Opinion ID: 2775174
Heading Depth: 3
Heading Rank: 2

Heading: the ftaia challenges

Text: The following jury instruction sums up the heart of the Sherman Act violation: 7 A number of courts have referred to the FTAIA as jurisdictional, but did so prior to the Supreme Court’s decisions in Reed Elsevier and Morrison and without analyzing whether the FTAIA concerns subjectmatter jurisdiction or the scope of coverage of antitrust laws. See, e.g., United States v. Anderson, 326 F.3d 1319, 1329–30 (11th Cir. 2003); Dee- K Enters., Inc. v. Heveafil Sdn. Bhd, 299 F.3d 281, 287 (4th Cir. 2002); Den Norske Stats Oljeselskap As v. HeereMac Vof, 241 F.3d 420, 429–30 (5th Cir. 2001); Nippon Paper Indus. Co., 109 F.3d at 3–4; see also Carrier Corp. v. Outokumpu Oyj, 673 F.3d 430, 439 n.4 (6th Cir. 2012) (“sav[ing] the resolution of this issue for another day” post-Morrison). UNITED STATES V. HSIUNG 29 [T]he government must prove each of the following elements beyond a reasonable doubt: First, that the conspiracy existed at or about the time stated in the indictment; Second, that the defendants knowingly - that is, voluntarily and intentionally - became members of the conspiracy charged in the indictment, knowing of its goal and intending to help accomplish it; and Third, that the members of the conspiracy engaged in one or both of the following activities: (A) fixing the price of TFT-LCD panels targeted by the participants to be sold in the United States or for delivery to the United States; or (B) fixing the price of TFT-LCD panels that were incorporated into finished products such as notebook computers, desktop computer monitors, and televisions, and that this conduct had a direct, substantial, and reasonably foreseeable effect on trade or commerce in those finished products sold in the United States or for delivery to the United States. In determining whether the conspiracy had such an effect, you may consider the total amount of trade or 30 UNITED STATES V. HSIUNG commerce in those finished products sold in the United States or for delivery to the United States; however, the Government’s proof need not quantify or value that effect. The defendants argue that (i) the indictment was insufficient because it did not name or cite the FTAIA, (ii) the indictment and evidence are insufficient as to both import trade and domestic effects, and (iii) the domestic effects exception, which was not alleged in the indictment, is an element of a Sherman Act offense that implicates the FTAIA and thus this instruction constructively amended the indictment.
The defendants argue that the indictment was flawed for failing to mention the FTAIA by name or statutory citation. However, as explained in detail with regard to import trade and domestic effects, the indictment contained the factual allegations necessary to establish that the FTAIA either did not apply or that its requirements were satisfied. In any event, there was absolutely no prejudice from the indictment’s failure to cite the FTAIA. “Unless the defendant[s] w[ere] misled and thereby prejudiced, neither an error in a citation nor a citation’s omission is a ground to dismiss the indictment or information or to reverse a conviction.” Fed. R. Crim. P. 7(c)(2); see United States v. Vroman, 975 F.2d 669, 671 (9th Cir. 1992) (“Correct citation to the relevant statute, though always desirable, is not fatal if omitted.”). The parties raised the FTAIA requirements UNITED STATES V. HSIUNG 31 throughout the proceedings, and the district court record is full of briefing and argument on the FTAIA.
The appropriate characterization of the import trade provision of the FTAIA is essential to our analysis. The statute provides that the Sherman Act “shall not apply to conduct involving trade or commerce (other than import trade or import commerce),” and then goes on to provide limitations vis-a-vis nonimport commerce. 15 U.S.C. § 6a. We agree with the defendants that this section should not be labeled an FTAIA exception. Rather, more accurately, import trade, as referenced in the parenthetical statement, does not fall within the FTAIA at all. It falls within the Sherman Act without further clarification or pleading. Consequently, we disagree with the defendants’ view that the indictment was insufficient because it did not allege import trade under the FTAIA. The indictment charged a violation of § 1 of the Sherman Act and alleged that the defendants “entered into and engaged in a combination and conspiracy to suppress and eliminate competition by fixing the prices of thin-film transistor liquid crystal display panels (“TFT-LCD”) in the United States and elsewhere.” See United States v. Morrison, 536 F.2d 286, 288 (9th Cir. 1976) (“It is generally sufficient that an indictment set forth the offense in the words of the statute itself, as long as those words of themselves fully, directly, and expressly, without any uncertainty or ambiguity, set forth all the elements necessary to constitute the offence intended to be punished.” (internal quotation marks omitted)). Apart from tracking the language of the Sherman Act in the 32 UNITED STATES V. HSIUNG indictment, the government did, in fact, plead and prove that the defendants engaged in import trade. In Empagran, the Supreme Court explained the somewhat convoluted scope of the FTAIA: [The FTAIA] initially lays down a general rule placing all (nonimport) activity involving foreign commerce outside the Sherman Act’s reach. It then brings such conduct back within the Sherman Act’s reach provided that the conduct both (1) sufficiently affects American commerce, i.e., it has a direct, substantial, and reasonably foreseeable effect on American domestic, import, or (certain) export commerce, and (2) has an effect of a kind that antitrust law considers harmful, i.e., the effect must giv[e] rise to a [Sherman Act] claim. 542 U.S. at 162 (internal quotation marks omitted). Under its plain terms, the FTAIA does not affect import trade. See id.; Dee-K Enters., 299 F.3d at 287 (“Because this case involves importation of foreign-made goods, however—conduct Congress expressly exempted from FTAIA coverage as involving . . . import trade or import commerce . . . with foreign nations—the FTAIA standard obviously does not directly govern this case.” (internal quotations marks and citation omitted)). The legislative history supports this statutory interpretation. House Reports are clear that the FTAIA does not implicate import trade. “A transaction between two foreign firms, even if American-owned, should not, merely UNITED STATES V. HSIUNG 33 by virtue of the American ownership, come within the reach of our antitrust laws. Such foreign transactions should, for the purposes of this legislation, be treated in the same manner as export transactions—that is, there should be no American antitrust jurisdiction absent a direct, substantial and reasonably foreseeable effect on domestic commerce or a domestic competitor. . . . It is thus clear that wholly foreign transactions as well as export transactions are covered by the Amendment, but that import transactions are not.” H.R. Rep. 97-686, at 9–10. Although our circuit has not defined “import trade” for purposes of the FTAIA, not much imagination is required to say that this phrase means precisely what it says. As the Seventh Circuit held in a case involving foreign cartel members,“transactions that are directly between the [U.S.] plaintiff purchasers and the defendant cartel members are the import commerce of the United States . . . .” Minn-Chem, 683 F.3d at 855. Similarly, the Sixth Circuit labeled goods manufactured abroad and sold in the United States “import commerce.” Carrier Corp. v. Outokumpu Oyj, 673 F.3d 430, 438 n.3, 440 (6th Cir. 2012). So too are transactions between the foreign defendant producers of TFT-LCDs and purchasers located in the United States.8 See id. 8 The Third Circuit also addressed the import trade exclusion, holding that it applies to importers and to defendants whose “conduct is directed at a U.S. import market,” even if the defendants did not engage in importation of products into the United States. Animal Sci. Prods., 654 F.3d at 471 & n.11. We need not determine the outer bounds of import trade by considering whether commerce directed at, but not consummated within, an import market is also outside the scope of the FTAIA’s import provisions because at least a portion of the transactions here involves the heartland situation of the direct importation of foreign goods into the United States. See id. 34 UNITED STATES V. HSIUNG The defendants’ conduct, as alleged and proven, constitutes “import trade,” and falls outside the scope of the FTAIA. The allegations in the indictment, which we review de novo, United States v. O’Donnell, 608 F.3d 546, 555 (9th Cir. 2010), must “ensure that [the defendants were] prosecuted only on the basis of the facts presented to the grand jury,” see United States v. Du Bo, 186 F.3d 1177, 1179 (9th Cir. 1999) (internal quotation marks omitted). Thus, “[a]n indictment must be specific in its charges and necessary allegations cannot be left to inference. . . . [A]n indictment should be read in its entirety, construed according to common sense, and interpreted to include facts which are necessarily implied.” O’Donnell, 608 F.3d at 555 (citations and internal quotation marks omitted). The indictment is replete with allegations that support the government’s position that the defendants engaged in import trade. The indictment alleged that, within the conspiracy period, AUO and AUOA “engaged in the business of producing and selling TFT-LCDs to customers in the United States.” During the conspiracy period, AUO employees “had one-on-one discussions in person or by phone with representatives of coconspirator TFT-LCD manufacturers during which they reached agreements on pricing of TFT-LCD sold to certain customers, including customers located in the United States.” The indictment went on to allege that AUO attempted to attain the price goals set with coconspirators by, during the conspiracy period, “regularly instruct[ing] employees of [AUOA] located in the United States to contact employees of other TFT-LCD manufacturers in the United States to discuss pricing to major United States TFT-LCD customers,” and that “[i]n response to these instructions, employees of [AUOA] located in the United States had regular contact through in-person meetings and UNITED STATES V. HSIUNG 35 phone calls with employees of other TFT-LCD manufacturers in the United States to discuss and confirm pricing, and at times agree on pricing, to certain TFT-LCD customers in the United States.” These allegations directly describe that the defendants and their coconspirators engaged in import commerce with the United States—indeed, the conspiracy’s intent, as alleged, was to “suppress and eliminate competition” by fixing the prices for panels that AUO and AUOA sold to manufacturers “in the United States and elsewhere” for incorporation into retail technology sold to consumers in the United States and elsewhere. Going into trial, there was no surprise regarding the import trade allegations; likewise, the evidence at trial was ample on this aspect of the conspiracy. We review the defendants’ sufficiency of the evidence challenge under the well established standard of Jackson v. Virginia, 443 U.S. 307 (1979): “viewing the evidence in the light most favorable to the prosecution,” we determine whether “any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.” Id. at 319. Trial testimony established that AUO imported over one million price-fixed panels per month into the United States. The Crystal Meeting participants earned over $600 million from the importation of TFT-LCDs into the United States. Although it was undisputed at trial that AUO and AUOA did not manufacture any consumer products for importation into the United States, the evidence revealed that AUO and AUOA executives and employees negotiated with United States companies in the United States to sell TFT-LCD panels at the prices set at the Crystal Meetings. Importation of this 36 UNITED STATES V. HSIUNG critical component of various electronic devices is surely “import trade or import commerce.” To suggest, as the defendants do, that AUO was not an “importer” misses the point. The panels were sold into the United States, falling squarely within the scope of the Sherman Act. The defendants also claim that the transactions did not “target” the United States. Targeting is not a legal element for import trade under the Sherman Act, though it was included in the jury instructions at the defendants’ request. In any event, the negotiations in the United States and the significant direct sales to the United States certainly qualify as targeting. The challenge to the sufficiency of the evidence fails. In sum, the FTAIA does not apply to the defendants’ import trade conduct. The government sufficiently pleaded and proved that the conspirators engaged in import commerce with the United States and that the price-fixing conspiracy violated § 1 of the Sherman Act.
Unlike import trade, which is exempted from the FTAIA altogether, if the government proceeds on a domestic effects theory, which it did here, the government must plead and prove the requirements for the domestic effects exception to the FTAIA, namely that the defendants’ conduct had “a direct, substantial, and reasonably foreseeable effect” on United States commerce. See 15 U.S.C. § 6a. We hold that the indictment sufficiently alleged such conduct and reject the defendants’ sufficiency of the evidence challenge to the domestic effects exception. UNITED STATES V. HSIUNG 37 As with import commerce, it is important to place the domestic effects exception within the statutory framework of the FTAIA. We do not agree with the government that the FTAIA is an affirmative defense to a Sherman Act offense. The government’s interpretation is at odds with the plain language of the statute, which establishes that when a case involves nonimport trade with foreign nations, the Sherman Act does not apply unless the FTAIA domestic effects exception applies. See 15 U.S.C. § 6a; United States v. Davenport, 519 F.3d 940, 945 (9th Cir. 2008) (contrasting elements and affirmative defenses). The government’s reliance on McKelvey v. United States, 260 U.S. 353, 356–57 (1922), and United States v. Gravenmeir, 121 F.3d 526, 528 (9th Cir. 1997), which both held that the government did not have to disprove an exception to a criminal statute to obtain a conviction, is misplaced. In those cases, the statutes at issue laid out prohibited conduct and then provided an escape hatch exception. See McKelvey, 260 U.S. at 356 (statute prohibiting the obstruction of access to public lands “[p]rovided, this section shall not be held to affect the right or title of persons, who have gone upon, improved or occupied said lands under the land laws of the United States, claiming title thereto, in good faith” (citing Act of February 25, 1885, c. 149, 23 Stat. 321 (Comp. St. §§ 4999, 5000))); Gravenmeir, 121 F.3d at 528 (statute prohibiting the transfer or possession of a machine gun except “with respect to . . . (B) any lawful transfer or lawful possession of a machinegun that was lawfully possessed before the date this subsection takes effect” (alteration in original) (citing 18 U.S.C. § 922(o))). In contrast, as a default, the FTAIA provides that when the alleged conduct involves nonimport trade with foreign nations, the Sherman Act does not apply. 15 U.S.C. 38 UNITED STATES V. HSIUNG § 6a; see Empagran, 542 U.S. at 158. To allege a nonimport trade claim under the Sherman Act, the claim must encompass the domestic effects elements. The indictment alleged that AUO “was engaged in the business of producing and selling TFT-LCDs to customers in the United States and elsewhere;” that, at Crystal Meetings, in telephone conversations, and in e-mail messages with other coconspirators, AUO employees reached agreements on prices for TFT-LCDs sold in the United States; and that “senior-level employees of [AUO] regularly instructed employees of [AUOA] located in the United States to contact employees of other TFT-LCD manufacturers in the United States to discuss pricing to major United States TFT-LCD customers.” The indictment also alleged that the price-fixed TFT-LCDs were used in computers and other monitors that were sold in and substantially affected interstate commerce. Specifically, the indictment charged that “the substantial terms” of the conspiracy were an agreement “to fix the prices of TFT-LCDs for use in notebook computers, desktop monitors, and televisions in the United States and elsewhere.” The magic words—“domestic effects”—were not necessary to make clear that the overseas sale of panels for incorporation into products destined for sale in the United States was a key focus of the indictment. From the outset, the indictment targeted both import trade of panels and the effects of foreign sales on domestic commerce. The scope of the charges was not a mystery. The defendants argue that the FTAIA jury instruction worked a constructive amendment of the indictment because it permitted the jury to convict based on either an import trade or domestic effects theory when prior to trial the government UNITED STATES V. HSIUNG 39 had only sought to rely on an import trade theory. We “have found constructive amendment of an indictment where (1) there is a complex of facts [presented at trial] distinctly different from those set forth in the charging instrument, or (2) the crime charged [in the indictment] was substantially altered at trial, so that it was impossible to know whether the grand jury would have indicted for the crime actually proved.” United States v. Adamson, 291 F.3d 606, 615 (9th Cir. 2002) (alterations in original) (internal quotation marks omitted), modified on other grounds by United States v. Larson, 495 F.3d 1094 (9th Cir. 2007). Here, there was no constructive amendment because the facts in the indictment necessarily supported the domestic effects claim, namely by allegations that AUO and AUOA sold price-fixed panels in the United States and abroad for use in finished consumer goods sold in or delivered to the United States. The allegations gave fair notice that the claimed conduct had a “direct, substantial, and reasonably foreseeable effect” on United States commerce. See 15 U.S.C. § 6a(1)(A). Based on the allegations, the domestic effects instruction did not result in a constructive amendment of the indictment. Finally, we address the sufficiency of the evidence under the domestic effects exception, which was directed at foreign sales of panels that were incorporated into finished consumer products ultimately sold in the United States. The defendants question whether the government proved the domestic effects exception at trial. As an initial matter, the parties acknowledge that the conduct was both substantial and had a reasonably foreseeable impact on United States commerce. 40 UNITED STATES V. HSIUNG The defendants, however, contend that the overseas conduct was not sufficiently “direct” under the FTAIA, and that the jury was not required to find “the elements of an intent to negatively affect, and a substantial effect on, United States commerce.” The essence of their objection is that the offshore conduct is too attenuated from the United States and that the intervening development, manufacture, and sale of the products worldwide resulted in a diffuse effect. Indeed, the government’s expert created some ambiguity regarding “the exact flow of how panels go from the plants of the Crystal Meeting participants into a product, to a — what are called an ‘OEM’ — the computer maker — and get to the United States.” Admitting that there was “not good data” on how the price-fixed panels wound up in finished consumer goods sold in the United States, the expert explained that “[f]or example, Dell may have someone else put together the monitor,” and that assemblers for panels were located in China, Singapore, Taiwan, Japan, and Mexico. Although negotiations took place in the United States, and there is no dispute that customers in the United States purchased finished products containing the price-fixed TFT-LCDs, such as computer monitors and laptop computers, this testimony raises a question regarding whether the effects were sufficiently direct to uphold a verdict based on the domestic effects claim. Conduct has a “direct” effect for purposes of the domestic effects exception to the FTAIA “if it follows as an immediate consequence of the defendant[s’] activity.” LSL Biotechnologies, 379 F.3d at 680–81 (“An effect cannot be ‘direct’ where it depends on such uncertain intervening UNITED STATES V. HSIUNG 41 developments.”).9 The statute also requires that the direct effect “gives rise to” the plaintiff’s injury. 15 U.S.C. § 6a. Thus, as we have noted, “‘but for’ causation cannot suffice for the FTAIA domestic injury exception to apply and [we] therefore adopt a proximate causation standard.” In re Dynamic Random Access Memory (DRAM) Antitrust Litig., 546 F.3d at 987; see also Empagran, 542 U.S. at 173 (“Congress would not have intended the FTAIA’s exception to bring independently caused foreign injury within the Sherman Act’s reach.”); Lotes, 753 F.3d at 414 ( “[I]n the wake of Empagran, three courts of appeals have considered what kind of causal connection is necessary for a domestic effect to ‘give[ ] rise to’ a plaintiff’s claim. . . . Agreeing with our sister circuits, we adopt that standard here.” (citing In re Dynamic Random Access Memory, 546 F.3d at 987)). Looking at the conspiracy as a whole, and recognizing the standard on appeal is whether “any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt,” Jackson, 443 U.S. at 319, we conclude that the conduct was sufficiently “direct, substantial and reasonably foreseeable” with respect to the effect on United States commerce. 15 U.S.C. § 6a. 9 Both the Second Circuit and the Seventh Circuit disagree with this definition of “direct.” See Lotes, 753 F.3d at 398 (choosing instead to [i]nterpret[]‘direct’ to require only a reasonably proximate causal nexus”); Minn-Chem, 683 F.3d at 857 (“Superimposing the idea of ‘immediate consequence’ on top of the full phrase results in a stricter test than the complete statute can bear.”). Whether our circuit should reconsider the stricter standard we impose is not within the province of this panel. Miller v. Gammie, 335 F.3d 889, 899 (9th Cir. 2003) (en banc) (“[A] three-judge panel may not overrule a prior decision of the court.”). But, in any event, the result is the same and the defendants benefit from our circuit’s formulation. 42 UNITED STATES V. HSIUNG The constellation of events that surrounded the conspiracy leads to one conclusion—the impact on the United States market was direct and followed “as an immediate consequence” of the price fixing. To begin, the TFT-LCDs are a substantial cost component of the finished products—70–80 percent in the case of monitors and 30–40 percent for notebook computers. One of the trial witnesses explained the correlation: “[I]f the panel price goes up, then it will directly impact the monitor set price.” The “price stabilization” meetings, where the price fixing initially occurred, led to direct negotiations with United States companies, both domestically and overseas, on pricing decisions. As noted before, some of the panels were imported directly into the United States. Other panels were sold overseas, often to foreign subsidiaries of American companies or to systems integrators, and then incorporated into finished products. It was well understood that substantial numbers of finished products were destined for the United States and that the practical upshot of the conspiracy would be and was increased prices to customers in the United States. There were a variety of arrangements in terms of incorporating the panels into finished products. For example, Dell had a factory in Malaysia where 100% of the products were destined for the American market. In other situations, overseas systems integrators purchased the panels for integration into finished products, often with direct oversight of TFT-LCD panel pricing by United States manufacturers. In yet other circumstances, a global product arm of a United States company purchased the panels directly from one of the co-conspirators and then sold to system integrators. It was not uncommon that the orders placed with system integrators were based on custom orders from United States customers for direct shipment to that customer. By one estimate, $23.5 UNITED STATES V. HSIUNG 43 billion in price-fixed panels were imported into the United States as part of finished products, such as notebook computers and computer monitors. The testimony underscored the integrated, close and direct connection between the purchase of the price-fixed panels, the United States as the destination for the products, and the ultimate inflation of prices in finished products imported to the United States. The direct connection was neither speculative nor insulated by multiple disconnected layers of transactions. This case is unlike LSL Biotechnologies, where the effect of an agreement between United States and foreign firms rested on speculation as to future innovation in tomato seeds and lacked an existing effect on American tomato consumers. 379 F.3d at 681. Nor does this conspiracy fall into the category in which “action in a foreign country filters through many layers and finally causes a few ripples in the United States.” Minn-Chem, 683 F.3d at 860. In a closely related civil case brought by Motorola Mobility LLC against AU Optronics Corporation and other defendants, the Seventh Circuit addressed the direct effect issue vis-a-vis Motorola’s claim. It noted that the arrangement “doesn’t seem like ‘many layers,’ resulting in just ‘a few ripples’ in the United States cellphone market, though . . . the ripple effect probably was modest.” Motorola Mobility LLC v AU Optronics Corp., No. 14–8003, 2015 WL 137907, at  (7th Cir. Jan. 12, 2015). Ultimately the private antitrust claim failed because of the indirect-purchaser doctrine of Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), but, as the court explained, “[i]f price fixing by the component manufacturers had the requisite statutory effect on cellphone prices in the United States, the Act would not block 44 UNITED STATES V. HSIUNG the Department of Justice from seeking criminal or injunctive remedies.” Id. at . The jury instruction agreed to by defendants required the government to prove that the price fixing of panels that were incorporated into finished products “had a direct, substantial, and reasonably foreseeable effect on trade or commerce in those finished products sold in the United States, or for delivery to the United States.” On this record, the conviction on the domestic effects prong must be upheld under Jackson. Finally, we note that even disregarding the domestic effects exception, the evidence that the defendants engaged in import trade was overwhelming and demonstrated that the defendants sold hundreds of millions of dollars of price-fixed panels directly into the United States. See 15 U.S.C. § 6a. The evidence offered in support of the import trade theory alone was sufficient to convict the defendants of price-fixing in violation of the Sherman Act.10