United Phosphorus, Ltd. v. Angus Chemical Co.

In the

United States Court of Appeals

For the Seventh Circuit

____________

No. 01-1693

UNITED PHOSPHORUS, LTD., an Indian corporation;

SHROFF’S UNITED CHEMICALS, LTD., an Indian

corporation; and J.C. MILLER & ASSOCIATES,

INCORPORATED, an Illinois corporation,

Plaintiffs-Appellants,

v.

ANGUS CHEMICAL COMPANY, a Delaware corporation;

ANGUS CHEMIE GmbH, a German corporation;

the ESTATE of FREEMAN HUGHES through its

representative Yvonne Hughes; OLLIE W. CHANDLER;

LOWELL PALS; GARY W. GRANZOW; D.B. GUPTA; and

LUPIN LABORATORIES, LTD., an Indian corporation,

Defendants-Appellees.

____________

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 94 C 2078—Ian H. Levin, Magistrate Judge.

____________

ARGUED APRIL 4, 2002

REARGUED EN BANC NOVEMBER 6, 2002

DECIDED MARCH 10, 2003

____________



Chief Judge Flaum and Circuit Judge Williams did not

participate in the consideration or decision of this case.

2 No. 01-1693

Before POSNER, COFFEY, EASTERBROOK, RIPPLE, MANION,

KANNE, ROVNER, DIANE P. WOOD, and EVANS, Circuit

Judges.

EVANS, Circuit Judge. Today, for the first time in this

court, we encounter the Foreign Trade Antitrust Improve-

ments Act, 15 U.S.C. § 6a (FTAIA), a 1982 amendment

to the Sherman Act, which affects its reach in foreign

commerce. The primary issue involves whether the rele-

vant provision of FTAIA is jurisdictional or whether it

states an additional element of a Sherman Act claim. This

in turn affects how a court deals with it and, in this case,

what the outcome will be.

Plaintiffs United Phosphorus and Shroff’s United Chemi-

cals are chemical manufacturers based in India. J.C. Miller

& Associates is an American firm, which was involved in

a joint venture with the Indian plaintiffs. The defendants

are Angus Chemical and its officers, Angus Chemie GmbH,

and Lupin Laboratories—American companies or sub-

sidiaries of American companies, which we will refer to

collectively as Angus. The complaint alleges that Angus

attempted to monopolize, did monopolize, and conspired

to monopolize the market for certain chemicals, in violation

of § 2 of the Sherman Act.

The issue of the court’s subject matter jurisdiction was

first raised soon after the case was filed in 1994. Angus’

Rule 12(b)(1) motion was denied. Then, after considerable

discovery (24 depositions and 8,000 pages of exhibits),

Angus filed renewed motions to dismiss for lack of subject

matter jurisdiction and for summary judgment in 2000.

Angus contended that the court lacked subject matter

jurisdiction under FTAIA, which, as relevant here, limits

application of the Sherman Act to conduct with a “direct,

substantial, and reasonably foreseeable effect” on domestic

commerce. After a thorough analysis of the facts, Magis-

trate Judge Ian H. Levin, sitting by consent, agreed with

Angus and granted its motion to dismiss. United Phospho-

No. 01-1693 3

rus, Ltd. v. Angus Chem. Co., 131 F. Supp. 2d 1003 (N.D.

Ill. 2001).

Briefly, to the facts. In their original 1994 complaint, the

plaintiffs alleged that India had the “greatest incidence

of tuberculosis in the world.” That allegation is consis-

tent with a report from the Centers for Disease Control,

dated March 22, 2002, which says that every year approxi-

mately 2 million people in India develop tuberculosis,

accounting for 25 percent of the world’s new cases. The

parties tell us that “Ethambutol” is a primary pharma-

ceutical for the treatment of the disease. The chemicals

involved in its production are the subject of this lawsuit.

2-Amino-1 Butanol (AB)is the key ingredient of

Ethambutol, and 1-Nitro-Propane (1-NP) is the raw ma-

terial from which AB is made. To make Ethambutol,

defendant Lupin uses AB, which it buys from defendant

Chemie, currently the world’s only manufacturer of AB.

Chemie is a German subsidiary, wholly owned by defen-

dant Angus. The AB is manufactured in Germany. Angus

manufactures 1-NP at a plant in Louisiana and is the

world’s only manufacturer of 1-NP.

This lawsuit stems from prior trade-secret litigation

involving several of the parties. In the early 1990’s, the

Indian plaintiffs decided to acquire the technology for

making AB and 1-NP. They went to Dr. John Miller

(owner of J.C. Miller & Associates), who also had been the

vice-president of research and development at Angus

and supervised Angus’ efforts to improve its AB pro-

cesses. When Angus learned what was going on, it sued

Miller and the Indian entities (who are the plaintiffs here)

in an Illinois state court, seeking to enjoin Miller from

misappropriating its trade secrets. Two years later, when

Angus was faced with a discovery order which would

have required it to disclose the details of the technology,

Angus voluntarily dismissed the lawsuit.

4 No. 01-1693

The defendants in that case then filed this suit. As

plaintiffs here, they claim that but for the Illinois action

they would have sold AB for profit. They accuse Angus

et al. of using anticompetitive means—the lawsuit—

to thwart their plans.

As we said, the case was dismissed for lack of subject

matter jurisdiction under FTAIA, which amends the

Sherman Act, stating:

This Act shall not apply to conduct involving trade

or commerce (other than import trade or import com-

merce) 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 na-

tions; 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 this Act other than this section.

If this Act applies to such conduct only because of the

operation of paragraph (1)(B), then this Act shall ap-

ply to such conduct only for injury to export business in

the United States.

What is relevant here is that the conduct must have “a

direct, substantial, and reasonably foreseeable effect” on

trade or commerce within the United States, rather than

just on foreign commerce.

If the requirement for a substantial effect on commerce

in the United States goes to the court’s subject matter

jurisdiction, the case is analyzed under Federal Rule of

Civil Procedure 12(b)(1), which provides for dismissal of

No. 01-1693 5

an action for lack of subject matter jurisdiction. Subject

matter jurisdiction is, as we know, an issue that should be

resolved early but must be considered at any stage of

the litigation. If subject matter jurisdiction is not evident

on the face of the complaint, the motion to dismiss pursu-

ant to Rule 12(b)(1) would be analyzed as any other mo-

tion to dismiss, by assuming for purposes of the motion

that the allegations in the complaint are true. However, as

here, if the complaint is formally sufficient but the con-

tention is that there is in fact no subject matter jurisdic-

tion, the movant may use affidavits and other material to

support the motion. The burden of proof on a 12(b)(1) issue

is on the party asserting jurisdiction. Mortensen v. First

Fed. Sav. & Loan Ass’n, 549 F.2d 884 (3d Cir. 1977). And

the court is free to weigh the evidence to determine wheth-

er jurisdiction has been established. Capitol Leasing Co.

v. FDIC, 999 F.2d 188 (7th Cir. 1993); Filetech S.A. v.

France Telecom S.A., 157 F.3d 922 (2d Cir. 1998); Carpet

Group Int’l v. Oriental Rug Importers Ass’n, 227 F.3d 62

(3rd Cir. 2000). Factual findings rendered during this

process are reviewed for clear error. Rexford Rand Corp. v.

Ancel, 58 F.3d 1215 (7th Cir. 1995); Kruman v. Christie’s

Int’l PLC, 284 F.3d 384 (2d Cir. 2002).

On the other hand, if the requirement for a substan-

tial effect on U.S. commerce is an element of the claim, then

the motion would be properly treated under Rule 56

summary judgment standards. Summary judgment on

the merits can be granted if, construing the facts against

the moving party, there is no genuine issue of material

fact and that party is entitled to judgment as a matter

of law. In short, at this stage of the litigation—that is,

when the court is considering a motion—the analysis

differs if the issue is one of jurisdiction or an issue on the

merits. We think it is fair to say that in this case the

procedure employed will dictate the result. The appel-

lants have made little effort to demonstrate that the district

court’s findings of fact are clearly erroneous. They claim,

6 No. 01-1693

however, that what we have here should be viewed as a

motion for summary judgment on the merits. Under the

summary judgment standard with the facts construed in

their favor, they contend that the defendants’ motion should

have been denied. The defendants, of course, contend that

they should win under either standard, a proposition on

which we need pass no judgment.

Over the years, the difficult issue of limiting the extrater-

ritorial reach of the United States laws in international

trade and international relations has received a good deal

of attention. Despite the fact that, using language bor-

rowed from the Foreign Commerce Clause of the Consti-

tution, the Sherman Act itself prohibits agreements re-

straining “trade or commerce . . . with foreign nations,”

there has long been concern about overreaching under

our antitrust laws. As far back as American Banana Co.

v. United Fruit Co., 213 U.S. 347 (1909), Justice Holmes

said that the almost universal rule is that the “character

of an act as lawful or unlawful must be determined

wholly by the law of the country where the act is done.”

American Banana’s strict territorial test was moderated, if

not rejected, in United States v. Aluminum Co. of America,

148 F.2d 416 (2d Cir. 1945). Judge Learned Hand was

writing for the Court of Appeals for the Second Circuit,

sitting pursuant to 15 U.S.C. § 29, which at the time

authorized the designation of a court of appeals as a

court of last resort for certain antitrust cases. The issue

was whether Congress intended to impose liability for

conduct outside the United States and whether the Consti-

tution permitted it to do so. The court recognized that

it should not read the words of Congress “without regard

to the limitations customarily observed by nations upon

the exercise of their powers.” At 443. Creating what be-

came known as the “effects test,” the court concluded

that the Sherman Act must be limited to acts which

were “intended to affect [U.S.] imports and did affect them.”

No. 01-1693 7

Rejected was the notion that Congress intended “to punish

all whom its courts can catch, for conduct which has

no consequences within the United States.” At 443. The

Supreme Court subsequently approved the effects test.

See Continental Ore Co. v. Union Carbide & Carbon Corp.,

370 U.S. 690 (1962).

Then FTAIA was enacted in 1982. There is some de-

bate over the extent to which the Act simply codifies the

“general understanding of when American antitrust

law should be concerned about restraints abroad . . . .” See

1A Phillip E. Areeda & Herbert Hovenkamp, Antitrust

Law, ¶ 272 (2d ed. 2000). In Hartford Fire Insurance v.

California, 509 U.S. 764 (1993), the Court declined to

decide whether FTAIA was a codification of prior law,

but concluded that an agreement among foreign reinsur-

ers and domestic insurers, under which the foreign reinsur-

ers would refuse to cover certain American domestic

insurance policies, met the effects test.

It is in Hartford, however, that Justice Scalia, in dissent,

sets out the view that FTAIA does not go to subject mat-

ter jurisdiction at all. He perceived two distinct ques-

tions: whether the district court had jurisdiction, and

whether the Sherman Act reaches the extraterritorial

conduct alleged. His conclusion was that the district

court had subject-matter jurisdiction, simply because

the Sherman Act claim was not frivolous and 28 U.S.C.

§ 1331 gives the district court jurisdiction over cases

“arising under” federal statutes. The second question, he

said, “has nothing to do with the jurisdiction of the

courts. It is a question of substantive law turning on

regulatory power over the challenged conduct.” At 813. If

the plaintiff were to fail to prevail on this question, the

case would be dismissed not for lack of subject matter

jurisdiction, but rather on the merits because the plain-

tiff had failed to state a cause of action. Justice Scalia

explained that what is involved is “legislative jurisdiction”

8 No. 01-1693

or “jurisdiction to prescribe,” which refers to the author-

ity of Congress to enact the law in the first place. The

Sherman Act, tracking, as it does, the Commerce Clause,

is well within legislative jurisdiction. Nevertheless, princi-

ples of international comity dictate how a statute will

be interpreted: “Though it clearly has constitutional au-

thority to do so, Congress is generally presumed not to

have exceeded those customary international-law limits

on jurisdiction to prescribe.” At 815.

The majority in Hartford carries out the debate with

Justice Scalia in footnotes. As to Justice Scalia’s content-

ion that what is involved in the case is prescriptive, as

opposed to subject-matter jurisdiction, Justice Souter says

that the parties “for good reason” do not question prescrip-

tive jurisdiction. He then quotes commentators who say

that the Sherman Act is a “prime exampl[e] of the simul-

taneous exercise of prescriptive jurisdiction and grant

of subject matter jurisdiction.” At 796 n.22. In explaining

the role of comity, Justice Souter says that comity comes

into play “if at all, only after a court has determined that

the acts complained of are subject to Sherman Act juris-

diction.” At 797 n.24. Principles of international comity

did not prevent the exercise of jurisdiction in that case.

One could argue that in Hartford it is not entirely clear

what the phrase “Sherman Act jurisdiction” means. After

all, “Jurisdiction is a word of many, too many, meanings.”

United States v. Vanness, 85 F.3d 661, 663, n.2 (D.C. Cir.

1996), quoted in Steel Co. v. Citizens for Better Environ-

ment, 523 U.S. 83 (1998). But it seems reasonable to

conclude, especially in light of the footnotes, that what

the Hartford Court refers to is the court’s subject-

matter jurisdiction for Sherman Act claims.

That reading receives some support in domestic Sherman

Act cases, which do not implicate FTAIA, but may shed

some light by analogy. McLain v. Real Estate Board of

No. 01-1693 9

New Orleans, Inc., 444 U.S. 232 (1980), was a private

antitrust action, alleging that real estate brokers in New

Orleans engaged in a price-fixing conspiracy. The issue

before the Court was whether the Sherman Act extended

to such a conspiracy. The procedural history shows that

the district court had dismissed the case under Federal

Rule of Civil Procedure 12(b)(6) for failure to state a

claim. The Court of Appeals for the Fifth Circuit said

that the appropriate designation of the dismissal was

for lack of subject-matter jurisdiction under Rule 12(b)(1)

but, nevertheless, affirmed. The Supreme Court disagreed

with the court of appeals on what is required for jurisdic-

tion to exist but implicitly agreed that the case presented

an issue of jurisdiction. The Court said:

To establish the jurisdictional element of a Sherman

Act violation it would be sufficient for petitioners to

demonstrate a substantial effect on interstate com-

merce generated by respondents’ brokerage activity.

At 242. The Court also said that despite “the breadth of

Sherman Act prohibitions, jurisdiction may not be in-

voked under that statute unless the relevant aspect of

interstate commerce is identified . . . .” At 242.

More recently, in Summit Health, Ltd. v. Pinhas, 500 U.S.

322 (1991), the Court considered

whether the interstate commerce requirement of

antitrust jurisdiction is satisfied by allegations that

petitioners conspired to exclude respondent, a duly

licensed and practicing physician and surgeon, from

the market for ophthalmological services in Los

Angeles because he refused to follow an unnecessarily

costly surgical procedure. [Emphasis added.]

The Court again had trouble agreeing on the precise an-

swer to that question, as its 5-4 split shows, but said

that the conspiracy at issue “has a sufficient nexus

10 No. 01-1693

with interstate commerce to support federal jurisdiction.”

At 333.

The Sherman Act and its FTAIA amendments are not

the only statutes which present the dilemma regarding

whether a statutory requirement is an element of a claim

or a matter of subject-matter jurisdiction. In Gwaltney

v. Chesapeake Bay Foundation, 484 U.S. 49 (1987), the

Court determined that for subject-matter jurisdiction to

exist under the Clean Water Act, 33 U.S.C. § 1251 et seq.,

a plaintiff need only make a good-faith allegation of a

continuous or intermittent violation of the Act. Justice

Scalia dissented, this time not because all the subject-

matter jurisdiction a court needs is provided under §1331,

but rather because “subject-matter jurisdiction can be

called into question either by challenging the sufficiency

of the allegation or by challenging the accuracy of the

jurisdictional facts alleged.” At 68 [emphasis in the origi-

nal]. A little over 10 years later, in Steel Company, the

Court considered the Emergency Planning and Community

Right-To-Know Act (EPCRA), 42 U.S.C. § 11046(a)(1).

Justice Scalia, writing for the Court, and Justice Stev-

ens, joined in part by Justices Souter and Ginsburg con-

curring in the judgment, debated, among other things,

whether a provision of EPCRA was jurisdictional or an

element of the claim. Looking to Gwaltney, Justice

Stevens thought it was jurisdictional; Justice Scalia dis-

missed Gwaltney as a “drive by” jurisdictional ruling. In

the Title VII context we have determined that the re-

quirement that the definition of employer as “a person . . .

who has fifteen or more employees” was an element of

the claim, not a matter of the subject matter jurisdiction of

the court. The plaintiff had presented “a non-frivolous

claim under federal law; no more is necessary for subject-

matter jurisdiction.” Sharpe v. Jefferson Distrib. Co., 148

F.3d 676, 677 (7th Cir. 1998). The jurisdiction-versus-

element-of-the-claim debate seems alive and well.

No. 01-1693 11

Turning back to FTAIA, we note that commentators

tend to discuss FTAIA in terms of jurisdiction. See, e.g.,

P. Areeda & H. Hovenkamp, ¶ 273; Herbert Hovenkamp,

Federal Antitrust Policy, § 21.2 (2d ed.). Referring di-

rectly to subject-matter jurisdiction, the ABA Section of

Antitrust Law, Antitrust Law Developments (5th ed. 2002),

at 1121, states that “to establish subject matter jurisdic-

tion under the FTAIA, a plaintiff must also show that

‘such effect’—i.e., the direct, substantial, and reasonably

foreseeable anticompetitive domestic effect—‘gives rise to’

a Sherman Act claim.” In addition, the Department of

Justice and the Federal Trade Commission both consider

the statute jurisdictional. Regarding jurisdiction over

conduct involving foreign commerce, the guidelines for

the agencies state “[T]he jurisdictional limits of the

Sherman Act and the FTC Act are delineated in the

FTAIA.” Antitrust, Unfairness, Deception Policies and

Guidelines, reprinted in 4 Trade Reg. Rep. (CCH) ¶13.107.

The ABA explains that with “respect to subject matter

jurisdiction, the International Antitrust Guidelines state

that ‘anticompetitive conduct that affects U.S. domestic

or foreign commerce may violate the U.S. antitrust

laws regardless of where such conduct occurs or the na-

tionality of the parties involved.’ ” Antitrust Law Develop-

ments, at 1120.

As we have said, this is our first foray into FTAIA. We

have, however, considered the reach of the Sherman Act

into foreign commerce prior to the enactment of FTAIA.

In In re Uranium Antitrust Litigation, 617 F.2d 1248

(7th Cir. 1980), we considered issues raised by the gov-

ernments of Australia, Canada, South Africa, and Great

Britain as to whether the district court could proceed in

a case brought by Westinghouse Electric Corporation

alleging antitrust violations against 26 foreign and do-

mestic uranium producers. For our purposes, we need not

delve into the weighty issues of that case beyond noting

that we said at 1253:

12 No. 01-1693

We view the jurisdictional issue as two-pronged: (1)

does subject matter jurisdiction exist; and (2) if so,

should it be exercised?

However, we also determined in United States v. Martin,

147 F.3d 529 (7th Cir. 1998), a criminal case involving

the federal “bombing” statute, 18 U.S.C. § 844(I), that

the requirement that the bombing have an effect on in-

terstate commerce is not a matter of the court’s jurisdic-

tion over the crime or the defendant, but rather an ele-

ment of the crime. Relying on United States v. Lopez,

514 U.S. 549 (1995), Martin wanted to set aside his guilty

plea because, he said, it did not waive jurisdictional de-

fenses, and the requirement for an effect on interstate

commerce is jurisdictional. We rejected that claim, saying

that although the requirement is often referred to as

jurisdictional, it is “simply one of the essential elements of

§ 844(I).” It is, we said, simply a “shorthand sense that

without that nexus, there can be no federal crime . . . .” At

532. As we learned in Lopez, the nexus to the Commerce

Clause is of considerable importance, as a matter of legisla-

tive jurisdiction, when Congress seeks to federalize street

crimes—crimes which are otherwise the province of the

states. In those instances, it seems to us, the require-

ment for interstate commerce is a hook on which the

crime hangs. Once Congress has made the proper find-

ings that, say, a certain crime implicates interstate com-

merce in some way, proof of the interstate commerce

requirement has, at least traditionally, been rather perfunc-

tory. Criminal statutes of this type are far less than

compelling analogies to FTAIA.

We see the purity of an argument that 28 U.S.C. § 1331

provides federal question jurisdiction for cases “arising

under the Constitution, laws, or treaties of the United

States” so that without more, the federal courts have

jurisdiction over Sherman Act claims. It would follow, then,

that any requirement for an effect on interstate com-

No. 01-1693 13

merce must be an element of the claim. We know, how-

ever, that nothing is quite that simple. For instance, a

frivolous suit which charges a violation of a federal stat-

ute “arises under” federal law. Yet, because the suit is

frivolous, subject matter jurisdiction over it is lacking. Bell

v. Hood, 327 U.S. 678, 682-83 (1946) ( “[A] suit may some-

times be dismissed for want of jurisdiction where the

alleged claim under the Constitution or federal statutes

clearly appears to be immaterial and made solely for the

purpose of obtaining jurisdiction or where such a claim

is wholly insubstantial and frivolous.”). See also Crowley

Cutlery Co. v. United States, 849 F.2d 273 (7th Cir. 1988).

On the other hand, it is also true that sometimes a refer-

ence to “jurisdiction” in statutes is merely, as we said in

Martin, a shorthand way of referring to an element of

the claim. Such references are a way of referring to that

part of a statute which sets out the basis for legislative

jurisdiction.

But with reference to FTAIA, the argument that the

statute sets out an element of the claim or a basis for

legislative jurisdiction has not gained approval. Even

after the decision in Steel Company, the EPCRA case

decided in 1998, courts of appeals continue to treat

FTAIA as jurisdictional. Whatever their differences in

interpretation of the Act or the effect it has on prior judge-

made law, all have treated the issue as one of subject

matter jurisdiction. See Kruman (review of the district

court’s dismissal for lack of subject matter jurisdiction

under FTAIA); Den Norske Stats Oljeselskap AS v.

Heeremac V.O.F., 241 F.3d 420 (5th Cir. 2001), cert. denied

sub nom. Statoil ASA v. HeereMac V.O.F., 122 S. Ct. 1059

(2002) (finding that the district court properly dis-

missed antitrust claim for lack of subject matter jurisdic-

tion under FTAIA); Carpet Group (finding that FTAIA

did not divest the court of subject matter jurisdiction on

the claims presented); Filetech S.A. (finding that the dis-

14 No. 01-1693

trict court should have looked to the factual matters

presented to it regarding whether subject matter juris-

diction existed under FTAIA); Caribbean Broad. Sys., Ltd.

v. Cable & Wireless, P.L.C., 148 F.3d 1080 (D.C. Cir. 1998)

(stating that a court has subject matter jurisdiction only

to the extent that the complaint alleges that the chal-

lenged conduct has a “direct, substantial, and reasonably

foreseeable effect” on domestic commerce under FTAIA).

The latter court has revisited the issue recently to

define the “jurisdictional reach of the federal antitrust

laws.” Empagran S.A. v. F. Hoffman-Larouche, Ltd., 315

F.3d 338 (D.C. Cir. 2003). The argument was whether

Den Norske or Kruman set out the proper view of

FTAIA’s jurisdictional reach. The court rejected both

approaches, saying that its view of the statute falls “some-

where between the views of the Fifth and Second Cir-

cuits . . . .” Holding that where the “anticompetitive con-

duct has the requisite harm on United States commerce,

FTAIA permits suits by foreign plaintiffs who are injured

solely by that conduct’s effect on foreign commerce,” the

court found that “subject matter jurisdiction is proper” in

the case before it. We simply cannot dismiss these cases

as “drive-by” jurisdictional rulings.

In Hartford, as well, it is not likely that references to

jurisdiction are really references to legislative, rather than

subject-matter, jurisdiction. Justice Souter made it clear

that he disagreed with Justice Scalia’s contention that

under FTAIA what is at issue is legislative jurisdiction. To

reiterate, he said:

JUSTICE SCALIA believes that what is at issue in

this litigation is prescriptive, as opposed to subject-

matter, jurisdiction. . . . The parties do not question

prescriptive jurisdiction, however, and for good

reason: it is well established that Congress has exer-

cised such jurisdiction under the Sherman Act. See

No. 01-1693 15

G. Born & D. Westin, International Civil Litigation in

United States Courts 542, n.5 (2d ed. 1992) (Sherman

Act is a “prime exampl[e] of the simultaneous exer-

cise of prescriptive jurisdiction and grant of subject

matter jurisdiction”).

So, while it might seem desirable to have no messy

extra jurisdictional requirements under some acts of

Congress, but not others, that is not how our system

necessarily works. There is no question that Congress

has the power to limit the jurisdiction of the federal

courts. Lauf v. E.G. Shinner & Co., 303 U.S. 323 (1938).

Every federal court, other than the Supreme Court, de-

rives its jurisdiction from Congress, which, within consti-

tutional bounds, may withhold or restrict jurisdiction.

Kline v. Burke Constr. Co., 260 U.S. 226 (1922). The Court

has visited the “jurisdiction stripping” issue recently in

the context of the Telecommunications Act of 1996, in

which it considered whether federal courts have jurisdic-

tion over a carrier’s claim that an order of a state utility

commission violated federal law. The Court declined to

consider whether 47 U.S.C. § 251(c) conferred jurisdiction,

it “at least does not divest the district courts of their

authority under 28 U.S.C. § 1331 . . . .” Verizon Md. Inc.

v. Public Serv. Comm’n of Md., 122 S. Ct. 1753, 1758

(2002). What is left unspoken is that Congress could divest

the courts of jurisdiction if it chose to.

As we have said, the legislative history shows that

jurisdiction stripping is what Congress had in mind in

enacting FTAIA. The statute was enacted against a back-

drop of almost 60 years of precedent which characterized

the application of the Sherman Act to the conduct of

foreign markets as a matter of subject matter jurisdiction.

We must presume that Congress expects statutes to be

read to conform with Supreme Court precedent. Porter v.

Nussle, 534 U.S. 516 (2002). Also as we have said, the

courts of appeals had applied the pre-FTAIA effects test as

16 No. 01-1693

a limit on subject matter jurisdiction.1 Nothing in FTAIA

hints that Congress intended to dramatically change this

approach. In fact, the legislative history indicates other-

wise. The House Report says that satisfying FTAIA

would be “the predicate for antitrust jurisdiction.” It also

says, “[t]his bill only establishes the standards necessary

for assertion of United States Antitrust jurisdiction. The

substantive antitrust issues on the merits of the plain-

tiffs’ claim would remain unchanged.” H.R. Rep. No. 97-686

at 11 (1982). Perhaps that is why after FTAIA courts

have continued to treat the issue as one of subject mat-

ter jurisdiction.

There are good policy reasons for the prevailing approach.

The extraterritorial scope of our antitrust laws touches

our relations with foreign governments, and so, it seems,

it is prudent to tread softly in this area. If FTAIA sets

out an issue on the merits, resolution of the issue could

be delayed until late in the case, and the potential for a

lawsuit to have an effect on foreign markets would exist

while the case remained pending. In contrast, if this im-

portant issue goes to subject matter jurisdiction, it can

be resolved early in the litigation. If missed early on, it can

be resolved whenever it becomes clear that the alleged

1

The dissent suggests, incorrectly we think, that our decision

will move government prosecutors to avoid the Seventh Circuit

when investigating criminal violations of the Sherman Act. We

don’t think so. But we add that if the dissent is correct, the

government will not only have to avoid the Seventh Circuit, but

also all the other circuits that say, as we do here, that the

requirement of an effect on U.S. commerce relates to subject

matter jurisdiction. Finally, we fail to see the harm to Sherman

Act criminal prosecutions that concerns the dissent. If the

government can’t prove to a judge a minimum requirement that

activity alleged to be in violation of U.S. criminal law had an

effect on U.S. commerce, it shouldn’t be bringing a Sherman Act

case in the first place.

No. 01-1693 17

anticompetitive activity does not have a substantial effect

on United States commerce. If the parties do not raise the

issue, a judge has an obligation to raise it. Treating the

matter as one of subject matter jurisdiction reduces the

potential for offending the economic policies of other

nations. In short, FTAIA limits the power of the United

States courts (and private plaintiffs) from nosing about

where they do not belong. And the power of the courts

is precisely what subject matter jurisdiction is about. For

all of these reasons, we find that the district court prop-

erly treated the issue as one of subject matter jurisdiction.

That being the case, we must determine whether the

court’s findings of fact are clearly erroneous. In its analysis,

the court examined thousands of pages of evidentiary

materials which formed the basis for its findings of fact.

The court found that there was virtually no evidence

that the plaintiffs would have made any sales in the

United States. They set out to produce a tuberculosis

drug for India. Experts say that the main application for

AB is to produce Ethambutol, which is primarily used in

India. The Lederle division of American Home Products

was at the relevant time the only company in the world

that had FDA approval to sell Ethambutol in the United

States. Lederle imported Ethambutol into the United

States from Italy using a product that it buys in India.

In fact, it appears that the very small amount of AB sold

in the United States was used as an ingredient in a prod-

uct for making rocket motors, not drugs. 3M used a very

small amount for this purpose, purchasing less than 0.4

percent of the world’s AB production—or $25,000 in total

volume. But 3M never conducted formal bidding for this

small purchase and shows no signs of changing its supplier.

Other than saying that “there is ample evidence to

support plaintiffs’ allegations,” plaintiffs do not tell us

how the court’s findings are clearly erroneous. True, the

plaintiffs outline the evidence reflecting their plans to

18 No. 01-1693

manufacture the products for sale in the United States.

And, in fact, it may be that there was evidence to support

that position. But the district court is allowed on this

motion to weigh the facts, and when it did, it found that

plaintiffs

had no actual plans to sell AB in this country and

that there would have been no significant AB sales

opportunities for Plaintiffs in this country even if

they had tried to sell AB here. For instance, Miller

testified that he “had no conversation with any po-

tential customers for AB in the United States.” Miller

Dep. 413. Moreover, Shroff testified that he and his

“marketing man” spoke with ten to twelve potential

AB customers, all of which were located in India. Shroff

Dep. 144-45, 161-62.

At 1012. Plaintiffs’ own liability expert testified that AB

sales in the United States would be “less than substantial.”

Similar findings were made regarding the other chem-

icals involved. The plaintiffs do not point out how these

findings were clearly erroneous, and our review leads us

to conclude that they were not. With the dismissal of the

federal claims, the dismissal of pendent state-law claims

was also proper. Accordingly, the judgment of the district

court is AFFIRMED.

No. 01-1693 19

DIANE P. WOOD, Circuit Judge, dissenting, with whom

Circuit Judges EASTERBROOK, MANION, and ROVNER join.

In straightforward language, the Foreign Trade Antitrust

Improvements Act of 1982 (FTAIA), 15 U.S.C. § 6a, says

that the Sherman Act “shall not apply” to conduct involving

foreign trade or commerce unless that conduct has a “di-

rect, substantial and reasonably foreseeable effect” on ei-

ther U.S. domestic commerce, U.S. import commerce, or (for

U.S. exporters only) on U.S. export commerce. The ques-

tion before us today, which not only reaches this court as

an issue of first impression, but which has also never

been analyzed thoroughly by any other court, is whether

these criteria for the statute’s “applicability” strip federal

district courts of their acknowledged subject matter juris-

diction under 28 U.S.C. §§ 1331 and 1337 over cases that

do not meet the test, or if instead they describe an element

of the plaintiff’s claim. The majority has opted for the

former approach, largely because the word “jurisdiction”

appears in many prior decisions of lower courts and in

certain materials published by the government’s antitrust

enforcement agencies and the American Bar Association.

But neither the majority nor those earlier opinions have

distinguished carefully between judicial and legislative

jurisdiction—or, to put it differently, between jurisdic-

tion to decide a case and jurisdiction to prescribe a rule

of law. The central question now before us is whether

the FTAIA affects the former or the latter power. Given the

fact that “jurisdiction is a word of many, too many, mean-

ings,” ante at 8, quoting United States v. Vanness, 85F.3d

661, 663 n.2 (D.C. Cir. 1996), which was quoted in Steel

Co. v. Citizens for a Better Environment, 523 U.S. 83, 90

(1998), it is plain that the analysis cannot stop with the

observation that the FTAIA somehow affects “jurisdiction.”

In my view, there are at least four compelling reasons

why we should not construe the FTAIA’s test as one go-

ing to the subject matter jurisdiction of the court, and

20 No. 01-1693

instead should adopt what I will call an “element” approach:

first, the language of the statute supports the position

that this is an element of the claim, especially when it is

contrasted to true jurisdiction-stripping statutes; second,

the “subject matter jurisdiction” characterization is in-

consistent with the Supreme Court’s decision in Steel Co.

and with the law of this court; third, the procedural conse-

quences of a “subject matter jurisdiction” reading would

have perverse effects, measured against the policies the

FTAIA and the federal antitrust laws were designed to

further; and finally, to call this “subject matter jurisdic-

tion” fails to take into account the long history of the

application of the U.S. antitrust laws to foreign conduct.

I

Although the majority has set forth the relevant lan-

guage of the FTAIA, it bears repeating here, both for

ease of reference and for emphasis. It reads as follows

(and there is equivalent language covering section 5 of the

Federal Trade Commission Act):

Sections 1 to 7 of this title [Sherman Act] 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 na-

tions; or

B) on export trade or export commerce with

foreign nations, of a person engaged in such

trade or in commerce in the United States; and

No. 01-1693 21

(2) such effect gives rise to a claim under the

provisions of sections 1 to 7 of this title, other than

this section.

15 U.S.C. § 6a.

One will search in vain in this brief passage for any

hint that the Congress was attempting to strip federal

courts of their competence to hear and decide antitrust

cases with a foreign element. In my view, that alone

should be enough to tip the balance toward the “element”

characterization. To begin with, while one can find exam-

ples in Supreme Court decisions of the Court’s treatment

of statutes with jurisdictional language as non-jurisdic-

tional (e.g., Steel Co., discussed below; Hughes Aircraft

Co. v. United States ex rel. Schumer, 520 U.S. 939, 950-51

(1997) (False Claims Act)), there are no examples of the

opposite approach—treating something as jurisdictional

that is phrased in terms of the scope of application of a

statute. Secondly, this court has recognized that juris-

diction-stripping rules must be expressed clearly. In

Czerkies v. U.S. Department of Labor, 73 F.3d 1435 (7th

Cir. 1996) (en banc), we held that the door-closing statute

prohibiting judicial review of certain federal workers’

compensation claims should not be construed to bar re-

view of constitutional claims in the absence of express

language to that effect. Id. at 1439. The same approach

is appropriate for other kinds of jurisdiction-stripping

statutes. Naturally, when Congress does speak clearly, as

it did in the statute that bars judicial review of certain

immigration decisions, see 8 U.S.C. §§ 1252(a)(2)(B) and

1255, the courts do and should recognize that their compe-

tence to act has been withdrawn. See McBrearty v.

Perryman, 212 F.3d 985 (7th Cir. 2000) (dismissing suit

attempting to avoid § 1252(a)(2)(B), which provides that

“notwithstanding any other provision of law, no court

shall have jurisdiction to review . . . any judgment regard-

ing the granting of relief under” section 1255). Language

22 No. 01-1693

like that of the FTAIA, stating that a law does not “apply”

in certain circumstances, cannot be equated to language

stating that the courts do not have fundamental compe-

tence to consider defined categories of cases.

II

The fact that the FTAIA does not contain a clear con-

gressional statement that it is intended to restrict

the subject matter jurisdiction of the federal courts (or

for that matter even a brief mention of the term “jurisdic-

tion”) should be enough to resolve the question before us.

If more is needed, then we must consider further how

to determine whether a particular law affects the compe-

tence of a federal court to entertain the case at all, or if

it simply outlines the scope of the statute and permits

the court to issue a decision on the merits either upholding

or rejecting a claim. Our starting point should be the

Supreme Court’s decision in Steel Co., supra, 523 U.S. 83.

In Steel Co., the Supreme Court held that the Emergency

Planning and Community Right-To-Know Act of 1986

(EPCRA), 42 U.S.C. § 11046(a)(1), which permitted a

private action only if certain prerequisites were satis-

fied, did not affect the district court’s subject matter

jurisdiction. 523 U.S. at 89-90. Although the EPCRA

actually used the word “jurisdiction” to describe the permit-

ted actions, the Court did not find that fact dispositive.

Instead, it reaffirmed the long-standing rule that power

to adjudicate a case does not depend on whether in the

final analysis the plaintiff has a valid claim. “[T]he dis-

trict court has jurisdiction if the right of the peti-

tioners to recover under their complaint will be sus-

tained if the Constitution and laws of the United States

are given one construction and will be defeated if they

are given another.” Id. at 89 (internal quotations omit-

ted). In the present case, the plaintiffs will have a right

No. 01-1693 23

to recover if defendants’ activities have the requisite ef-

fect on either U.S. domestic or import commerce (and

they can prove the remainder of their federal antitrust

claim), and they will lose if those effects are lacking.

It is worth noting that the extraterritorial reach of

statutes varies widely. Some statutes, such as Title VII of

the Civil Rights Act of 1964, have been interpreted by

the Supreme Court as having no application at all be-

yond U.S. borders, even if both the employer and the

employee are U.S. citizens. See EEOC v. Arabian Ameri-

can Oil Co., 499 U.S. 244 (1991). Other statutes, such as

18 U.S.C. § 2333, are virtually unlimited in their territo-

rial reach. Section 2333 provides a private right of action

for civil damages for any national of the United States

injured “by reason of an act of international terrorism”

(or the victim’s estate) to sue those responsible for the

act in a U.S. court for treble damages, no matter where

in the world the act occurred, and no matter what the

nationality of the perpetrator was. See Boim v. Quranic

Literacy Inst., 291 F.3d 1000 (7th Cir. 2002). Still other

statutes are like the FTAIA: they define a subset of ac-

tions and actors outside the United States whose actions

fall within the scope of U.S. law. It is up to Congress to

decide how broad or narrow a law it is enacting, and

what the plaintiff must prove to be entitled to relief.

That is what Congress did in the FTAIA: it estab-

lished the “direct, substantial, and reasonably foresee-

able” effect on commerce test as an element of the plain-

tiff’s claim. It did not disempower the federal courts from

ruling on the merits for a defendant when the plaintiff

is unable to make the requisite showing. The majority’s

suggestion that the Supreme Court held otherwise in

Hartford Fire Ins. v. California, 509 U.S. 764, 812 (1993)

is inaccurate. In fact, the Hartford Fire majority thought

it unnecessary to address the FTAIA’s effect on the case

24 No. 01-1693

at all, see id. at 797 n.23, and thus it had no need to en-

gage the dissenters on the “element” versus “jurisdiction”

point. It is true that Justice Scalia, writing for the four

dissenters, observed that “[a] cause of action under our

law was asserted here, and the court had power to deter-

mine whether it was or was not well founded in law and

in fact.” Id. at 812. Even though this isolated statement

was in a dissent and thus not authoritative at the time

it was made, the more important point is that the legal

principle it reflected was later adopted by a majority of

the Court first in Steel Co., and then later in United

States v. Cotton, 535 U.S. 625 (2002) (“Bain’s elastic con-

cept of jurisdiction is not what the term “jurisdiction”

means today, i.e., “the courts’ statutory or constitutional

power to adjudicate the case.”) (Emphasis in original,

quoting from Steel Co.). The approach I am advocating

is entirely consistent, therefore, with current Supreme

Court doctrine.

This court has had occasion to consider the question

whether effect-on-commerce elements analogous to those

in the FTAIA affect subject matter jurisdiction or the

statement of a claim, and we have concluded that they

do not. See United States v. Martin, 147 F.3d 529 (7th

Cir. 1998), cited with approval in United States v. Ray-

born, 312 F.3d 229, 231 (6th Cir. 2002); United States v.

Carr, 271 F.3d 172, 178 (4th Cir. 2001); United States v.

Prentiss, 256 F.3d 971, 982 (10th Cir. 2001); United States

v. Beck, 250 F.3d 1163, 1165 (8th Cir. 2001); Alikhani v.

United States, 200 F.3d 732, 734-35 (11th Cir. 2000). While

the statute at issue in Martin was a criminal law, 18 U.S.C.

§ 844(i), I agree with the First Circuit that there is

no jurisdictional distinction in the Sherman Act between

the civil and criminal reach of the statute. See United

States v. Nippon Paper Indus., 109 F.3d 1 (1st Cir. 1997).

(Indeed, I do not understand the majority to be taking

issue with this aspect of the Nippon Paper holding.) The

No. 01-1693 25

fact that the present case is civil, and Martin was crim-

inal, therefore provides no reason not to follow Martin’s

jurisdictional characterization. Nor do I see any other

principled distinction that can be drawn between our

analysis in Martin and the problem now before us.

III

Yet another reason why the majority’s rule is ill-advised

comes from the nature of jurisdictional rules and the

consequences of treating something as affecting the sub-

ject matter jurisdiction of the court. Rules about subject

matter jurisdiction define the allocation of business be-

tween the federal and the state courts. The federal courts

are courts of limited jurisdiction. Only if Article III of

the Constitution confers power on them to hear the par-

ticular kind of case or controversy at issue, and if a stat-

ute of Congress has implemented that constitutional

grant of power, can a case be heard in federal court.

The first point here is that a recognized issue of subject

matter jurisdiction must be resolved before any other

action is taken on the case. There is an important institu-

tional interest in resolving jurisdictional questions quick-

ly and simply. Congress recognized this in one of its

classic jurisdiction-stripping rules: federal appellate courts

have no jurisdiction to review district court decisions

remanding cases to state court when the district court

relies on a reason outlined in 28 U.S.C. § 1447(c). See

28 U.S.C. § 1447(d). Inquiries into whether a case “arises

under” federal law, for purposes of § 1331 jurisdiction,

can normally be completed by a review of the complaint.

Inquiries into diversity jurisdiction are often just as

straightforward, even though fact-finding might be neces-

sary in the occasional case in which it is unclear where

a person is domiciled, or what amount is in controversy,

or which of several corporate facilities should count as

the corporation’s principal place of business.

26 No. 01-1693

The jurisdictional inquiries just described are well-

defined and do not normally consume enormous judicial

resources. In contrast, an inquiry into whether a par-

ticular course of conduct has a “direct, substantial, and

reasonably foreseeable effect” on either the domestic

commerce of the United States or its import commerce

threatens to become a preliminary trial on the merits.

Indeed, the record in one famous international antitrust

case, Timberlane Lumber Co. v. Bank of America, N.T.

& S.A., should give advocates of the “subject matter juris-

diction” approach serious pause. That case was originally

filed in the district court in 1973. In 1974, the district

court dismissed for want of “subject matter jurisdiction.”

The Ninth Circuit reversed in 1976. See 549 F.2d 597

(9th Cir. 1976). Six years of discovery then took place, in

which the parties explored the effects of the alleged con-

spiracy on U.S. commerce. In 1983, the district court

again dismissed the action for want of jurisdiction. See

574 F. Supp. 1453 (N.D. Cal. 1983). Up on appeal again to

the Ninth Circuit, the case was affirmed, though on some-

what different grounds. 749 F.2d 1378 (9th Cir. 1984).

In 1985, the Supreme Court denied certiorari, see 472

U.S. 1032 (1985), with a note indicating that Justices

White and Blackmun would have granted review. Thus,

at least 12 years after the case was filed, the “jurisdictional”

issue was finally resolved. Had it been resolved in the

affirmative, there is no telling how many more years

would have passed before the litigation was over. This

is no way to decide whether the federal courts are com-

petent to hear a case.

The element approach, in contrast, has none of those

defects. In some instances, it will be possible to resolve

the FTAIA issue on the pleadings or on summary judg-

ment, and appellate review from either kind of decision

de novo. If the issue is not capable of resolution on sum-

mary judgment, that should be a red flag in any event.

No. 01-1693 27

Effect on commerce issues will often be closely inter-

twined with the merits. Yet if the case reaches the merits,

there is no reason why the court cannot resolve the most

straightforward issue first. Many antitrust cases founder

on the issue of market power, especially when world

markets are at issue. But Steel Co. made it abundantly

clear that courts are not entitled simply to assume juris-

diction and resolve an easy merits issue, if true subject

matter jurisdiction is at stake.

If something affects the subject matter jurisdiction of

the court, there are a number of other consequences

which would be undesirable for the FTAIA. First, there

is necessarily never a time when the question cannot be

raised. As the Supreme Court has repeatedly emphasized,

the fundamental competence of the court to act can be

challenged at any time, up to and including at the Su-

preme Court level. See, e.g., Mansfield, C. & L.M. Ry. Co.

v. Swan, 111 U.S. 379 (1884); Charles Alan Wright, Fed-

eral Courts § 7 at 28 (5th ed. 1994). This would offer an

irresistible invitation to the losing party in an interna-

tional antitrust case to invite the Supreme Court to re-

visit the complex question whether there are direct, sub-

stantial, and reasonably foreseeable effects on U.S. com-

merce, whether or not that objection was preserved be-

fore the district court or the court of appeals. Indeed, the

court will be required to raise the issue on its own, even

if the parties have been content to stipulate to dollar

amounts of commerce, destinations of goods, business

plans tending to show foreseeability, and other pertinent

facts. In many cases, the parties may be willing to stipu-

late that the necessary effects on U.S. commerce are

present, so that they can get down to the business of

resolving their dispute. All that is impossible if we are

dealing with subject matter jurisdiction.

Second, characterization affects removal. Recall that the

subject matter rules indicate whether the case falls within

28 No. 01-1693

the limited jurisdiction of the federal courts. If it does

not, then it presumptively can be heard by a state court

of general jurisdiction. Although the federal antitrust

laws are commonly held to fall within the exclusive juris-

diction of the federal courts, nothing requires Congress

to keep things that way. If Congress indeed meant to

strip the federal courts of subject matter jurisdiction

over foreign commerce antitrust cases, then those cases

revert to state courts. No one has suggested that we can

also divine from the language of the FTAIA a congres-

sional intent to deny any U.S. forum whatsoever for

foreign commerce cases. (Indeed, serious constitutional

questions would arise if we were to read the statute

as purporting to define the jurisdiction of the state

courts, given the degree of sovereignty the states retain

under the federal Constitution.) Thus, state courts can

and will hear foreign commerce antitrust cases where

“direct, substantial, and reasonably foreseeable” effects

are missing. Some of those state courts might dismiss on

forum non conveniens grounds; some might apply their

own test for whether a claim is stated and dismiss on the

merits; some might keep the case and adjudicate it, creat-

ing far greater friction with foreign sovereigns than

would result from exclusive federal jurisdiction and an

elements-based test. Naturally, if this kind of case is

filed in state court, it cannot be removed to federal court,

because suits may be removed only if they could have

been filed originally in a federal court. See 28 U.S.C.

§ 1441; Syngenta Crop Protection, Inc. v. Henson, 123

S. Ct. 366, 369-70 (2002). Furthermore, even if such a case

is physically removed and is lodged in the federal court

on an untenable claim of federal jurisdiction, the federal

court (after potentially lengthy inquiries into the FTAIA

test) will be required to remand it for lack of jurisdic-

tion. See 28 U.S.C. § 1447(c). Such a decision is not a

decision on the merits, and it will thus not block further

proceedings in the state court.

No. 01-1693 29

There are also consequences for appellate review if this

is a jurisdictional issue. As already noted, district courts

resolve whatever jurisdictional facts are contested in ad-

vance of the trial. Appellate review of those fact-findings

is deferential. Although the defendants argued that the

policies behind the FTAIA—particularly the avoidance

of diplomatic tensions with other countries—are better

served by the jurisdictional characterization, that as-

sumes that district courts will systematically reject juris-

diction. There is no reason at all to make such an assump-

tion. If district courts find the FTAIA test satisfied, foreign

parties will be stuck with deferential appellate review

of those facts. This also means that appellate courts will

not be free to give plenary consideration to the sensi-

tive issues of international comity that can arise in

these cases—issues better resolved at the level of the

court of appeals or the Supreme Court than by a solitary

district judge. For all these reasons as well, it is prefer-

able to treat the FTAIA as establishing an element of

the claim.

The subject matter jurisdiction characterization makes

no sense, either from the point of view of the policies

being furthered by the FTAIA, or from the standpoint

of judicial administration. We should not adopt a per-

verse decision just because parties have chosen to file

motions under Rule 12(b)(1) instead of Rule 12(b)(6) or

Rule 56, or because courts have unquestioningly adopted

the diction of “subject matter jurisdiction” without care-

ful examination.

IV

Finally, if all the rest of these reasons were not enough

to compel an “element” reading, a review of the history

of the application of the antitrust laws to persons and

conduct beyond the borders of the United States also leads

30 No. 01-1693

to that result. As the majority notes, the first time the

Supreme Court had occasion to consider the question

whether the Sherman Act applied to activities outside

the United States occurred less than 20 years after the

passage of the Act, in American Banana Co. v. United

Fruit Co., 213 U.S. 347 (1909). There, writing for the

Court, Justice Holmes rejected the plaintiff’s argument

that the Sherman Act penalized an elaborate arrange-

ment by the defendant that affected banana imports into

the United States. At the center of the case was a dis-

pute between Panama and Costa Rica over which country

had sovereign authority over a particular banana plan-

tation; plaintiff claimed that the defendant had instigated

the border war for purposes of controlling the banana

trade. Using language that proved to be far broader than

later courts were willing to accept, Justice Holmes wrote

that “the general and almost universal rule is that the

character of an act as lawful or unlawful must be deter-

mined wholly by the law of the country where the act

is done.” Id. at 356. Moreover, he wrote, “in case of doubt,

[one would be led to] . . . a construction of any statute

as intended to be confined in its operation and effect to

the territorial limits over which the lawmaker has gen-

eral and legitimate power.” Id. at 357. Nothing in this

language suggests that the Court thought it was address-

ing federal court subject matter jurisdiction in the sense

of the competence of a court with limited powers to resolve

the dispute. This was a topic with which the Justices

were certainly familiar, having dismissed an action only

one year earlier themselves for failure to satisfy the well-

pleaded complaint rule, despite the fact that no one had

noticed the problem before the case reached the high

court. See Louisville & Nashville R.R. v. Mottley, 211 U.S.

149, 152 (1908). Instead, it was talking about how broad

a statute Congress had enacted, and how much conduct

Congress was trying to regulate. It was the legislative

branch, in short, which the Court thought had not reached

No. 01-1693 31

out to cover an intergovernmental dispute affecting inter-

national trade in bananas. There was not a hint that the

federal courts had no competence to decide that the

Sherman Act did not reach that far.

Between the time American Banana was decided and

the time when the Second Circuit rendered its Alcoa

decision, the Court handed down at least two decisions

that qualified the strict territorial view of the former case.

See United States v. American Tobacco Co., 221 U.S.

106 (1911); United States v. Sisal Sales Corp., 274 U.S.

268 (1927). Both cases also talk in terms of the coverage

of the antitrust statutes with respect to the foreign activi-

ties and actors. American Tobacco upheld the application

of the statute to two English corporations, see 221 U.S. at

172, 184-85, and Sisal Sales upheld the application of

the laws to a Mexican-based conspiracy to control the

importation of sisal from Mexico into the United States

and its subsequent sale.

The next major decision addressing the extent to which

the U.S. antitrust laws reach foreign parties and con-

duct was United States v. Aluminum Co. of America, 148

F.2d 416 (2d Cir. 1945) [hereinafter Alcoa]. In that case,

the court had to decide whether certain foreign parties,

who had acted wholly outside the United States, had none-

theless violated the Sherman Act. As the court put it, “[d]id

either [agreement] violate § 1 of the Act? . . . [W]e are con-

cerned only with whether Congress chose to attach liabil-

ity to the conduct outside the United States of persons

not in allegiance to it. That being so, the only question

open is whether Congress intended to impose the liabil-

ity . . . .” 148 F.2d at 443. Turning to the field of “conflict

of laws” for guidance, the court concluded that “the Act

does not cover agreements, even though intended to af-

fect imports or exports, unless its performance is shown

actually to have had some effect upon them.” Id. at 444. In

time, this became known as the “intended effects” test,

32 No. 01-1693

which in various forms governed until the FTAIA was

passed, and arguably still applies in import cases. See

Hartford Fire, 509 U.S. at 796 (“it is well established

by now that the Sherman Act applies to foreign conduct

that was meant to produce and did in fact produce some

substantial effect in the United States”) and at 797 n.23

(indicating that it was not necessary to address the ques-

tion whether the FTAIA affected the case).

The Alcoa decision was not warmly received in other

countries, which as of the mid-1940s did not as a rule

have antitrust laws and which resented the apparent

effort of the United States to act as the world’s competition

police officer.1 See generally Spencer Weber Waller, Anti-

trust and American Business Abroad, vol. I, ch. 4. This led

to an outpouring of scholarly writing on the general ques-

tion of the way prescriptive jurisdictional lines should

be drawn among nations from the perspective of public

international law. The fruits of this effort appear today

in the American Law Institute’s influential Restatement

(Third) of the Foreign Relations Law of the United States

(“Restatement Third”), Part IV (1987), which addresses

the subject of jurisdiction and judgments. The Restate-

ment Third identifies three types of jurisdictional limita-

tions recognized by international law: those on jurisdic-

tion to prescribe (“i.e. to make [the state’s] law applicable

1

Today, over 90 countries have competition laws. See, e.g., Diane

P. Wood, “International Harmonization of Antitrust Law: The

Tortoise or the Hare?” 3 Chicago J. Int’l L. 391, 392 n.6 (2002).

Interestingly, the number of disputes over so-called extraterrito-

rial applications of national laws, whether by the United States,

the European Union, or others, has dropped dramatically. Dis-

cussions today tend to focus on better ways of coordinating

these many national-level regimes, and antitrust authorities

around the world are eager to cooperate with one another with-

in the confines established by national confidentiality laws.

No. 01-1693 33

to the activities, relations, or status of persons, or the

interests of persons in things, whether by legislation, by

executive act or order, by administrative rule or regula-

tion, or by determination of a court”), those on jurisdic-

tion to adjudicate, and those on jurisdiction to enforce.

Restatement Third, § 401. Section 415 of the Restate-

ment Third is devoted specifically to jurisdiction to reg-

ulate anti-competitive activities.

The commentary to section 401 addresses exactly the

problem now before us: that is, what is the relation be-

tween the various heads of jurisdiction identified in the

Restatement and the domestic U.S. concept of “subject

matter jurisdiction.” Comment c reads as follows:

“Subject matter jurisdiction,” in common usage in

other contexts, is not used in this Restatement. This

term sometimes refers to the constitutional authority

of a governmental body, for example the authority of

Congress under the United States Constitution to

legislate on a subject (principally under Article I,

Section 8), or the authority of a State of the United

States to legislate within constitutional limitations on

State authority (Article I, Section 10). The term is

also often used in judicial decisions to describe other

limitations on governmental authority, including those

involving the reach of United States law, addressed

in this Restatement as jurisdiction to prescribe. Juris-

diction to prescribe with respect to transnational

activity depends not on a particular link, such as

minimum contacts (“use of the mails,” or “crossing

state lines”), which have been used to define “subject

matter jurisdiction” for constitutional purposes, but

on a concept of reasonableness based on a number of

factors to be considered and evaluated. §§ 402-403.

Thus, the domestic concept of subject matter jurisdiction

has no bearing on the question whether the United States

34 No. 01-1693

validly prescribed a certain rule of law. Section 415 offers

detailed guidance on the scope of prescriptive jurisdiction

in cases dealing with anticompetitive activities.2

2

The text and commentary of section 415 is also informative:

§ 415. Jurisdiction To Regulate Anti-Competitive Activities

(1) Any agreement in restraint of United States trade

that is made in the United States, and any conduct or

agreement in restraint of such trade that is carried

out in significant measure in the United States, are

subject to the jurisdiction to prescribe of the United

States, regardless of the nationality or place of business

of the parties to the agreement or of the participants

in the conduct.

(2) Any agreement in restraint of United States trade

that is made outside of the United States, and any

conduct or agreement in restraint of such trade that is

carried out predominantly outside of the United States,

are subject to the jurisdiction to prescribe of the United

States, if a principal purpose of the conduct or agree-

ment is to interfere with the commerce of the United

States, and the agreement or conduct has some effect

on that commerce.

(3) Other agreements or conduct in restraint of United

States trade are subject to the jurisdiction to prescribe of

the United States if such agreements or conduct have

substantial effect on the commerce of the United States

and the exercise of jurisdiction is not unreasonable.

Comment b to this section quotes the FTAIA in full, and goes

on to say that “Congress apparently believed that activity whose

anti-competitive effects are felt only in foreign states should not

be a concern of United States antitrust regulation, but that

activities carried out abroad that have ‘direct, substantial, and

reasonably foreseeable’ effect in the United States or on the

import trade of the United States (as by limiting imports or fix-

ing the price of imported products) should be subject to the

Sherman and FTC Acts.”

No. 01-1693 35

It is this topic of prescriptive jurisdiction, and how far

the U.S. antitrust laws were actually reaching, that was

before Congress when it enacted the FTAIA. (While it

is true that the House Report on the FTAIA uses the

word “jurisdiction” with some regularity, it also speaks

repeatedly about whether U.S. antitrust law should be

applied to particular transactions. See H.R. Rep. No. 97-

686, 97th Cong., 2d Sess. (1982). It is therefore impos-

sible to draw any firm conclusions from that brief doc-

ument that will assist us in resolving the issue presently

before us.) Congress was trying simultaneously to assure

U.S. companies that they would not be subject to potentially

stricter U.S. antitrust laws when they were conducting

business wholly in foreign markets, and to assure foreign

countries and their citizens that they would not be swept

into a U.S. court to answer under U.S. law for actions

that were of no legitimate concern to the United States.

Ronald W. Davis, International Cartel and Monopolization

Cases Expose a Gap in Foreign Trade Antitrust Improve-

ments Act, 15 Sum-Antitrust 53, 53-58 (2001). This much

is fairly clear. What has not been clear has been the way

in which the FTAIA itself has been handled in the fed-

eral courts.

At one level, virtually everyone concedes that federal

subject matter jurisdiction exists in cases like United

Phosphorus’s. The claim certainly arises under a federal

law—the Sherman Act—and thus falls within the scope

of 28 U.S.C. § 1331 and 28 U.S.C. § 1337. Furthermore,

typically no one claims that the claim presented is so

frivolous that jurisdiction fails under the principle ac-

knowledged in Bell v. Hood, 327 U.S. 678 (1946). Never-

theless, as the majority has accurately noted, defendants

who believe that their activities were too “foreign” to be

swept under the U.S. antitrust laws have usually at-

tacked the plaintiff’s case with a motion under FED. R.

CIV. P. 12(b)(1), which covers “lack of jurisdiction over

36 No. 01-1693

the subject matter,” and sometimes in the alternative

with a motion under Rule 12(b)(6), which covers “failure

to state a claim upon which relief can be granted.”

Although several courts of appeals have decided dismiss-

al motions based on the FTAIA under the rubric of “sub-

ject matter jurisdiction,” see, e.g., Empagran S.A. v.

F. Hoffman-LaRoche, Ltd., 2003 WL 131804 (D.C. Cir.,

Jan. 17, 2003); Kruman v. Christie’s Int’l PLC, 284 F.3d

384 (2d Cir. 2002); Den Norske Stats Oljeselskap AS

v. HeereMac Vof, 241 F.3d 420 (5th Cir. 2001), cert.

denied, 534 U.S. 1127, 122 S. Ct. 1059 (U.S. Feb. 19, 2002)

(00-1842); Caribbean Broad. Sys., Ltd. v. Cable & Wireless

PLC, 148 F.3d 1080 (D.C. Cir. 1998), most have focused

on the merits of the FTAIA analysis rather than the pre-

cise procedural manner in which it was presented. None

of them has given the sustained attention to the “juris-

diction vs. element” inquiry that this court has now done.

Indeed, in the most recent of these decisions, Empagran,

the court was singularly unconcerned with the distinc-

tion between these two approaches. It certainly speaks of

a lack of “subject matter jurisdiction” under the federal

antitrust laws, 2003 WL 131804 at *1, and the issue

reached the court on a motion made under FED. R. CIV. P.

12(b)(1), but both the test the court adopted and its anal-

ysis are telling for our purposes. The test it chose to use

for FTAIA cases was as follows:

We hold that where the anticompetitive conduct

has the requisite harm on United States commerce,

FTAIA permits suits by foreign plaintiffs who are

injured solely by that conduct’s effect on foreign com-

merce. The anticompetitive effect itself must violate

the Sherman Act and the conduct’s harmful effect on

United States commerce must give rise to “a claim” by

someone, even if not the foreign plaintiff who is be-

fore the court.

No. 01-1693 37

Id. at *2. In other words, if one is to take the “subject

matter jurisdiction” characterization seriously, the court

is competent to decide the case only if it concludes (ten-

tatively? conclusively?) that the statute has been violated

and someone has standing to sue. With all due respect

to my colleagues in the D.C. Circuit, I find such an ap-

proach to subject matter to be inconsistent with the Su-

preme Court’s decisions in cases like Steel Co. and Bell v.

Hood. (For the record, I am not necessarily expressing

any disagreement with the ultimate result in Empagran;

my concern is only with this implicit part of the court’s

rationale.)

Even more troublesome is the court’s analysis of sub-

ject matter jurisdiction. It begins with the observation

that its review is de novo. 2003 WL 131804 at *5. This, of

course, would be true if the dismissal were under Rule

12(b)(6) or Rule 56. If it is really under Rule 12(b)(1) and

the district court has made findings of fact, then it is

not accurate; the legal conclusion would be reviewed

de novo, but the facts would be reviewed deferentially.

In any event, the court continues with the following pas-

sage:

A complaint may be dismissed for lack of subject

matter jurisdiction only if “ ‘it appears beyond doubt

that the plaintiff can prove no set of facts in support

of his claim which would entitle him to relief.’ ” Sinclair

v. Kleindienst, 711 F.2d 291, 293 (D.C. Cir. 1983)

(quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct.

99, 101-02, 2 L.Ed.2d 80 (1957)). In our review, this

court assumes the truth of the allegations made and

construes them favorably to the pleader. Scheuer v.

Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40

L.Ed.2d 90 (1974).

2003 WL 131804 at *5. The problem with this passage

is that almost all of it describes not the rule that applies

38 No. 01-1693

to motions to dismiss for lack of subject matter jurisdic-

tion, but instead motions to dismiss for failure to state

a claim. In Sinclair, for example, the district court had

dismissed the claim under Rule 12(b)(6), and the passage

to which the Empagran court referred correctly quotes

the governing standard from Conley. But the passage in

Conley has nothing to do with subject matter jurisdic-

tion dismissals. It says instead that “a complaint should

not be dismissed for failure to state a claim unless it

appears beyond doubt that the plaintiff can prove no set

of facts in support of his claim which would entitle him

to relief.” 355 U.S. at 45-46. While Scheuer states that

“in passing on a motion to dismiss, whether on the ground

of lack of jurisdiction over the subject matter or for fail-

ure to state a claim, the allegations of the complaint

should be construed favorably to the pleader,” 416 U.S.

at 236, it made this comment in the context of its review

of a dismissal based on the Eleventh Amendment, on its

way to remanding the case to the lower courts for fur-

ther fact-finding. It in no way purported to change the

rule that when subject matter jurisdiction is contested,

the district court itself must hold a hearing to resolve

the jurisdictional facts, and that the ultimate decision is

for the court, not for a jury. See generally 5A Charles

Alan Wright and Arthur R. Miller, Federal Practice

and Procedure § 1350 at 234-35 (2d ed. 1990). Thus, to the

extent that others should follow what the Empagran

court did, rather than what it said in passing, one

should take this as a case acknowledging that a dismiss-

al for failure to meet the standards of the FTAIA is one

for failure to state a claim.

The Second Circuit’s Kruman decision also spoke in

terms of a “subject matter jurisdiction” dismissal, see

284 F.3d at 390, and it correctly noted that the dis-

trict court could “resolve disputed jurisdictional issues

of fact through reference to evidence outside of the plead-

No. 01-1693 39

ings.” Id. Nevertheless, as in Empagran, the court paid

no attention to the issue now before us; it was con-

cerned instead about the type of effect on domestic (or

import) commerce the FTAIA requires before conduct

could be “regulated by the Sherman Act.” Id. The same

is true of the Fifth Circuit’s decision in Den Norske, see

241 F.3d at 424-25, and the D.C. Circuit’s earlier deci-

sion in Caribbean Broadcasting, see 148 F.3d at 1085. It

is this court, sitting en banc, that will be the first one

to give a fully considered answer to the question whether

the FTAIA strips the federal courts of their competence

to hear certain cases that lack sufficient connections to

the United States, or if it affirmatively imposes on a

plaintiff the burden of proving as an element of its case

the existence of those connections.

V

For all these reasons, I believe that the FTAIA adds

an element to an antitrust claim for cases, as the statute

puts it, that present “conduct involving trade or com-

merce (other than import trade or import commerce)

with foreign nations.” It does not strip the federal courts

of subject matter jurisdiction in those cases—a conclu-

sion that would leave the court powerless to make a

ruling on the merits of the case, and that would leave

the defendants open to suit either in state courts or

before other tribunals, judicial or arbitral. The majority’s

conclusion will also have significant effects on the gov-

ernment’s criminal antitrust enforcement program. The

Sherman Act, of course, makes it a serious felony to enter

into an agreement in restraint of trade. The current Act-

ing Assistant Attorney General in charge of the Depart-

ment of Justice’s Antitrust Division, R. Hewitt Pate,

recently had the following comments about the Depart-

ment’s international criminal enforcement:

40 No. 01-1693

Since late 1996, the Division has prosecuted inter-

national cartels affecting over $10 billion in U.S.

commerce. Well over 90 percent of the total criminal

fines we have obtained in this time period were

from international cartel cases. . . . The international

cartels we have uncovered involved a wide range of

industries, including the food and feed additives,

graphite electrode, vitamins, construction, fine arts,

and textile industries. . . .

Recently, we have concentrated not just on pros-

ecuting corporate cartel members but also on pun-

ishing individuals who create and operate the car-

tels. . . . In the past fiscal year, defendants in Divi-

sion cases were sentenced to more than 10,000 jail

days—a record—with an average sentence of more

than 18 months. . . . It is not just U.S. executives

who are facing prison sentences, but foreign execu-

tives as well. . . .

Turning to our current docket, we now have al-

most forty grand juries investigating suspected inter-

national cartel activity, representing almost half of

the Division’s criminal investigations.

R. Hewitt Pate, “The DOJ International Antitrust Pro-

gram—Maintaining Momentum,” Speech Before the Amer-

ican Bar Association Section of Antitrust Law, 2003

Forum on International Competition Law, New York City,

February 6, 2003, available at http://www.usdoj.gov/atr/

public/speeches/200736.pdf (emphasis in original). The

government will not want to conduct these investiga-

tions in the Seventh Circuit. Defects going to the subject

matter of the court can be raised at any time, even if a

defendant has pleaded guilty (and guilty pleas play the

same important role in antitrust prosecutions as they do

in other fields of criminal law). See, e.g., United States v.

Cotton, 535 U.S. 625, 122 S. Ct. 1781, 1785 (2002) (“Bain’s

No. 01-1693 41

elastic concept of jurisdiction is not what the term ‘juris-

diction’ means today, i.e. ‘the courts’ statutory or constitu-

tional power to adjudicate the case,” [citing Steel Co.].

This latter concept of subject-matter jurisdiction, because

it involves a court’s power to hear a case, can never be

forfeited or waived.”); United States v. Broce, 488 U.S. 563,

569 (1989). Indeed, even after direct appeals are over, a

defect going to the subject-matter jurisdiction of the

court can be raised in a motion under 28 U.S.C. § 2255.

From this time forth, therefore, any defendant who be-

lieves that the prosecutor has failed to meet the stan-

dards of the FTAIA in an antitrust prosecution will be

free to raise this point either for the first time on appeal, or

in a § 2255 petition. Compare United States v. Gonzalez,

311 F.3d 440, 443-44 (1st Cir. 2002) (rejecting a subject-

matter-jurisdictional interpretation of a statute permit-

ting drug prosecutions on stateless vessels).

It is important to recall, finally, that there is nothing

unique about international antitrust cases. If effect-on-

commerce rules are truly jurisdictional, then they are

jurisdictional for every statute that contains commerce

elements. Countless statutes do, particularly since the

Supreme Court’s decision in United States v. Lopez, 514

U.S. 549 (1995), because that is what justifies congres-

sional action whenever it legislates under its Article I,

Section 8 Commerce Clause powers. The majority’s ap-

proach therefore has the potential of upsetting far more

than the small set of cases that present foreign trade

antitrust issues.

I respectfully dissent.

42 No. 01-1693

A true Copy:

Teste:

________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit

USCA-02-C-0072—3-10-03