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US Anti-Trust Laws: Reach Expanded?

Published on Mon, Aug 13,2012 | 12:27, Updated at Mon, Aug 13 at 14:04Source : Moneycontrol.com |   Watch Video :

7 global potash manufacturers, allegations of price fixing and a u-s court judgment. This is a story of the ever extending reach of USA's anti-trust law. Payaswini Upadhyay reports on how a casual connection can give the Justice Department jurisdiction over non US cartels.

In 2005, Canadian potash company PCS shut 3 of its mines. Shortly thereafter, Minnesota's Mosaic removed 2 lakh tons of potash from the market

In 2006, PCS reduced output from 2.4 to 1.3 million tons. Russia's Uralkali- the 5th largest producer of potash- followed suit. Neighbor Belaruskali obliged and reduced its potash exports to half.

Later in the year, Russia's Silvinit took to potash mine stoppages. 

By now, half a million ton of potash was removed from the market. The upset was felt in the United States- the second largest importer of potash- where prices shot up by 600% between 2003-2008. 

With all these allegations in hand, US potash importers filed a class action complaint accusing these global producers of price fixing. They alleged that these companies inflated potash prices in Brazil, India and China and benchmarked the foreign prices for sales in United States- conduct that violates the country’s anti trust laws.

The accused, hoping to get the case dismissed, simply argued that US laws didn't apply to them

Wesley Powell
Partner, Willkie Farr & Gallagher

"There argument was that, we- the defendants- are potash producers who operate outside the US; we're headquartered outside of the US and the claim is that we participated in a cartel outside of the United States. And so the argument by the potash producers was that the anti-trust laws under the FTAIA simply do not apply to them because the effect of whatever they've done does not have a direct impact in the United States."

This Foreign Trade Antitrust Improvements Act or FTAIA that Wesley just mentioned was the crux of the Minn Chem or potash case. Implemented in 1982, The FTAIA limits enforcement of the country's primary antitrust law- the Sherman Act- in situations where there is no 'direct' impact of cartel behavior on US consumers.

Wesley Powell
Partner, Willkie Farr & Gallagher LLP

"FTAIA was enacted in the early 1980s and the reason was that there was an increasing number of law suits brought in the United States challenging alleged anti trust cartels around the world- some of which, frankly, did not have a real material impact on the US economy. People were just coming into courts in the United States because they thought it was a favorable place to bring a lawsuit and there was a concern that allowing the US to essentially enforce the anti trust laws all over the world wasn't really respecting the jurisdiction of other countries."

And it's this jurisdictional limitation set by the FTAIA on the Sherman Act that came to test in the Minn Chem case. The court ruled that FTAIA does not impose a jurisdictional limitation on the US antitrust laws and that Sherman Act would apply if there is ‘a reasonably proximate causal nexus’ between the foreign activity and the effect on US commerce- a view divergent from the established case law.

Damian Didden,
Partner, Wachtell, Lipton

"I guess what's unique about it is that this particular Circuit was not shy and not caught up in the idea that there was foreign conduct in foreign countries and didn’t stop there as a very simplistic analysis but took the next step to say, yes, of course some of this conduct was but it obviously had an intended or foreseeable effect on the United States. So it’s this second layer of economic thinking which is economics one-on-one in some way."

Wesley Powell
Partner, Willkie Farr & Gallagher

"The decision is a departure from many other decisions that have reached a different result. Essentially, in any case where the question is - does the FTAIA apply and can the anti trust laws be enforced, the court has to answer the question - did this conduct that happened abroad have a direct, foreseeable and substantial impact in the United States. But most courts had found that direct does really mean direct- the foreign companies did something which had an immediate and direct effect in the United States. This court found that that stringent test didn't apply."

In doing so, the Seventh Circuit Court of Appeals may have expanded the applicability of USA's anti trust laws.

Damian Didden,
Partner, Wachtell, Lipton

"Where I think this might give foreign commerce and firms some pause is that there isn’t this bright line test where your conduct is directly linked to your import commerce in the United States. It may still be possible here that they were allegedly price fixing for other countries- as long as the effect is foreseeable and intended, you can still be caught under the US law and so I think, companies who know that there goods are intended for US consumers need to be wary of these facts."

Wesley Powell
Partner, Willkie Farr & Gallagher

"If courts follow this case, it will not be decided right away as a jurisdictional question. Decision will come later when the courts consider actual merits of the claim - that has a very bottom-line impact. It will cost those companies quite a lot more money."

Not only money but time as well. Both the experts in this story also pointed out to me that the bench of the Seventh Circuit who gave this judgment comprises of two leading antitrust scholars and there is a good chance that other US courts may also hold the same view in subsequent cases. That means a jurisdictional defense may no longer hold good. 

In Mumbai, Payaswini Upadhyay

 
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