Section One of the Sherman Act is written in simple, straightforward language: “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”

Okay, maybe a little too simple, since, as the courts quickly realized, interpreted according to its plain language, the Sherman Act outlaws all contracts, since contracts by definition are a restraint of trade (albeit, in nearly all cases, a minor one).

Nevertheless, most antitrust and international law scholars agree that the United States has one of the most stringent systems of antitrust law in the world. This was not a tremendous problem in the early decades of the twentieth century, since in that era, companies large enough to conduct business, either directly or through a subsidiary, in a foreign country were not commonplace. Besides, to the extent the courts had considered many entirely foreign transactions in antitrust, most had concluded that the question was simply one of extraterritorial jurisdiction, and the United States had no business reaching out to regulate entirely foreign transactions.

But as the nation entered the sixties and seventies, US-based companies increasingly were entering into transactions wholly overseas. At the same time, the bright line rule of no-foreign-application was becoming significantly muddier. As a result, Congress began to hear complaints from companies arguing that they were unfairly handicapped in competing overseas by the possibility that the Sherman Act would apply in full force to their foreign transactions. Plus – as you might imagine – our international neighbors were getting increasingly testy about the United States at times imposing its own antitrust laws on transactions occurring entirely on foreign soil.

So in 1982, Congress passed the Foreign Trade Antitrust Act — Title IV of the Export Trading Company Act. The FTAIA reads like this:

Sections 1 to 7 of this title shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless –

(1) Such conduct has a direct, substantial, and reasonably foreseeable effect –

(A) On trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations, or

(B) On export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States, and

(2) Such effect gives rise to a claim under the provisions of sections 1 to 7 of this title, other than this section.

If sections 1 to 7 of this title apply to such conduct only because of the operation of paragraph (1) (B), then sections 1 to 7 of this title shall apply to such conduct only for injury to export business in the United States.

If you’re thinking the statute is hardly a model of crystal-clear draftsmanship, the courts are way ahead of you. The language abounds with terms which can reasonably be interpreted in different ways: what does “conduct involving trade or commerce” mean? What is “import trade or import commerce” – what about a product your client sold overseas which was then imported into the US by a third party? How “direct” must a “direct” effect be? What is “substantial” or “reasonably foreseeable”? And what is the test for whether an “effect” gave “rise to a claim”? And can it be any claim – or does it have to be the specific claim of the plaintiffs sitting across the courtroom from you? And there’s the most fundamental obscurity of all – is this statute a jurisdiction-stripping statute, meaning that foreign conduct is still an antitrust violation, but federal courts can’t hear those cases? Or is it a substantive statute, describing the elements of an antitrust claim with significant foreign ties?

Today, we’re beginning a new biweekly series here on Appellate Strategist – the law of the Foreign Trade Antitrust Improvement Act. In two weeks, we’ll be back to take a look at the legislative history of the FTAIA. Two weeks after that, we’ll review the law on foreign transactions as it stood before the statute was passed, as a foundation for launching into the hundreds of FTAIA cases which have been published in the thirty-seven years since the statute was enacted.

Join us back here next Friday as we announce a separate biweekly series on a new topic.

Image courtesy of Flickr by Jay Buangan. (No changes)