Opinion ID: 2677019
Heading Depth: 2
Heading Rank: 2

Heading: Waiver of the FTAIA

Text: Because we hold the requirements of the FTAIA to be nonjurisdictional, we must address Lotes’s argument that the defendants have waived those requirements by contract in this case. In this regard, Lotes points to five provisions of the Contributors Agreement. First, paragraph 2 recites the contributors’ understanding “that it is imperative that they and their representatives act in a manner which does not violate any state, federal or international antitrust laws and regulations.” J.A. 78. 30 Second, this paragraph also “prohibits any communications regarding . . . exclusion of competitors or any other topic that may be construed as a violation of antitrust laws.” Id. Third, paragraph 6.6 provides that the Agreement is to be “construed and controlled” by New York law. J.A. 81. Fourth, paragraph 6.7 provides that “all disputes arising in any way out of this Agreement shall be heard in, and all parties irrevocably consent to jurisdiction and venue in, the state and Federal courts of New York, New York.” Id. And finally, paragraph 6.12 provides that “the obligations of the parties hereto shall be subject to all laws, present and future, of any government having jurisdiction over the parties hereto.” Id. According to Lotes, these provisions establish that the defendants “have agreed to subject their conduct to U.S. antitrust scrutiny.” Appellant’s Br. at 25. There are two fundamental problems with this argument. First and foremost, Lotes did not raise this issue before the district court, and “[i]t is a well‐established general rule that an appellate court will not consider an issue raised for the first time on appeal.” Bogle‐Assegai v. Connecticut, 470 F.3d 498, 504 (2d Cir. 2006) (quoting Greene v. United States, 13 F.3d 577, 586 (2d Cir.1994)). 31 Second, even if we were to exercise our discretion to consider this forfeited issue, see id., Lotes’s argument is meritless. Even assuming arguendo that the substantive requirements of the FTAIA are waivable, but see New York v. Hill, 528 U.S. 110, 116 (2000) (“[A] ‘right conferred on a private party, but affecting the public interest, may not be waived or released if such waiver or release contravenes the statutory policy.’” (emphasis omitted) (quoting Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 704 (1945)), nothing in the cited contractual provisions suggests that the defendants have waived those requirements here. The first portion of paragraph 2 merely recites the parties’ understanding that they are subject to various antitrust laws and regulations and affirms the parties’ commitment to abide by their existing legal obligations. The second portion of paragraph 2 prohibits the parties from engaging in anticompetitive “communications.” Paragraphs 6.6 and 6.7 are nothing more than standard choice‐of‐law and choice‐of‐forum clauses. And paragraph 6.12 again merely reiterates the parties’ existing obligation to comply with all applicable laws. At most, paragraph 6.12 and the first portion of paragraph 2 can be read to recognize and incorporate into the Contributors Agreement the signatories’ 32 preexisting obligations under U.S. antitrust law. But these contractual provisions do not waive any statutory requirements or otherwise alter the scope of the signatories’ legal obligations. Put differently, the Contributors Agreement affirms that the defendants must abide by the Sherman Act to the extent it properly applies. But the defendants remain free to argue that, under the FTAIA, the Sherman Act does not apply to or regulate the conduct at issue in this case. The defendants have not waived their defenses under the FTAIA. III. “Direct, Substantial, and Reasonably Foreseeable Effect” under the FTAIA We now turn to the issue of whether Lotes has plausibly alleged that the defendants’ anticompetitive conduct has a “direct, substantial, and reasonably foreseeable effect” on U.S. domestic or import commerce under the FTAIA. The district court answered this question in the negative. Lotes and amici contend that the district court erred by misinterpreting the FTAIA and applying the wrong legal standard. We agree. In dismissing Lotes’s antitrust claims for failure to satisfy the FTAIA’s domestic effects exception, the district court relied heavily on the Ninth Circuit’s decision in LSL, which construed the statutory requirement of a “direct . . . 33 effect.” See LSL, 379 F.3d at 680. Borrowing from a Supreme Court case interpreting a similar term in the Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. §§ 1602 –1611, the Ninth Circuit held that “an effect is ‘direct’ if it follows as an immediate consequence of the defendant’s activity.” LSL, 379 F.3d at 680 (citing Republic of Arg. v. Weltover, Inc., 504 U.S. 607, 618 (1992)). Applying that standard to this case, the district court below found “a disconnect between the relevant (foreign) market as defined by plaintiff (USB 3.0 connectors)—the market which defendants are allegedly attempting to monopolize—and the U.S. market supposedly affected by defendants’ attempted monopolization (notebooks, desktop computers, servers, etc.).” J.A. 265 (footnote omitted). The district court concluded that “[t]o the extent that defendants’ foreign anti‐competitive conduct may result in higher computer prices and less competition here in the U.S., those effects are simply too attenuated to establish the proximate causation required by the FTAIA.” Id. The district court also expressed doubts about the substantiality of any domestic effects. Distinguishing a decision of the Northern District of California in In re TFT‐LCD (Flat Panel) Antitrust Litigation, 822 F. Supp. 2d 953 (N.D. Cal. 34 2011), the district court noted that this case contains no allegations of direct price‐fixing, that USB connectors are only one small component of the finished computer products that are ultimately sold in the United States, and that Lotes’s market share allegations lack particularity in some respects. The district court also observed that “a whole host of factors other than the price of USB 3.0 connectors influence the price of domestic computer products.” J.A. 272. The district court thus found that “[t]he indirect effect of defendants’ conduct on prices of U.S. computer goods, if any, cannot be quantified.” Id. This conclusion bolstered the district court’s ultimate finding that, “[a]t most, . . . defendants’ conduct may cause ‘ripple’ effects” in the United States, but such effects “are simply too attenuated to bring plaintiff’s foreign injury within the ambit of the Sherman Act.” Id. In applying the interpretation of “direct . . . effect” set forth in LSL, whereby an effect is “direct” if it follows as an immediate consequence, the district court appears not to have considered the alternative approach advocated by the United States and the FTC and adopted by the Seventh Circuit in its en banc decision in Minn‐Chem. Under that approach, “the term ‘direct’ means only 35 ‘a reasonably proximate causal nexus.’” Minn‐Chem, 683 F.3d at 857 (quoting Makan Delrahim, Drawing the Boundaries of the Sherman Act: Recent Developments in the Application of the Antitrust Laws to Foreign Conduct, 61 N.Y.U. Ann. Surv. Am. L. 41, 430 (2005)). We agree with Lotes and amici that this less stringent approach reflects the better reading of the statute. The court in LSL relied on two interpretive sources for its contrary holding. First, it quoted Webster’s Third New International Dictionary, which defines “direct” as “proceeding from one point to another in time or space without deviation or interruption.” LSL, 379 F.3d at 680 (quoting Webster’s Third New Int’l Dictionary 640 (1981)). But the same dictionary also defines “direct” as “characterized by or giving evidence of a close especially logical, causal, or consequential relationship.” Webster’s Third New Int’l Dictionary 640 (1981). Although this is an alternative definition, “the relative order of the common dictionary definitions of a single term does little to clarify that term’s meaning within a particular context. When a word has multiple definitions, usage determines its meaning.” Trs. of Chic. Truck Drivers, Helpers & Warehouse Workers 36 Union (Indep.) Pension Fund v. Leaseway Transp. Corp., 76 F.3d 824, 828 n.4 (7th Cir. 1996).6 The court in LSL also relied upon the Supreme Court’s interpretation of a “nearly identical term” in the FSIA in Weltover. LSL, 379 F.3d at 680. But the Supreme Court has cautioned that courts “must be careful not to apply rules applicable under one statute to a different statute without careful and critical examination.” Gross v. FBL Fin. Servs., Inc., 557 U.S. 167, 174 (2009) (quoting Fed. Express Corp. v. Holowecki, 552 U.S. 389, 393 (2008)). Indeed, “[m]ost words have different shades of meaning and consequently may be variously construed, not only when they occur in different statutes, but when used more than once in the same statute or even the same section.” Env. Def. v. Duke Energy Corp., 549 U.S. 561, 574 (2007) (quoting Atl. Cleaners & Dyers, Inc. v. United States, 286 U.S. 427, 433 (1932)). 6 We recognize that Webster’s Third has not garnered universal respect among the Justices of the Supreme Court. See, e.g., Taniguchi v. Kan Pac. Saipan, Ltd., 132 S. Ct. 1997, 2003 (2012); MCI Telecomm. Corp. v. AT&T Co., 512 U.S. 218, 228 n.3 (1994). But other dictionaries published roughly contemporaneously with the enactment of the FTAIA contain similar definitions. See, e.g., 4 Oxford English Dictionary 702 (2d ed. 1989) (defining “direct” as, among other things, “[s]traight; undeviating in course; not circuitous or crooked” and “[p]roceeding from antecedent to consequent, from cause to effect, etc.; uninterrupted, immediate”). 37 Here, both the purpose and the language of the FSIA and FTAIA differ in critical respects. With respect to purpose, the FSIA codifies foreign nations’ sovereign immunity from suit, and “provides the sole basis for obtaining jurisdiction over a foreign state in the courts of this country.” Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 443 (1989). The boundaries of the statutory exceptions to sovereign immunity, including the “direct effect” exception construed in Weltover, must be carefully patrolled to preserve the FSIA’s “general rule of immunity.” In re Terrorist Attacks on Sept. 11, 2001, 714 F.3d 109, 114 (2d Cir. 2013). The FTAIA, by contrast, is a substantive antitrust statute designed “to clarify . . . the Sherman Act’s scope as applied to foreign commerce.” Empagran, 542 U.S. at 169. Textually, moreover, Weltover construed the FSIA’s phrase “direct effect,” while the FTAIA contains the fuller phrase “direct, substantial, and reasonably foreseeable effect.” Even more to the point, the Supreme Court in Weltover arrived at its understanding of “direct effect” in the FSIA only after refusing to import from the statute’s legislative history any notion that an effect is “direct” only if it is also both “substantial” and “foreseeable.” See Weltover, 504 U.S. at 38 617. In the Supreme Court’s words: “[W]e reject the suggestion that § 1605(a)(2) contains any unexpressed requirement of ‘substantiality’ or ‘foreseeability.’” Id. at 618. Only then did the Supreme Court endorse the lower court’s interpretation, whereby “an effect is ‘direct’ if it follows ‘as an immediate consequence of the defendant’s . . . activity.’” Id. (quoting Weltover, Inc. v. Republic of Arg., 941 F.3d 145, 152 (2d Cir. 1991)). This textual difference between the FSIA and FTAIA is critically important. As Minn‐Chem succinctly explains, No one needs to read the words “substantial” and “foreseeable” into the FTAIA. Congress put them there, and in so doing, it signaled that the word “direct” used along with them had to be interpreted as part of an integrated phrase. Superimposing the idea of “immediate consequence” on top of the full phrase results in a stricter test than the complete text of the statute can bear. 683 F.3d at 857. Indeed, LSL’s reading of the FTAIA would violate the “cardinal principle of statutory construction” that statutes must be construed, if reasonably possible, so that “no clause, sentence, or word shall be superfluous, void, or insignificant.” TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001) (quoting Duncan v. Walker, 533 U.S. 167, 174 (2001)). Reading “direct” as “immediate” would rob the separate “reasonabl[e] foreseeab[ility]” requirement of any meaningful function, 39 since we are hard pressed to imagine any domestic effect that would be both “immediate” and “substantial” but not “reasonably foreseeable.” Furthermore, we must remember that “[i]mport trade and commerce are excluded at the outset from the coverage of the FTAIA in the same way that domestic interstate commerce is excluded.” Minn‐Chem, 683 F.3d at 854; see also 15 U.S.C. § 6a (providing that, unless an exception applies, the Sherman Act “shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations” (emphasis added)). To demand that any domestic effect must follow as an immediate consequence of a defendant’s foreign anticompetitive conduct would all but collapse the FTAIA’s domestic effects exception into its separate import exclusion. Interpreting “direct” to require only a reasonably proximate causal nexus, by contrast, avoids these problems while still addressing antitrust law’s classic aversion to remote injuries. Indeed, “directness” is one of the traditional formulations courts have used to talk about the common‐law concept of proximate causation. See, e.g., Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 268 (1992) (describing common‐law proximate causation as “a demand for some 40 direct relation between the injury asserted and the injurious conduct alleged”). And courts have long applied notions of proximate causation, using the language of “directness,” in determining what types of injuries the antitrust laws may properly redress. In the early twentieth century, for example, before the Supreme Court’s regime‐changing Commerce Clause decision in Wickard v. Filburn, 317 U.S. 111 (1942), courts commonly held that anticompetitive schemes whose effects on interstate commerce were merely “‘incidental,’ ‘indirect,’ or ‘remote,’” were, “under the prevailing climate, beyond Congress’[s] power to regulate, and hence outside the scope of the Sherman Act.” Mandeville Island Farms, Inc. v. Am. Crystal Sugar Co., 334 U.S. 219, 230 (1948). And today, courts continue to analyze antitrust standing by considering, among other factors, the “directness or indirectness of the asserted injury,” Assoc. Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 540 (1983), using familiar principles of proximate causation, see Blue Shield of Va. v. McCready, 457 U.S. 465, 476–77 & n.13 (1982). Of course, proximate causation is a notoriously slippery doctrine. “In a philosophical sense, the consequences of an act go forward to eternity, and the 41 causes of an event go back to the dawn of human events, and beyond.” CSX Transp., Inc. v. McBride, 131 S. Ct. 2630, 2642 (2011) (quoting W. Page Keeton et al., Prosser and Keeton on Torts § 42, at 264 (5th ed. 1984)). Proximate causation is thus “shorthand for a concept: Injuries have countless causes, and not all should give rise to legal liability.” Id. at 2637. The doctrine of proximate causation provides the legal vocabulary for drawing this line—courts ask, for example, “whether the injury that resulted was within the scope of the risk created by the defendantʹs [wrongful] act; whether the injury was a natural or probable consequence of the [conduct]; whether there was a superseding or intervening cause; whether the [conduct] was anything more than an antecedent event without which the harm would not have occurred.” Id. at 2652 (Roberts, C.J., dissenting). “The proximate‐cause inquiry is not easy to define, and over the years it has taken various forms; but courts have a great deal of experience applying it, and there is a wealth of precedent for them to draw upon in doing so.” Lexmark Intʹl, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377, 1390 (2014). 42 While Minn‐Chem’s “reasonably proximate causal nexus” standard incorporates all of this useful judicial experience, LSL’s “immediate consequence” standard focuses narrowly on a single factor—the spatial and temporal separation between the defendant’s conduct and the relevant effect. Herein lies the error of the decision below, which placed near‐dispositive weight on the fact that USB 3.0 connectors are manufactured and assembled into finished computer products “in China” before being sold in the United States. J.A. 264. This kind of complex manufacturing process is increasingly common in our modern global economy, and antitrust law has long recognized that anticompetitive injuries can be transmitted through multi‐layered supply chains. Indeed, the Supreme Court has held that claims by indirect purchasers are “consistent with the broad purposes of the federal antitrust laws: deterring anticompetitive conduct and ensuring the compensation of victims of that conduct.” California v. ARC Am. Corp., 490 U.S. 93, 102 (1989).7 7 We recognize that in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), the Supreme Court held that indirect purchasers may not recover treble damages under § 4 of the Clayton Act. See id. at 728–29. But in so holding, the Court in no way implied that anticompetitive injuries cannot be passed through to subsequent purchasers; to the contrary, the Court acknowledged that its rule “denies recovery to those indirect purchasers who may have been actually injured by antitrust violations.” Id. at 746. Instead, the Court relied upon on practical considerations related to double recovery, apportionment, and deterrence. See id. at 730, 735, 737. The indirect purchaser 43 There is nothing inherent in the nature of outsourcing or international supply chains that necessarily prevents the transmission of anticompetitive harms or renders any and all domestic effects impermissibly remote and indirect. Indeed, given the important role that American firms and consumers play in the global economy, we expect that some perpetrators will design foreign anticompetitive schemes for the very purpose of causing harmful downstream effects in the United States. Whether the causal nexus between foreign conduct and a domestic effect is sufficiently “direct” under the FTAIA in a particular case will depend on many factors, including the structure of the market and the nature of the commercial relationships at each link in the causal chain. Courts confronting claims under the FTAIA will have to consider all of the relevant facts, using all of the traditional tools courts have used to analyze questions of proximate causation. doctrine, moreover, is subject to exceptions, see Simon v. KeySpan Corp., 694 F.3d 196, 202 (2d Cir. 2012), does not preempt state laws providing for damages claims by indirect purchasers, see ARC Am., 490 U.S. at 102, and does not apply to claims for equitable relief, see In re Air Cargo Shipping Servs. Antitrust Litig., 697 F.3d 154, 157 (2d Cir. 2012); see also U.S. Gypsum Co. v. Ind. Gas Co., 350 F.3d 623, 627 (7th Cir. 2003). Furthermore, this Court has not had occasion to consider the extent to which Illinois Brick applies when any direct purchaser claim would be barred by the FTAIA. But see Motorola Mobility LLC v. AU Optronics Corp., 746 F.3d 842, 844 (7th Cir. 2014) (indicating that Illinois Brick would continue to apply). 44 In this case, however, we need not decide the rather difficult question of whether the defendants’ foreign anticompetitive conduct has a “direct, substantial, and reasonably foreseeable effect” on U.S. domestic or import commerce, as that phrase is properly understood. That is because even assuming that Lotes has plausibly alleged a domestic effect, that effect did not “give[] rise to” Lotes’s claims. 15 U.S.C. § 6a(2).