Request for Comments on Draft Antitrust Enforcement Guidelines for International Operations

DEPARTMENT OF JUSTICE

Antitrust Division

Request for Comments on Draft Antitrust Enforcement Guidelines

for International Operations

agency: Department of Justice.

action: Notice.

-----------------------------------------------------------------------

summary: The Department of Justice (Department) and the Federal Trade

Commission (Commission) have drafted proposed new Antitrust Enforcement

Guidelines for International Operations. The Guidelines, when adopted

in final form by the Department and the Commission, will state the

antitrust enforcement policy of the Department and the Commission with

respect to the international aspects of business operations. The

Department's 1988 Antitrust Guidelines for International Operations

will be withdrawn when these draft Guidelines are adopted in final

form. Portions of the 1988 guidelines will also be superseded by the

Department's proposed Antitrust Guidelines for the Licensing and

Acquisition of Intellectual Property, which recently have been

published for public comment in the Federal Register. See 59 FR 41,339

(Aug. 11, 1994). [Comments on these draft Antitrust Enforcement

Guidelines for International Operations should be submitted in writing

within 60 days of their publication.]

for further information: Persons wishing to comment on the proposed

Guidelines must submit their views to both Ms. Diane P. Wood, Deputy

Assistant Attorney General, Antitrust Division, Department of Justice,

Tenth and Pennsylvania Avenue, N.W., Washington, D.C. 20530, 202-514-

2404; and Mr. Walter T. Winslow, Associate Director, Bureau of

Competition, Federal Trade Commission, Washington, D.C. 20580, 202-326-

2560.

supplementary information: These proposed Guidelines were drafted to

state the current views of the Department and the Commission on

antitrust enforcement policy with respect to international business

operations. The Guidelines are not intended to create or recognize any

legally enforceable right in any person. They are not intended to

affect the admissibility of evidence or in any other way necessarily to

affect the course or conduct of any present or future litigation.

Moreover, changes in the relevant statutory framework, legal precedent,

and methods of internal Department and Commission analysis may occur

over time, and these changes will not always be simultaneously

reflected in amendments to the Guidelines. Parties seeking to know the

Department's or the Commission's specific enforcement intentions should

consider using the Department's Business Review Procedure, see 28 CFR

50.6 (1993), or the Commission's Advisory Opinion procedure. See 16

C.F.R. Secs. 1.1-1.4 (1993).

Dated: October 13, 1994.

Diane P. Wood,

Deputy Assistant Attorney General, Antitrust Division, Department of

Justice.

Antitrust Enforcement Guidelines for International Operations 1994

1. Introduction

For more than a century, the U.S. antitrust laws have stood as the

ultimate protector of the competitive process that underlies our free

market economy. Through this process, society as a whole benefits from

the best possible allocation of resources, which in turn maximizes

consumer choice and maintains competitive prices.

Although the federal antitrust laws have always applied to foreign

commerce, that application is particularly important today. Throughout

the world, the importance of antitrust law as a means to ensure open

and free markets, protect consumers, and prevent conduct that impedes

competition is becoming more apparent. The Department of Justice (``the

Department'') and the Federal Trade Commission (``the Commission'' or

``FTC'') (when referred to collectively, ``the Agencies''), as the

federal agencies charged with the responsibility of enforcing the

antitrust laws, thus have made enforcement of the antitrust laws with

respect to international operations a top priority. In furtherance of

this priority, the Agencies have revised and updated the Department's

1988 Antitrust Enforcement Guidelines for International Operations,

which are hereby withdrawn.\1\

---------------------------------------------------------------------------

\1\The U.S. Department of Justice Antitrust Guidelines for the

Enforcement and Acquisition of Intellectual Property (Proposed), the

U.S. Department of Justice and Federal Trade Commission Horizontal

Merger Guidelines (1992), and the Statements of Antitrust

Enforcement Policy and Analytical Principles Relating to Health Care

and Antitrust, Jointly Issued by the U.S. Department of Justice and

Federal Trade Commission (1994), are not qualified, modified, or

otherwise amended by the issuance of these Guidelines.

---------------------------------------------------------------------------

The 1994 Antitrust Enforcement Guidelines for International

Operations (hereinafter ``Guidelines'') are intended to provide

antitrust guidance to businesses engaged in international operations on

questions that relate specifically to the Agencies' international

enforcement policy.\2\ They do not, therefore, provide a complete

statement of the Agencies' general enforcement policies. The topics

covered include the Agencies' subject matter jurisdiction over conduct

and entities outside the United States and the considerations, issues,

policies, and processes that govern their decision to exercise that

jurisdiction; comity; mutual assistance in international antitrust

enforcement; and the effects of foreign governmental involvement on the

antitrust liability of private entities. In addition, the Guidelines

discuss the relationship between antitrust and international trade

initiatives. Finally, to illustrate how these principles may operate in

certain contexts, the Guidelines include a number of examples.

---------------------------------------------------------------------------

\2\Readers should separately evaluate the risk of private

litigation by competitors, consumers and suppliers, as well as the

risk of enforcement by state prosecutors under state and federal

antitrust laws.

---------------------------------------------------------------------------

As is the case with all guidelines, users should rely on qualified

counsel to assist them in evaluating the antitrust risk associated with

any contemplated transaction or activity. No set of guidelines can

possibly indicate how the Agencies will assess the particular facts of

every case. Persons seeking more specific advance statements of

enforcement intentions with respect to the matters treated in these

Guidelines should use the Department's Business Review procedure, the

Commission's Advisory Opinion procedure, or one of the more specific

procedures described below for particular types of transactions.

2. Antitrust Laws Enforced by the Agencies

Foreign commerce cases can involve almost any provision of the

antitrust laws.\3\ The Agencies do not discriminate in the enforcement

of the antitrust laws on the basis of the nationality of the parties.

Once jurisdictional requirements and considerations of international

comity have been considered and satisfied, the same substantive rules

apply to all.

---------------------------------------------------------------------------

\3\Certain exceptions may arise due to jurisdictional

limitations. For example, the Robinson-Patman Act, 15 U.S.C. Sec. 13

(1988), applies only to purchases involving commodities ``for use,

consumption, or resale within the United States.'' It has been

construed not to apply to sales for export See, e.g., General Chem.,

Inc. v. Exxon Chem. Co., 625 F.2d 1231, 1234 (5th Cir. 1980).

Intervening domestic sales, however, would be subject to the Act.

See Raul Int'l Corp. v. Sealed Power Corp., 586 F. Supp. 349, 351-55

(D.N.J.) 1984).

---------------------------------------------------------------------------

The following is a brief summary of the laws enforced by the

Agencies that are likely to have the greatest significance for

international transactions.

2.1 Sherman Act

Section 1 of the Sherman Act, 15 U.S.C. Sec. 1, sets forth the

basic antitrust prohibition against contracts, combinations, and

conspiracies in restraint of trade or commerce among the several States

or with foreign nations. Section 2 of the Act, 15 U.S.C. Sec. 2,

prohibits monopolization, attempts to monopolize, and conspiracies to

monopolize any part of trade or commerce among the several States or

with foreign nations. Section 6a of the Sherman Act, 15 U.S.C. Sec. 6a,

defines the jurisdictional reach of the Act with respect to non-import

foreign commerce.

Violations of the Sherman Act may be prosecuted as civil or

criminal offenses. Conduct that the Department prosecutes criminally is

limited to traditional per se offenses of the law, which typically

involve price-fixing, customer allocation, bid-rigging or other cartel

activities that would also be violations of the law in many countries.

Criminal violations of the Act are punishable by fines and

imprisonment. The Sherman Act provides that corporate defendants may be

fined up to $10 million, other defendants may be fined up to $350,000,

and individuals may be sentenced to up to 3 years' imprisonment.\4\ The

Department has sole responsibility for the criminal enforcement of the

Sherman Act. In a civil proceeding, the Department may obtain

injunctive relief against prohibited practices. It may also obtain

treble damages if the U.S. government is the purchaser of affected

goods or services.\5\ Private plaintiffs may also obtain injunctive and

treble damage relief for violations of the Sherman Act. Before the

Commission conduct that violates the Sherman Act may be challenged

pursuant to the Commission's power under Section 5 of the Federal Trade

Commission Act, described below.

---------------------------------------------------------------------------

\4\Defendants may be fined up to twice the gross pecuniary gain

or loss caused by their offense in lieu of the Sherman Act fines,

pursuant to 18 U.S.C. Sec. 3571(d) (1988 & Supp. 1993). In addition,

the U.S. Sentencing Commission Guidelines provide further

information about possible criminal sanctions for individual

antitrust defendants in Sec. 2R1.1 and for organizational defendants

in Chapter Eight.

\5\See 15 U.S.C. Sec. 4 (1988) (injunctive relief); 15 U.S.C.

Sec. 15a (1988 & Supp. 1993) (damages).

---------------------------------------------------------------------------

2.2 Clayton Act

The Clayton Act, 15 U.S.C. Sec. 12 et seq., expands on the general

prohibitions of the Sherman Act and addresses anticompetitive problems

in their incipiency.\6\ Section 7 of the Clayton Act, 15 U.S.C.

Sec. 18, prohibits any merger or acquisition of stock or assets ``where

in any line of commerce or in any activity affecting commerce in any

section of the country, the effect of such acquisition may be

substantially to lessen competition, or to tend to create a

monopoly.''\7\ Section 15 of the Clayton Act empowers the Attorney

General, and Section 13(b) of the FTC Act empowers the Commission, to

seek a court order enjoining consummation of a merger that would

violate Section 7. In addition, the Commission may seek a cease and

desist order in an administrative proceeding against a merger under

either Section 11 of the Clayton Act or Section 5 of the FTC Act, or

both. Private parties may also seek injunctive relief under 15 U.S.C.

Sec. 26.

---------------------------------------------------------------------------

\6\Under the Clayton Act, ``commerce'' includes ``trade or

commerce among the several states and with foreign nations* * *.''

``Persons'' include corporations or associations existing under or

authorized either by the laws of the United States or any of its

states or territories, or by the laws of any foreign country. 15

U.S.C. Sec. 12 (1988 & Supp. 1993).

\7\15 U.S.C. Sec. 18 (1988). The asset acquisition clause

applies to ``person[s] subject to the jurisdiction of the Federal

Trade Commission'' under the Clayton Act.

---------------------------------------------------------------------------

Section 3 of the Clayton Act prohibits any person engaged in

commerce from conditioning the lease or sale of goods or commodities

upon the purchaser's agreement not to use the products of a competitor,

if the effect may be substantially to lessen competition or to tend to

create a monopoly in any line of commerce.\8\ In evaluating

transactions, the trend of recent authority is to use the same analysis

employed in the evaluation of tying under Sherman Act Section 1 to

assess a defendant's liability under Section 3 of the Clayton Act.\9\

---------------------------------------------------------------------------

\8\15 U.S.C. Sec. 14 (1988).

\9\See, e.g., Mozart Co. v. Mercedes-Benz of N. Am., Inc., 833

F.2d 1342, 1352 (9th Cir. 1987), cert. denied, 488 U.S. 870 (1988).

---------------------------------------------------------------------------

Section 2 of the Clayton Act, known as the Robinson-Patman Act,\10\

prohibits price discrimination in certain circumstances. Historically,

the Commission has enforced this provision.

---------------------------------------------------------------------------

\10\15 U.S.C. Secs. 13-13b, 21a (1988).

---------------------------------------------------------------------------

2.3 Federal Trade Commission Act

Section 5 of the Federal Trade Commission Act (``FTC Act'')

declares unlawful ``unfair methods of competition in or affecting

commerce, and unfair or deceptive acts or practices in or affecting

commerce.''\11\ Pursuant to its authority over unfair methods of

competition, the Commission may take administrative action against

conduct that violates the Sherman Act and the Clayton Act, as well as

anticompetitive practices that do not fall within the scope of the

Sherman or Clayton Acts. The Commission may also seek injunctive relief

in federal court against any such conduct under Section 13(b) of the

FTC Act. Although enforcement at the Commission relating to

international deceptive practices has become increasingly important

over time, these Guidelines are limited to the Commission's antitrust

authority under the unfair methods of competition language of Section

5.

---------------------------------------------------------------------------

\11\15 U.S.C. Sec. 45 (1988 & Supp. 1993).

---------------------------------------------------------------------------

2.4 Hart-Scott-Rodino Antitrust Improvements Act of 1976

Title II of the Hart-Scott-Rodino Antitrust Improvements Act of

1976 (``HSR Act''), 15 U.S.C. Sec. 18a, provides the Department and the

Commission with several procedural devices to facilitate enforcement of

the antitrust laws with respect to anticompetitive mergers and

acquisitions.\12\ The HSR Act requires persons engaged in commerce or

in any activity affecting commerce to notify the Agencies of proposed

mergers or acquisitions that would exceed statutory size-of-party and

size-of-transaction thresholds,\13\ to provide certain information

relating to reportable transactions, and to wait for a prescribed

period--15 days for cash tender offers and 30 days for all other

transactions--before consummating the transaction.\14\ The Agency may,

before the end of the waiting period, request additional information

concerning a transaction (make a ``Second Request'') and thereby extend

the waiting period beyond the initial one prescribed, to a specified

number of days after the receipt of the material required by the Second

Request--10 days for cash tender offers and 20 days for all other

transactions.\15\

---------------------------------------------------------------------------

\12\The scope of the Agencies' jurisdiction under Clayton Sec. 7

exceeds the scope of those transactions subject to the premerger

notification requirements of the HSR Act. Whether or not the HSR Act

premerger notification thresholds are satisfied, either Agency may

request the parties to a merger affecting U.S. commerce to provide

information voluntarily concerning the transaction. In addition, the

Department may issue Civil Investigative Demands (``CIDs'') pursuant

to the Antitrust Process Act, 15 U.S.C. Secs. 1311-1314 (1988), and

the Commission may issue administrative CIDs pursuant to the Act of

Aug. 26, 1994, Pub. L. No. 103-312, Sec. 7; 108 Stat. 1691 (1994).

The Commission may also issue administrative subpoenas and orders to

file special reports under Sections 9 and 6(b) of the FTC Act,

respectively. 15 U.S.C. Secs. 49, 46(b) (1988). Authority in

particular cases is allocated to either the Department or the

Commission pursuant to a voluntary clearance protocol. See Antitrust

& Trade Reg. Daily (BNA), Dec. 6, 1993.

\13\Unless exempted pursuant to the Act, the parties must

provide premerger notification to the Agencies if (1) the acquiring

person, or the person whose voting securities or assets are being

acquired, is engaged in commerce or any activity affecting commerce;

and (2)(a) any voting securities or assets of a person engaged in

manufacturing which has annual net sales or total assets of $10

million or more are being acquired by any person which has total

assets or annual net sales of $100 million or more, or (b) any

voting securities or assets of a person not engaged in manufacturing

which has total assets of $10 million or more are being acquired by

any person which has total assets or annual sales of $100 million or

more; or (c) any voting securities or assets of a person with annual

net sales or total assets of $100 million or more are being acquired

by any person with total assets or annual net sales of $10 million

or more; and (3) as a result of such acquisition, the acquiring

person would hold (a) 15 percent or more of the voting securities or

assets of the acquired person, or (b) an aggregate total amount of

the voting securities and assets of the acquired person of $15

million. 15 U.S.C. Sec. 18a(a) (1988). The size of the transaction

test set forth in (3) supra must be read in conjunction with 16 CFR

802.20 (1994). This Section exempts asset acquisitions valued at $15

million or less. It also exempts voting securities acquisitions of

$15 million or less unless, as a result of the acquisition, the

acquiring person would hold 50 percent or more of the voting

securities of an issuer that has annual net sales or total assets of

$25 million or more. The HSR rules are necessarily technical, and

should be consulted, rather than relying on this summary.

\14\15 U.S.C. Sec. 18a(b) (1988 & Supp. 1993); 16 CFR 803.1

(1994).

\15\15 U.S.C. Sec. 18a(e) (1988).

---------------------------------------------------------------------------

The HSR Act and the FTC rules implementing the HSR Act\16\ exempt

from the premerger notification requirements certain international

transactions (typically those having little nexus to U.S. commerce)

that otherwise meet the statutory thresholds.\17\ Failure to comply

with the HSR Act is punishable by court-imposed civil penalties of up

to $10,000 for each day a violation continues. The court may also order

injunctive relief to remedy a failure substantially to comply with the

HSR Act. Businesses may seek an interpretation of their obligations

under the HSR Act from the Commission.\18\

---------------------------------------------------------------------------

\16\16 CFR 801-803 (1994).

\17\16 CFR 801.1(e), (k), 802.50-52 (1994). See Section 4.22

infra.

\18\See 16 CFR 803.30 (1994).

---------------------------------------------------------------------------

2.5 National Cooperative Research and Production Act

The National Cooperative Research and Production Act (``NCRPA''),

15 U.S.C. Secs. 4301-06, clarifies the substantive application of the

U.S. antitrust laws to joint research and development activities and

joint production activities. Originally drafted to encourage research

and development by providing a special antitrust regime for research

and development (``R&D'') joint ventures, the NCRPA requires U.S.

courts to judge the competitive effects of a challenged joint R&D or

joint production venture, or a combination of the two, in properly

defined relevant markets and under a rule-of-reason standard. The

statute specifies that the conduct ``shall be judged on the basis of

its reasonableness, taking into account all relevant factors affecting

competition, including, but not limited to, effects on competition in

properly defined, relevant research, development, product, process, and

service markets.'' 15 U.S.C. Sec. 4302. This approach is consistent

with the Agencies' general analysis of joint ventures.\19\

---------------------------------------------------------------------------

\19\See, e.g., U.S. Department of Justice Antitrust Guidelines

for the Enforcement and Acquisition of Intellectual Property

(Proposed), Sec. 4; Statements of Antitrust Enforcement Policy and

Analytical Principles Relating to Health Care and Antitrust, Issued

by the U.S. Department of Justice and the Federal Trade Commission,

Sept. 27, 1994, Statement 2 (outlining a four-step approach for

joint venture analysis). See generally National Collegiate Athletic

Ass'n v. Board of Regents of Univ. of Okla., 468 U.S. 85 (1984);

F.T.C. v. Indiana Fed'n of Dentists, 476 U.S. 447 (1986).

---------------------------------------------------------------------------

The NCRPA also establishes a voluntary procedure pursuant to which

the Attorney General and the FTC may be notified of a joint R&D or

production venture. The statute limits the monetary relief that may be

obtained in private civil suits against the participants in a notified

venture to actual rather than treble damages, if the challenged conduct

is within the scope of the notification. With respect to joint

production ventures, the National Cooperative Production Amendments of

1993, Pub. L. No. 103-42, 107 Stat. 117, 119, provide that the benefits

of the limitation on recoverable damages for claims resulting from

conduct within the scope of a notification are not available unless (1)

the principal facilities for the production are located within the

United States or its territories, and (2) ``each person who controls

any party to such venture (including such party itself) is a United

States person, or a foreign person from a country whose law accords

antitrust treatment no less favorable to United States persons than to

such country's domestic persons with respect to participation in joint

ventures for production.'' 15 U.S.C. Sec. 4306(2) (Supp. 1993).

2.6 Webb-Pomerene Act

The Webb-Pomerene Act, 15 U.S.C. Secs. 61-65, provides a limited

antitrust exemption for the formation and operation of associations of

otherwise competing businesses to engage in collective export sales.

The exemption applies only to the export of ``goods, wares, or

merchandise.''\20\ It does not apply to conduct that has an

anticompetitive effect in the United States or that injures domestic

competitors of the members of an export association. Nor does it

provide any immunity from prosecution under foreign antitrust laws.\21\

Associations seeking an exemption under the Webb-Pomerene Act must file

their articles of agreement and annual reports with the Commission, but

pre-formation approval from the Commission is not required.

---------------------------------------------------------------------------

\20\15 U.S.C. Sec. 61 (1988).

\21\See, e.g., Cases 89/85, etc., Ahlstrom v. Comm'n (``Wood

Pulp'') (E.C.J., Sept. 27, 1988), 1988 E.C.R. 5193, [1988] 4

C.M.L.R. 901.

---------------------------------------------------------------------------

2.7 Export Trading Company Act of 1982

The Export Trading Company Act of 1982 (the ``ETC Act''), Pub. L.

No. 97-290, 96 Stat. 1234, is designed to increase U.S. exports of

goods and services. It addresses that goal in several ways. First, in

Title II, it encourages more efficient provision of export trade

services to U.S. producers and suppliers by reducing restrictions on

trade financing provided by financial institutions.\22\ Second, in

Title III, it reduces uncertainty concerning the application of the

U.S. antitrust laws to export trade through the creation of a procedure

by which persons engaged in U.S. export trade may obtain an export

trade certificate of review (``ETCR'').\23\ Third, in Title IV, it

clarifies the jurisdictional rules applicable to non-import cases

brought under the Sherman Act and the FTC Act.\24\ The Title III

certificates are discussed briefly here; the jurisdictional rules are

treated below in Section 3.1.

---------------------------------------------------------------------------

\22\See 12 U.S.C. Secs. 372, 635 a-4, 1841, 1843 (1988 & Supp.

1993) (Because Title II does not implicate the antitrust laws, it is

not discussed further in these Guidelines.)

\23\15 U.S.C. Secs. 4011-21 (1988 & Supp. 1993).

\24\15 U.S.C. Sec. 6a (1988); 15 U.S.C. Sec. 45(a)(3) (1988).

---------------------------------------------------------------------------

Export trade certificates of review are issued by the Secretary of

Commerce with the concurrence of the Attorney General. Persons named in

the ETCR obtain limited immunity from suit under both state and federal

antitrust laws for activities that are specified in the certificate and

that comply with the terms of the certificate. To obtain an ETCR, an

applicant must show that proposed export conduct will:

(1) Result in neither a substantial lessening of competition or

restraint of trade within the United States nor a substantial restraint

of the export trade of any competitor of the applicant;

(2) Not unreasonably enhance, stabilize, or depress prices in the

United States of the class of goods or services covered by the

application;

(3) Not constitute unfair methods of competition against

competitors engaged in the export of the class of goods or services

exported by the applicant; and

(4) Not include any act that may reasonably be expected to result

in the sale for consumption or resale in the United States of such

goods or services.\25\

---------------------------------------------------------------------------

\25\15 U.S.C. Sec. 4013(a) (1988).

---------------------------------------------------------------------------

Congress intended that these standards ``encompass the full range of

the antitrust laws,'' as defined in the ETC Act.\26\

---------------------------------------------------------------------------

\26\H.R. Rep. No. 924, 97th Cong., 2d Sess. 26 (1982). See 15

U.S.C. Sec. 4021(6).

---------------------------------------------------------------------------

Although an ETCR provides significant protection under the

antitrust laws, it has certain limitations. First, conduct that falls

outside the scope of a certificate remains fully subject to private and

governmental enforcement actions. Second, an ETCR that is obtained by

fraud is void from the outset and thus offers no protection under the

antitrust laws. Third, any person that has been injured by certified

conduct may recover actual (though not treble) damages if that conduct

is found to violate any of the statutory criteria described above. In

any such action, certified conduct enjoys a presumption of legality,

and the prevailing party is entitled to recover costs and attorneys'

fees.\27\ Fourth, an ETCR does not constitute, explicitly or

implicitly, an endorsement or opinion by the Secretary of Commerce or

by the Attorney General concerning the legality of such business plans

under the laws of any foreign country.

---------------------------------------------------------------------------

\27\See 15 U.S.C. Sec. 4016(b)(1) (1988) (injured party) and

Sec. 4016(b)(4) (1988) (party against whom claim is brought).

---------------------------------------------------------------------------

The Secretary of Commerce may revoke or modify an ETCR if the

Secretary or the Attorney General determines that the applicant's

export activities have ceased to comply with the statutory criteria for

obtaining a certificate. The Attorney General may also bring suit under

Section 15 of the Clayton Act to enjoin conduct that threatens ``a

clear and irreparable harm to the national interest,''\28\ even if the

conduct has been pre-approved as part of an ETCR.

---------------------------------------------------------------------------

\28\15 U.S.C. Sec. 4016(b)(5) (1988).

---------------------------------------------------------------------------

The Commerce Department, in consultation with the Department, has

issued guidelines setting forth the standards used in reviewing ETCR

applications.\29\ The ETC Guidelines contain several examples

illustrating application of the certification standards to specific

export trade conduct, including the use of vertical and horizontal

restraints and technology licensing arrangements. In addition, the

Commerce Department's Export Trading Company Guidebook\30\ provides

information on the functions and advantages of establishing or using an

export trading company, including factors to consider in applying for a

certificate of review. The Commerce Department's Office of Export

Trading Company Affairs provides advice and information on the

formation of export trading companies and facilitates contacts between

producers of exportable goods and services and firms offering export

trade services.

---------------------------------------------------------------------------

\29\See Department of Commerce, International Trade

Administration, Guidelines for the Issuance of Export Trade

Certificates of Review (2d ed.), 50 Fed. Reg. 1786 et seq.

(hereinafter ``ETC Guidelines'').

\30\U.S. Department of Commerce, International Trade

Administration, The Export Trading Company Guidebook (March 1984).

---------------------------------------------------------------------------

2.8 Related Legislation

2.81 Wilson Tariff Act

The Wilson Tariff Act, 15 U.S.C. Secs. 8-11, prohibits ``every

combination, conspiracy, trust, agreement, or contract'' made by or

between two or more persons or corporations, either of whom is engaged

in importing any article from a foreign country into the United States,

where the agreement is intended to restrain trade or increase the

market price in any part of the United States of the imported articles,

or of ``any manufacture into which such imported article enters or is

intended to enter.'' Violation of the Act is a misdemeanor, punishable

by a maximum fine of $5,000 or one year in prison. The Act also

provides for seizure of the imported articles.\31\

---------------------------------------------------------------------------

\31\Sec. 15 U.S.C. Sec. 11 (1988).

---------------------------------------------------------------------------

2.82 Antidumping Act of 1916

The Revenue Act of 1916, better known as the Antidumping Act, 15

U.S.C. Secs. 71-74, is not an antitrust statute, but its subject matter

is closely related to the antitrust rules regarding predation. It is a

trade statute that creates a private claim against importers who sell

goods into the United States at prices substantially below the prices

charged for the same goods in their home market. In order to state a

claim, a plaintiff must show both that such lower prices were commonly

and systematically charged, and that the importer had the specific

intent to injure or destroy an industry in the United States, or to

prevent the establishment of an industry. Dumping cases are more

commonly brought using the administrative procedures of the Tariff Act

of 1930, discussed below.

2.83 Tariff Act of 1930

A comprehensive discussion of the trade remedies available under

the Tariff Act is beyond the scope of these Guidelines. However,

because antitrust questions sometimes arise in the context of trade

actions, it is appropriate to describe these laws briefly.

2.831 Countervailing Duties

Pursuant to Title VII.A of the Tariff Act,\32\ U.S. manufacturers,

producers, wholesalers, unions and trade associations may petition for

the imposition of offsetting duties on subsidized foreign imports.\33\

The Department of Commerce's International Trade Administration

(``ITA'') must make a determination that the foreign government in

question is subsidizing the imports, and in most cases the

International Trade Commission (``ITC'') must determine that a domestic

industry is materially injured or threatened with material injury by

reason of these imports.

---------------------------------------------------------------------------

\32\See 19 U.S.C. Secs. 1671 et seq. (1988 & Supp. 1993).

\33\An alternative procedure exists under Tariff Act Sec. 303

for countries that have not subscribed to the Subsidies Code or

measures equivalent to it. See 19 U.S.C. Sec. 1303(a)(1). CF. Cabot

Corp. v. United States, 694 F. Supp. 949, 955 (Ct. Int'l Trade,

1988).

---------------------------------------------------------------------------

2.832 Antidumping Duties

Pursuant to Title VII.B of the Tariff Act,34 parties

designated in the statute may petition for antidumping duties, which

must be imposed on foreign merchandise that is being, or is likely to

be, sold in the United States at ``less than fair value'' (``LTFV''),

if the U.S. industry is materially injured or threatened with material

injury by imports of the foreign merchandise. The ITA makes the LTFV

determination, and the ITC is responsible for the injury decision.

---------------------------------------------------------------------------

\3\4See 19 U.S.C. 1673 et seq. (1988 & Supp. 1993).

---------------------------------------------------------------------------

2.833 Section 337

Section 337 of the Tariff Act, 19 U.S.C. 1337, prohibits ``unfair

methods of competition and unfair acts in the importation of articles

into the United States,'' if the effect is to destroy or substantially

injure a U.S. industry, or where the acts relate to importation of

articles infringing U.S. patents, copyrights, trademarks, or registered

mask works.35 Complaints are filed with ITC. The principal

remedies under Section 337 are an exclusion order directing that any

offending goods be excluded from entry into the United States, and a

cease and desist order directed toward any offending U.S. firms and

individuals.36 The ITC is required to give the Agencies an

opportunity to comment before making a final determination.37 In

addition, the Department participates in the interagency group that

prepares recommendations for the President to approve, disapprove, or

allow to take effect the import relief proposed by the ITC.

---------------------------------------------------------------------------

\3\519 U.S.C. 1337 (1988 & Supp. 1993).

\3\619 U.S.C. 1337 (d), (f) (1988 & Supp. 1993).

\3\719 U.S.C. 1337(b)(2) (1988).

---------------------------------------------------------------------------

2.84 Trade Act of 1974

2.841 Section 201

Section 201 of this Act, 19 U.S.C. 2251 et seq., provides that

American businesses claiming serious injury due to significant

increases in imports may petition the ITC for relief or modification

under the so-called ``escape clause.'' If the ITC makes a determination

that ``an article is being imported into the United States in such

increased quantities as to be a substantial cause of serious injury, or

the threat thereof, to the domestic industry producing an article like

or directly competitive with the imported article,'' and formulates its

recommendation for appropriate relief, the Department participates in

the interagency committee that conducts the investigations and advises

the President whether to adopt, modify, or reject the import relief

recommended by the ITC.

2.842 Section 301

Section 301 of this Act, 19 U.S.C. 2411, provides that the U.S.

Trade Representative (``USTR''), subject to the specific direction, if

any, of the President, may take action, including restricting imports,

to enforce rights of the United States under any trade agreement, to

address acts inconsistent with the international legal rights of the

United States, or to respond to unjustifiable, unreasonable or

discriminatory practices of foreign governments that burden or restrict

U.S. commerce. Interested parties may initiate such actions through

petitions to the USTR, or the USTR may itself initiate

proceedings.38 Of particular interest to antitrust enforcement is

Section 301(d)(3)(B)(III), which includes among the ``unreasonable''

practices of foreign governments that might justify a proceeding the

``toleration by a foreign government of systematic anticompetitive

activities by private firms or among enterprises in the foreign country

that have the effect of restricting * * * access of United States goods

[or services] to purchasing by such firms.''39 The Department

participates in the interagency committee that makes recommendations to

the President on what actions, if any, should be taken.

---------------------------------------------------------------------------

\3\819 U.S.C. 2412(a), (b) (1988); see also Identification of

Trade Expansion Priorities, Exec. Order No. 12, 901, 59 Fed. Reg.

10,727 (1994).

\3\919 U.S.C. 2411(d)(3)(B)(i)(III)(1988).

---------------------------------------------------------------------------

2.9 Relevant International Agreements

To further the twin goals of promoting enforcement cooperation

between the United States and foreign governments and of reducing any

tensions that may arise in particular proceedings, the Agencies have

developed close bilateral relationships with antitrust and competition

policy officials of many different countries. In some instances,

understandings have been reached with respect to notifications,

consultations, and cooperation in antitrust matters. In other

instances, more general rules endorsed by multilateral organizations

such as the Organization for Economic Cooperation and Development

(``OECD'') provide the basis for the Agencies' cooperative policies.

Finally, even in the absence of specific or general international

understandings or recommendations, the Agencies often seek cooperation

with foreign authorities.

2.91 Bilateral Cooperation Agreements

Formal written bilateral arrangements exist between the United

States and the Federal Republic of Germany, Australia, and

Canada.40 International antitrust cooperation can also occur

through mutual legal assistance treaties (``MLATs''), which are

treaties of general application pursuant to which the United States and

a foreign country agree to assist one another in criminal law

enforcement matters. MLATs currently are in force with nearly 20

foreign countries, and many more are in the process of ratification or

negotiation. However, only the MLAT with Canada has been used to date

to cover antitrust offenses.41 The Agencies also hold regular

consultations with the antitrust officials of Canada, the European

Commission, and Japan, and have close, informal ties with the antitrust

authorities of many other countries. Since 1990, they have cooperated

closely with countries in the process of establishing competition

agencies, assisted by funding provided by the Agency for International

Development.

---------------------------------------------------------------------------

\4\0See Agreement Relating to Mutual Cooperation Regarding

Restrictive Business Practices, June 23, 1976, U.S.-F.R.G., 27

U.S.T. 1956, T.I.S. No. 8291, reprinted in 4 Trade Reg. Rep. (CCH)

13,501; Agreement Between the Government of the United States of

America and the Government of Australia Relating to Cooperation on

Antitrust Matters, June 29, 1982, U.S.-Austrl., T.I.A.S. No. 10365,

reprinted in 4 Trade Reg. Rep. (CCH) 13,502; and Memorandum of

Understanding as to Notification, Consultation, and Cooperation with

Respect to the Application of National Antitrust Laws, March 9,

1984, U.S.-Can., reprinted in 4 Trade Reg. Rep. (CCH) 13,503. The

Agencies also signed a similar agreement with the Commission of the

European Communities in 1991. See Agreement Between the Government

of the United States of America and the Commission of the European

Communities Regarding the Application of Their Competition Laws,

Sept. 23, 1991, 30 ILM 1491 (Nov. 1991), reprinted in 4 Trade Reg.

Rep. (CCH) 13,504. However, on August 9, 1994, the European Court

of Justice ruled that the Agreement did not comply with

institutional requirements of the law of the European Union

(``EU''). Under the Court's decision, action by the EU Council of

Ministers is necessary for this type of agreement. See French

Republic v. Commission of European Communities (No. C-327/91) (Aug.

9, 1994).

\4\1Treaty with Canada on Mutual Legal Assistance in Criminal

Matters, S. Exec. Rep. No. 100-114, 100th Cong., 2d Sess. (1989).

---------------------------------------------------------------------------

During the week of October 3, 1994, Congress passed H.R. 4781, the

International Antitrust Enforcement Assistance Act of 1994, see n.95

infra, which authorizes the Agencies to enter into antitrust mutual

assistance agreements in accordance with the legislation.

2.92 International Guidelines and Recommendations

The Agencies have agreed with respect to member countries of the

OECD to consider the legitimate interests of other nations in

accordance with relevant OECD recommendations.42 Under the terms

of a 1986 recommendation, the United States agency with responsibility

for a particular case notifies a member country whenever an antitrust

enforcement action may affect important interests of that country or

its nationals.43 Examples of potentially notifiable actions

include requests for documents located outside the United States,

attempts to obtain information from potential witnesses located outside

the United States, and cases or investigations with significant foreign

conduct or involvement of foreign persons.

---------------------------------------------------------------------------

\4\2See Revised Recommendations of the OECD Council Concerning

Cooperation Between Member Countries on Restrictive Business

Practices Affecting International Trade, OECD Doc. No. C(86)44

(Final) (May 21, 1986). The Recommendation also calls for countries

to consult with each other in appropriate situations, with the aim

of promoting enforcement cooperation and minimizing differences that

may arise.

\4\3The OECD has 25 member countries and the European Union is

represented as an observer. The OECD's membership includes many of

the most advanced market economies in the world. The OECD also has

several observer nations, who have rapid progress toward open market

economies. The Agencies follow recommended OECD practices with

respect to all member countries.

---------------------------------------------------------------------------

3. Threshold International Enforcement Issues

3.1 Jurisdiction

Just as the acts of U.S. citizens in a foreign nation ordinarily

are subject to the law of the country in which they occur, the acts of

foreign citizens in the United States ordinarily are subject to U.S.

law. The reach of the U.S. antitrust laws is not limited, however, to

conduct and transactions that occur within the boundaries of the United

States. 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 nationality of the parties involved. In a world

in which economic transactions observe no boundaries, international

recognition of the ``effects doctrine'' of jurisdiction has become

widespread.\44\

---------------------------------------------------------------------------

\44\The test adopted in the European Court of Justice usually

produces the same outcomes as the ``effects'' test employed in the

U.S. See Cases 89/85, etc., Ahlstrom v. Comm'n, note 21 supra. The

merger laws of the European Union, Canada, Germany, France,

Australia, and the Czech and Slovak Republics, among others, take a

similar approach.

---------------------------------------------------------------------------

3.11 Jurisdiction Over Conduct Involving Import Commerce

With respect to foreign import commerce, the Supreme Court has

recently in Hartford Fire Insurance Co. v. California 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.''\45\

Imports intended for sale in the United States by definition affect the

U.S. domestic market directly, and will, therefore, almost invariably

satisfy the intent part of the Hartford test. Whether they in fact

produce the requisite substantial effects will depend on the facts of

each case.

---------------------------------------------------------------------------

\45\113 S.CT. 2891, 2909 (1993).

---------------------------------------------------------------------------

Illustrative Example A\46\

Situation: A, B, C, and D, are foreign companies that produce a

product in various foreign countries. None has any U.S. production,

nor any U.S. subsidiaries. They organize a cartel for the purpose of

raising the price for the product in question. Collectively, the

cartel members make substantial sales into the United States, both

in absolute terms and relative to total U.S. consumption.

---------------------------------------------------------------------------

\46\The examples incorporated into the text are intended solely

to illustrate how the Agencies would apply the principles

articulated in the Guidelines in differing fact situations. In each

case, of course, the ultimate outcome of the analysis, i.e., whether

or not a violation of the antitrust laws has occurred, would depend

on the specific facts and circumstances of the case. These examples,

therefore, do not address many of the factual and economic questions

the Agencies would ask in analyzing particular conduct or

transactions under the antitrust laws. Therefore, certain

hypothetical situations presented here may, when fully analyzed, not

violate any provision of the antitrust laws.

---------------------------------------------------------------------------

Discussion: These facts present the straightforward case of

cartel participants selling products directly into the United

States. In this situation, the transaction is unambiguously an

import into the U.S. market, and the sale is not complete until the

goods reach the United States. Thus, U.S. jurisdiction is clear

under the general principles of antitrust law expressed most

recently in Hartford Fire. The facts presented here demonstrate

actual and intended participation in U.S. commerce.\47\

---------------------------------------------------------------------------

\47\See Section 3.13 infra.

---------------------------------------------------------------------------

3.12 Jurisdiction Over Mergers and Acquisitions Subject to Section 7

of the Clayton Act

The general jurisdictional reach of Section 7 is co-extensive with

the reach of the Sherman Act, as a result of the 1980 amendment of the

Clayton Act extending it to all matters affecting commerce, which

includes trade or commerce with foreign nations.\48\ Thus, the Agencies

would apply the same principles regarding their foreign commerce

jurisdiction to Clayton Section 7 cases as they would apply in Sherman

Act cases.

---------------------------------------------------------------------------

\48\See note 6 supra; Antitrust Procedural Improvements Act of

1980, Pub. L. No. 96-349, 94 Stat. 1154 (1980).

---------------------------------------------------------------------------

Illustrative Example B

Situation: Two foreign firms, one in Europe and the other in

Canada, account together for 80% of U.S. sales of a particular

product. Neither firm has a U.S. subsidiary, and neither has

productive assets in the United States; instead, both serve the U.S.

market purely through direct imports. They enter into an agreement

to merge.

Discussion: As noted above, the jurisdictional provisions of

Section 7 of the Clayton Act reach the stock and asset acquisitions

of persons engaged in ``any activity affecting commerce.'' In

assessing jurisdiction under Section 7 for international

transactions the Agencies analyze the question of effects on

commerce in a manner consistent with the foreign Trade Antitrust

Improvements Act of 1982 (``FTAIA'')\49\: that is, they look to see

whether the effects on U.S. domestic or import commerce are direct,

substantial, and reasonably foreseeable.\50\ It is appropriate to do

so because the FTAIA sheds light on the type of effects Congress

considered necessary for foreign commerce cases, even though the

FTAIA itself did not amend the Clayton Act. On the facts of this

example, the Agencies would conclude that Section 7 jurisdiction

exists.\51\ While the transaction may be subject to the terms of the

HSR Act (assuming size of person and size of transaction thresholds

are met), it would appear to be exempted by 16 CFR 802.51(b). See

Section 4.22 infra.

---------------------------------------------------------------------------

\49\15 U.S.C. Sec. 6a (1988) (Sherman Act) and Sec. 45(a)(3)

(1988) (FTC Act).

\50\See Section 3.131 infra.

\51\If it appears in a particular case that effective relief may

be difficult to obtain, the case may be one in which the Agencies

would seek to coordinate their efforts with other authorities who

are examining the transaction. Through concepts such as ``positive

comity,'' one country's authorities may ask another country to take

measures that address possible harm to competition in the requesting

country's market.

---------------------------------------------------------------------------

3.13 Jurisdiction Over Conduct Involving Other Commerce

With respect to foreign commerce other than imports, the

jurisdictional limits of the Sherman Act and the FTC Act are delineated

in the FTAIA.

3.131 The Foreign Trade Antitrust Improvements Act of 1982

The FTAIA provides, in nearly identical language in both the

Sherman Act and the FTC Act, that the statutes:

* * * shall not apply to conduct involving trade or commerce

(other than import trade or import commerce) with foreign nations

unless--

(1) such conduct has a direct, substantial, and reasonably

foreseeable effect--

(A) on trade or commerce which is not trade or commerce with

foreign nations, or on import trade or import commerce with foreign

nations; or

(B) on export trade or export commerce with foreign nations, of

a person engaged in such trade or commerce in the United States;\52\

and

---------------------------------------------------------------------------

\52\If the Sherman Act or the FTC Act applies to such conduct

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

shall apply to such conduct only for injury to export business in

the United States. (15 U.S.C. Secs. 6a, 45(a)(3) (1988).

---------------------------------------------------------------------------

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

[the Sherman Act or the FTC Act], other than this Section.

Illustrative Example C

Situation: Companies E and F are the only producers of product Q

in country Epsilon, one of the biggest markets for sales of Q in the

world. E and F together account for 90% of the sales of product Q in

Epsilon. In order to prevent a competing U.S. producer from entering

the market in Epsilon, E and F agree that neither one of them will

purchase or distribute the U.S. product, and that they will take

``all feasible'' measures to keep the U.S. company out of their

market. Without specifically discussing what other measures they

will take to carry out this plan, E and F meet with their

distributors and, through a variety of threats and inducements,

obtain agreement of all the distributors not to carry the U.S.

product. There are no commercially feasible substitute distribution

channels available to the U.S. producer. Because of the actions of E

and F, the U.S. producer cannot find any distributors to carry its

product and is unable to enter the market in Epsilon.

Discussion: The agreement between E and F not to purchase or

distribute the U.S. product would clearly have a direct and

reasonable foreseeable effect on U.S. export commerce, since it is

aimed at a U.S. exporter. The substantiality of the effects on U.S.

exports would depend on the significance of E and F as purchasers

and distributors of Q, although on these facts virtually total

foreclosure from the Epsilon market would almost certainly qualify

as a substantial effect for jurisdictional purposes.

3.132 Jurisdiction in Cases Under Subsection 1(A) of FTAIA

To the extent that conduct in foreign countries does not

``involve'' import commerce but does have an ``effect'' on either

import transactions or commerce within the United States, the Agencies

apply the ``direct, substantial, and reasonable foreseeable'' standard

of the FTAIA. That standard is applied, for example, in cases in which

a cartel of foreign enterprises, or a foreign monopolist, reaches the

U.S. market through any mechanism that goes beyond direct sales, such

as the use of an unrelated intermediary, as well as cases in which

foreign vertical restrictions or intellectual property licensing

arrangements have an anticompetitive effect on U.S. commerce.

Illustrative Example D

Situation: As in Illustrative Example A, the foreign cartel

produces a product in several foreign countries. None of its members

have any U.S. production, nor do any of them have U.S. subsidiaries.

They organize a cartel for the purpose of raising the price for the

product in question. Rather than selling directly into the United

States, however, the cartel sells to an intermediary outside the

United States, which they know will resell the product in the United

States.

Discussion: The jurisdictional analysis would change slightly

from the one presented in Example A, because not only is the conduct

being challenged entered into by cartelists in a foreign country,

but it is also initially implemented through a sale made in a

foreign country. Despite the different test, however, the outcome

would remain the same. The existence of the intermediary would

trigger the application of the FTAIA because the conduct would not

involve import commerce within the meaning of the FTAIA and the

Agencies would have to determine whether the challenged conduct had

``direct, substantial and reasonably foreseeable effects'' on U.S.

domestic or import commerce. Furthermore, in keeping with the

Supreme Court's admonition in Summit Health, Ltd. v. Pinhas, 111 S.

Ct. 1842, 1847 (1991), the Agencies would focus on the potential

harm that would ensue if the conspiracy were successful, not on

whether the alleged unlawful conduct itself had the prohibited

effect upon interstate or foreign commerce.

Illustrative Example E

Situation: Widgets are manufactured in both the United States

and various other countries around the world. The non-U.S.

manufacturers get together privately outside the United States and

agree among themselves to raise prices to specified levels and take

measures to restrict imports into their respective countries, but

specifically indicate that sales in the United States are not

covered, and that each company will be free independently to set its

prices for the U.S. market. Over time, however, the cartel members

unilaterally begin to sell excess production into the United States

as a means by which to stabilize the existing pact. The resulting

sales into the United States affect output and price in the United

States and U.S. exports are impaired.

Discussion: This example is intended to highlight the type of

effects on U.S. commerce that can result from a price-fixing

agreement that expressly excludes sales in the United States and

thus does not involve import commerce within the meaning of the

FTAIA. The jurisdictional issue presented, therefore, is whether the

consequence of each party's unilateral decision to sell into the

United States in order to stabilize the agreement is sufficiently

direct and reasonably foreseeable under the FTAIA to satisfy the

jurisdictional standard. If the facts showed that certain members of

the cartel independently sold in a manner that was not attributable

to the agreement, the Agencies would not have jurisdiction to

challenge the underlying agreement.\53\ However, if the facts showed

that the cartel anticipated affecting the U.S. market as a necessary

and indispensable aspect of the original conspiracy, then the

express exclusion of the U.S. market in the price-fixing agreement

would be pretextual. In that case, the cartel would be affecting

output and price in the United States, and the sales into the United

States to alleviate pressure on the cartel would be considered

sufficiently direct to satisfy the requirements of the FTAIA. In

addition, because the illegal agreement incorporated provisions

designed to restrict access to foreign markets and stymied efforts

by U.S. firms to export, the facts would support a conclusion that

the agreement's restraints had a ``direct, substantial and

reasonably foreseeable effect'' on the commerce of U.S. exporters.

See infra Sec. 3.133.

---------------------------------------------------------------------------

\53\If the Agencies lack jurisdiction under the FTAIA to

challenge the cartel, the facts of this example would nonetheless

lend themselves well to cooperative enforcement action among

antitrust agencies. Virtually every country with an antitrust law

prohibits horizontal cartels and the Agencies would willingly

cooperate with foreign authorities taking direct action against the

cartel in the countries where the agreement has raised the price of

widgets to the extent such cooperation is allowed under U.S. law and

any agreement executed pursuant to U.S. law with foreign agencies.

---------------------------------------------------------------------------

3.133 Jurisdiction in Cases Involving Foreign Export Commerce

Two categories of ``export cases'' fall within the FTAIA's

jurisdictional test.

First, the Agencies may in appropriate cases take enforcement

action against anticompetitive conduct, wherever occurring, that

restrains U.S. exports, if (1) the conduct has a direct, substantial,

and reasonably foreseeable effect on exports of goods or services from

the United States, and (2) the U.S. courts can obtain jurisdiction over

the foreign persons or corporations engaged in such conduct.\54\ As

Section 3.2 below explains more fully, if the conduct is unlawful under

the importing country's antitrust laws as well, the Agencies are also

prepared to work with that country's authorities if they are better

situated to remedy the conduct, and if they are prepared to take action

against such conduct pursuant to their antitrust laws that will address

the U.S. concerns.

---------------------------------------------------------------------------

\54\See U.S. Department of Justice Press Release dated April 3,

1992 (announcing enforcement policy that would permit the Department

to challenge foreign business conduct that harms American exports

when the conduct would have violated U.S. antitrust laws if it

occurred in the United States).

---------------------------------------------------------------------------

Second, the Agencies may in appropriate cases take enforcement

action against conduct by U.S. exporters that has a direct,

substantial, and reasonably foreseeable effect on trade or commerce

within the United States, or on import trade or commerce. This can

arise in two principal ways. First, if demand in the United States were

inelastic or if sellers not involved in the agreement are unable to

increase sales readily, an agreement among U.S. firms regarding the

level of their exports that had a substantial share of the relevant

market could reduce supply and raise prices in the United States.\55\

Second, conduct ostensibly export-related could affect the price of

products sold or resold in the United States. This kind of effect could

occur if, for example, U.S. firms fixed the price of an input used to

manufacture a product overseas for ultimate resale in the United

States.

---------------------------------------------------------------------------

\55\One would need to show more than indirect price effects

resulting from legitimate export efforts to support an antitrust

challenge. See ETC Guidelines, note 29, supra, 50 Fed.Reg. at 1791.

---------------------------------------------------------------------------

Illustrative Example F

Situation: Companies, P, Q, R, and S, organized under the laws

of country Alpha, all manufacture and distribute construction

equipment. Much of that equipment is protected by patents in the

various countries where it is sold, including Alpha. The companies

all belong to a private trade association, which develops industry

standards that are often (although not always) adopted by Alpha's

regulatory authorities. Feeling threatened by competition from the

United States, the companies agree at a trade association meeting

(1) to refuse to adopt any U.S. company technology as an industry

standard, and (2) to boycott any distributor of construction

equipment that stocks competing U.S. products. The U.S. companies

have taken all necessary steps to protect their intellectual

property under the law of Alpha.

Discussion: In this example, the collective activity impedes

U.S. companies in two ways: Their technology is boycotted (even if

U.S. companies are willing to license their intellectual property)

and they are foreclosed from access to existing distributors who

cannot afford to lose the accounts of their major domestic

companies. The jurisdictional question is whether these actions

create a direct, substantial, and reasonably foreseeable effect on

the exports of U.S. companies. The mere fact that only the market of

Alpha appears to be foreclosed is not enough to defeat such an

effect. Only if exclusion from Alpha as a quantitative measure were

so de minimis in terms of actual volume of trade that there would

not be a substantial effect on U.S. export commerce would

jurisdiction be lacking. Given that this example involves

construction equipment, a generally highly priced capital good, the

exclusion from Alpha would probably satisfy the substantiality

requirement for FTAIA jurisdiction, even if U.S. exports to Alpha

would be expected to amount to only a few machines. This arrangement

appears to have been created with particular reference to

competition from the United States, which indicates that the effects

on U.S. exports are both direct and foreseeable.

3.14 Jurisdiction When U.S. Government Finances or Purchases

The Agencies may, in appropriate cases, take enforcement action

when the U.S. Government is a purchaser, or substantially funds the

purchase, of goods or services for consumption or use abroad. Cases in

which the effect of anticompetitive conduct with respect to the sale of

these goods or services falls primarily on U.S. taxpayers may qualify

for redress under the federal antitrust laws.\56\ As a general matter,

the Agencies consider there to be a sufficient effect on U.S. commerce

to support the assertion of jurisdiction if, as a result of its payment

or financing, the U.S. Government bears more than half the cost of the

transaction. For purposes of this determination, the Agencies apply the

standards used in certifying export conduct under the ETC Act of 1982,

15 U.S.C. Secs. 4011-21 (1982).\57\

---------------------------------------------------------------------------

\56\Cf. United States v. Concentrated Phosphate Export Ass'n,

393 U.S. 199, 208 (1968) (``[A]lthough the fertilizer shipments were

consigned to Korea although in most cases Korea formally let the

contracts, American participation was the overwhelmingly dominant

feature. The burden of noncompetitive pricing fell, not on any

foreign purchaser, but on the American taxpayer. The United States

was, in essence, furnishing fertilizer to Korea ***. The foreign

elements in the transaction were, by comparison insignificant.'');

United States v. Standard Tallow Corp., 1988-1 Trade Cas. (CCH)

67,913 (S.D.N.Y. 1988) (consent decree) (barring suppliers from

fixing prices or rigging bids for the sale of tallow financed in

whole or in part through grants or loans by the U.S. Government);

United States v. Anthracite Export Ass'n, 1970 Trade Cas. (CCH)

73,348 (M.D. Pa. 1970) (consent decree) (barring price-fixing, bid-

rigging, and market allocation in Army foreign aid program).

\57\See ETC Guidelines, note 29 supra, 50 Fed. Reg. 1799-1800.

The requisite U.S. Government involvement could include the actual

purchase of goods by the U.S. Government for shipment abroad, a U.S.

Government grant to a foreign government that is specifically

earmarked for the transaction, or a U.S. Government loan

specifically earmarked for the transaction that is made on such

generous terms that it amounts to a grant. U.S. Government interests

would not be considered to be sufficiently implicated with respect

to a transaction that is funded by an international agency, or a

transaction in which the foreign government received non-earmarked

funds from the United States as part of a general government-to-

government aid program.

---------------------------------------------------------------------------

Illustrative Example G

Situation: A combination of U.S. firms and local firms in

country Beta create a U.S.-based joint venture for the purpose of

building a major pollution control facility for Beta's Environmental

Control Agency (``BECA''). The venture has received preferential

funding from the U.S. Government, which has the effect of making the

present value of expected future repayment of the principal and

interest on the loan less than half its face value. Once the venture

has begun work, it appears that its members secretly agreed to

inflate the price quoted to BECA, in order to secure more funding.

Discussion: The fact that the U.S. Government bears more than

half the financial risk of the transaction is sufficient for

jurisdiction. With jurisdiction established, the Agencies would

proceed to investigate whether the apparent bid-rigging actually

occurred.\58\

---------------------------------------------------------------------------

\58\Such conduct might also violate the False Claims Act, 31

U.S.C. Secs. 3729-3733 (1988 & Supp. 1993).

---------------------------------------------------------------------------

Illustrative Example H

Situation: The United States has many military bases and other

facilities located in other countries. These facilities procure

substantial goods and services from suppliers in the host country.

In country X, it comes to the attention of the local U.S. military

base commander that bids to supply certain construction services

have been rigged.

Discussion: Sales made by a foreign party to the U.S.

Government, including to a U.S. facility located in a foreign

country, are within U.S. antitrust jurisdiction when they fall

within the rule of Section 3.13 above. Bid-rigging of sales to the

U.S. Government represents the kind of conduct that can lead to an

antitrust action. Indeed, in the United States this type of behavior

is normally prosecuted by the Department as a criminal offense. In

practice, the Department has whenever possible worked closely with

the host country antitrust authorities to explore remedies under

local law. This has been successful in a number of instances.\59\

---------------------------------------------------------------------------

\59\If, however, local law does not provide adequate remedies,

or the local authorities are not prepared to take action, the

Department will weigh the comity factors, discussed in Section 3.2

infra, and take such action as is appropriate.

---------------------------------------------------------------------------

3.2 COMITY

In enforcing the antitrust laws, the Agencies consider

international comity. Comity itself reflects the broad concept of

respect among co-equal sovereign nations and plays a role in

determining ``the recognition which one nation allows within its

territory to the legislative, executive or judicial acts of another

nation.''\60\ Thus, in determining whether to assert jurisdiction to

investigate or bring an action, or to seek particular remedies in a

given case, each Agency takes into account whether significant

interests of any foreign sovereign would be affected.\61\

---------------------------------------------------------------------------

\60\Hilton v. Guyot, 159 U.S. 113, 164 (1895).

\61\The Agencies have agreed to consider the legitimate

interests of other nations in accordance with the recommendations of

the OECD and various bilateral agreements, see Section 2.9 supra.

---------------------------------------------------------------------------

In performing a comity analysis, the Agencies take into account all

relevant factors. Among others, these may include: (1) the relative

significance to the alleged violation of conduct within the United

States, as compared to conduct abroad; (2) the nationality of the

persons involved in or affected by the conduct; (3) the presence or

absence of a purpose to affect U.S. consumers, markets, or exporters;

(4) the relative significance and foreseeability of the effects of the

conduct on the United States as compared to the effects abroad; (5) the

existence of reasonable expectations that would be furthered or

defeated by the action; (6) the degree of conflict with foreign law or

articulated foreign economic policies; (7) the effect on foreign

enforcement; and (8) the effectiveness of foreign enforcement.

The relative weight that each factor should be given depends on the

facts and circumstances of each case. With respect to the factor

concerning foreign law, the Supreme Court made clear in Hartford

Fire\62\ that no conflict exists for purposes of an international

comity analysis in the courts if the person subject to regulation by

two states can comply with the laws of both. Bearing this in mind, the

Agencies first ask what laws or policies of the arguably interested

foreign jurisdictions are implicated by the conduct in question. There

may be no actual conflict between the antitrust enforcement interests

of the United States and the laws or policies of a foreign sovereign.

This is increasingly true as more countries adopt antitrust or

competition laws that are compatible with those of the United States.

In these cases, the anticompetitive conduct in question may also be

prohibited under the pertinent foreign laws, and thus the only possible

conflict would relate to enforcement practices or remedy. If the laws

or policies of a foreign nation are neutral, it is again possible for

the parties in question to comply with the U.S. prohibition without

violating foreign law. Of course, the Agencies take into account comity

factors beyond whether there is a conflict with foreign law. For

example, in deciding whether or not to challenge an alleged antitrust

violation, the Agencies would, as part of a comity analysis, consider

whether one country either encourages a certain course of conduct or

wishes to leave parties free to choose among different strategies,

while another opts to prohibit some of those strategies.

---------------------------------------------------------------------------

\62\113 S.Ct. 2891, 2910.

---------------------------------------------------------------------------

In lieu of bringing an enforcement action, or course, the Agencies

may consult with interested foreign sovereigns through appropriate

diplomatic channels to attempt to eliminate anticompetitive effects in

the United States. If, however, the United States decides to prosecute

an antitrust action, such a decision represents a determination by the

Executive Branch that the importance of antitrust enforcement outweighs

any relevant foreign policy concerns.\63\ The Department does not

believe that it is the role of the courts to ``second-guess the

executive branch's judgment as to the proper role of comity concerns

under these circumstances.\64\ To date, no Commission cases have

presented this issue. It is important also to note that in disputes

between private parties, many courts are willing to undertake a comity

analysis.\65\

---------------------------------------------------------------------------

\63\Foreign policy concerns may also lead the United States not

to prosecute a case. See, e.g., U.S. Department of Justice Press

Release dated Nov. 19, 1984 (announcing the termination, based on

foreign policy concerns, of a grand jury investigation into

passenger air travel between the United States and the United

Kingdom).

\64\United States v. Baker Hughes, Inc., 731 F. Supp. 3, 6 n.5

(D.D.C.), aff'd, 908 F.2d 981 (D.C. Cir. 1990).

\65\See, e.g., Timberlane Lumber Co. v. Bank of America, N.T.,

549 F.2d 597 (9th Cir. 1976).

---------------------------------------------------------------------------

Illustrative Example I

Situation: A group of buyers in one foreign country decide that

they will agree on the price that they will offer to suppliers of a

particular product that they procure from overseas. Major suppliers

of that product are located in the United States and the agreement

results in substantial loss of sales and capacity reductions in the

United States.

Discussion: From a jurisdictional point of view, the FTAIA

standard appears to be satisfied because the effects on U.S.

exporters presented here are direct and the percentage of supply

accounted for by the buyers' cartel is substantial given the fact

that the U.S. suppliers are ``major.'' The Agencies, however, would

also take into consideration the comity aspects presented before

deciding whether or not to proceed.

Consistent with its consideration of comity and its obligations

under various international agreements, the Agencies would

ordinarily notify the antitrust authority in the cartel's home

country. If that authority were in a better position to address the

competitive problem, and were prepared to take effective action to

address the adverse effects on U.S. commerce, the Agencies would

consider working cooperatively with the foreign authority or staying

their own remedy pending enforcement efforts by the foreign country.

In deciding whether to proceed, the Agencies would weigh the factors

relating to comity set forth above. Factors weighing in favor of

bringing such an action include the substantial harm caused by the

cartel to the United States and the fact that the foreign parties

purposefully availed themselves of the benefits of doing business in

and with the United States.

3.3 Effects of Foreign Government Involvement

Foreign governments may be involved in a variety of ways in conduct

that may have antitrust consequences. To address the implications of

such foreign governmental involvement, Congress and the courts have

developed four special doctrines: The doctrine of foreign sovereign

immunity; the doctrine of foreign sovereign compulsion; the act of

state doctrine; and the application of the Noerr-Pennington doctrine to

immunize the lobbying of foreign governments. Although these doctrines

are interrelated, for purposes of discussion the Guidelines discuss

each one individually.

3.31 Foreign Sovereign Immunity

The scope of immunity of a foreign government or its agencies and

instrumentalities (hereinafter foreign government)\66\ from the

jurisdiction of the U.S. courts for all causes of action, including

antitrust, is governed by the Foreign Sovereign Immunities Act of 1976

(``FSIA'').\67\ Subject to the treaties in place at the time of FSIA's

enactment, a foreign government is immune from suit except where

designated in the FSIA.\68\

---------------------------------------------------------------------------

\66\Section 1603(b) of the Foreign Sovereign Immunities Act of

1976 defines an ``agency or instrumentality of a foreign state'' to

be any entity ``(1) which is a separate legal person, corporate or

otherwise; and (2) which is an organ of a foreign state or political

subdivision thereof, or a majority of whose shares or other

ownership interest is owned by a foreign state or political

subdivision thereof; and (3) which is neither a citizen of a State

of the United States as defined in Section 1332 (c) and (d) of

[Title 28, U.S. Code], nor created under the laws of any third

country.'' 28 U.S.C. Sec. 1603(b) (1988). It is not uncommon in

antitrust cases to see state-owned enterprises meeting this

definition.

\67\28 U.S.C. Secs. 1602 et seq. (1988).

\68\28 U.S.C. Sec. 1604 (1988 & Supp. 1993).

---------------------------------------------------------------------------

Under the FSIA, a U.S. court has jurisdiction if the foreign

government has:

(a) Waived its immunity explicitly or by implication,

(b) Engaged in commercial activity,

(c) Expropriated property in violation of international law,

(d) Acquired rights to U.S. property,

(e) Committed certain torts within the United States, or agreed to

arbitration of a dispute.\69\

---------------------------------------------------------------------------

\69\28 U.S.C. Sec. 1605(a)(1-6) (1988).

---------------------------------------------------------------------------

The commercial activities exception is a frequently invoked

exception to sovereign immunity under the FSIA. Under the FSIA, a

foreign government is not immune in any case:

* * * in which the action is based upon a commercial activity

carried on in the United States by the foreign state; or upon an act

performed in the United States in connection with a commercial

activity of the foreign state elsewhere; or upon an act outside the

territory of the United States in connection with a commercial

activity of the foreign state elsewhere and that act causes a direct

effect in the United States.\70\

\70\28 U.S.C. Sec. 1605(a)(2) (1988).

---------------------------------------------------------------------------

``Commercial activity of the foreign state'' is not defined in the

FSIA, but is to be determined by the ``nature of the course of conduct

or particular transaction or act, rather than by reference to its

purpose.''\71\ In attempting to differentiate commercial from sovereign

activity, courts have considered whether the conduct being challenged

is customarily performed for profit\72\ and whether the conduct is of a

type that only a sovereign government can perform.\73\ As a practical

matter, most activities of foreign government-owned corporations

operating in the commercial marketplace will be subject to U.S.

antitrust laws to the same extent as the activities of foreign

privately-owned firms.

---------------------------------------------------------------------------

\71\28 U.S.C. Sec. 1603(d) (1988).

\72\See e.g., Republic of Argentina v. Weltover, Inc., 112 S.

Ct. 2160 (1992); Schoenberg v. Exportadora de Sal, S.A. de C.V., 930

F.2d 777 (9th Cir. 1991); Rush-Presbyterian--St. Luke's Medical Ctr.

v. Hellenic Republic, 877 F.2d 574, 578, n.4 (7th Cir.), cert.

denied, 493 U.S. 937 (1989).

\73\See e.g., Saudia Arabia v. Nelson, 113 S. Ct. 1471 (1993);

de Sanchez v. Banco Central de Nicaragua, 770 F.2d 1385 (5th Cir

1985); Letelier v. Republic of Chile, 748 F.2d 790, 797-98 (2d Cir

1984), cert. denied, 471 U.S. 1125 (1985); International Ass'n of

Machinists & Aerospace Workers v. Organization of Petroleum

Exporting Countries, 477 F. Supp. 553 (C.D. Cal. 1979), aff'd on

other grounds, 649 F.2d 1354 (9th Cir. 1981), cert. denied, 454 U.S.

1163 (1982).

---------------------------------------------------------------------------

The commercial activity also must have a substantial nexus with the

United States before a foreign government is subject to suit. The FSIA

sets out three different standards for meeting this requirement. First,

the challenged conduct by the foreign government may occur in the

United States.\74\ Alternatively, the challenged commercial activity

may entail an act performed in the United States in connection with a

commercial activity of the foreign government elsewhere.\75\ Or,

finally, the challenged commercial activity of a foreign government

outside of the United States may produce a direct effect within the

United States, i.e., there is an effect which follows ``as an immediate

consequence of the defendant's * * * activity.''\76\

---------------------------------------------------------------------------

\74\28 U.S.C. Sec. 1603(e) (1988).

\75\See H.R. Rep No. 1487, 94th Cong., 2d Sess. 18-19 (1976),

Reprinted in 1976 U.S.C.C.A.N. 6604, 6617-18 (providing as an

example the wrongful termination in the United States of an employee

of a foreign state employed in connection with commercial activity

in a third country.) But see Filus v. LOT Polish Airlines, 907 F.2d

1328, 1333 (2d Cir. 1990)(holding as too attenuated the failure to

warn of a defective product sold outside of the United States in

connection with an accident outside the United States.)

\76\Republic of Argentina, 112 S. Ct. at 2168. This test is

similar to proximate cause formulations adopted by other courts. See

Martin v. Republic of South Africa, 836 F.2d 91, 95 (2d Cir. 1987)

(a direct effect is one with no intervening element which flows in a

straight line without deviation or interruption), quoting Upton v.

Empire of Iran, 459 F. Supp. 264, 266 (D.D.C. 1978) aff'd mem., 607

F.2d 494 (D.C. Cir. 1979).

---------------------------------------------------------------------------

3.32 Foreign Sovereign Compulsion

Although U.S. antitrust jurisdiction extends to conduct and parties

in foreign countries whose actions have the required effects on U.S.

commerce, as discussed above, those parties may find themselves subject

to conflicting requirements from the other country (or countries) where

they are located.\77\ Under Hartford Fire, if it is possible for the

party to comply both with the foreign law and the U.S. antitrust laws,

the existence of the foreign law does not provide any excuse for

actions that do not comply with U.S. law. However, sometimes a direct

conflict arises when the facts demonstrate that the foreign sovereign

has compelled the very conduct that the U.S. antitrust law prohibits.

---------------------------------------------------------------------------

\77\Conduct by private entities not required by law is entirely

outside of the protections afforded by this defense. See Continental

Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 706 (1962);

United States v. Watchmakers of Switzerland Info. Ctr., Inc., 1963

Trade Cas. (CCH)  70,600 at 77,456--57 (S.D.N.Y. 1962) (``[T]he

fact that the Swiss Government may, as a practical matter, approve

the effects of this private activity cannot convert what is

essentially a vulnerable private conspiracy into an unassailable

system resulting from a foreign government mandate.'')

---------------------------------------------------------------------------

In these circumstances, at least one court has recognized a defense

under the U.S. antitrust laws, and the Agencies will also recognize

it.\78\ There are two rationales underlying the defense of foreign

sovereign compulsion. First, Congress enacted the U.S. antitrust laws

against the background of well recognized principles of international

law and comity among nations, pursuant to which U.S. authorities give

due deference to the acts of foreign governments acting within their

own spheres of authority. A defense for actions taken under the

circumstances spelled out below serves to accommodate two equal

sovereigns. Second, important considerations of fairness to the

defendant require some mechanism that provides a predictable rule of

decision for those seeking to conform their behavior to all pertinent

laws.

---------------------------------------------------------------------------

\78\Interamerican Refining Corp. v. Texaco Maracaibo, Inc., 307

F. Supp. 1291 (D. Del. 1970) (defendant, having been ordered by the

government of Venezuela not to sell oil to a particular refiner out

of favor with the current political regime, held not subject to

antitrust liability under the Sherman Act for an illegal group

boycott). The defense of foreign sovereign compulsion is

distinguished from the federalism-based state action doctrine. The

state action doctrine applies not just to the actions of states and

their subdivisions, but also to private anticompetitive conduct that

is both undertaken pursuant to clearly articulated state policies,

and is actively supervised by the state. See FTC v. Ticor Title

Insurance Co., 112 S. Ct. 2169 (1992); California Retail Liquor

Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980);

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

---------------------------------------------------------------------------

Because of the limited scope of the defense, the Agencies will

refrain from enforcement actions on the ground of foreign sovereign

compulsion only when certain criteria are satisfied. First the foreign

government must have compelled the anticompetitive conduct in

circumstances in which refusal to comply with the foreign government's

command would give rise to the imposition of penal or other severe

sanctions. As a general matter, the Agencies regard the foreign

government's formal representation that refusal to comply with its

commend would have such a result as being sufficient to establish that

the conduct in question has been compelled, as long as the

representation contains sufficient detail to enable them to see

precisely how the compulsion would be accomplished under the local

law.\79\ Foreign government measures short of compulsion do not suffice

for this defense, although they can be relevant in a comity analysis.

---------------------------------------------------------------------------

\79\For example, the Agencies may not regard as dispositive a

statement that is ambiguous or that on its face appears to be

internally inconsistent. The Agencies may inquire into the

circumstances underlying the statement and they may also request

further information if the source of the power to compel is unclear.

---------------------------------------------------------------------------

Second, although there can be no strict territorial test for this

defense, the defense normally applies only when the foreign government

compels conduct which can be accomplished entirely within its own

territory. If the compelled conduct occurs in the United States, the

Agencies will not recognize the defense.\80\ For example, no defense

arises when a foreign government requires the U.S. subsidiaries of

several firms to organize a cartel in the United States to fix the

price at which products would be sold in the United States, or when it

requires its firms to fix mandatory resale prices for their U.S.

distributors to use in the United States.

---------------------------------------------------------------------------

\80\See Linseman v. World Hockey Ass'n, 439 F. Supp. 1315, 1325

(D. Conn. 1977).

---------------------------------------------------------------------------

Third, with reference to the discussion of foreign sovereign

immunity in Section 3.31 above, the order must come from the foreign

government acting in its governmental capacity. The defense does not

arise from conduct that would fall within the FSIA commercial activity

exception.

Illustrative Example J

Situation: Greatly increased quantities of commodity X have

flooded into the world market over the last two or three years,

including substantial amounts indirectly coming into the United

States. Because they are unsure whether they would prevail in an

antidumping and countervailing duty case, U.S. industry participants

have refrained from filing trade law petitions. The officials of

three foreign countries meet with foreign firms and urge them to

``rationalize'' production by cooperatively cutting back. The

foreign firms agree among themselves to limit production, but there

are governmental penalties contemplated for a failure to do so.

Discussion: In the facts stated here, the Agencies would not

find that sovereign compulsion precluded prosecution of this

agreement, assuming for the purpose of this example that the

overseas production cutbacks have the necessary effects in the U.S.

market to support jurisdiction. Other doctrines, such as the foreign

analog to the domestic Noerr-Pennington doctrine,\81\ may also be

relevant in these circumstances.

---------------------------------------------------------------------------

\81\See Section 3.34 infra.

---------------------------------------------------------------------------

3.33 Acts of State

As it presently stands, the act of state doctrine is a judge-made

rule of federal common law.\82\ It is a doctrine of judicial abstention

based on considerations of international comity and separation of

powers, and applies only if the specific conduct complained of is a

public act of the foreign sovereign within its territorial jurisdiction

on matters pertaining to its governmental sovereignty. The act of state

doctrine arises when the validity of the acts of a foreign government

constitutes an unavoidable aspect of a case.\83\ In such cases, courts

have refused to adjudicate claims or issues that would require the

court to judge the legality (as a matter of U.S. law or international

law) of the sovereign act of a foreign state.\84\ Although in some

cases the sovereign act in question may also compel private behavior,

other situations may arise in which the act imposes no such

obligation.\85\ While the act of state doctrine does not compel

dismissal as a matter of course, abstention is appropriate in a case

where the court must ``declare invalid, and thus ineffective as a rule

of decision in the U.S. courts,* * * the official act of a foreign

sovereign.''\86\

---------------------------------------------------------------------------

\82\Banco Nacional de Cuba V. Sabbatino, 376 U.S. 398, 421-22

n.21 (1964) (noting that other countries do not adhere in any

formulaic way to an act of state doctrine).

\83\W.S. Kirkpatrick & Co. v. Environmental Tectonics Corp., 493

U.S. 400 (1990).

\84\International Ass'n of Machinists and Aerospace Workers V.

Organization of Petroleum Exporting Countries, 649 F.2d 1354, 1358

(9th Cir. 1981).

\85\See Timberlane, 459 F.2d at 606-08.

\86\Kirkpatrick, 493 U.S. at 405, quoting Ricaud v. American

Metal Co., U.S. 246 U.S. 304, 310 (1918).

---------------------------------------------------------------------------

When a restraint on competition arises directly from the act of a

foreign sovereign, such as the grant of a license, award of a contract,

expropriation of property, or the like, the Agencies may refrain from

bringing an enforcement action based on the act of state doctrine. For

example, the Agencies will not challenge foreign acts of state if the

facts and circumstances indicate that: (1) the specific conduct

complained of is a public act of the sovereign, (2) the act was taken

within the territorial jurisdiction of the sovereign, and (3) the

matter is governmental, rather than commercial.

3.34 Petitioning of Sovereigns

Under the Noerr-Pennington doctrine, a genuine effort to obtain or

influence action by governmental entities in the United States is

immune from application of the Sherman Act, even if the intent or

effect of that effort is to restrain or monopolize trade.\87\ Whatever

the basis asserted for Noerr-Pennington immunity (either as an

application of the First Amendment or as a limit on the statutory reach

of the Sherman Act, or both), the Agencies will apply it in the same

manner to the petitioning of foreign governments and the U.S.

Government.

---------------------------------------------------------------------------

\87\See Eastern Railroad Presidents Conference v. Noerr Motor

Freight, Inc., 365 U.S. 127 (1961); United Mine Workers of America

v. Pennington, 381 U.S. 657 (1965); California Motor Transport Co.

v. Trucking Unlimited, 404 U.S. 508 (1972) (extending protection to

petitioning before ``all departments of Government,'' including the

courts); Professional Real Estate Investors, Inc. v. Columbia

Pictures Indus., 113 S. Ct. 1920 (1993). However, this immunity has

never applied to ``sham'' activities, in which petitioning

``ostensibly directed toward influencing governmental action, is a

mere sham to cover * * * an attempt to interfere directly with the

business relationships of a competitor.'' Professional Real Estate

Investors 113 S. Ct. at 1926, quoting Noerr, 365 U.S. at 144. See

also USS-Posco Indus. v Contra Costa Cty. Bldg. Constr. Council,

AFL-CIO, 31 F.3d 800 (9th Cir., 1994).

---------------------------------------------------------------------------

Illustrative Example K

Situation: In the course of preparing an antidumping case, which

requires the U.S. industry to demonstrate that it has been injured

through the effects of the dumped imports, producers representing

75% of U.S. output exchange the information required for the

adjudication. All the information is exchanged indirectly through

third parties and in an aggregated form that makes the identify of

any particular producer's information impossible to discern.

Discussion: Information exchanged by competitors within the

context of an antidumping proceeding implicates the Noerr-Pennington

petitioning immunity. To the extent that these exchanges are

reasonably necessary in order for them to prepare their joint

petition, which is permitted under the trade laws, Noerr is

available to protect against antitrust liability that would

otherwise arise. On these facts the parties are likely to be

immunized by Noerr if they have taken the necessary measures to

ensure that the provision of sensitive information called for by the

Commerce Department and the ITC cannot be used for anticompetitive

purposes. In such a situation, the information exchange is

incidental to genuine petitioning and is not subject to the

antitrust laws.

Conversely, were the parties directly to exchange extensive

information relating to their costs, the prices each has charged for

the product, pricing trends, and profitability, including

information about specific transactions that went beyond the scope

of those facts required for the adjudication, such conduct would go

beyond the contemplated protection of Noerr immunity.

3.4 Antitrust Enforcement and International Trade Regulation

There has always been a close relationship between the

international application of the antitrust laws and the policies and

rules governing the international trade of the United States.

Restrictions such as tariffs or quotas on the free flow of goods affect

market definition, consumer choice, and supply options for U.S.

producers. In certain instances, the U.S. trade laws set forth specific

procedures for settling disputes under those laws, which can involve

price and quantity agreements by the foreign firms involved. When those

procedures are followed, an implied antitrust immunity results.\88\

However, agreements among competitors that do not comply with the law,

or go beyond the measures authorized by the law, do not enjoy antitrust

immunity. In the absence of legal authority, the fact, without more,

that U.S. or foreign government officials were involved in or

encouraged measures that would otherwise violate the antitrust laws

does not immunize such arrangements.\89\

---------------------------------------------------------------------------

\88\See e.g., Letter from Charles F. Rule, Acting Assistant

Attorney General, Antitrust Division, Department of Justice, to Mr.

Makoto Kuroda, Vice-Minister for International Affairs, Japanese

Ministry of International Trade and Industry, July 30, 1986

(concluding that a suspension agreement did not violate U.S.

antitrust laws on the basis of factual representations that the

agreement applied only to products under investigation, that it did

not require pricing above levels needed to eliminate sales below

foreign market value, and that assigning weighted-average foreign

market values to exporters who were not respondents in the

investigation was necessary to achieve the purpose of the

antidumping law).

\89\Cf. United States v. Socony-Vacuum Oil Co., 310 U.S. 150,226

(1940) (``Through employees of the government may have known of

those programs and winked at them or tacitly approved them, no

immunity would have thereby been obtained. For Congress had

specified the precise manner and method of securing immunity [in the

National Industrial Recovery Act]. None other would suffice * *

*.''); see also Otter Tail Power Co. v. United States, 410 U.S. 366,

378-79 (1973).

---------------------------------------------------------------------------

If a particular voluntary export restraint does not qualify for

express or implied immunity from the antitrust laws, then the legality

of the arrangement would depend upon the existence of the ordinary

elements of an antitrust offense, such as whether or not a prohibited

agreement exists or whether defenses such as foreign sovereign

compulsion can be invoked.

Illustrative Example L

Situation: Six U.S. producers of product Q have initiated an

antidumping action alleging that imports of Q from country Sigma at

less than fair value are causing material injury to the U.S. Q

industry. The ITC has made a preliminary decision that there is a

reasonable indication that the U.S. industry is suffering material

injury from Q imported from Sigma. The Department of Commerce has

preliminarily concluded that the foreign market value of Q imported

into the U.S. by Sigma's Q producers exceeds the price at which they

are selling Q in this country by margins of 10 to 40 percent.

Sigma's Q producers jointly initiate discussions with the Department

of Commerce that lead to suspension of the investigation in

accordance with Section 734 of the Tariff Act of 1930, 19 U.S.C.

Sec. 1673c. The suspension agreement provides that each of Sigma's Q

producers will sell product Q in the United States at no less than

its individual foreign market value, as determined periodically by

the Department of Commerce in accordance with the Tariff Act. Before

determining to suspend the investigation, the Department of Commerce

provides copies of the proposed agreement to the U.S. Q producers,

who jointly advise the Department that they do not object to the

suspension of the investigation on the terms proposed. The

Department also determines that suspension of the investigation was

in the public interest. As a result of the suspension agreement,

prices in the United States of Q imported from Sigma rise by an

average of 25 percent from the prices that prevailed before the

antidumping action was initiated.

Discussion: While an unsupervised agreement among foreign firms

to raise their U.S. sales prices ordinarily would violate the

Sherman Act, the suspension agreement outlined above qualifies for

an implied immunity from the antitrust laws. As demonstrated here,

the parties has engaged only in conduct contemplated by the Tariff

Act and none of the participants have engaged in conduct beyond what

is necessary to implement that statutory scheme.

Illustrative Example M

Situation: The Export Association is a Webb-Pomerene association

that has filed the appropriate certificates and reports with the

Commission. The Association exports a commodity to markets around

the world, and fixes the price at which all of its members sell the

commodity in the foreign markets. Nearly 80% of all U.S. producers

of the commodity belong to the Association, and on a world-wide

level, the Association's members account for approximately 40% of

annual sales.

Discussion: The Webb-Pomerene Act addresses only the question of

antitrust liability under U.S. law. Although the U.S. antitrust laws

confer an immunity on such associations, the Act does not purport to

confer immunity under the law of any foreign country, nor does the

Act compel the members of a Webb-Pomerene association to act in any

particular way. Thus, a foreign government retains the ability to

initiate proceedings if such an association allegedly violates that

country's competition law.

4. Personal Jurisdiction and Procedural Rules

4.1 Personal Jurisdiction

The Agencies will bring suit only if they conclude that personal

jurisdiction exists under the due process clause of the U.S.

Constitution.\90\ Section 12 of the Clayton Act, 15 U.S.C. Sec. 22,

provides that any suit under the antitrust laws against a corporation

may be brought in the judicial district where it is an inhabitant,

where it may be found, or where it transacts business. The concept of

transacting business is interpreted pragmatically by the Agencies.

Thus, a company may transact business in a particular district directly

through an agent, or through a related corporation that is actually the

``alter ego'' of the foreign party.\91\ In all cases, the assertion of

personal jurisdiction must satisfy constitutional requirements of

minimum contacts with the United States, such that the proceeding

comports with ``fair play and substantial justice.''\92\

---------------------------------------------------------------------------

\90\International Shoe Co. v. Washington, 326 U.S. 310 (1945).

\91\See, e.g., Letter from Donald S. Clark, Secretary of the

Federal Trade Commission, to Caswell O. Hobbs, Esq., Morgan, Lewis &

Bockius, Jan. 17, 1990 (Re: Petition to Quash Subpoena Nippon Sheet

Glass, et al., File No. 891-0088, at page 3) (``The Commission * * *

may exercise jurisdiction over and serve process on, a foreign

entity that has a related company in the United States acting as its

agent or alter ego.''); see also Fed. R. Civ. P. 4.

\92\International Shoe, 326 U.S. 310, 320. Once personal

jurisdiction under the Constitution is established, service or

process must be authorized by a particular statute or rule. The

Clayton Act, which permits the service of process beyond the

boundaries of the forum state, is the federal statute that

authorizes service wherever the corporate defendant transacts

business. Go-Video, Inc. v. Akai Elec. Co., Ltd., 885 F.2d 1406,

1414 (9th Cir. 1989). Under such a statute, the question is whether

the party has sufficient contacts with the United States, not any

particular state. Id. (citations omitted).

---------------------------------------------------------------------------

4.2 Investigatory Practice Relating to Foreign Nations

In conducting investigations that require documents that are

located outside the United States, or contacts with persons located

outside the United States, the Agencies first consider requests for

voluntary cooperation when practical and consistent with enforcement

objectives. When compulsory measures are needed, they seek whenever

possible to work with foreign government involved. U.S. law also

provides authority in some circumstances for the use of compulsory

measures directed to parties over whom the courts have personal

jurisdiction, which the Agencies may use when other efforts to obtain

information have been exhausted or would be unavailing.\93\

---------------------------------------------------------------------------

\93\For example, 28 U.S.C. Sec. 1783(a) (1988) authorizes a U.S.

court to order the issuance of a subpoena ``requiring the appearance

as a witness before it, or before a person or body designated by it,

of a national or resident of the United States who is in a foreign

country, or requiring the production of a specified document or

other thing by him,'' under circumstances spelled out in the

statute.

---------------------------------------------------------------------------

Conflicts can arise, however, where foreign statutes purport to

prevent persons from disclosing documents or information for us in U.S.

proceedings. However, the mere existence of such statutes does not

excuse noncompliance with a request for information from one of the

Agencies.\94\ To enable the Agencies to obtain evidence located abroad

more effectively, as noted in Section 2.91 above. Congress recently has

enacted legislation authorizing the Agencies to negotiate bilateral

agreements between antitrust enforcement agencies to facilitate the

exchange or documents and evidence in civil and criminal

investigations.\95\

---------------------------------------------------------------------------

\94\See Societe Internationale pour Participations Industrielles

et Commerciales, S.A. v. Rogers, 357 U.S. 197 (1958).

\95\S. 2297 and H.R. 4781, International Antitrust Enforcement

Assistance Act of 1994 (103d Cong., 2d Sess.) (1994).

---------------------------------------------------------------------------

4.22 Hart-Scott-Rodino: Special Foreign Commerce Rules

As noted above in Section 2.4, qualifying mergers and acquisitions,

defined both in terms of size of party and size of transaction, must be

reported to the Agencies, along with certain information about the

parties and the transaction, prior to their consummation, pursuant to

the HSR Amendments to the Clayton Act, 15 U.S.C. Sec. 18a.

In some instances, the HSR implementing regulations exempt

otherwise reportable foreign transactions.\96\ First, some acquisitions

by U.S. persons are exempt. Acquisitions of foreign assets by a U.S.

person are exempt when (i) no sales in or into the United States are

attributable to those assets, or (ii) some sales in or into the United

States are attributable to those assets, but the acquiring person would

not hold assets of the acquired person to which $25 million or more of

such sales in the acquired person's most recent fiscal year were

attributable.\97\ Acquisitions by a U.S. person of voting securities of

a foreign issuer are exempt unless the issuer holds assets in the

United States having an aggregate book value of $15 million or more, or

made aggregate sales in or into the United States of $25 million or

more in its most recent fiscal year.\98\

---------------------------------------------------------------------------

\96\See 16 CFR 802.50-52 (1994).

\97\See 16 CFR 802.50(a) (1994).

\98\See 16 CFR 802.50 (1994).

---------------------------------------------------------------------------

Second, some acquisition by foreign persons are exempt. An

exemption exists for acquisitions by foreign persons if (i) the

acquisition is of voting securities of a foreign issuer and would not

confer control of a U.S. issuer having annual net sales or total assets

of $25 million or more, or of any issuer with assets located in the

United States having a book value of $15 million or more; or (ii) the

acquired person is also a foreign person and the aggregate annual net

sales of the merging firms in or into the United States is less than

$110 million and their aggregate total assets in the United States are

less than $110 million.\99\ In addition, an acquisition by a foreign

person of assets located outside the United States is exempt.

Acquisitions by foreign persons of U.S. issuers or assets are not

exempt.

---------------------------------------------------------------------------

\99\See 16 CFR 802.51 (1994).

---------------------------------------------------------------------------

Finally, acquisitions are exempt if the ultimate parent entity of

either the acquiring or the acquired person is controlled by a foreign

state, and the acquisition is of assets located within that foreign

state, or of voting securities of an issuer organized under its

laws.\100\ The HSR rules are necessarily technical, and should be

consulted rather than relying on the summary description herein.

---------------------------------------------------------------------------

\100\See 16 CFR 802.52 (1994).

---------------------------------------------------------------------------

Illustrative Example N

Situation: A and B manufacture a consumer product for which

there are no readily available substitutes in ten different

countries around the world, including the United States, Canada,

Mexico, Spain, Australia, and others. When they decide to merge, it

becomes necessary for them to file premerger notifications in many

of these countries, and to subject themselves to the merger law of

all ten.\101\

---------------------------------------------------------------------------

\101\Not every country has compulsory prenotification, and the

events triggering duties to notify vary from country to country.

---------------------------------------------------------------------------

Discussion: Under the OECD 1986 Recommendation, OECD countries

notify one another when a proceeding such as a merger review is

underway that might affect the interests of other countries. Within

the strict limits of national confidentiality laws, agencies attempt

to cooperate with one another in processing these reviews. This

might extend to exchanges of publicly available information,

agreements to let the other agencies know when a decision to

institute a proceeding is taken, and to consult for purposes of

international comity with respect to proposed remedial measures and

investigatory methods. The parties can facilitate faster resolution

of these cases if they are willing voluntarily to waive

confidentiality protections and to cooperate with a joint

investigation. At present neither U.S. law nor foreign laws permit

effective coordination of a single international investigation in

the absence of such waivers.

[FR Doc. 94-25765 Filed 10-18-94; 8:45 am]

BILLING CODE 4410-01-M