Dee-K Enter v. Heveafil , 299 F.3d 281 ( 2002 )

Filed: August 16, 2002
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 01-1894
(CA-98-10-3-MU)
Dee-K Enterprises, etc., et al.,
Plaintiffs - Appellants,
versus
Heveafil Sdn. Bhd., et al.,
Defendants - Appellees.
O R D E R
The court amends its opinion filed July 30, 2002, as follows:
On page 3, section 1, line 2 -- the name “J. Mark Gidley” is
added to the list of appellees’ counsel.
For the Court - By Direction
/s/ Patricia S. Connor
Clerk
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
DEE-K ENTERPRISES, INCORPORATED, a
corporation of the Commonwealth
of Virginia; ASHEBORO ELASTICS
CORPORATION, a corporation of the
state of North Carolina, on behalf
of themselves and all others
similarly situated,
Plaintiffs-Appellants,
v.
HEVEAFIL Sdn. Bhd; FILMAX Sdn.
Bhd; RUBFIL Sdn. Bhd; FILATI
LASTEX Sdn. Bhd, corporations of
Malaysia; RUBFIL USA,
INCORPORATED, a corporation of the
State of North Carolina, No. 01-1894
Defendants-Appellees,
and
RUBBERFLEX Sdn. Bhd; FILATI
LASTEX ELASTOFIBRE USA,
INCORPORATED, a corporation of
Rhode Island; FLEXFIL
CORPORATION OF RHODE ISLAND, a
corporation registered to do
business in North Carolina; FLEXFIL
CORPORATION, a corporation of the
state of North Carolina; Pt BAKRIE
RUBBER INDUSTRIES; Pt PERKEBUNAN
III, corporations of Indonesia;
NATURAL RUBBER THREAD COMPANY,
LIMITED; LONGTEX RUBBER
INDUSTRIES COMPANY, LIMITED,
corporations of Thailand;
CONSORTIUM INTERNATIONAL
CORPORATION, a corporation of the
state of Texas; JPS ELASTOMERICS
CORPORATION, a corporation of the
state of Delaware,
Defendants.
Appeal from the United States District Court
for the Western District of North Carolina, at Charlotte.
Graham C. Mullen, Chief District Judge.
(CA-98-10-3-MU)
Argued: May 7, 2002
Decided: July 30, 2002
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
ARGUED: Joel Davidow, MILLER & CHEVALIER, CHAR-
TERED, Washington, D.C., for Appellants. Christopher M. Curran,
WHITE & CASE, L.L.P., Washington, D.C., for Appellees. ON
BRIEF: Alan I. Horowitz, Michael T. Brady, MILLER & CHEVA-
LIER, CHARTERED, Washington, D.C.; William T. Rikard, Jr.,
PARKER, POE, ADAMS & BERNSTEIN, L.L.P., Charlotte, North
2
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
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
3
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., 985 F. Supp. 640(E.D. Va. 1997). Prior to trial, that court denied class certification.
After most defendants settled, declined to appear, or were dismissed,
the case against the five Malaysian producers and the United States
subsidiary of one of them (Rubfil USA), none of whom now contest
personal jurisdiction, see Dee-K Enters. v. Heveafil Sdn. Bhd., 174
F.R.D. 376 (E.D. Va. 1997), proceeded to trial before a jury.
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
4
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., 982 F. Supp. 1138, 1156 & n.45 (E.D. Va. 1997);
see also United States v. Nippon Paper Indus., 62 F. Supp. 2d 173,
180 (D. Mass. 1999) (noting that foreign companies threatened with
anti-dumping provisions must "walk a fine line").
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.
5
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
____________________________________________________________
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
6
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." 509 U.S. 764, 796 (1993)
(citations omitted).
Dee-K argues that this statement in Hartford Fire does not govern
the case at hand, primarily because the price-fixing conspiracy it
proved does not constitute "foreign conduct." Dee-K contends that
instead the jurisdictional test used in domestic antitrust cases controls
here; in domestic cases a plaintiff need only demonstrate "that the
defendant's activity is itself in interstate commerce, or . . . that it has
an effect on some other appreciable activity demonstrably in interstate
commerce." See McLain v. Real Estate Bd. of New Orleans, 444 U.S.
232, 242 (1980) (emphasis added and citation omitted). Accordingly,
Dee-K asserts that the district court abused its discretion by applying
the substantial-effect test from Hartford Fire. See Nelson v. Green
Ford, Inc., 788 F.2d 205, 208-09 (4th Cir. 1986) (noting that we
review jury instructions for abuse of discretion); Tights, Inc. v. Acme-
McCrary Corp., 541 F.2d 1047, 1060 (4th Cir. 1976) (noting that we
review special verdict interrogatories for abuse of discretion).
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., 41 F.3d 182, 186 (4th
Cir. 1994) (citation omitted); see also Poynter v. Ratcliff, 874 F.2d 219,
223 (4th Cir. 1989); see generally 11 Charles Alan Wright et al., Federal
Practice and Procedure § 2819 (2d ed. 1995 & Supp. 2002).
7
United States affiliations, acting only in the United States, and target-
ing a United States market, the jurisdiction of United States courts
would be clear, without any proof of effect.2 At the other extreme, if
everything about the conspiracy were foreign — if it were a conspir-
acy formed in Southeast Asia, by Southeast Asian persons and corpo-
rations, intended to affect only Southeast Asian markets, and affecting
only those markets — the Sherman Act would not provide a United
States court any jurisdiction to address it. See Matsushita Elec. Indus.
v. Zenith Radio Corp., 475 U.S. 574, 582 (1986) ("American antitrust
laws do not regulate the competitive conditions of other nations'
economies.").
We earn our keep, of course, in the middle ground between such
extremes — in cases such as this. Dee-K alleged (and proved to the
jury) a largely foreign conspiracy with some domestic elements,
aimed at a global market including, but certainly not limited to, a
United States import market. Indeed, the conspiracy mixed foreign
and domestic elements in several respects: it included many partici-
pants with foreign affiliations but a few who also had United States
affiliations; acts that range from a series of conspiratorial meetings,
____________________________________________________________
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., 82 F.3d 839,
844-45 (9th Cir. 1996). Although market effect of course has its place in
substantive antitrust analysis, we follow the Supreme Court and Con-
gress in treating allegations that an antitrust case involves only foreign
conduct as raising a jurisdictional issue. See 15 U.S.C.A. § 6a (West
1997) (addressing the presence of certain types of foreign conduct in an
antitrust case by providing that the Sherman Act does not apply to such
cases at all); Hartford Fire, 509 U.S. at 795-96; see also Restatement
(Third) of the Foreign Relations Law of the United States § 415, report-
er's note 3 (1987) ("[A]ccurate analysis distinguishes between the
requirement of sufficient effect on commerce of the United States to sup-
port application of United States law, and the requirement of sufficient
injury or anticompetitive effect to establish liability."); Wilbur L. Fugate,
Foreign Commerce and the Antitrust Laws § 2.14 at 16 (Supp. 2002)
(criticizing the Metro Industries court on this point); IA Philip Areeda &
Herbert Hovenkamp, Antitrust Law § 273 (2d ed. 2000) ("[W]e empha-
size that `jurisdictional' and `substantive' inquiries are not wholly inde-
pendent.").
8
all held abroad, to routine communications, a few with the United
States; and a target market embracing dozens of nations including the
United States. This sort of mixed fact pattern will probably become
increasingly familiar as global economic links and assertions of trans-
national jurisdiction increase. See generally Kenneth W. Dam, Extra-
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, 509 U.S. at
796, that the substantial-effect test applies to "foreign conduct," no
antitrust statute defines "foreign conduct." Nor does any statute
explicitly address any aspect of a case involving the effect of foreign
conduct on United States import commerce, like that at issue here.
To be sure, Congress legislated in this area relatively recently,
establishing a threshold jurisdictional standard for "conduct involving
trade or commerce (other than import trade or import commerce) with
foreign nations." Foreign Trade Antitrust Improvements Act (FTAIA)
of 1982 § 402, Pub. L. 97-290, 96 Stat. 1246 (codified at 15 U.S.C.A.
§ 6a). According to that statutory standard, United States antitrust
laws do not apply to such conduct unless it has "a direct, substantial
and reasonably foreseeable effect" on United States commerce. Id.
Because this case involves importation of foreign-made goods, how-
ever — conduct Congress expressly exempted from FTAIA coverage
as "involving . . . import trade or import commerce . . . with foreign
nations," id. — the FTAIA standard obviously does not directly gov-
ern this case, even though it may constitute an effort to "clarify the
application of United States antitrust laws to foreign conduct" in other
circumstances.3 See Den Norske Stats Oljeselskap AS v. Heeremac
Vof, 241 F.3d 420, 421 (5th Cir. 2001); Hartford Fire, 509 U.S. at796 n.23 (refusing to decide whether the FTAIA applies to the con-
duct alleged, an agreement between foreign and United States partici-
pants, formed abroad, to refuse to sell a service to United States
consumers); see also id. (refusing to decide whether the FTAIA's "di-
____________________________________________________________
3
Not even the producers suggest that we should, by analogy or other-
wise, borrow the FTAIA standard in this import case.
9
rect, substantial, and reasonably foreseeable effect" provision
"amends existing law or merely codifies it"); Kruman v. Christie's
Int'l P.L.C., 284 F.3d 384, 399 n.5 (2d Cir. 2002) (same). Nor do we
find any guidance in the FTAIA as to what constitutes "foreign con-
duct."
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").
In 1945, a leading opinion by Judge Learned Hand, which the
Supreme Court later endorsed, displaced this approach based on the
location of the conduct, and shifted attention to the location of the
conduct's actual or intended effect. See United States v. Aluminum
Co. (Alcoa), 148 F.2d 416 (2d Cir. 1945); IA Areeda & Hovenkamp
§ 272c; I Wilbur L. Fugate, Foreign Commerce and the Antitrust
Laws § 2.10 at 68-69 (5th ed. 1996). The case, Alcoa, thus introduced
a predecessor of Hartford Fire's effects test. Although Alcoa
refocused the jurisdictional analysis on the location of the effects of
alleged violations of the antitrust laws, it did not eliminate the loca-
tion of the conduct from the inquiry entirely, since its test applied
only to cases involving foreign conduct.4 See, e.g., Kruman, 284 F.3d
____________________________________________________________
4
After Alcoa as before, a wholly domestic antitrust case does not nec-
essarily require any proof of an effect on commerce. See, e.g., Fed.
Trade Comm'n v. Superior Ct. Trial Lawyers Ass'n, 493 U.S. 411, 432-
36 (1990) (expounding on the rationale for per se antitrust rules that
create a presumption of effect in many cases); McLain, 444 U.S. at 242(explaining that antitrust jurisdictional requirements in a domestic case
may be satisfied by a showing that "the defendants' activity" of any mag-
nitude "is itself in interstate commerce").
10
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, 475 U.S. at 582 n.6 (characterizing the Sherman Act
as "reach[ing] conduct outside our borders, but only when the conduct
has an effect on American commerce") (emphasis added)); Restate-
ment (Third) of Foreign Relations Law § 415 (concluding that the
Sherman Act applies to a foreign-made agreement with "a principal
purpose . . . to interfere with the commerce of the United States" and
"some effect on that commerce" and to other foreign-made agree-
ments with a "substantial effect" on United States commerce if "the
exercise of jurisdiction is not unreasonable"); Fugate § 2.12 at 82
(proposing "the `direct and substantial' [effect] test, plus an element
of intent" where "U.S. jurisdiction is based upon acts or agreements
abroad which are not in the flow of foreign commerce" (emphasis
omitted)); id. § 2.5 at 56, § 2.8 at 62 (suggesting and citing authority
for a requirement of a "substantial effect"); IA Areeda & Hovenkamp
§ 272a at 350, § 272f at 354 (describing a minimal requirement of
"significant effects"); see also Den Norske Stats Oljeselskap, 241
F.3d at 423-24 & n.12 (describing the "general [ ] disagree[ment],"
"assorted tests," and "confusing and unsettled" federal case law gov-
erning "the extraterritorial reach of the antitrust laws" before (and
after) Hartford Fire). In promulgating these variants on the effects
test, however, the authorities do not explore how to define "foreign
conduct" in deciding whether to apply an effects test at all.
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
11
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." 509 U.S. at 796.
The Court thus plainly characterized the three counts it was then con-
sidering (including the count involving conspirators based in the
United States) as "foreign conduct," but did not further define the
term. The Court did not explain whether or how it had weighed the
national affiliation or affiliations of the violators, the location of their
acts, the location of the target market, or some combination of these
factors in determining that the counts involved "foreign conduct."5
____________________________________________________________
5
Nor, as Dee-K notes, did the Court resolve whether the Sherman Act
might also apply to foreign conduct (however defined) that meets some
lesser standard — that is, whether intent alone, substantial effect alone,
or some "effect" less than "substantial" coupled with intent might suffice.
Instead, the Court stated that the Sherman Act does apply to foreign con-
duct when intent and substantial effect exist, without explicitly excluding
the possibility of jurisdiction in other circumstances. 509 U.S. at 796; see
also IA Areeda & Hovenkamp § 273. (Indeed, the parties presented no
jurisdictional issue to the Court in Hartford Fire; rather, the defendant
reinsurers "concede[d]" jurisdiction, but contended that "the District
Court should have declined to exercise such jurisdiction under the princi-
ple of international comity." 509 U.S. at 795-97.)
However, we need not decide whether the Hartford Fire formulation
is the only test for jurisdiction in antitrust cases involving foreign con-
duct, because Dee-K has waived this argument by failing to pursue it in
the district court. Dee-K now contends that the district court should have
applied a test drawn from the Restatement (Third) of Foreign Relations
Law § 415(2), permitting a lesser effects test if the intent to affect the
United States was a "principal purpose" of the conduct — but Dee-K
never so much as mentioned a "principal purpose" requirement in the dis-
trict court, nor objected to the jury instructions or special verdict form on
this basis. Never having proposed its theory or alternative test to the dis-
trict court, Dee-K cannot prevail on this argument on appeal.
12
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, 227 F.3d 62,
75 (3d Cir. 2000); United States v. Nippon Paper Indus., 109 F.3d 1,
9 (1st Cir. 1997). Dee-K maintains, in line with this characterization,
that Hartford Fire does not govern a conspiracy like that at hand, with
some domestic elements, including direct sales into the United States
and one or more participants based in the United States (here the
United States subsidiaries and distributors of the producers). Dee-K
does not specify whether it is the nationality of the participants
involved in the alleged antitrust violation, the location of their acts,
the nature of their target market, or some combination of these factors
that must be foreign to render their conduct "wholly foreign."
The Carpet Group and Nippon Paper courts did not state or sug-
gest the origin of the phrase "wholly foreign." A possible source for
13
the phrase is the legislative history of the FTAIA, the 1982 statute
that required "a direct, substantial and reasonably foreseeable effect"
on United States commerce for antitrust jurisdiction over conduct
involving non-import foreign commerce. See 15 U.S.C.A. § 6a(1);
H.R. Rep. No. 97-686, at 10 (1982), reprinted in 1982 U.S.C.C.A.N.
2487, 2495. A House Report explained that the FTAIA covers
"wholly foreign transactions as well as export transactions" but not
"import transactions." Id. In the FTAIA's legislative history, then,
"wholly foreign transactions" appear to be those conducted entirely
outside the United States — transactions that have no point of contact
with this country. See also In re Ins. Antitrust Litig., 723 F. Supp.
464, 486 (N.D. Cal. 1989) (characterizing the FTAIA as applicable to
"wholly foreign commerce") (subsequent history, culminating in
Hartford Fire, 509 U.S. 764, omitted). If this legislative history
indeed constitutes the source of the phrase "wholly foreign," the his-
tory itself makes plain that the phrase does not apply to cases like
ours, which involve "import transactions." Dee-K derives little bene-
fit, however, from this possible origin of the phrase, because based on
the legislative history, "wholly foreign" cannot be an appropriate
characterization of the transactions at issue in Hartford Fire itself —
which involved a refusal to sell to United States consumers. Thus, if
the FTAIA's legislative history is the source of the term "wholly for-
eign," a court certainly should not use the term in deciding whether
to apply the Hartford Fire test.
Carpet Group and Nippon Paper's characterization of Hartford
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
14
their pressure, and several of their meetings. 227 F.3d at 64-68, 75.
Thus, looking at participants' affiliations and the locations of both
acts and targets, the court focused on whether the conduct at issue
was "primarily" domestic or foreign, not whether it was "wholly"
domestic or foreign.
Furthermore, and perhaps most importantly, characterization of a
prior case by a lower court cannot revise or amend the case's lan-
guage or facts. Hence, even if Carpet Group or Nippon Paper had
held that Hartford Fire controlled only "wholly foreign" conduct, that
could not change the language or facts of Hartford Fire itself. In
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 509 U.S. at 775, 776, 795, all of the London-based
corporate defendants were "subsidiaries of American corporations,"
and at least one key meeting attended by London-based defendants
occurred in New York City. See In re Ins. Antitrust Litig., 938 F.2d
919, 922-23, 929 (9th Cir. 1991), rev'd on other grounds sub nom.
Hartford Fire, 509 U.S. 764. Thus, Hartford Fire itself severely
undercuts Dee-K's claim that the substantial-effect test applies only
to "wholly" foreign conduct, and Dee-K has shown no other reason
to limit Hartford Fire to such conduct. But see IA Areeda &
Hovenkamp § 272e at 354 (hypothesizing that the Sherman Act might
reach even conduct with "only remote[ ] and insignificant[ ]" effects
on the United States and no intent to affect the United States if
"American firms participate" or "some planning or other conduct"
occurs here).
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-
15
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.6 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., 82 F.3d at 841, 843-44.
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
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., 723 F. Supp. at 486, aff'd on this
ground, 938 F.2d at 932, rev'd on other grounds sub nom. Hartford Fire,
509 U.S. at 796 n.23 (taking no position on the applicability of the
FTAIA). Perhaps the Court declined to decide the issue because a refusal
to sell a service into the United States does not`enter' the United States
in some sense, as an import does.
16
Stats Oljeselskap, 241 F.3d 420 (rejecting the existence of any form
of antitrust jurisdiction over a foreign conspiracy even though it
assertedly indirectly raised prices in a United States import market,
in part because the plaintiff was not a buyer or seller in that market).
For example, in every case involving direct sales to the United States
in which our antitrust laws condemn an activity per se, however for-
eign the conduct, United States courts would have jurisdiction without
any showing whatsoever of an effect on United States commerce. See,
e.g., Stephen Jay Photography, Ltd. v. Olan Mills, Inc., 903 F.2d 988,
995 (4th Cir. 1990) (noting that explicit horizontal minimum price
fixing is a per se violation of the Sherman Act). Yet the rationale for
per se rules in cases addressing domestic conduct seems plainly "in-
applicable to foreign restraints that . . . pose very little danger to
American commerce." IA Areeda & Hovenkamp § 273 at 370-71
(noting that "price fixing in a foreign country might have some but
very little impact on United States commerce," and concluding that
"appraising restraints abroad requires an assessment of effects on
American foreign commerce").
Perhaps for this reason, courts have consistently required a show-
ing of effect on United States commerce even in cases involving price
fixing on imports. Before Hartford Fire, the Seventh Circuit consid-
ered a conspiracy among "twenty domestic and nine foreign corpora-
tions. . . to fix the price of uranium in the world market" at meetings
in five foreign countries and the United States. See In re Uranium
Antitrust Litig., 617 F.2d 1248, 1254 (7th Cir. 1980). In that case the
Seventh Circuit applied Alcoa's effects test, although the domestic
participants greatly outnumbered the foreign participants, a meeting
occurred in the United States, and the target market included the
United States. See id. at 1253-54. Similarly, in Nippon Paper, on
which Dee-K heavily relies, the First Circuit had no trouble treating
a criminal conspiracy resulting in price fixing of goods imported into
the United States as "foreign conduct" requiring proof of a substantial
effect on United States commerce. Nippon Paper, 109 F.3d at 2.7
____________________________________________________________
7
The Nippon Paper court stated that the Sherman Act treated civil and
criminal jurisdiction alike and then extended criminal jurisdiction by
applying the Hartford Fire test from the civil context. See 109 F.3d at
4-8. Dee-K seeks to distinguish Nippon Paper on the ground that it
17
Finally, the Executive Branch has endorsed the view that plaintiffs
alleging antitrust violations affecting imports into a United States
market must still prove a substantial effect on United States com-
merce. See U.S. Dep't of Justice & Fed. Trade Comm'n, Antitrust
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.
18
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, 284 F.3d at 395. Quite simply, the
Supreme Court has moved away from its earlier doctrine focused
solely on the location of acts. We therefore doubt whether a jurisdic-
tional rule focused exclusively on defining and locating a certain lim-
ited set of acts could possibly be appropriate.
The potential consequences of the rule that the producers champion
only confirm our doubts. If, for example, executives of United States
corporations that did business solely in the United States met abroad
simply to consummate a price-fixing conspiracy that was carried out
entirely within the United States, the producers' proposed rule would
still require special proof of the conspiracy's effect before a United
States court could assert jurisdiction.
19
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, 284 F.3d at 395. The universe of factors rele-
vant to our jurisdictional analysis must be greater than the location of
the specific conspiratorial acts alone.
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, 227 F.3d at 75; Fugate § 2.12 at 80-82 (discussing the location
of "acts and agreements," the location of their effects, and the nation-
20
ality of participants in considering jurisdiction); Restatement (Third)
of Foreign Relations Law § 415(2) (applying the same proposed juris-
dictional test to "[a]ny agreement in restraint of United States trade
that is made outside of the United States, and any conduct or agree-
ment in restraint of such trade that is carried out predominantly out-
side of the United States" (emphasis added)); cf. Montreal Trading
Ltd. v. Amax, Inc., 661 F.2d 864, 849 (10th Cir. 1981) ("When the
contacts with the United States are few, the effects upon American
commerce minimal, and the foreign elements overwhelming, . . . we
do not accept jurisdiction.").
In this case, the bulk of the conduct related to the global conspiracy
alleged in the complaint and proved at trial occurred abroad. As in
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., 617 F.2d at 1254 (applying Alcoa's
effects test in a price-fixing case even though twenty participants
were domestic and only nine foreign and the United States was part
of the target market). Just as the Third Circuit looked at a mass of
conduct and concluded it was "primarily" domestic in Carpet Group,
21
227 F.3d at 75, so examining all of the conduct here, we can only
conclude that it is primarily foreign. The handful of contacts with the
United States that Dee-K cites cannot change the fact that the rubber-
thread conspiracy was formulated and furthered at numerous meet-
ings, all of which took place in Southeast Asia, with attendees, all of
whom worked for Southeast Asian firms, and who directed their
activity to the global market. Only a few of the participants had any
United States affiliation, and each of those also had a primary South-
east Asian affiliation. In addition, although we have explained that we
do not find this factor alone dispositive, we consider it significant that
not one of the conspirators' many meetings took place in the United
States. In light of all of these factors, we conclude that the price-
fixing conspiracy Dee-K alleged and proved was primarily "foreign
conduct" to which the Hartford Fire test properly applied.
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.
22