Ninth Circuit Weighs in on FTAIA and Alternative Fine Statute

The Ninth Circuit recently affirmed a $500 million fine for AU Optronics (“AUO”) in the long-running liquid crystal display panel cartel case, and clarified its interpretation of the Foreign Trade Antitrust Improvements Act (“FTAIA”).  In United States v. Hsiung,1 the Ninth Circuit held that (1) the FTAIA relates to the merits of a Sherman Act claim, not to subject matter jurisdiction, and (2) import trade automatically falls within the scope of the Sherman Act and is not excluded from the Sherman Act by the FTAIA.  Furthermore, the Ninth Circuit held that, under the Alternative Fine Statute, “gross gain” means gains by all participants in a conspiracy, not solely those of the defendant.2


The FTAIA states that foreign conduct is not within the Sherman Act’s reach, unless (a) it is import trade or import commerce; or (b) it has a “direct, substantial, and reasonably foreseeable effect” on domestic commerce (known as the domestic effects exception).3

In the AUO cases, Taiwanese and Korean manufacturers of liquid crystal display panels (“TFT-LCDs”) allegedly met from 2001 to 2006 and fixed prices of TFT-LCDs sold to computer manufacturers, including many in the United States.4  At the criminal trial of AUO and its executives, the government presented evidence that AUO was involved in the competitor meetings, sold price-fixed TFT-LCDs to customers in the United States, and that AUO and its employees specifically targeted U.S. customers.5  The jury found the defendants guilty of conspiracy to fix prices in violation of the Sherman Act.  The defendants moved for judgment of acquittal and in the alternative, for a new trial, arguing that the government had failed to prove that the Sherman Act could reach the defendants’ conduct, which largely took place in Taiwan.6  The district court denied both motions.7


The first issue before the Ninth Circuit was whether the FTAIA relates to the court’s jurisdiction over a Sherman Act case or to the merits of that case.  Joining the Second, Third and Seventh Circuits, the Ninth Circuit held that the FTAIA speaks to the merits of the underlying antitrust case, not to subject matter jurisdiction.  This holding means that the FTAIA limits the type of conduct that U.S. courts can regulate, not the power of the courts themselves.8

Next, the Ninth Circuit addressed the FTAIA’s treatment of import trade and emphasized that the statute does not exempt import trade from the Sherman Act.9  The court adopted other circuits’ definitions of import trade, which include transactions directly between U.S. plaintiff purchasers and the defendant cartel members and goods manufactured abroad and sold in the United States.  The court held that the Department of Justice sufficiently alleged and proved the existence of import trade, through evidence such as that AUO’s U.S. employees reached agreements with competitors about prices for U.S. customers, AUO imported price-fixed TFT-LCDs into the United States, and that even though AUO manufactured TFT-LCDs abroad, it negotiated with and sold panels to U.S. customers at prices that it fixed with competitors.10  Because AUO engaged in import trade, the FTAIA is not applicable and its anticompetitive conduct is within the scope of the Sherman Act.

The Ninth Circuit addressed the domestic effects exception to the FTAIA, but largely chose to sidestep the issue.  The defendants argued that their offshore conduct was too removed from the United States and that intervening development, manufacture and sale of products worldwide resulted in diffuse effects that did not meet the “direct, substantial, and reasonably foreseeable” requirement of the domestic effects exception to the FTAIA.11  The court stated that it did not have to decide whether the defendants’ conduct had a “direct, substantial and reasonably foreseeable” effect for purposes of the domestic effects exception, because the defendants had clearly engaged in import trade with respect to at least part of their business.12  Therefore, the case was already within the reach of the Sherman Act and the court could affirm the defendants’ convictions.13  However, the court noted that the domestic effects exception requires proximate effect and for that effect to be the immediate consequence of the defendant’s conduct.14

Alternative Fine Statute

In addition to the FTAIA, the Ninth Circuit also discussed the district court’s imposition of $500 million in fines based on the Alternative Fine Statue.  The statute states that if any person derives gain from the offense, or if the offense results in loss to a non-defendant, the defendant may be fined not more than the greater of twice the gross gain or twice the gross loss.15  The issue before the Ninth Circuit was whether the fine against AUO was improper because it was based on the collective gains to all members of the conspiracy, rather than to AUO alone.  The Ninth Circuit agreed with the district court and held that “gross gain” for purposes of the statute refers to the gains to the entire conspiracy, not to any particular participant.16

Significance of the Decision

The Ninth Circuit’s decision in Hsiung generally followed the evolving FTAIA jurisprudence.  All of the circuits that have addressed the issue recently have held that the FTAIA relates to the merits of a case, not to subject matter jurisdiction.  Additionally, most FTAIA cases have been intensively fact-based, with courts reluctant to expound bright line rules for what constitutes “direct, substantial and reasonably foreseeable” effects for purposes of the domestic effects exception.  Although the Ninth Circuit mentions “proximate causation” and “immediate consequence,” it does not clarify the issue further.

With regards to the Alternative Fine Statute, the Ninth Circuit’s holding that the fine against one defendant should be calculated based on collective gains to all co-conspirators clearly will be prejudicial to defendants, particularly smaller players in the market.  Rather than paying a fine based on its gains alone, a defendant to a cartel case in the Ninth Circuit must pay according to the gains to all participants in the conspiracy.

Endnotes    (↵ returns to text)
  1. No. 12-10492, 2014 WL 3361084 (9th Cir. July 10, 2014).
  2. The Ninth Circuit also addressed venue and per se liability issues, which will not be discussed in this article.
  3.  See 15 U.S.C. § 6(a).
  4.  Hsiung, 2014 WL 3361084, at *1.
  5.  Id. at *3
  6.  Id.
  7.  Id.
  8.  Id. at *10 – 11.  The circuit courts’ holdings are based on the Supreme Court’s decision in Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), that statutes relate to jurisdiction only when Congress has explicitly and clearly indicated so.  Because the FTAIA does not mention jurisdiction, and because of a policy to delineate between jurisdictional limitations and other types of rules,” these circuit courts have held that the FTAIA relates to the merits of the underlying case.
  9.  Id. at *13.
  10.  Id.
  11.  Id. at *17.
  12.  Id. at *18.
  13.  Id.
  14.  Id.
  15. 18 U.S.C. § 3571(d).
  16.  Hsiung, 2014 WL 3361084, at *19.