Phillips Nizer LLP Articles
Jurisdiction of U.S. Courts in Sherman Antitrust Act Criminal Cases Expanded to Cover Conduct Outside the United States
A recent federal decision has held that conduct entirely outside the United States could constitute a criminal violation of Section 1 of the Sherman Antitrust Act.1
Background
In United States v. Nippon Paper Industries Co., Inc.,2 the defendant, Nippon Paper Industries Co., Ltd. ("NPI"), a Japanese manufacturer of facsimile paper, was indicted with certain unnamed co-conspirators for entering into an agreement in Japan to fix the price of thermal fax paper throughout North America.3 The defendant and other manufacturers who were part of this scheme accomplished their objective by selling the paper in Japan to unaffiliated trading houses upon the condition that the trading companies charge specified inflated prices for the paper when it was resold in North America. The fax paper was sold by the Japanese trading companies to their United States subsidiaries, which in turn sold it to American consumers at the specified inflated prices. The defendant monitored the paperwork (invoices, etc.) to confirm that the prices charged to consumers in North America were those that it had specified. The indictment stated that these activities had a substantial adverse effect on commerce in the United States and unreasonably restrained trade in violation of Section 1 of the Sherman Act.
The District Court Dismisses the Complaint
NPI moved to dismiss the indictment because the conduct of NPI, if it occurred at all, occurred entirely in Japan, outside the jurisdiction of the United States. The motion was granted. The District Court Judge noted that while the U.S. Supreme Court, in Hartford Fire Ins. Co. v. California,4 had held that the civil sanctions of the Sherman Act apply to foreign conduct that was meant to produce and did in fact produce a substantial effect in the United States, this did not mean that the criminal sanctions of the Sherman Act would apply to such conduct. The Judge admitted that the language of Section 1 of the Sherman Act was the same for both civil and criminal sanctions, but he argued that United States courts have recognized that the substantive language of Section 1 required different treatment in civil and criminal contexts, citing United States v. United States Gypsum Co.5 He therefore dismissed the indictment on the grounds that public policy and the legislative history of the Sherman Act indicated that the criminal sanctions of the Sherman Act should not apply to conspiratorial conduct in which none of the overt acts took place in the United States.6 The United States appealed.
The First Circuit Reverses
On March 17, 1997, the United States Court of Appeals for the First Circuit reversed the decision of the District Court, holding that conduct that takes place entirely outside the United States could form the basis for a criminal violation of Section 1 of the Sherman Act. The Government of Japan filed an amicus brief in favor of affirmance even though the conduct of the defendant was unlawful in Japan.
The Court of Appeals pointed out that the case law now conclusively establishes that civil antitrust actions can be predicated on wholly foreign conduct which has an intended and substantial effect in the United States, citing Hartford Fire. It proceeded to state that the language of Section 1 of the Sherman Act applied equally to civil and criminal actions (as was noted by the lower Court) and saw no reason why the extraterritorial reach of the statute for criminal sanctions should be different than for civil sanctions.
The Government of Japan and NPI both argued that special reasons exist for measuring the reach of Section 1 of the Sherman Act differently in a criminal context from that in a civil context. The Court of Appeals analyzed each point advanced by the Government of Japan and NPI and found the points unpersuasive. Included in the points advanced by NPI and the Government of Japan was that of international comity.
International comity is a doctrine that urges one sovereign which has a claim to jurisdiction to defer to a second sovereign which also has a claim to jurisdiction, perhaps a better one. The Court of Appeals noted that comity is more a matter of grace than a matter of obligation and that, in any event, the Supreme Court in the Hartford Fire decision had expressed the view that comity concerns would operate to defeat the exercise of jurisdiction only in those few cases in which the law of the foreign sovereign required a defendant to act in a manner incompatible with the Sherman Act, or in which full compliance with both statutory schemes was impossible.
The Court pointed out that the conduct complained of that occurred in Japan was illegal under Japanese law as well as under the Sherman Act, thus alleviating the concern that NPI would be "whipsawed" between the two sovereigns. In addition, the Court noted, to the extent comity is "informed by general principles of reasonableness" the indictment against NPI was "within the pale." The U.S. Government charged NPI with orchestrating a conspiracy with the object of rigging prices in the United States. The Court saw no reason why comity should shield such conduct from prosecution in an age of international commerce where decisions "taken in one part of the world can reverberate around the globe in less time that it takes to tell the tale".
The Hartford Fire case held that even conduct abroad that was lawful where it took place could violate the U.S. Antitrust laws. The Nippon Paper case does not go so far, as it involved conduct that was unlawful where it occurred, but this point does not appear to be material to the Court's analysis. Thus, this case suggests a trend to full extraterritorial application of Section 1 of the Sherman Act for all purposes.
Defendants filed a petition for certiorari (a request for review of the First Circuit decision) with the Supreme Court on June 13, 1997.
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Endnotes
1 15 U.S.C.A., Section 1.
2 109 F.3d 1 (1st Cir. 1997).
3 The Court found that it had jurisdiction over NPI under the "minimum contacts" test enunciated by the Supreme Court in International Shoe Co. v. Washington, 326 U.S. 310 (1945), on the basis that NPI, among other things, maintained two offices in the United States. The Court held that serving an officer of NPI, a foreign corporation, with a criminal summons within the United States by itself was not enough to establish jurisdiction.
4 509 U.S. 764 (1993).
5 438 U.S. 422 (1978).
6 944 F. Supp. 55 (D. Mass. 1996).
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