On February 1, 2018, the Northern District of California court handling the sprawling In re Cathode Ray Tube (CRT) Antitrust Litigation (“CRT”) declined to enter a default judgment against related Chinese defendants, finding the companies had made a sufficient showing of immunity under the Foreign Sovereign Immunities Act (“FSIA”) for the issue to be addressed on the merits more fully. The decision by Judge Tigar turned on the court’s interpretation of the “commercial activity” exception to the FSIA’s general preclusion of jurisdiction against foreign sovereigns and their agencies and instrumentalities, an exception that requires conduct having a “direct effect” in the United States. That statutory construction in turn was drawn from the alternative test for Sherman Act claims under the Foreign Trade Antitrust Improvements Act (“FTAIA”) that requires foreign conduct have a “direct, substantial, and reasonably foreseeable” effect on U.S. commerce. In looking to the FTAIA to interpret the FSIA, the court made a pair of assumptions that are not thought to be correct in all circuits: That the similar (but different) FTAIA and FSIA “direct effect” provisions have the same meaning, and that the correct meaning is one in which a “direct” effect must follow ‘immediately” from the defendant’s predicate act. The court’s decision may have implications for the construction of both the FTAIA and the FSIA, certainly in antitrust cases and, while this remains to be seen, perhaps more broadly.
The District Court Decision
The decision is the latest installment in the multidistrict litigation commenced in 2007 in the Northern District of California regarding an alleged conspiracy to fix prices of cathode ray tubes (CRTs). Two Chinese defendants, Irico Group Corp. and Irico Display Devices, Co. (collectively, “Irico”), did not answer the complaint because they believed, as state-owned enterprises of the State Council of the People’s Republic of China, they were immune from suit under the doctrine of sovereign immunity as codified in the FSIA. Direct purchaser plaintiffs (DPPs) obtained an entry of default against Irico in July 2016 and a year later moved for a $2.4 billion default judgment. This prompted Irico to appear, oppose the motion, and file its own motion to set aside the default against it.
On February 1, the court granted Irico’s motion. As relevant here, it found that Irico had “mounted a potentially meritorious defense” under the FSIA which justified setting aside the default, particularly in light of the $2.4 billion size of the DPPs’ prayer. The court found the FSIA applicable because Irico showed that it was an “instrumentality” of China at the time suit was brought, and that it was being sued for a “public act.” At this point the burden fell on the DPPs to establish the applicability of the “commercial activity” exception to the FSIA, which generally permits otherwise prohibited claims to proceed when they are based upon “an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that causes a direct effect in the United States.” The court found that Irico’s activities in China setting prices and manufacturing schedules for CRTs were “clearly commercial” in nature. But whether the activities caused a “direct effect” in the United States was a “closer question.”
Resolving the question pushed the court to a number of decisions in unsettled areas of the law. First, finding no dispositive FSIA decisions defining a “direct effect” in an antitrust case, the court looked to similar language (“direct, substantial, and reasonably foreseeable effect on US commerce”) used in the FTAIA to provide an alternative test for the availability of Sherman Act claims. It did so based on a 2004 Ninth Circuit decision in the converse situation, where the panel construed the FTAIA with reference to the FSIA language. As the court itself notes, however, equating the similar statutory provisions appears to conflict with later opinions from the Second and Seventh Circuits that expressly declined to import into the FTAIA the meaning of “direct effect” in FSIA cases.
Second, and again as the court notes, the Ninth Circuit’s construction of the FTAIA itself differs from that adopted in the Second and Seventh Circuits. The Ninth Circuit is alone in reading the FTAIA’s standard that a US effect be “direct” also to mean that it must follow “immediately” from the foreign act; the Second and Seventh circuits require only “proximate cause,” without an expressly temporal component. The extent to which this verbal difference would result in different decisions is not terribly clear, however.
Third, the court’s reliance on the FTAIA standard was qualified by the statement that the standard was “a useful source . . . particularly in this antitrust context.”  The court did not elaborate on the potential applicability of FTAIA caselaw in other FSIA contexts.
Substantively, the court reviewed the parties’ factual proffers and concluded that the “commercial activity” exception might apply. As FTAIA decisions involving foreign price-fixing of LCDs had found, “a direct effect can be shown in an antitrust case when the alleged anti-competitive behavior is not too attenuated from the increased prices in the United States, for example, where the conspiratorial behavior raised the prices of a component which constituted a substantial portion of the final price in the United States.” The court concluded that the DPPs adequately alleged a direct effect under that standard (and thus shown application of the FSIA exception) by pointing to what the court deemed to be evidence of Irico’s conspiratorial conduct and the size and economics of the U.S. market for CRTs. The court also noted that the alleged conduct had “surpassed the FTAIA directness standard” at the summary judgment stage. These allegations rebutted the presumption of immunity, and Irico failed, “at least at this stage in the proceeding,” to offer evidence challenging application of the exception.
Judge Tigar applied what we think of as the transitive property of law: Because FSIA cases may be used to construe an FTAIA provision, the opposite must also be true, and FTAIA cases may serve the same role in construing the relevant language of the FSIA. In this case, it so happened that the older Ninth Circuit precedent on which he relied for interpreting the statutory provisions in pari materia is directly at odds with the conclusions reached by panels in two other circuits. Compounding this potential split, the Ninth Circuit’s substantive construction of the FTAIA requirement of a “direct” effect on U.S. commerce is also at odds with decisions reached in other circuits. We have written about this differing interpretation of FTAIA law before (e.g., here and here). The question is whether the difference makes a difference in this case so as to crystallize the varying constructions of the FTAIA, and there is little on the face of the court’s reliance on a trial court and an appellate decision in the Ninth Circuit to suggest that it does. Indeed, in the Hsiung case cited by the court, the Ninth Circuit found no need to address the different standard applied in the Second and Seventh Circuit because both standards were satisfied.
The FSIA side of the equation also raises some interesting questions. The court limited its reliance on FTAIA in interpreting the sovereign immunity statute to cases arising in the context of antitrust claims, but only a bit, stating that the FTAIA definition applies “particularly” in antitrust cases. It is not clear whether the court meant that a special FSIA rule applies in antitrust cases or whether the FTAIA merely fleshes out the meaning of the FSIA “commercial activity” exception in antitrust cases. In light of this uncertainty, litigants pressing FSIA defenses in other areas of the law may not be surprised to see FTAIA cases cited for determining whether the “commercial activity” exception applies.
 In re Cathode Ray Tube (CRT) Antitrust Litig., 2018 WL 659084 (N.D. Cal. Feb. 1, 2018).
 28 U.S.C. §§ 1602 et seq.
 15 U.S.C. § 6a.
 CRT, 2018 WL 659084 at *7-*10.
 Id. at *3-*4.
 Id. at *4 (quoting 28 U.S.C. § 1605(a)(2)).
 Id. at *5. The FSIA defines “commercial activity” as “either a regular course of commercial conduct or a particular commercial transaction or act.” 28 U.S.C. § 1603(d).
 Id. The FTAIA permits suit in the United States when foreign conduct has a “direct, substantial, and reasonably foreseeable effect” on United States commerce that gives rise to Sherman Act claim. 15 U.S.C. § 6a.
 Id. (citing United States v. LSL Biotechnologies, 379 F.3d 672, 680-83 (9th Cir. 2004)).
 Id. at *5 & n.2 (citing cases).
 Id. at *5.
 Id. (citations omitted).
 Id. at *6.
 Id. at *7.
 United States v. Hsiung, 778 F.3d 738, 758 n.9, 759 (9th Cir. 2015).
 CRT, 2018 WL 659084, at *5.