The Practitioner International Law, Overseas Offenses Criminal Prosecution of Antitrust Violations Abroad


Last year the 1st U.S. Circuit Court of Appeals, addressing an issue of first impression, held that U.S. courts could criminally prosecute foreign parties' violations of U.S. antitrust laws, even where the conduct took place wholly outside the United States.

United States v. Nippon Paper Indus, Co., 109 F.3d 1 (1st Cir. 1997), arose out of a Japanese manufacturer's activities that were allegedly designed to manipulate fax-paper prices in the U.S. market. The 1st Circuit reversed the District Court's dismissal of the indictment, which had relied on the principle that a criminal antitrust prosecution could not be based on wholly extraterritorial conduct.

Following the 1st Circuit's decision, Nippon Paper filed a petition for certiorari with the U.S. Supreme Court. At that time, a number of commentators predicted that the high court would re-examine the question of extraterritorial application of the U.S. antitrust laws and reverse the 1st Circuit's determination that the Japanese manufacturer could be subjected to criminal liability under the U.S. antitrust laws based on conduct that took place entirely overseas.

In January, however, the Supreme Court denied Nippon Paper's petition for certiorari. United States v. Nippon Industries Co., 118 S. Ct. 685 (1998). Although the court normally does not explain why it declines to review particular cases, it is possible to venture an explanation for its decision in this case.

First, the legal principle advanced in Nippon Paper--while it may appear to be novel on its face--does not in fact represent a major doctrinal departure from existing U.S. precedent. As explained in the Court of Appeals' decision itself, longstanding U.S. precedent supports the proposition that a foreign party may be subject to civil liability under the Sherman Act as a result of conduct taking place outside the United States, where that conduct produces a "substantial intended effect" in the United States. See Hartford Fire Ins. Co. v. California, 509 U.S. 764 (1993).

While it is true that Nippon Paper extended this principle to criminal liability, such an extension was made in the context of other long-standing U.S. precedent that supports the extraterritorial application of U.S. criminal law in particular circumstances. Those circumstances include criminal statutes that reflect either an express congressional intention in favor of extraterritorial application or any inference of such an intention. See, e.g., Chua Han Mow v. United States, 730 F.2d 1308 (9th Cir. 1984).

Nippon Paper is also consistent with evolving U.S. administrative and statutory law in the area of international trade. Examples of such laws include the 1995 U.S. Department of Justice and Federal Trade Commission Antitrust Guidelines for International Operations (reprinted in 4 Trade Reg. Rep. (CCH) Paragraph 13,107, Section 3.11) and the Foreign Trade Antitrust Improvements Act of 1982, 15 U.S.C. Section 6(a) et seq. Both the administrative rules and the statute contemplate the potential application of U.S. antitrust law to conduct occurring overseas that can be shown to have had a substantial effect on U.S. commerce.

Finally, as trade increasingly touches on the economies of different nations, foreign governments have increased their scrutiny of mergers or acquisitions solely involving U.S. companies, even though such companies may have no or negligible assets physically located in the subject country.

Examples include the Boeing-McDonnell Douglas merger, which became the subject of regulatory interest in Japan even though neither of the two companies had assets in Japan. Scrutiny by foreign governments of transactions involving U.S. based companies is not so very different from subjecting foreign companies to liability in U.S. courts, where the activities of those companies have a "substantial intended effect" on U.S. commerce.

If the decision in Nippon Paper was not necessarily as radical as might have been first thought, its implications nevertheless may be troublesome for companies doing business across borders--particularly if a company finds itself subject to conflicting directives arising from the competition laws of different states.

The Nippon Paper court did not have to address this problem directly, because the defendant was charged with conduct that is illegal under both Japanese and American laws. Thus, Nippon Paper provides no particular guidance on how a company having cross-border operations can avoid "being whipsawed by separate sovereigns." Nevertheless, the following principles emerge from existing law:

First, even when it is determined that U.S. antitrust law can properly be applied on an extraterritorial basis, principles of international comity will limit the exercise of a U.S, court's, and in some cases a U.S. administrative agency's, jurisdiction. This principle was recently applied in Filetech S.A.R.L. v. France Telecom, 978 F.Supp. 464 (S.D.N.Y. 1997), in which the court dismissed an antitrust claim based on a perceived conflict between the Sherman Act and French competition law. A similar result recently occurred in the area of insolvency law. See In re Maxwell Communications Corp., 93 F.3d 1036 (2nd Cir. 1996).
While the doctrine of comity operates as a restraint on the exercise of judicial power, bilateral trade agreements between countries may provide limits on a country's exercise of administrative power, particularly in the area of antitrust enforcement. Such provisions are found in, among other instruments, the 1991 U.S. European Community bilateral agreement. That agreement requires, for example, consultation between the affected countries as a prerequisite to the commencement of enforcement activities. The purpose of such provisions is to avoid subjecting companies that conduct cross-border operations to conflicting legal imperatives.

Neither the doctrine of comity, nor the provisions in any bilateral agreement between the United States and Japan, was invoked by the Court of Appeals in Nippon Paper. Instead, that decision was premised in large part on the notion that insulating a foreign party from liability "would create perverse incentives for those who would use nefarious means to influence markets in the United States, rewarding them for erecting as many territorial fire walls as possible between cause and effect."

Notwithstanding this language, it is likely that in the future courts will temper the extraterritorial application of U.S. antitrust law with the recognition that such actions inevitably implicate substantial political interests separate and apart from the discrete legal issues of a particular case. The expression of those political interests, whether through the doctrine of comity or a particular bilateral arrangement, should act to moderate the unilateral assertion of jurisdiction by U.S. courts in cases involving international trade.