On June 28, 2005, the court of appeals for the District of Columbia ruled for the Empagran defendants on remand (Empagran v. F. Hoffman-La Roche, 417 F.3d 1267 (D.C. Cir. 2005) “Empagran II“). To briefly restate the facts. Empagran, an Ecuadorian company, bought vitamins from BASF (Germany) and Hoffmann-La Roche (Switzerland). BASF and LaRoche, as members of the Vitamins, Inc. cartel, had fixed the prices for vitamins around the world. Empagran sued LaRoche and BASF in the US for treble damages. The district court dismissed the lawsuit for lack of subject matter jurisdiction. The court of appeals for the District of Columbia reversed the district court, and the Supreme Court, in June 2004, reversed and remanded in a somewhat cryptic opinion. The following was clear after the Supreme Court’s Empagran I decision:

In order to bring a claim for treble damages in US courts, a plaintiff who suffered injuries abroad, must show that the defendant’s conduct had a “direct, substantial, and reasonably foreseeable effect” on U.S. commerce, &#167(1) FTAIA, and that “the domestic effect gave rise to, that is, caused, the plaintiff’s claim,” &#167(2) FTAIA. In short: The defendant’s conduct (i) injured the plaintiff abroad, (ii) injured others in the US, and (iii) the domestic injury caused the plaintiff’s foreign injury.

It was unclear, however, how close the causal connection between domestic injury and foreign injury had to be. In Empagran II, the court of appeals held that:

The statutory language (”gives rise to”) indicates a direct causal relationship, that is, proximate causation, and is not satisfied by a mere but-for “nexus.” (Id., 1271).

Of course, nothing in the language of the FTAIA (”gives rise to”) suggests anything of that nature. It is perfectly fine to say the that “the cartel gave rise to lawsuits by customers” or that “the desire to end all wars between Germany and France gave rise to the formation of the European Community,” etc. Proximate causation between X and Y is simply not implied in the the claim that “X gave rise to Y.” Be that as it may, the court draws the line between those foreign plaintiffs who can sue in the US and those who can’t on the basis of the central substantive issue in the Empagran I opinion: prescriptive comity. The Sherman Act thus only applies to those foreign plaintiffs, whose injury was proximately caused by the domestic harm. Held against that standard, the Empagran plaintiffs lost. Time will tell how hard it is to meet the Empagran II standard in practice. It is difficult to imagine a court brushing aside direct econometric evidence of foreign injury being linked to domestic harm. In contrast, economic a priori reasoning (e.g., higher prices abroad would have been eroded by arbitrage had it not been for higher prices in the US) appears to be insufficient after Empagran II, at least in the D.C. Circuit.

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