Minn-Chem, Incorpora v. Agrium Inco

In the

United States Court of Appeals

For the Seventh Circuit

No. 10-1712

M INN-C HEM , INC., et al.,

Plaintiffs-Appellees,

v.

A GRIUM INC., et al.,

Defendants-Appellants.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 08 C 6910, MDL No. 1996—Ruben Castillo, Judge.

A RGUED F EBRUARY 8, 2012—D ECIDED JUNE 27, 2012

Before E ASTERBROOK, Chief Judge, and P OSNER, M ANION,

K ANNE, W OOD , S YKES, T INDER, and H AMILTON, Circuit

Judges.Œ

W OOD , Circuit Judge. Potash, a naturally occurring

mineral used in agricultural fertilizers and other

products, is produced and sold in a global market. In

Œ

Circuit Judges Flaum, Rovner, and Williams took no part

in the consideration or decision of this case.

2 No. 10-1712

this case, the plaintiffs, U.S. companies that are direct

and indirect purchasers of potash, accuse several global

producers of price-fixing in violation of the U.S. anti-

trust laws. See 15 U.S.C. §§ 1 et seq. The district court

denied the defendants’ motion to dismiss the com-

plaint, but it certified its ruling for interlocutory appeal

under 28 U.S.C. § 1292(b). We agreed with that court’s

assessment of the importance of the issues presented

and accepted the appeal. A panel of the court concluded

that the complaint failed to meet the requirements

of the Foreign Trade Antitrust Improvements Act of

1982 (FTAIA), 15 U.S.C. § 6a, and it thus voted to reverse.

Minn-Chem, Inc. v. Agrium Inc., 657 F.3d 650 (7th Cir.

2011). We then decided to rehear the case en banc. We

hold first that the FTAIA’s criteria relate to the merits of

a claim, and not to the subject-matter jurisdiction of

the court. We therefore overrule our earlier en banc deci-

sion in United Phosphorus, Ltd. v. Angus Chem. Co., 322

F.3d 942 (7th Cir. 2003). We then address the applicable

standards for antitrust cases involving import com-

merce and the restrictions imposed by the FTAIA. We

conclude that the district court correctly ruled that

the complaint does state a claim under the federal

antitrust laws.

I

The district court’s opinion details the critical facts

alleged in the Complaint, see In re Potash Antitrust

Litig., 667 F. Supp. 2d 907, 915-19 (N.D. Ill. 2009), but

for convenience we briefly summarize them here. The

No. 10-1712 3

term “potash” refers to mineral and chemical salts

that are rich in potassium. It is mined from naturally

occurring ore deposits and its primary use is in

agricultural fertilizers, but it is also used in the produc-

tion of such varied products as glass, ceramics, soaps,

and animal feed supplements. Importantly for our later

antitrust analysis, potash is a homogeneous commodity:

One manufacturer’s supply is interchangeable with an-

other’s. As a result, buyers choose among suppliers

based largely on price. Markets for this type of product

are especially vulnerable to price-fixing.

We focus our analysis on the Direct Purchaser

Amended Consolidated Class Action Complaint (re-

ferred to here simply as the Complaint), because the

complaint filed by the indirect potash purchasers

focuses primarily on state law remedies (since indirect

purchasers are not entitled to sue for damages under the

federal antitrust laws, see Illinois Brick Co. v. Illinois, 431

U.S. 720, 729 (1977)).1 The Complaint alleges that the

world’s potash reserves are confined to a handful of

areas, with over half of global capacity located in just

two regions—Canada and the former Soviet Union (in

particular, Russia and Belarus). Commercially, the

industry has been dominated by a small group of compa-

nies that market, sell, and distribute potash. The key

actors are:

1

The indirect purchasers had sought injunctive relief under

the federal antitrust laws, but the district court dismissed

those claims, 667 F. Supp. 2d at 941, and they are not now

before us.

4 No. 10-1712

• Potash Corporation of Saskatchewan (Canada)

Inc. and its U.S. subsidiary Potash Sales (USA), Inc.

(collectively PCS), the world’s largest producer

of potash;

• Mosaic Company and Mosaic Crop Nutrition

(Mosaic) a Delaware company headquartered in

Minnesota, number three globally;

• Agrium Inc. and Agrium U.S. Inc. (Agrium), a

Canadian corporation and its wholly owned

U.S. subsidiary;

• Uralkali, a Russian joint venture headquartered

in Moscow; fifth largest in the world and holder

of a one-half interest in JSC Belarusian Potash

Company (Belarusian Potash), which acts as the

exclusive distributor of potash for Uralkali;

• Belaruskali, a Belarusian company and the

owner of the other one-half interest in Belarusian

Potash, which, as it is for Uralkali, is Belaruskali’s

exclusive distributor;

• Silvinit, a Russian company that sells potash

throughout the world, including the United States;

and

• IPC, another Russian company, which is Silvinit’s

exclusive distributor.

The Complaint alleges that as of 2008, these seven entities

produced approximately 71% of the world’s potash.

In 2008, the United States consumed 6.2 million tons

of potash. Of that total, 5.3 million tons were imports,

and PCS, Mosaic, Agrium, and Belarusian Potash (acting

No. 10-1712 5

for both Uralkali and Belaruskali, its equal and joint

owners) were responsible for the lion’s share of those

sales. Data for other years covered by the Complaint

are comparable.

The total world market for potash, in which the

United States is an important consumer (second only

to China, Complaint ¶51), is allegedly under the thumb

of a global cartel consisting primarily of the companies

listed above. This cartel restrained global output of

potash in order to inflate prices. The cartel members

used a rolling strategy: They would first negotiate prices

in Brazil, India, and China (Complaint ¶111), and then

use those prices as benchmarks for sales to U.S. custom-

ers. (Complaint ¶¶117-121). For example, in May 2004,

the cartel arranged for prices to increase by $20 per ton

for some foreign customers; shortly thereafter, prices in

the United States went up by precisely the same amount.

The cartel initiated a sustained and successful effort

to drive prices up beginning in mid-2003; by 2008 potash

prices had increased at least 600%. The plaintiffs assert

that this increase cannot be explained by a significant

uptick in demand, changes in the cost of production,

or other changes in input costs. In fact, U.S. consumption

of fertilizer, of which potash is a consistent part, re-

mained relatively steady throughout the period covered

by this case; demand declined somewhat in 2008 but

then returned to normal levels in 2009.2 One might think

2

Data from the International Fertilizer Industry Association

(continued...)

6 No. 10-1712

that the decrease in demand in 2008 was because of

the increase in price, but the slippage in demand did

not build up over the entire Class Period and appears

to have been only temporary, and is thus not correlated

to potash price movements. Furthermore, the specific

allegation in the Complaint that a $100 per ton increase

in the price of potash adds only $0.03 to the production

cost of a bushel of corn suggests that demand for

potash is inelastic. Complaint ¶54. Prices for potash rose

and stayed high, increasing even while fertilizer prices

declined. Based on World Bank statistics, average

fertilizer price indices rose from 1.0 to 2.2, and then

fell back to 1.0 in 2008, while potash price indices

started in 2008 at 1.0 and rose to 3.5 by the end of the

year. Earnings by cartel members reinforce this picture

of financial gain even in the face of waning demand:

PCS posted first-quarter income figures in 2008 that

tripled its previous-year figure, while Mosaic’s earnings

for that quarter were up more than tenfold over the

year before.

The Complaint goes into detail about ways in which

the defendants managed their collective output. (A cartel

will always try to restrict output to the level where mar-

ginal cost equals marginal revenue, but in the real world,

this normally requires constant adjustment.) For ex-

2

(...continued)

give the following figures for 2003 through 2009: 21,203.1 (2003);

20,090.7 (2004); 19,273.3 (2005); 20,770.9 (2006); 19,455.1

(2007); 16,045.7 (2008); and 18,908.2 (2009). See http://www.

fertilizer.org/ifa/ifadata/search (last visited June 25, 2012).

These data appear to refer to thousands of metric tons.

No. 10-1712 7

ample, when global demand for potash declined in 2005,

rather than decreasing its price, PCS announced that it

was shutting down three of its mines in November

and December 2005 for “inventory control pur-

poses.” Complaint ¶88. This action had the effect of re-

moving 1.34 million tons of potash from the world mar-

ket. At the same time, rather than jumping into the

gap this drastic cutback created, Mosaic announced

that it too was implementing temporary cutbacks that

would remove an additional 200,000 tons from the mar-

ket. These (allegedly) coordinated and deep reduc-

tions continued into 2006. In the first three months of

that year, PCS reduced output from 2.4 million tons

to 1.3 million tons, removing yet another 1.1 million

tons from the market, or the equivalent of 32 weeks

of mining. Uralkali reduced its output by 200,000 tons,

and Belaruskali cut its exports back by 50%, or 250,000

tons. In the second quarter of that year, Silvinit fol-

lowed suit with mine stoppages that removed about

100,000 tons from the market. Collectively, these three

companies removed over half a million tons of potash

from the market in early 2006. See Complaint ¶¶88-93.

Their compatriots applauded the “discipline” of the

former Soviet Union producers, “noting that many

years earlier when demand for potash declined those

same producers had sought to maintain volume over

price and flooded the market with excess supply.” Com-

plaint ¶93.

China was a particular target of the cartel’s efforts,

given its importance as a consumer. The shortages

created by Uralkali’s and PCS’s supply restrictions in

the first half of 2006 induced China to accept an increase

8 No. 10-1712

in the price of potash. Shortly thereafter, a similar price

increase was implemented throughout the world. Com-

plaint ¶95. Comparable actions took place in 2007, as

the Complaint rehearses in detail. The plaintiffs assert

that a number of the defendants had excess capacity

throughout the period between 2003 and mid-2009

(which represents the Class Period defined in ¶1 of

the Complaint). PCS, for instance, had a utilization rate

of only 54% to 69%, and Uralkali bragged in Decem-

ber 2007 that it had the “ability to add significant

capacity on the cheapest basis vs. global peers.” Com-

plaint ¶¶133-134. This pattern of restrained output made

it possible for the cartel to maintain its inflated prices,

but the excess capacity inevitably gave its members an

easy opportunity to cheat, and so the group had to co-

ordinate to ensure that its price control efforts were

not undermined.

The Complaint also points to several ways in which

the cartel members had the opportunity to cooperate,

to conspire on future actions, and to monitor one

another’s actions for possible cheating. First, the major

suppliers participated in joint ventures that facilitated

coordination. PCS, Agrium, and Mosaic were joint ven-

turers and equal shareholders in Canpotex Ltd., a Cana-

dian company that sold, marketed, and distributed

potash throughout the world excluding the United

States. Through that vehicle, those three companies

had access to one another’s sensitive production and

pricing information. Canpotex in turn entered into co-

operative marketing agreements with the Russian and

Belarusian entities. As part of those deals, Canpotex

No. 10-1712 9

agreed to market Uralkali potash outside North America

and Europe. For their part, the former Soviet pro-

ducers coordinated their sales and marketing through

Belarusian Potash. That joint venture, formed between

Uralkali and Belaruskali in 2005, supplied 34% of the

market for potash by the following year. Complaint ¶26.

Silvinit has sought to join the venture, and one of its

owners (with a 20% share) owns 60% of the stock of

Uralkali.

Beyond the access created by these structural rela-

tions among the entities, there were other more

immediate opportunities to collude. The defendants

routinely held meetings during the Class Period and

engaged in an exchange program through which senior

executives from each visited the others’ plants. These

meetings gave the defendants an opportunity to

exchange sensitive information. Critically, one such

meeting of the key players at PCS, Canpotex, Mosaic,

Uralkali, Belaruskali, and Silvinit—mostly at the presi-

dential level—took place in October 2005. As we

described above, in the very next month, November 2005,

PCS and Mosaic announced significant production cut-

backs; the others followed suit with additional supply

reductions through the beginning of 2006.

In addition, all of the defendants are members of the

International Fertilizer Industry Association and the

Fertilizer Institute, and they regularly attended

those trade organizations’ conferences. During one such

meeting in Turkey, in May 2007, the defendants an-

nounced an additional price increase.

10 No. 10-1712

The Complaint contains, in its 165 paragraphs, many

more details, which we discuss as needed below. What

we have said here, however, is enough to set the stage

for the two legal issues before us: how the FTAIA

should be interpreted, and whether the district court

correctly allowed this case to go forward.

II

Whether this case can be entertained by a court in the

United States turns on the global reach of the antitrust

laws, and to a significant degree on the Foreign Trade

Antitrust Improvements Act of 1982, 15 U.S.C. § 6a.

Before delving into the FTAIA’s requirements, however,

we take this opportunity to revisit the question whether

that law affects the subject-matter jurisdiction of the

district court or if, on the other hand, it relates to the

scope of coverage of the antitrust laws. Nine years ago,

in United Phosphorus v. Angus Chemical, the en banc

court concluded that the former interpretation was

correct. 322 F.3d 942, 952 (7th Cir. 2003). In so doing,

we relied on the legislative history of the statute, the

vocabulary used by a number of commentators, and a

number of court decisions that used the word “jurisdic-

tion” in describing the requirement that challenged

conduct must affect interstate or import commerce in

specified ways.

Since that decision, the Supreme Court has em-

phasized the need to draw a careful line between true

jurisdictional limitations and other types of rules. Thus,

in Morrison v. National Australia Bank Ltd., 130 S. Ct.

No. 10-1712 11

2869 (2010), which dealt with the securities laws, the

Court squarely rejected the notion that the extrater-

ritorial reach of § 10(b) of the Securities Exchange Act,

15 U.S.C. § 78j(b), raises a question of subject-matter

jurisdiction. Id. at 2877. “[T]o ask what conduct § 10(b)

reaches is to ask what conduct § 10(b) prohibits, which

is a merits question. Subject-matter jurisdiction, by con-

trast, refers to a tribunal’s power to hear a case.” Id. (citing

Union Pacific R. Co. v. Locomotive Eng’rs & Trainmen Gen.

Comm. of Adjustment, 130 S. Ct. 584, 596 (2009); Arbaugh

v. Y&H Corp., 546 U.S. 500, 514 (2006); United States v.

Cotton, 535 U.S. 625, 630 (2002)). The Court might have

added to that list Reed Elsevier, Inc. v. Muchnick, 130 S. Ct.

1237, 1243 (2010), Kontrick v. Ryan, 540 U.S. 443, 455 (2004),

and Steel Co. v. Citizens for a Better Environment, 523 U.S.

83, 89 (1998). Even more recently, the Court restated

this proposition in Henderson v. Shinseki, 131 S. Ct. 1197,

1202-03 (2011). Notably, what may have been thought

a nascent idea at the time United Phosphorus was

decided (as one can tell by the dates of decision in our

list) has now become a firmly established principle of

statutory construction.

The panel in the present case had no quarrel with the

proposition that this recent string of decisions under-

mined the holding in United Phosphorus. 657 F.3d at 653.

It commented that “[t]hese intervening developments

suggest that United Phosphorus may be ripe for recon-

sideration,” but it was hesitant to take that step on its

own. The panel also observed that the same issue had

recently come before the Third Circuit, which held that

the FTAIA does not impose a jurisdictional limit but

12 No. 10-1712

instead establishes an element of a Sherman Act claim.

Id. at 659 n.3 (citing Animal Sci. Prods., Inc. v. China

Minmetals Corp., 654 F.3d 462 (3d Cir. 2011)). Indeed, the

Animal Science opinion expressly approved the position

of the United Phosphorus dissenters. 654 F.3d at 469 n.8.

We agree with the panel that this issue is indeed ripe

for reconsideration and ought to be settled now.

The Supreme Court’s decision in Morrison, we believe,

provides all the guidance we need to conclude that, like

§ 10(b) of the Exchange Act, the FTAIA sets forth an

element of an antitrust claim, not a jurisdictional limit

on the power of the federal courts. As the Court put

it, limitations on the extraterritorial reach of a statute

describe what conduct the law purports to regulate

and what lies outside its reach. The Supreme Court

itself used much the same language with respect to the

antitrust laws in its decision in F. Hoffman-La Roche

Ltd. v. Empagran S.A., 542 U.S. 155 (2004), which dealt

specifically with the FTAIA. The Court spoke, for

example, of the FTAIA’s “removing from the Sherman

Act’s reach” certain types of conduct, id. at 161, and

whether it was reasonable under the facts presented

there “to apply this law to conduct that is significantly

foreign,” id. at 166. Even if one thought the language

in Empagran to be less than dispositive, we can now see

no way to distinguish this case from Morrison.

We add briefly that the interpretation we adopt today—

that the FTAIA spells out an element of a claim—is the

one that is both more consistent with the language of

the statute and sounder from a procedural standpoint.

No. 10-1712 13

When Congress decides to strip the courts of subject-

matter jurisdiction in a particular area, it speaks clearly.

The FTAIA, however, never comes close to using the

word “jurisdiction” or any commonly accepted synonym.

Instead, it speaks of the “conduct” to which the

Sherman Act (or the Federal Trade Commission Act)

applies. This is the language of elements, not jurisdiction.

From a procedural standpoint, this means that a

party who wishes to contest the propriety of an antitrust

claim implicating foreign activities must, at the out-

set, use Federal Rule of Civil Procedure 12(b)(6), not

Rule 12(b)(1). This is not a picky point that is of interest

only to procedure buffs. Rather, this distinction affects

how disputed facts are handled, and it determines

when a party may raise the point. While “it is the burden

of the party who seeks the exercise of jurisdiction in

his favor clearly to allege facts demonstrating that he is

a proper party to invoke judicial resolution,” FW/PBS,

Inc. v. City of Dallas, 493 U.S. 215, 231 (1990) (citations

and quotation marks omitted), we “accept as true all of

the allegations contained in a complaint,” Ashcroft v.

Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atlantic Corp. v.

Twombly, 550 U.S. 544 (2007)) subject, of course, to the

limitations articulated in those cases. Likewise, subject-

matter jurisdiction must be secure at all times, re-

gardless of whether the parties raise the issue, and no

matter how much has been invested in a case. See, e.g.,

Cotton, 535 U.S. at 630 (citing Louisville & Nashville R. Co.

v. Mottley, 211 U.S. 149 (1908)). By contrast, a motion to

dismiss for failure to state a claim may only be brought

as late as trial. F ED. R. C IV. P. 12(h)(2). Although this

14 No. 10-1712

is a significant difference, we note that foreign connec-

tions of the kind at issue here are unlikely to be difficult

to detect, and so we are confident that parties who want

to argue that a particular claim fails the requirements

of the FTAIA will be able to do so within these gen-

erous time limits.

III

Having established that the FTAIA relates to the

merits of a claim, rather than the subject-matter jurisdic-

tion of the court, we can now turn to the principal

issues in this appeal. We consider first how the statute

should be interpreted and then, on that understanding

of the law, we decide whether the district court correctly

found that the Complaint stated a claim that could

go forward.

A

Although the FTAIA has been parsed in a number of

judicial opinions, including notably Empagran, we think

it important to begin with the language of the statute,

in order to place our discussion of these decisions in

context. We note that the 1982 legislation that we are

examining actually amended both the Sherman Act, see

15 U.S.C. § 6a, and the Federal Trade Commission Act,

see 15 U.S.C. § 45(a)(3), using identical language. That

fact is important insofar as it underscores the generality

of the issue we face: The statute applies not only to

private actions, such as this one, but also to actions

No. 10-1712 15

brought by the two federal agencies entrusted with the

enforcement of the antitrust laws. Since it is the Sherman

Act that applies to our case, however, from this point

forward we cite only its provision. It reads as follows:

§ 6a. Conduct involving trade or commerce with

foreign nations

Sections 1 to 7 of this title [i.e., the 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 reason-

ably foreseeable effect—

(A) on trade or commerce which is not trade

or commerce with foreign nations, or on import

trade or import commerce with foreign nations; or

(B) on export trade or export commerce with

foreign nations, of a person engaged in such

trade or commerce in the United States; and

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

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

section.

If sections 1 to 7 of this title apply to such conduct

only because of the operation of paragraph (1)(B),

then sections 1 to 7 of this title shall apply to such

conduct only for injury to export business in the

United States.

The opening phrase (sometimes referred to as a chapeau

in international circles) reflects Congress’s effort to

16 No. 10-1712

indicate that the Sherman Act does not apply to every

arrangement that literally can be said to involve trade

or commerce with foreign nations. As the Supreme

Court stressed in Empagran, the public recognition of this

limitation was inspired largely by international comity.

But, by inserting the parenthetical “other than import

trade or import commerce” in the chapeau, Congress

recognized that there was no need for this self-restraint

with respect to imports, even though they represent part

of the foreign commerce of the United States. Although

some, including the Third Circuit in Animal Science, have

referred to this as the “import exception,” that is not an

accurate description. Import trade and commerce are

excluded at the outset from the coverage of the FTAIA

in the same way that domestic interstate commerce

is excluded. This means only that conduct in both

domestic and import trade is subject to the Sherman

Act’s general requirements for effects on commerce, not

to the special requirements spelled out in the FTAIA.

Where the FTAIA does apply, it “remov[es] from the

Sherman Act’s reach . . . commercial activities taking

place abroad, unless those activities adversely affect . . .

imports to the United States” Empagran, 542 U.S. at 161.

The Court’s decision in Hartford Fire Ins. Co. v. California,

509 U.S. 764 (1993), suggests a pragmatic reason for

this distinction: The applicability of U.S. law to transac-

tions in which a good or service is being sent directly

into the United States, with no intermediate stops, is

both fully predictable to foreign entities and necessary

for the protection of U.S. consumers. Foreigners who

want to earn money from the sale of goods or services

No. 10-1712 17

in American markets should expect to have to comply

with U.S. law.

Next, we come to the statute’s treatment of non-import,

non-domestic commerce. Empagran explained that the

FTAIA handles that problem by “lay[ing] down a gen-

eral rule placing all (nonimport) activity involving

foreign commerce outside the Sherman Act’s reach . . .

[and then] bring[ing] such conduct back within” the Act

provided that it meets the two criteria provided. Id. at

162 (emphasis in original). The first criterion dictates

the kinds of effects that truly foreign commerce must

have in the U.S. market. Conduct “involving trade or

commerce . . . with foreign nations” must have “a direct,

substantial, and reasonably foreseeable effect” on either

[A] U.S. domestic commerce (phrased awkwardly as

“trade or commerce which is not trade or commerce with

foreign nations”) or U.S. import commerce, or [B] the

export trade or commerce of a U.S. exporter. See § 6a(1).

The export trade provision plays no part in our case, and

so we do not address it further here. The second

criterion, which was the focus of Empagran, is that the

direct, substantial and foreseeable effect shown under

subpart (1) must give rise to a substantive claim under

the Sherman Act. The reason this was important in

Empagran is that the plaintiffs there were foreign pur-

chasers of allegedly price-fixed products that were sold

in foreign markets. The Court held that their claims

fell outside the scope of the Sherman Act. In our case,

by contrast, the plaintiffs are all U.S. purchasers, and so

the particular problem addressed in Empagran does not

arise here.

18 No. 10-1712

Thus, before we can address the merits of the com-

plaint, we must address two distinct questions of

statutory interpretation. The first is how to define pure

import commerce—that is, the kind of commerce that

is not subject to the special rules created by the FTAIA.

Second, we must explore the FTAIA’s standards

further and explain what it takes to show that foreign

conduct has a direct, substantial, and reasonably fore-

seeable effect on U.S. domestic or import commerce.

1

There can be no question that the import commerce

exclusion puts some of the conduct alleged in the Com-

plaint outside the special rules created in the FTAIA

for Sherman Act claims. The plaintiffs are U.S. entities

that have purchased potash directly from members of

the alleged cartel. The defendant members of the cartel

are all located outside the United States. Those trans-

actions that are directly between the plaintiff pur-

chasers and the defendant cartel members are the

import commerce of the United States in this sector.

The FTAIA does not require any special showing in

order to bring these transactions back into the Sherman

Act, as Empagran put it, because they were never

removed from the statute. That does not mean, however,

that plaintiffs are home free. Rather, we must still apply

the rules governing import commerce for purposes

of the antitrust laws. For several decades, the leading

authority on this subject was Judge Learned Hand’s

opinion for the Second Circuit in United States v. Aluminum

No. 10-1712 19

Co. of America, 148 F.2d 416, 444 (2d Cir. 1945) (Alcoa).

There the court (sitting as a court of last resort because

the Supreme Court lacked a quorum) held that the

Sherman Act covers imports when actual and intended

effects on U.S. commerce have been shown. In Hartford

Fire, the Supreme Court confirmed this rule, stating

that “the Sherman Act covers foreign conduct pro-

ducing a substantial intended effect in the United

States.” 509 U.S. at 797. The Third Circuit has suggested

that this standard is met where “the defendants’

conduct target[s] import goods or services.” Animal

Science, 654 F.3d at 470.

As noted, the Complaint before us alleges import trans-

actions. Thus, the only outstanding question is whether

this import trade has been substantially and inten-

tionally affected by an anticompetitive arrangement (i.e.,

something that would violate the U.S. antitrust laws).

There is nothing particularly “international” about

that question. Effects on commerce are a part of every

Sherman Act case. See, e.g., Hartford Fire, supra (import

commerce); Summit Health, Ltd. v. Pinhas, 500 U.S. 322

(1991) (interstate commerce). We address the adequacy

of the Complaint under the Sherman Act in more

detail below.

2

As we already have observed, trade involving only

foreign sellers and domestic buyers (i.e., import trade) is

not subject to the FTAIA’s extra layer of protection

20 No. 10-1712

against Sherman Act claims implicating foreign activi-

ties. Some of the activities alleged in the Complaint,

however, may be best understood as sufficiently outside

the arena of simple import transactions as to require

application of the FTAIA. For example, Canpotex is the

unified marketing and sales agent for Agrium, Mosaic

and PCS in all markets except Canada and the United

States, yet its actions are an important part of the

alleged scheme to set inflated benchmark prices. Pre-

sumably, in order to avoid Illinois Brick’s prohibition on

“pass on” antitrust damages, 431 U.S. at 728, the plain-

tiffs are seeking to hold firms like Canpotex jointly

and severally liable for any damages the direct sellers

might be ordered to pay, perhaps under a conspiracy

theory. If this were an action by the Department of Justice

or the Federal Trade Commission, we would not need

to worry about Illinois Brick, but regardless of whether

the case is brought by the government or in private liti-

gation, it is essential to meet the criteria spelled out

by the FTAIA. We thus take a closer look at what

kind of conduct “involve[s] trade or commerce . . .

with foreign nations” and what showing is necessary to

demonstrate “direct, substantial and reasonably foresee-

able” effects on domestic [i.e., “not trade or commerce

with foreign nations”] or import commerce.

The first question—whether the conduct alleged in

this case “involves” foreign commerce—is readily an-

swered. The Complaint alleges an international cartel in

a commodity, and it asserts that the cartel succeeded

in raising prices for direct U.S. purchasers of the

product, potash. This alleged arrangement plainly

No. 10-1712 21

involves foreign commerce, and so we move immedi-

ately to the second inquiry—the task of parsing the stat-

ute’s central requirements. As Empagran put it, after

excluding foreign activities from the scope of the

Sherman Act, the FTAIA brings back into the statute’s

reach conduct that has a “direct, substantial, and rea-

sonably foreseeable effect” on domestic or import com-

merce.

The potash cartel described in the Complaint is one

for which the requirements of substantiality and fore-

seeability are easily met. There is little dispute that the

Complaint has alleged substantial effects: The Com-

plaint alleges that 5.3 million tons of potash were

imported into the United States in 2008 alone, and the

Complaint elsewhere asserts that the vast majority of

these imports came from the defendants. From 2003 to

2008, the price of potash increased by over 600%. We

do not need to belabor the point. These allegations

easily satisfy the requirement to show substantial effects

in the U.S. market. Wherever the floor may be, it is so

far below these numbers that we do not worry about

it here.

Foreseeability is equally straightforward. It is objec-

tively foreseeable that an international cartel with a grip

on 71% of the world’s supply of a homogeneous com-

modity will charge supracompetitive prices, and in

the absence of any evidence showing that arbitrage is

impossible (and there is none here), those prices (net of

shipping costs) will be uniform throughout the world.

Higher prices cannot be divorced from reductions in

22 No. 10-1712

supply, and so the effects alleged here are a rationally

expected outcome of the conduct stated in the Complaint.

The question that has caused more discussion

among various courts and commentators is what it

takes to show “direct” effects. One school of thought,

launched by the Ninth Circuit’s split decision in United

States v. LSL Biotechs., 379 F.3d 672 (9th Cir. 2004), has

borrowed the definition of the word “direct” that the

Supreme Court adopted for a different statute, the

Foreign Sovereign Immunities Act (FSIA), 28 U.S.C.

§ 1605(a)(2); see Republic of Argentina v. Weltover, Inc., 504

U.S. 607 (1992). The word appears in the exception

for foreign sovereign immunity that applies for com-

mercial activity that takes place outside the territory of

the United States when “that act causes a direct effect

in the United States.” In that setting, the Court held

that an effect is “direct” if it “follows as an immediate

consequence of the defendant’s . . . activity.” Id. at 618.

The other school of thought has been articulated by

the Department of Justice’s Antitrust Division, which

takes the position that, for FTAIA purposes, the term

“direct” means only “a reasonably proximate causal

nexus.” Makan Delrahim, Drawing the Boundaries of the

Sherman Act: Recent Developments in the Application of

the Antitrust Laws to Foreign Conduct, 61 N.Y.U. A NN. S URV .

A M . L. 415, 430 (2005) (remarks of the Deputy Assistant

Attorney General); Brief for Appellant United States of

America 38 in United States v. LSL Biotechs., supra, available

at http://www.justice.gov/atr/cases/f200200/200243.pdf

(directness is a synonym for proximate cause).

No. 10-1712 23

In our view, the Ninth Circuit jumped too quickly to

the assumption that the FSIA and the FTAIA use the

word “direct” in the same way. Critically, the Supreme

Court in Weltover reached its definition of “direct” for

FSIA purposes only after refusing to import from the

legislative history of that statute the notion that an

effect is “direct” only if it is both “substantial” and

“foreseeable.” 504 U.S. at 617. “[W]e reject,” it said, “the

suggestion that § 1605(a)(2) contains any unexpressed

requirement of ‘substantiality’ or ‘foreseeability.’ ” Id. at

618. Only then did the Court endorse the appellate

court’s definition that an effect is “direct” if it follows

“as an immediate consequence” of the defendant’s activ-

ity. Id.

No one needs to read the words “substantial” and

“foreseeable” into the FTAIA. Congress put them there,

and in so doing, it signaled that the word “direct” used

along with them had to be interpreted as part of an inte-

grated phrase. Superimposing the idea of “immediate

consequence” on top of the full phrase results in a

stricter test than the complete text of the statute can

bear. To demand a foreseeable, substantial, and “im-

mediate” consequence on import or domestic commerce

comes close to ignoring the fact that straightforward

import commerce has already been excluded from

the FTAIA’s coverage.

We are persuaded that the Department of Justice’s

approach is more consistent with the language of the

statute. The word “direct” addresses the classic concern

about remoteness—a concern, incidently, that has been

at the forefront of international antitrust law at least

24 No. 10-1712

since Judge Hand wrote in Alcoa that “[w]e should not

impute to Congress an intent to punish all whom its

courts can catch, for conduct which has no conse-

quences within the United States.” 148 F.2d at 443; see also

LSL Biotechs., 379 F.3d at 683-91 (Aldisert, J., dissenting)

(tracing the history of the FTAIA’s effects test through

Alcoa). Just as tort law cuts off recovery for those

whose injuries are too remote from the cause of an

injury, so does the FTAIA exclude from the Sherman Act

foreign activities that are too remote from the ultimate

effects on U.S. domestic or import commerce.

This understanding of the FTAIA should allay any

concern that a foreign company that does any import

business at all in the United States would violate the

Sherman Act whenever it entered into a joint-selling

arrangement overseas regardless of its impact on the

American market. A number of safeguards exist to

protect against that risk. If the hypothetical foreign com-

pany is engaged in direct import sales, it must naturally

comply with U.S. law just as all of its domestic com-

petitors do. If its foreign sales do not meet the threshold

for “effects” on import or domestic commerce estab-

lished by cases such as Hartford Fire and Summit Health,

then, for those transactions, it has nothing to worry

about. If the hypothetical foreign company is engaged

in the kind of conduct outside the United States that

the FTAIA addresses, then its actions can be reached

only if there are direct, substantial, and reasonably fore-

seeable effects. This is a standard with teeth, as the many

cases that have been dismissed for failing to meet those

criteria attest. E.g., Turicentro, S.A. v. Am. Airlines, Inc., 303

No. 10-1712 25

F.3d 293 (3d Cir. 2002); Carpet Grp. Int’l v. Oriental Rug

Imps. Ass’n, 227 F.3d 62 (3d Cir. 2000); McGlinchy v. Shell

Chem. Co., 845 F.2d 802 (9th Cir. 1988); Filetech S.A. v.

France Telecom S.A., 212 F. Supp. 2d 183 (S.D.N.Y. 2001).

Empagran is consistent with the interpretation we

adopt here. While it holds that the U.S. antitrust laws

are not to be used for injury to foreign customers, it

goes on to reaffirm the well-established principle that

the U.S. antitrust laws reach foreign conduct that

harms U.S. commerce:

[O]ur courts have long held that application of our

antitrust laws to foreign anticompetitive conduct is

nonetheless reasonable, and hence consistent with

principles of prescriptive comity, insofar as they

reflect a legislative effort to redress domestic

antitrust injury that foreign anticompetitive conduct

has caused.

Empagran, 542 U.S. at 165. Finally, we note that § 6a(2)

will protect many a foreign defendant. No matter what

the quality of the foreign conduct, the statute will not

cover it unless the plaintiff manages to state a claim

under the Sherman Act. In this connection, we point out

that a great many joint-selling arrangements are legal,

efficiency-enhancing structures. See, e.g., Texaco Inc. v.

Dagher, 547 U.S. 1 (2006); Broadcast Music, Inc. v. Columbia

Broadcasting Sys., Inc., 441 U.S. 1 (1979).

B

Having described the requirements for both simple

import commerce and the FTAIA, our final task is

26 No. 10-1712

to measure the Complaint against these standards. In

particular, we must decide whether the plaintiffs have

plausibly alleged that the defendants’ conduct took

place either in import commerce and are thus subject

to the more general rules of Hartford Fire for effects

on commerce, or if they have in whole or in part

described conduct subject to the FTAIA, and if so,

whether the allegations describe direct, substantial, and

foreseeable effects on domestic or import commerce.

1

In our view, much of the Complaint alleges straight-

forward import transactions. Under Hartford Fire the

plaintiffs thus must allege that the conduct of the foreign

cartel members was (1) meant to produce and (2) did

in fact produce some substantial effect in the United

States. See also Animal Science, 654 F.3d at 470 (“[T]he

import trade or commerce [exclusion] requires that the

defendants’ conduct target import goods or services.”). The

Complaint contains ample material supporting both

of those points.

The plaintiffs describe a tight-knit global cartel, similar

to OPEC in its heyday, that restrained global output

of potash so that prices throughout this homogeneous

world market would remain artificially high. Just like the

raisin producers in California in the famous state-action

antitrust case, Parker v. Brown, 317 U.S. 341 (1943), who

controlled 90% of the world market in raisins, the

alleged cartel members here control a comparable share

of the world market in potash. The purpose of this

No. 10-1712 27

cartel was to inflate the profits of its members. Its

alleged effect was substantial. The United States,

according to the Complaint, is one of the two largest

consumers of potash in the world, and approximately

85% of U.S. potash comes from overseas. From 2003

to 2008, the price of potash increased six-fold. The in-

ference from these allegations is not just plausible but

compelling that the cartel meant to, and did in fact,

keep prices artificially high in the United States.

2

We turn next to an analysis of the conduct that falls

outside the import exclusion to determine whether it

may nevertheless be subject to the Sherman Act under

the FTAIA. For example, the Complaint alleges that

Canpotex, a Canadian entity that does not sell directly

into the United States, restricted supply during a pe-

riod of especially difficult price negotiations with

China. This supply restriction compelled Chinese

buyers to accept a price increase. Complaint ¶94. We

assume for present purposes that none of this literally

involved import trade. Our discussion, however, is

rooted in the facts of this Complaint. In that connection,

it is important to recall that the FTAIA itself demands

that the facts of each case must be evaluated for com-

pliance with its demands. We thus address only the

situation before us, in which several members of the

cartel sold directly into the United States and others

allegedly worked with them in connection with those

efforts. The question before us is thus whether the al-

28 No. 10-1712

legations in the plaintiffs’ Complaint describe conduct

that had a direct, substantial, and reasonably fore-

seeable effect on domestic or import commerce by, for

example, setting a benchmark price intended to govern

later U.S. sales.

As we noted above, the effects of the supply restric-

tion on U.S. potash prices were foreseeable. So too were

the effects of forcing foreign purchasers to accept

higher prices in a commoditized and cartelized market:

Either someone in the cartel would cheat, or a new

entrant would begin to arbitrage its purchases, or, as the

plaintiffs allege, the cartel would succeed in pushing

prices up across all of its markets, including the United

States. And, as we have explained, there is every reason

to infer that any such effects in the U.S. potash market

were substantial.

We turn to the question whether these effects are

“direct,” as we have defined the term. The plaintiffs

allege that the defendants would first negotiate prices

in Brazil, India, and China, and then they would use

those prices for sales to U.S. customers. The alleged

supply reductions led to price hikes in these foreign

markets, and those increases showed up almost imme-

diately in the prices of U.S. imports. The defendants do

not suggest that the potash market is insulated from

these effects by regulatory structures or other arrange-

ments, and even if they did, that would be no reason

to dismiss the Complaint outright. To the contrary,

the plaintiffs have alleged that the cartel established

benchmark prices in markets where it was relatively free

No. 10-1712 29

to operate, and it then applied those prices to its U.S.

sales. (Benchmark prices set in one market for general

use are common: think, for instance of the London In-

terbank Offered Rate (LIBOR), in the credit market; the

Brent Crude price, formally used for North Sea oil but

in general use in oil markets; or even the Medicare

Fee Schedule, which though technically only for

Medicare reimbursements, has widespread effects on

the healthcare market.) It is no stretch to say that the

foreign supply restrictions, and the concomitant price

increases forced upon the Chinese purchasers, were a

direct—that is, proximate—cause of the subsequent

price increases in the United States.

The allegations in the Complaint state a claim, as re-

quired by Federal Rule of Civil Procedure 8, and thus are

enough to withstand a motion to dismiss under Rule

12(b)(6), as interpreted by the Supreme Court in Bell

Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and

Ashcroft v. Iqbal, 556 U.S. 662 (2009). The Complaint is

not defeated by the defendants’ contention that the

alleged cartel was not efficacious. See In re High Fructose

Corn Syrup Antitrust Litig., 295 F.3d 651, 656 (7th Cir. 2002).

We are also satisfied that the allegations suffice, at

this stage, to support a plausible story of concerted

action. See In re Text Messaging Antitrust Litig., 630 F.3d

622 (7th Cir. 2010). We stress, however, that our evalua-

tion throughout has proceeded exclusively on the face

of the Complaint. Nothing we have said should be under-

stood as a prediction of the facts that may turn up

in discovery, nor are we opining about the likely fate

of any possible defenses. In particular, the defendants

30 No. 10-1712

mentioned in their opposition to the petition for

rehearing en banc that some of their actions were under-

taken with the approval of foreign governments (e.g.,

Canada’s). We express no opinion on either the contours

or the likely success of any such argument. Similarly,

we do not have before us any question about the

court’s personal jurisdiction over the various defendants.

Cf. J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 2780

(2011). We are not faced with the question of whether

the actions of the non-selling defendants, such as

Canpotex, fall outside the substantive scope of Sherman

Act § 1 (as opposed to the law’s territorial reach), nor

have the defendants argued that Congress as a matter

of U.S. law has no constitutional power to enact laws

with some extraterritorial effect. These or other theories

may all be important to explore as the case goes

forward, but they do not provide a reason to throw out

the case on the grounds that the plaintiffs failed to

show either that the challenged transactions occurred

in import commerce or that they had a direct, sub-

stantial, and reasonably foreseeable effect on either the

domestic or import commerce of the United States.

IV

Foreign cartels, especially those over natural resources

that are scarce in the United States and that are traded

in a unified international market, have often been the

target of either governmental or private litigation. The

host country for the cartel will often have no incentive

No. 10-1712 31

to prosecute it. Canada and Russia, here (just like Cali-

fornia in Parker), would logically be pleased to reap

economic rents from other countries; their losses from

higher prices for the potash used in their own fertilizers

are more than made up by the gains from the cartel

price their exporters collect. Export cartels are often

exempt from a country’s antitrust laws: the United States

does just that, through its Webb-Pomerene Associa-

tions, see 15 U.S.C. §§ 61 et seq., and Export Trading

Companies, see 15 U.S.C. §§ 4001 et seq. This case is ac-

tually the mirror image of the situation described in

Empagran, where the foreign country whose consumers

are hurt would have been the better enforcer. It is the

U.S. authorities or private plaintiffs who have the

incentive—and the right—to complain about over-

charges paid as a result of the potash cartel, and whose

interests will be sacrificed if the law is interpreted not

to permit this kind of case.

The world market for potash is highly concentrated,

and customers located in the United States account for

a high percentage of sales. This is not a House-that-Jack-

Built situation in which action in a foreign country

filters through many layers and finally causes a few

ripples in the United States. To the contrary: foreign

sellers allegedly created a cartel, took steps outside the

United States to drive the price up of a product that

is wanted in the United States, and then (after suc-

ceeding in doing so) sold that product to U.S. customers.

The payment of overcharges by those customers was

objectively foreseeable, and the amount of commerce

32 No. 10-1712

is plainly substantial. We A FFIRM the order of the

district court denying the motion to dismiss for failure

to state a claim.

6-27-12