.), cert. denied 124 S. Ct. 533 (2003).

3 Id.

4 United Phosphorus, Ltd. v. ANGUS Chemical Co., 1994 U.S. Dist. LEXIS 14786 (N.D. Ill. Oct. 13, 1994).

5 United Phosphorus Ltd. v. ANGUS Chemical Co., 131 F. Supp. 2d 1003 (N.D. Ill. 2001).

6 ANGUS also had argued that the detailed record was undisputed on the lack of a domestic impact, so that summary judgment in its favor was appropriate even if the FTAIA requirement was, as plaintiffs claimed, an element of an antitrust claim. Significantly, the District Court’s judgment also reflected the alternative granting of defendants’ motion for summary judgment on that score. Id.

7 See 322 F.2d at 949-52.

8 322 F.3d at 950.

9 Id.

10 Id. at 951-52.

11 Id. at 952.

12 Id.

13 Id. at 953.

14 Id.

15 Id. at 955.

16 Id. at 949-52; 131 F. Supp. 2d at 1021-23.

17 see note 2, supra.

18 Id.

19 Mark McLaughlin and Andy Marovitz, both partners in Mayer, Brown, Rowe & Maw’s Chicago office, represented ANGUS in the District Court and on appeal. Partners Tim Bishop and Steve Shapiro, and Associates Nicola Jackson and Josh Yount, also of Mayer, Brown’s Chicago office, provided their appellate expertise when the case reached the Seventh Circuit.

Copyright © 2007, Mayer, Brown, Rowe & Maw LLP. and/or Mayer Brown International LLP. This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

Mayer Brown is a combination of two limited liability partnerships: one named Mayer Brown LLP, established in Illinois, USA; and one named Mayer Brown International LLP, incorporated in England.

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