Extraterritorial Reach of U.S. Antitrust Laws

By: Abram Ellis, John Terzaken, and Jonathan Myers, Simpson Thacher & Bartlett LLP

This article addresses the extraterritorial reach of U.S. antitrust laws—that is, their application to international trade or commerce—specifically discussing the interplay between the Sherman Act, which prohibits anticompetitive conduct, and the Foreign Trade Antitrust Improvements Act (FTAIA), which defines the Sherman Act’s extraterritorial application.

GENERALLY, THE FTAIA PROVIDES THAT THE SHERMAN ACT does not apply to purely foreign activity, but the Sherman Act could apply to partially foreign activity. This article outlines significant considerations to help you understand when U.S. antitrust law reaches foreign conduct.

Why Is the FTAIA Needed?

Section 1 of the Sherman Act,¹ declares illegal every “contract, combination . . . or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations.” Thus, by its own terms, the Sherman Act has extensive reach and would apply to any agreement that (unreasonably) restrains trade or commerce involving a foreign nation. To limit the reach of the Sherman Act, U.S. courts developed a set of guidelines to determine when, in fact, the Sherman Act reached foreign conduct.

In United States v. Aluminum Co. of America, Judge Learned Hand of the U.S. Court of Appeals for the Second Circuit fashioned an effects test to determine whether U.S. antitrust law applies to foreign conduct.² Under the effects test, Judge Hand held, U.S. law would apply to foreign business activity (1) “intended to affect” U.S. commerce, and (2) “shown actually to have had some effect upon” U.S. commerce. Subsequent courts followed Judge Hand’s general guidance but disagreed significantly as to when the Sherman Act applied to foreign conduct. In response to this disagreement, Congress enacted the FTAIA in 1982.³

Why Is the FTAIA Relevant?

The FTAIA defines when U.S. antitrust law reaches foreign or international operations, purchases, and conduct. Thus, the FTAIA has special importance for companies that buy or sell goods or services outside the United States. For example, U.S. companies that purchase goods from foreign sellers may hold those sellers accountable under U.S. antitrust laws for anticompetitive practices, so whether the FTAIA bars U.S. antitrust claims would be relevant to those U.S. companies. Relatedly, foreign companies that sell goods or services knowing that those goods or services will be imported into the United States have an interest in knowing when and the extent to which U.S. law applies to those sales.

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John Terzaken is a partner at Simpson Thacher & Bartlett LLP focusing on antitrust matters, including government enforcement of antitrust, fraud, and other white collar violations, as well as related follow-on civil litigation. Prior to joining Simpson Thacher, John held a leading position in the DOJ’s Antitrust Division as Director of Criminal Enforcement, where he oversaw the division’s criminal enforcement nationwide. His responsibilities included presiding over some of the largest global cartel investigations ever undertaken by the DOJ. Abram Ellis is a partner at Simpson Thacher focusing on antitrust matters, including class action litigation, antitrust merger review and antitrust counseling, and on regulatory issues present in international and cross-border transactions. He regularly represents clients in some of the most high-profile, pending private antitrust actions. He has also successfully helped clients navigate the antitrust merger review process and regularly consults and advises clients on potential business activities and strategies, new industry developments, and contracting activities. Jonathan Myers is an associate in the Washington, D.C. office of Simpson Thacher.

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1. 15 U.S.C.S. § 1. 2. 148 F.2d 416 (2d Cir. 1945). 3. 15 U.S.C.S. § 6a.