The famously “convoluted”^[1] language of the Foreign Trade Antitrust Improvements Act (“FTAIA”), 15 U.S.C. § 6a, is typically smoothed out and restated before application by courts.^[2]  The actual statutory language must be honored, however, and occasionally fidelity to that language has led to the dismissal of claims on grounds that they seek an impermissibly extraterritorial application of the antitrust laws.  A few illuminating examples appear in the recent Southern District of New York decision in Biocad, JSC v. F. Hoffmna-La Roche, Ltd.^[3]

Plaintiff Biocad is a biopharmaceutical company based in St. Petersburg, Russia.  It alleged that the defendants engaged in anticompetitive conduct against it in Russia, and as a consequence it was unable to proceed with plans to enter the U.S. market with the lower-priced versions of oncological drugs sold by the defendants.  Biocad brought claims under the Clayton Act, the Robinson-Patman Act, the Sherman Act, and New York’s antitrust statute, the Donnelly Act.  Generally, it alleged that the defendants engaged in anticompetitive conduct by, among other things, employing predatory price discrimination (by increasing drug prices in the U.S. and decreasing drug prices in Russia) and illegally tying and bundling drugs in Russia.  Biocad argued that the defendants’ actions prevented it from realizing its full profits in Russia, thereby denying it the resources necessary to enter the U.S. market.

The court dismissed all of these claims.  It initially found that Biocad lacked antitrust standing because Biocad had not credibly pleaded that FDA approval of the drug allegedly kept off the U.S. market would have been “probable.”^[4]  For present purposes, though, the most interesting rulings focused on the geographic reach of the antitrust statutes at issue.  The court first addressed the Clayton and Robinson-Patman Acts, both of which contain significant geographic limitations apart from those found in the FTAIA.  Specifically, they apply only to conduct involving commodities sold for “use, consumption, or resale within the United States,” and to persons “engaged in commerce.”^[5]  The court observed that the Supreme Court has limited the reach of both acts “to persons and activities that are themselves in commerce,  . . . as opposed to anticompetitive acquisitions and activities [that] affect commerce.”^[6]  Biocad’s Clayton Act claim based on the defendants’ allegedly illegal tying thus failed because it involves only commodities sold in Russia.  The plaintiff’s Robinson-Patman Act claim was in the same boat, with the court observing that the claim requires that both the favored and disfavored transactions be in the United States; allegations of unlawfully lower prices in Russia could not support a claim even if higher prices were charged in the United States.

Next, the court found the defendant’s conduct was “too attenuated” to the U.S. import market to support a claim under the import exception of the FTAIA.^[7]  Under this exception, “[t]he relevant inquiry is whether the conduct of the defendants – not the plaintiffs – involves import trade or commerce.”^[8]  This provision is strictly construed.  It requires a “close connection between a defendant’s alleged conduct and the import trade or import commerce at issue.”^[9]  While the import exception does not require the defendants be “the physical importers of goods,” it does require that the defendants’ conduct “target import goods or services.”^[10]  Biocad admitted that the defendants’ conduct occurred almost entirely in Russia, but nonetheless argued that the import exception still applied because the conduct targeted the U.S. biosimilars market.  The court held that even if the plaintiff was importing biosimilars into the U.S., the defendants’ conduct overseas did not have a close connection to the U.S. biosimilars market.  Defendants’ conduct targeted the drug market in Russia.  This had no direct effect on the U.S. import market, and thus plaintiff’s claims failed to fit the import exception.

Lastly, the court found that the defendants’ allegedly anticompetitive foreign conduct, and not the domestic effect of that conduct, caused plaintiff’s alleged injury.  The domestic effects exception requires a defendants’ conduct have “a direct, substantial, and reasonably foreseeable effect on U.S. domestic, import, or certain export commerce [] and that effect gives rise to a claim under the Sherman Act.”^[11]   The first inquiry asks whether “the defendant’s conduct caused a cognizable domestic effect” and the second asks “whether that effect caused the plaintiff’s injury.”^[12]  In the court’s discussion of the domestic effects exception, the court reiterated that the defendants’ conduct was too attenuated to cause a direct effect in the United States.  Additionally, the court noted that even if the defendants’ conduct did cause a cognizable domestic effect, this domestic effect was not the source of the plaintiff’s injury.  Rather, the plaintiff alleged its injury resulted from the defendants’ conduct in Russia, and that plaintiff’s injury in Russia in turn caused a cognizable domestic effect.  The court ruled that because the plaintiff’s injuries stemmed from the defendants’ foreign conduct, and not the domestic effect of that conduct, it fell outside of the domestic effects exception.

Many recent decisions addressing the extraterritorial reach of the antitrust laws are Sherman Act Section 1 cases arising out of cartel activity by Asian manufacturers that sell components overseas to companies manufacturing finished products for the U.S. market.^[13]  The Biocad decision is a reminder that the territorial limits of the antitrust laws are not just at play in the Sherman Act, and don’t only raise the question whether claims arising from the U.S. sale of finished products containing price-fixed components satisfy the FTAIA’s “import” exception.  Indeed, the decision’s very strict application of two geographic limitations implicit in the antitrust laws is a reminder that extraterritoriality issues should be considered in every antitrust case alleging foreign conduct and injury.

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^[1] United States v. Hsuing, 778 F.3d 738, 754 (9th Cir. 2015); Turicentro v. Am. Airlines, 303 F.3d 293 (3d Cir. 2002).

^[2] Prior coverage of this issue can be found here.

^[3] Biocad, JSC v. F. Hoffmna-La Roche, Ltd., 2017 WL 4402564 (S.D.N.Y. September 30, 2017) (“Biocad”).

^[4] Id. at *4.

^[5] 15 U.S.C. § 13 (Robinson-Patman Act), § 14 (Clayton Act).

^[6] Biocad, 2017 WL 4402564, at *4 (quotation marks and citations omitted).

^[7] Id. at *9.

^[8] Id. (quotation omitted).

^[9] Id. at *10.

^[10] Id. (citations omitted).

^[11] 15 U.S.C. § 6(a)(1-2).

^[12] Biocad, 2017 WL 4402564, at *12.

^[13] Prior blog notes addressing some of the issues raised in these cases appear here.