Corporate & Securities Law

Ninth Circuit Affirms Dismissal Of Foreign DRAM Purchaser's Price-Fixing Claim For Lack Of Subject-Matter Jurisdiction Under The Foreign Trade Antitrust Improvement Act

By Sheppard Mullin Richter Hampton, LLP

On August 14, 2008, the United States Court of Appeals for the Ninth Circuit affirmed a district court's dismissal for lack of subject-matter jurisdiction of a foreign DRAM purchaser's claim of price fixing against defendant DRAM manufacturers.  In re Dynamnic Random Access Memory (DRAM) Antitrust Litig., No. 06-15636 (9th Cir. 8-14-2008).

Plaintiff-appellant Centerprise International, Ltd ("Centerprise") was a British computer manufacturer that purchased dynamic random access memory ("DRAM") outside the United States from U.S. and foreign manufacturers and sellers of DRAM. In May 2005, Centerprise brought an antitrust class action lawsuit on behalf of itself and other similarly-situated foreign purchasers of DRAM alleging that defendants engaged in a global conspiracy to fix DRAM prices, raising the price of DRAM to customers in both the United States and foreign countries.

District Court's Dismissal of Centerprise's Claim under the FTAIA

The Foreign Trade Antitrust Improvement Act of 1982 ("FTAIA"), passed by Congress in 1982, amended the Sherman Act to exclude from its reach much anticompetitive conduct that causes only foreign injury. However, the FTAIA provides an exception known as the "domestic injury exception" which makes the Sherman Act applicable if the conduct sufficiently affects U.S. commerce by having (1) "a direct, substantial, and reasonably foreseeable effect" on domestic commerce, and (2) such effect "must give rise to a Sherman Act claim." In Re Dynamic Random Access Memory (DRAM) Antitrust Litig., No. 02-1486, at *3 (N.D. Cal. 3-1-2006) (citing 15 U.S.C. §6a).

The district court found that Centerprise's allegations that defendants' conduct resulted in higher prices in the United States had satisfied the first prong by sufficiently alleging a "direct, substantial, and reasonably foreseeable effect on domestic commerce." However, on the second prong, the district court found that Centerprise did not establish that the domestic effect gave rise to a Sherman Act claim.

The district court cited to the Supreme Court precedent established in F. Hoffman-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 159 (2004) (Empagran I), which held that "where the foreign harm suffered by a plaintiff is independent of any adverse domestic effect (e.g. higher prices in the US), no jurisdiction can lie." The Supreme Court left open the question of whether the Sherman Act applied to foreign claims "linked to" domestic effects. On remand, that issue was decided in Empagran S.A. v. F. Hoffman-La Roche Ltd., 417 F.3d 1267, 1271 (D.C. Cir. 2005), cert. denied (Empagran II). The Empragran II court held that in order to prove the requisite nexus between domestic effect and foreign injury, plaintiffs needed to allege more than a mere link between domestic effect and foreign injury. Rather, proximate causation was required.

Centerprise had alleged that the U.S. prices were the source of, and substantially affected the worldwide DRAM prices, and that without the supra-competitive prices for DRAM in the United States, Centerprise and other putative class members located abroad would not have paid artificially-inflated prices. The district court found that these allegations constituted no more than "but for" causation, falling short of showing proximate causation. The court dismissed the complaint for lack of subject-matter jurisdiction noting that there was no persuasive authority that Centerprise could introduce supporting an argument that the alleged global price-fixing conspiracy sufficiently alleged causation and a claim under the FTAIA post Empagran I and II.

Ninth Circuit's Decision Affirming Dismissal

On appeal, the U.S. Court of Appeals for the Ninth Circuit reviewed de novo the district court's dismissal for lack of subject-matter jurisdiction. Only the district court's conclusion that Centerprise had failed to satisfy the second prong of the domestic injury exception was at issue in the appeal. The Ninth Circuit had to determine whether Centerprise's claim, that higher prices in the United States caused its foreign injury because defendants could not have raised prices worldwide without fixing prices in the United States, satisfied the domestic injury exception.

Centerprise contended (1) that the domestic injury exception required only "but for" causation which its claim satisfied, and (2) in the alternative, that its claim satisfied even a proximate cause standard. Like the D.C. Circuit in Empagran II and the Eighth Circuit more recently in In re Monosodium Glutamate Antitrust Litig., 477 F.3d 535, 539 (8th Cir. 2007), the Ninth Circuit adopted a proximate cause standard, determining that a "but for" causation could not suffice for the FTAIA domestic injury exception to apply.

Similar to its sister circuits, the Ninth Circuit explained that a proximate cause standard is consistent with principles of comity – "the respect sovereign nations afford each other by limiting the reach of their laws." The court cited language from Empagran I where the Supreme Court stated, "Why should American law supplant, for example, Canada's or Great Britain's or Japan's own determination about how best to protect Canadian or British or Japanese customers from anticompetitive conduct engaged in significant part by Canadian or British or Japanese or other foreign companies?"

Applying the proximate cause standard to Centerprise's claim, the Ninth Circuit concluded that the domestic effect of the defendants' alleged price-fixing conspiracy did not give rise to Centerprise's alleged foreign injury so as to satisfy the second prong of the FTAIA domestic injury exception. The court explained that price fixing in the United States may have been necessary to sustain higher prices globally, but Centerprise had not shown that higher U.S. prices proximately caused its foreign injury of paying higher prices abroad. Other actors or forces may have affected the foreign prices. In particular, that the conspiracy had effects in the United States and abroad did not show that the effect in the United States, rather than the overall price-fixing conspiracy itself, proximately caused the effect abroad.

The court noted that Centerprise was a foreign consumer that made its purchases entirely outside of the United States and that it had recourse under its own country's antitrust laws. Centerprise's indirectly linked foreign injury was not the type Congress intended to bring within the reach of the Sherman Act when it enacted the FTAIA. The court of appeals concluded the district court had properly dismissed Centerprise's complaint.

The court of appeals further held it was not an abuse of discretion for the district court to deny Centerprise leave to amend its complaint on the grounds that that the proposed amendment would be futile. Centerprise proposed amending its complaint to include an allegation about the correlation between U.S. prices during the conspiracy and those in Europe and Asia-Pacific. The court of appeals found that Centerprise's contention that domestic and foreign prices were directly correlated, without more, did not warrant granting leave to amend the complaint."

Judge Noonan concurred, explaining that what separates a "but for" cause (cause in fact) from a proximate cause (legal cause) is a value judgment that the cause in fact creates an unacceptable risk of injury to a protected interest. Judge Noonan wrote that it had been the judgment of Congress and the Supreme Court that the economic interests of consumers outside the United States are normally not something that American law is intended to protect. "Location, not logic, keeps Centerprise's claim out of court," wrote Judge Noonan.

Authored By:

John S. Whittaker

(415) 774-2938

jwhittaker@sheppardmullin.com

Full post as published by Antitrust Blog Review on September 12, 2008 (boomark / email).