Opinion ID: 2775174
Heading Depth: 4
Heading Rank: 3

Heading: domestic effects under the ftaia

Text: 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