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James R. Atwood is a partner, and chairman of the antitrust and consumer protection group, at Washington’s Covington & Burling. He consulted with one of the defendants in connection with the Kruman case. Christopher D. Oatway is an associate at the firm. Until recently, defendants accused of global price-fixing or market-allocation conspiracies could estimate their damage exposure in U.S. courts by calculating the alleged overcharges paid by customers whose injuries were sustained in the United States, and then multiplying by three (the treble-damage remedy). That calculation might yield a big number, but at least the exposure was limited to U.S. customers. Although the American antitrust laws are well known for their extraterritorial reach, U.S. courts had previously drawn an important line in the sand: Only customers injured in U.S. markets could sue. Thus, the 5th U.S. Circuit Court of Appeals in Den Norske Stats Oljeselskap AS v. HeereMac vof, 241 F.3d 420 (5th Cir. 2001), in addition to a unanimous string of federal district court opinions, had held that customers could not bring treble-damage claims under U.S. law for injuries stemming from effects occurring wholly in foreign markets. Now that line may be redrawn in a way that would dramatically alter the landscape of civil cartel litigation. Two recent circuit court rulings- Empagran S.A. v. F. Hoffman-LaRoche Ltd., 315 F.3d 338 (D.C. Cir. 2003), and Kruman v. Christie’s International PLC, 284 F.3d 384 (2d Cir. 2002)-have surprised the antitrust community by holding that foreign customers with injuries sustained abroad as a result of an international conspiracy can bring treble-damage claims under U.S. law, provided that the conspiracy not only harmed them but also gave rise to a claim by some other party in the U.S. market. New category of trebled damage claims is opened As observed by the U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) in a recent amicus brief filed at the invitation of the D.C. Circuit, these rulings imply a “sea change in the number and type of private antitrust actions permitted under the Sherman Act” because they open up a new category of potentially massive treble-damage claims that foreign customers may file in friendly U.S. courts. See brief for the United States and the FTC as amici curiae in support of petition for rehearing en banc, at 13, Empagran S.A. v. F. Hoffman-LaRoche Ltd., No. 01-7115 (D.C. Cir. March 24, 2003), available at www.usdoj.gov/atr/cases/f200800/200866.htm. Even before this development, cartel litigation in the United States had become very international in nature, largely because of stepped-up efforts by the DOJ and its foreign counterparts to detect and prosecute global cartels. Since late 1996, the DOJ has obtained over 38 fines of $10 million or more from participants in international cartels, and currently nearly 40 grand juries are investigating still more suspected international cartels. See “The DOJ International Antitrust Program-Maintaining Momentum,” by Acting Assistant Attorney General R. Hewitt Pate, dated Feb. 6, 2003, available at www.usdoj.gov/atr/public/speeches/200736.htm. Civil damage cases have become correspondingly international, given that private plaintiffs-who can recover treble damages pursuant to § 4 of the Clayton Act-often piggyback on the DOJ’s enforcement efforts. And now, in the wake of Empagran and Kruman, the number of parties litigating antitrust disputes in U.S. courts will multiply further. Empagran and Kruman break with Den Norske and other case law on the question of how to interpret the Foreign Trade Antitrust Improvements Act, 15 U.S.C. 6a. The act was an amendment to the Sherman Act passed by Congress in 1982 with the intent, ironically, of clarifying the extraterritorial reach of the U.S. laws. Sec. 6a provides that the Sherman Act “shall not apply to conduct involving trade or commerce (except import trade or commerce) with for- eign nations” unless such conduct meets two prongs. The first prong, § 6a(1), is an “effects test”: The Sherman Act applies only if the defendants’ foreign conduct “has a direct, substantial, and reasonably foreseeable effect” on U.S. commerce. Although there are important questions regarding how to apply that effects test, it has not been a pivotal issue in traditional international cartel cases because the United States is invariably one of the markets affected. Instead, the key debate involves the second prong of the act, § 6a(2). Under § 6a(2), the Sherman Act applies to a defendant’s conduct only if the conduct’s effect on domestic commerce “gives rise to a claim” under the Sherman Act. In Den Norske, the 5th Circuit held that this language refers to the plaintiff’s claim, meaning that only claims arising from the domestic effect of the alleged anti-competitive conduct are actionable. Customers in domestic markets may sue, but customers abroad-even though injured by the same international conspiracy-may not. Based on that interpretation, the 5th Circuit upheld the dismissal of a Norwegian oil company’s claim that it paid inflated prices for heavy-lift barge services in the North Sea, notwithstanding that the alleged conspiracy also had anti-competitive effects in U.S. waters. By contrast, Empagran and Kruman interpret the “gives rise to a claim” prong to mean that it is sufficient if the defendants’ conduct, in addition to producing overseas effects that harm foreign customers, also produced domestic effects that harmed consumers in U.S. markets and thus gave rise to a Sherman Act claim by those U.S. customers. Thus, the circuit courts reversed the district courts’ dismissals of treble-damage lawsuits by plaintiffs that had allegedly paid inflated prices in foreign markets because the defendants’ conduct was found to have also produced domestic effects that gave rise to antitrust claims by domestic plaintiffs. Empagran and Kruman differ slightly on the scope of § 6a(2): Under Kruman, the domestic claim can be one by either a private plaintiff or by the DOJ or the FTC; under Empagran it must be by a private party. This distinction is unlikely to have much practical import, at least not in the cartel context. International price-fixing and market-allocation agreements are likely to injure U.S. consumers, and thus under both cases, foreign consumers are also entitled to invoke the treble-damage remedy along with their domestic brethren. Empagran and Kruman place considerable importance on the fact that both the U.S. Supreme Court in Pfizer Inc. v. Government of India, 434 U.S. 308 (1978), and Congress in the legislative history of the Foreign Trade Antitrust Improvements Act, appeared to express concern that disallowing suits by foreign plaintiffs could result in underdeterrence of international cartel activity. Indeed, a company could knowingly sign on to a cartel agreement after making the cynical calculation that the resulting inflated profits gained abroad might counterbalance possible treble-damage exposure for its U.S. sales. Ironically, DOJ-the U.S. agency with principal responsibility for anti-cartel enforcement-not only reads Pfizer and the foreign trade act’s legislative history differently, but has rejected the Empagran and Kruman policy argument. DOJ maintains that deterrence is better achieved under the Den Norske interpretation, under which foreign consumers have no U.S. remedy. See amicus brief at 12-13. From DOJ’s point of view, Empagran and Kruman threaten to weaken the government’s Corporate Leniency Policy. See 4 Trade Reg. Rep. (CCH) ¶ 13,113 (Aug. 10, 1993). The policy is a program that provides the incentive of criminal amnesty for cartel members that step forward and engage in whistleblowing against their co-conspirators. The program has been one of DOJ’s most important tools in detecting and prosecuting international cartels. DOJ is concerned that would-be whistleblowers, if faced with a potentially huge increase in their civil liabilities by virtue of worldwide claims, may be deterred from applying for amnesty and blowing the whistle. Thus, the sharp expansion of private claimants would, in DOJ’s view, cause “a decrease in effective enforcement of the antitrust laws.” Further, DOJ points to the sharp increase in antitrust enforcement in foreign nations over the last decade as providing some assurance that foreign customers will not be left entirely at the mercy of cartelists. The policy question, then, is whether a healthy DOJ amnesty program, or an army of foreign treble-damage plaintiffs, provides the greater deterrent for international cartels. The plaintiffs’ bar and government enforcers answer the question differently, and the muddy language of the Foreign Trade Antitrust Improvements Act and its legislative history provide ammunition for both sides. Supreme Court review appears inevitable Given the circuit split and importance of the issue, Supreme Court review of the foreign trade act’s foreign-customer issue appears to be inevitable-eventually. Den Norske was the first circuit decision on the issue, and-in the absence of a circuit split-the Supreme Court denied the unhappy plaintiff’s petition for review. 534 U.S. 1127 (2002). Then, Kruman created the circuit split, and the losing defendants sought certiorari. Petition for cert. filed, 71 U.S.L.W. 3169 (U.S. Sept. 3, 2002) (No. 02-340). However, the parties have now reportedly settled their dispute, and so dismissal of the pending certiorari petition can be expected-leaving Kruman the law of the 2d Circuit. Now there is Empagran, where the D.C. Circuit-albeit by a divided panel-reinforced the split with the 5th Circuit’s Den Norske ruling. In Empagran, however, the D.C. Circuit is now considering a petition for rehearing en banc, and the amicus brief of DOJ and the FTC cited above supports such reconsideration. As a result, Supreme Court review may not be soon. And, in the meantime, one can expect foreign-customer claims to start mounting in the district courts of the 2d and D.C. circuits. Those accused of international cartel activity will have their hands full.

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