The Empagran Exception: Between Illinois Brick and a Hard Place

Thursday, January 1st, 2009 at 12:00 am by Victor P. Goldberg
Victor P. Goldberg, The Empagran Exception: Between Illinois Brick and a Hard Place, 2009 Colum. Bus. L. Rev. 785

Before it was uncovered and prosecuted, the international vitamin cartel, known as “Vitamins, Inc.” by its perpetrators, was extraordinarily successful. Estimates of cartel profits run as high as $18 billion (in 2003 dollars). In addition to substantial criminal sanctions, cartel members paid over $2 billion to American plaintiffs. When foreign plaintiffs tried to sue the foreign defendants in American courts, however, they encountered resistance. A trial court read the Foreign Trade Antitrust Improvements Act (“FTAIA”) to restrict the reach of the Sherman Act and preclude foreign purchasers from suing the foreign defendants. The D.C. Circuit reversed, holding that the facts brought the case within FTAIA’s exceptions. [FN6] There already being a circuit split, the Supreme Court granted certiorari. In its unanimous decision, the Court ruled that the FTAIA exception did not apply where a claim rested solely on foreign harm that was independent of any adverse domestic effect. The FTAIA excludes most anti-competitive foreign trade and commercial activity from the Sherman Act’s reach. However, the Act carves out an exception to this general rule, though the parameters of the exception are less than clear:

[The Sherman Act] shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless —

(1) such conduct has a direct, substantial, and reasonably foreseeable effect —

(A) on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations . . . and

(2) such effect gives rise to a claim under the provisions of [the Sherman Act]. Plaintiffs argued that their claim fell within that exception, but the Court held otherwise. It remanded the case for consideration of an alternative theory that plaintiffs had proffered, but on which the D.C. Circuit had not ruled. The Supreme Court thereby left future foreign plaintiffs with some wiggle room, but little guidance. On remand, the D.C. Circuit rejected this alternative theory. Subsequent plaintiffs have fared similarly, with only one reported decision of a suit (involving price fixing of computer components) surviving a motion to dismiss. In Empagran, the Court recognized that the cartel’s domestic price fixing could only be sustained if it operated both domestically and abroad; nonetheless, it held that this would be insufficient to allow foreign plaintiffs to sue foreign sellers in the U.S. If not then, do any circumstances fall within the FTAIA exception?

In this article, I identify one narrow class of cases that would satisfy the statutory exception. I must emphasize the modest scope of this inquiry. I am not suggesting that this is a socially optimal policy, or, indeed, even a wise one. Instead of focusing on the interrelatedness of the foreign and domestic prices, the inquiry centers on the resale of goods to the domestic market. The argument, hinted at by Justice Scalia at oral argument, is a variant on Illinois Brick Co. v. Illinois, the Supreme Court’s landmark ruling rejecting a passing-on theory of injury suffered by indirect purchasers. Before developing this argument in Section III, I first briefly detail the Empagran decisions.

Author Information

Professor of Transactional Law at Columbia University Law School