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Class Action Defense Cases–In re Dynamic Random Access Memory: Ninth Circuit Affirms Dismissal Of Antitrust Class Action For Lack Of Subject Matter Jurisdiction Under Foreign Trade Antitrust Improvement Act (FTAIA)

Congressional Amendments in Foreign Trade Antitrust Improvement Act (FTAIA) to Sherman Act’s Jurisdiction Barred Foreign Plaintiff Corporation’s Antitrust Class Action Claims Ninth Circuit Holds

Plaintiff, a British computer manufacturer, filed a class action complaint against “U.S. and foreign manufacturers and sellers of DRAM, a type of high-density memory used in personal computers and other electronic devices” for violations of federal antitrust laws and Section 1 of the Sherman Act; the class action complaint alleged violations of Sections 4(a), 12 and 16 of the Clayton Act, and sought injunctive relief and damages In re Dynamic Random Access Memory (DRAM) Antitrust Litig., 538 F.3d 1107, 1109 (9th Cir. 2008). Plaintiff alleged a “global conspiracy to fix DRAM prices, raising the price of DRAM to customers in both the United States and foreign countries.” Id., at 1109-10. Defense attorneys moved to dismiss the class action for lack of subject matter jurisdiction under the Foreign Trade Antitrust Improvement Act of 1982 (FTAIA), which amended the Sherman Act; plaintiff’s theory was that “defendants could not have raised prices worldwide and maintained their global price-fixing arrangement without fixing the DRAM prices in the United States.” Id., at 1110. The district court granted the motion and denied plaintiff leave to file an amended class action complaint, finding that plaintiff did not meet the jurisdictional prerequisites under the FTAIA “because it had not sufficiently alleged that its foreign injury was directly linked to the domestic effect of higher U.S. prices for DRAM.” Id. The Ninth Circuit affirmed.

The Ninth Circuit explained that Congress amended the jurisdictional language of the Sherman Act in 1982 by enacting the FTAIA: the FTAIA amended the Sherman Act so as to exclude “anti-competitive conduct that causes only foreign injury.” In re DRAM, at 1110 (citation omitted). The FTAIA accomplished this purpose by declaring that the Sherman Act “shall not apply to conduct involving trade or commerce … with foreign nations.” Id. (citing § 6a). It carves out an exception, known as the “domestic injury exception,” for foreign conduct that “(1) has a ‘direct, substantial, and reasonably foreseeable effect’ on domestic commerce,” id. (citation omitted). Quoting the U.S. Supreme Court, the Ninth Circuit explained at page 1111 that the FTAIA’s language as:

initially lay[ing] down a general rule placing all (nonimport) activity involving foreign commerce outside the Sherman Act’s reach. It then brings such conduct back within the Sherman Act’s reach provided that the conduct both (1) sufficiently affects American commerce, i.e., it has a “direct, substantial, and reasonably foreseeable effect” on American domestic, import or (certain) export commerce, and (2) has an effect of a kind that antitrust law considers harmful, i.e., the “effect” must “giv[e] rise to a [Sherman Act] claim.” (Citation omitted.)

Put simply, the FTAIA “clarifies that U.S. antitrust laws concern the protection of ‘American consumers and American exporters, not foreign consumers or producers.’” In re DRAM, at 1111 (citation omitted). In dismissing the class action complaint, the district court found that plaintiff adequately alleged that defendants’ conduct had a “direct, substantial, and reasonably foreseeable” effect on U.S. domestic commerce, but not that those domestic effects proximately caused plaintiff’s foreign injury; accordingly, the domestic injury exception did not apply. Id. The Ninth Circuit agreed. See id., at 1111-15. It concluded that plaintiff’s injuries were only “indirectly linked” to any domestic effects of the alleged misconduct. Id., at 1114. In so holding, the Ninth Circuit rejected plaintiff’s argument that it need only establish a “but for” causation under the FTAIA; rather, the Circuit Court held, “we conclude that “but for” causation cannot suffice for the FTAIA domestic injury exception to apply and therefore adopt a proximate causation standard.” Id., at 1112.

Analyzing plaintiff’s complaint under the proximate cause standard, the Ninth Circuit held that “the domestic effect of the defendants’ alleged price-fixing conspiracy did not give rise to [plaintiff’s] alleged foreign injury so as to satisfy the second prong of the FTAIA domestic injury exception.” In re DRAM, at 1114. The Circuit Court explained at page 1114, “The defendants’ conspiracy may have fixed prices in the United States and abroad, and maintaining higher U.S. prices might have been necessary to sustain the higher prices globally, but [plaintiff] has not shown that the higher U.S. prices proximately caused its foreign injury of having to pay higher prices abroad.” The Court found it notable that plaintiff “is a foreign consumer that made its purchases entirely outside of the United States” and that it “has recourse under its own country’s antitrust laws.” Id. The Circuit Court also affirmed the district court’s denial of leave to amend, see id., at 1115-16. Accordingly, the Ninth Circuit affirmed the district court order dismissing the class action complaint with prejudice. Id., at 1116.

NOTE: Circuit Judge Noonan filed a concurring opinion in which he noted that “it would seem that reasonably prudent persons in the position of the defendants would see that their actions setting prices in the United States would negatively affect customers in the United States and elsewhere.” In re DRAM, at 1116. Nonetheless, he concluded, “[I]t has 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. Hence it is difficult to persuade a court that injury to foreign consumers has been ‘caused’ by price-fixing in the United States. It’s so difficult that amendment of the complaint becomes futile and jurisdiction itself is found not to exist. We reach this vanishing point not from guidance in words like ‘proximate’ or ‘direct’ but from a strong sense that the protection of consumers in another country is normally the business of that country. Location, not logic, keeps [plaintiff’s] claim out of court.” Id., at 1116-17.

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