Second Circuit Clarifies Its FTAIA Standard Lotes Co., Ltd. v. Hon Hai Precision Industry Co., Ltd., No. 13-2280, slip op. (2d Cir. June 4, 2014). On June 4, 2014, in Lotes Co. Ltd. v. Hon Hai Precision Indus. Co., Ltd., the U.S. Court of Appeals for the Second Circuit clarified several aspects of its case law regarding the Foreign Trade Antitrust Improvements Act (FTAIA), 15 U.S.C. 6a The panel held that the requirements of the FTAIA are non-jurisdictional, overruling Filtech S.A. v. France Telecom S.A., 157 F.3d 922 (2d Cir. 1998). In addition, the Second Circuit followed the Seventh Circuits decision in Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845 (7th Cir. 2012) (en banc), holding that foreign anticompetitive conduct has a direct effect on U.S. domestic or import commerce when there is a reasonably proximate causal nexus between the conduct and the effect. Lotes manufactures universal serial bus (USB) connectors in China. Lotes sells those USB connectors to original device manufacturers (ODMs) in China. The ODMs, including the defendants Hon Hai and Foxconn, incorporate the USB connectors into notebook computers, which are exported to the United States and other countries. Lotes alleged that Hon Hai and Foxconn conspired to monopolize the market for devices that incorporate USB 3.0 connectors (the latest industry standard for USB connectors). According to Lotes, Hon Hai and Foxconn promised to license the patents necessary to manufacture USB 3.0 devices to members of a standard-setting organization, including Lotes, on reasonable and non-discriminatory terms. Then, Foxconn and Hon Hai refused to license the patents to Lotes. Lotes alleged that this anticompetitive behavior in China would have downstream effects worldwide, including in the United States. Foxconn and Hon Hai moved to dismiss Lotes complaint for lack of subject matter jurisdiction. The district court granted the motion. It reasoned that the FTAIA is jurisdictional and held that Lotes failed to allege a direct, substantial, and reasonable foreseeable effect on U.S. commerce. The Second Circuit affirmed, but its analysis differed from that of the district court. Following Arbaugh v. Y&H Corp., 546 U.S. 500 (2006), the Second Circuit held that the requirements of the FTAIA go to the merits of an antitrust claim rather than to subject matter jurisdiction. The Second Circuit also rejected the defendants arguments that the structure of the Sherman Act, the FTAIAs legislative history, principals of international comity, and dictum from F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155 (2004) compelled the conclusion that the FTAIA was jurisdictional. The Second Circuit also adopted a different definition of the word direct in the FTAIAs direct, substantial, and reasonably foreseeable effect standard. The FTAIA states that the Sherman Act does not apply to conduct involving foreign trade or commerce (other than import trade or commerce) with foreign nations unless the trade or commerce (1) has a direct, substantial, and reasonably foreseeable effect on domestic commerce and (2) the domestic effect gives rise to a claim under federal antitrust law. 15 U.S.C. 6a(1)(A). The Second Circuit agreed with the position advocated in the amicus curiae brief submitted by the
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AMECURRENT 709635821.1 13-Jun-14 09:45 Department of Justice and Federal Trade Commission, and defined the word direct to mean a reasonably proximate causal nexus. In dicta, the Second Circuit faulted the district court for placing near-dispositive weight on the fact that the USB connectors at issue were manufactured in China before being shipped to the U.S. The court stated that [t]here is nothing inherent in the nature of outsourcing or international supply chains that necessarily prevents the transmission of anticompetitive harms or renders any and all domestic effects impermissibly remote and indirect. The Second Circuit indicated that district courts should examine multiple factors when determining whether a domestic effect is directincluding the structure of the market and the nature of the commercial relationships at each link in the causal chain. The Second Circuit also observed that principals of proximate causation would drive this analysis, although the court noted that proximate causation is a notoriously slippery doctrine. However, the Second Circuit did not apply this test to the facts alleged by Lotes. Instead, the court found that Lotes claims did not give rise to a claim under federal antitrust law. Under this prong of the FTAIA, the Second Circuit reasoned that a domestic effect must proximately cause the plaintiffs injury. The court held that Lotes claims failed this test. Lotes alleged that it was injured by Foxconns patent hold up scheme in China, resulting in downstream effects in the U.S. Therefore, the court concluded that Lotes' injury precedes any domestic effect in the causal chain. Accordingly, the Second Circuit affirmed the district courts dismissal on this alternative ground.
Bernie Harry, As Personal Representative of The Estate of Lisa Normil, Deceased v. Wayne Marchant, M.D., Ali Bazzi, M.D., 259 F.3d 1310, 11th Cir. (2001)
In The Matter of William Bookheim & Sons, Inc., Bankrupt. Michael F. Waldenmaier and George Waldenmaier, JR., Globe Food Sales Co., Inc., 403 F.2d 28, 2d Cir. (1968)
Dorothy L. Buckingham, in Her Own Right and As Administratrix of The Estate of Elvin E. Buckingham, Deceased v. United States, 394 F.2d 483, 4th Cir. (1968)