What Every Multinational Company Should Know About . . . The Foreign Trade Antitrust Improvements Act

Foley & Lardner LLP

Foley & Lardner LLP

The United States Department of Justice (DOJ) actively enforces the Sherman Act within the U.S. and internationally. Generally described, the Sherman Act is a powerful statutory scheme designed to prohibit anti-competitive behavior, which applies both domestically and internationally. The DOJ’s ability to enforce the Sherman Act is constrained by a separate statute, the Foreign Trade Antitrust Improvements Act (FTAIA). The language of the FTAIA statute is complicated, so the focus of this article is on the Sherman Act’s application to conduct outside the U.S., recent FTAIA enforcement actions, issues to monitor in potential enforcement actions under the Sherman Act, and why multinational corporations should be aware of how the FTAIA increases the risk of the international enforcement of U.S. antitrust law abroad.

What is the Foreign Trade Antitrust Improvements Act?

The FTAIA is crucial to international antitrust enforcement actions because the FTAIA limits the Sherman Act’s application when foreign conspiracies and foreign trade are alleged. The purpose of the FTAIA, as the Supreme Court explained in the 1993 opinion, Hartford Fire Insurance Co. v. California, is “to exempt from the Sherman Act export transactions that do not injure the U.S. economy.” To this end, the FTAIA provides that Sections 1 to 7 of the Sherman Act (which generally prohibit agreements to collude among competitors and attempts to monopolize) do not apply to conduct involving trade or commerce (except with respect to import trade or commerce) with foreign nations unless the conduct has a “direct, substantial, and reasonably foreseeable effect” on certain types of international trade or commerce.

Simply, the FTAIA provides that the Sherman Act does not apply extraterritorially unless the underlying conduct (1) involves import trade or import commerce or (2) there is a direct, substantial, and reasonably foreseeable effect on commerce in the U.S. and the defendant’s conduct gives rise to a Sherman Act claim.

There are two exceptions to the FTAIA’s limitations. The first exception is commonly known as the import commerce exception. Under the import commerce exception, the Sherman Act still applies if the alleged anticompetitive conduct is “directed at import trade or import commerce,” even if the party engaged in the conduct is not the importer.

The second exception, commonly referred to as the effects exception, provides that the Sherman Act applies to allegedly anticompetitive conduct that has a “direct, substantial, and reasonably foreseeable effect” on U.S. commerce. Applying the effects exception has resulted in disagreement among courts, some of which have held that what is "reasonably foreseeable” is measured against an objective standard. But there is no minimum threshold for what qualifies as a “substantial effect;” even conduct with a de minimus impact on U.S. commerce may qualify. Finally, courts disagree about what effects qualify as “direct” under this exception.

Import Commerce Exception Application

The quintessential FTAIA situation is one in which two companies conspire outside of the U.S. and then one or both companies sell products directly to a U.S. purchaser pursuant to the alleged conspiracy.

Some courts have said actions taken abroad that are designed to affect domestic imports, even without any evidence of an actual effect on U.S. commerce, are not enough to exempt the conduct from the Sherman Act under the FTAIA.

Direct Effects Test Application

Courts also have differed on the nexus required between the action taken outside the U.S. and the effect on U.S. commerce under the FTAIA’s effects exemption. Some courts have said a direct effect is one that “follows an immediate consequence of the defendant’s activity.” Thus, the possibility of delaying a product innovation or market entry is not enough to constitute a “direct effect.” Under this line of authority, if there are “uncertain intervening developments” between the action taken abroad and domestic effect, then the direct effects test is not satisfied.

Other courts, and the DOJ, have adopted a “reasonably proximate cause standard” to satisfy the direct effects test. Under this rationale, courts have held that the direct effects test is satisfied even if the consequences of the conduct are not immediate, so long as there is a reasonable proximate causal nexus between the conduct and the effect. In some situations, a cartel’s global market share is so high (for example, 90%) that courts have determined the cartel’s activity raised global prices across the board and therefore impacted the U.S. market.

While courts have generated a robust body of law analyzing the direct effects test, there remains scant authority interpreting the meaning of what constitutes a “substantial effect,” and there is no statutory guidance or clear standard for what makes an effect “substantial.”

Why is the Foreign Antitrust Improvements Act Important to My Company?

Past Action Shows Real Consequences for Companies and Individuals

Companies that are headquartered or have executives outside the U.S. can be found liable for civil or criminal violations of the Sherman Act if their conduct implicates commerce in the U.S., including by way of product importation.

Violations of the Sherman Act can result in large fines for companies and fines or prison sentences for individuals. Recently, the DOJ successfully brought several FTAIA cases against companies in the automotive, manufacturing, defense, electronics, and other industries. For example, in a recent auto parts antitrust investigation, over 100 companies and executives were charged. As a result, $2.9 billion in criminal fines were levied, and more than 30 foreign executives were sentenced to prison terms.

By way of further example, in a liquid crystal display (LCD) panel antitrust investigation, over 30 individuals and companies were investigated, and approximately $2 billion in fines were imposed. In one significant case from the LCD investigation, U.S. v. Hui Hsiung, the court ruled the direct effects test was satisfied even though the LCD panels were not sold directly into the U.S. but, rather, as inputs to products that were assembled outside the U.S. before being sold to the customers in the U.S. In that case, the court held the direct effects test was satisfied due to the large volume of LCD panels ultimately sold into the U.S.

The DOJ also targeted the airline industry for international price fixing. This investigation involved 22 airlines and led to charges against 21 executives, many of whom received prison sentences. The airline companies and individuals were fined more than $1.8 billion.

International and Domestic Cooperation Efforts

The U.S. has signed several cooperation agreements with regulators around the globe that will ensure cooperation in criminal and civil international antitrust investigations. For example, in 2020, the DOJ and Federal Trade Commission entered into the Multilateral Mutual Assistance and Cooperation Framework for Competition Authorities with antitrust regulators from Australia, Canada, New Zealand, and the United Kingdom. These countries also formed an internal working group to focus on global supply chain collusion.

Additionally, the U.S. established the Procurement Collusion Strike Force (PCSF), composed of members from the DOJ’s Antitrust Division, U.S. attorneys’ offices, the FBI, and other agency inspectors general. The PCSF’s first criminal investigation involved a U.S. Department of Defense contractor from Belgium that allegedly conspired to fix prices, allocate customers, and rig bids. Several of the company’s executives pled guilty to antitrust violations. The PCSF remains active and is working with other international regulators to monitor U.S. procurement globally.


Although many countries have their own versions of the Sherman Act, which punish price fixing and other forms of collusion, the FTAIA both limits and allows the DOJ to prosecute misconduct outside the U.S. in certain circumstances. Companies and their executives should be mindful of this as they conduct business outside the U.S. for products that enter the U.S. The DOJ has shown it will levy serious criminal fines and seek prison sentences for potential price fixing. U.S. Government contractors should be mindful of the FTAIA implications, as the PCSF is very active both domestically and internationally. Companies may want to conduct an antitrust audit of their executives and sales teams to see whether any collusion has taken place, as the DOJ has leniency programs available for companies that implement meaningful efforts to comply with anticompetitive regulations.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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