In MM Global Services v. The Dow Chemical Company, 329 F. Supp.2d 337 (D.Conn. 2004), the court sided with the foreign plaintiffs and allowed their claim based on §1 of the Sherman Act to proceed. The facts are somewhat different from the standard global price fixing conspiracy fare that has sustained most of the development of the extraterritorial application of the U.S. antitrust laws. The primary defendants are Union Carbide and the Dow Chemical Company, two U.S. entities. The plaintiff is MM Global Services (”MM”) a local distributor of Union’s products (chemicals, polymers, etc.) in India. When an accident at one of Union’s chemical plants in Bhopal killed thousands of people in December 1984 (for which Union was made to pay $470 million in damages), Union stopped selling products to customers in India directly. Instead, it appointed MM as its distributor. After Union merged with Dow in 2001, Union started distributing its products in India through Dow’s distribution network, which was “untainted by the Bhopal tragedy.” (Id., 399). As a consequence, Dow terminated MM’s distributorship. MM now alleges that Union/Dow breached its contract and, more importantly, that Union/Dow violated §1 of the Sherman Act by forcing MM to adhere to minimum resale prices, which is per se illegal. Thus, the stage is set for the question of extraterritorial application of the Sherman Act under Empagran, for which we need three elements: conduct, foreign harm, and domestic harm. The conduct in question, resale price maintenance, took place in India. The foreign harm consists of higher prices in India. And the domestic harm is higher prices in the U.S. How do higher prices in India translate into higher prices in the U.S.? By preventing U.S. buyers from purchasing cheaper products in India, that is, geographic arbitrage from India into the U.S. (Id., 340).

The court’s opinion focuses on §(2) FTAIA, the “domestic injury exception” to the Sherman Act. If the exception applies, then the Sherman Act applies to Dow/Union’s conduct. It the exception does not apply, then the Sherman Act does not apply to Dow/Union’s conduct. (For background on the confusing “exception to the exception” framework, see this and this entry.) The court decided that the exception (and with it the Sherman Act) applies, and therefore denied Dow/Union’s motion to dismiss. (Id., 343).

In Empagran, the Supreme Court held that domestic harm cannot give rise to the plaintiff’s claim (i.e., help to bring about the foreign injury), if the plaintiff’s foreign harm is independent of domestic harm. Conversely, if the foreign harm is dependent on domestic harm, plaintiffs might have a claim. Note that the causality implied by Empagran flows from domestic harm (= cause) to foreign harm (= effect). In MM v. Dow, the situation is reversed. Because of higher prices in India (= foreign harm; cause), U.S. customers paid higher prices (= domestic harm; effect). As a result of higher prices in the U.S., prices in India remained at elevated levels, etc. Clearly, in MM v. Dow foreign and domestic harm are not independent. At the same time, the foreign harm doesn’t seem to to be dependent on domestic harm. Rather, domestic harm depends on foreign harm, at least initially. The court summarizes the core arguments of the parties as follows:

[T]he defendants argue that the plaintiffs have not and cannot now assert that domestic effects on commerce led to their [foreign] injuries, as required by Empagran, because the “[p]laintiffs have built their case around the proposition that Indian resale price maintenance led to higher prices in the United States, not the other way around.” In other words, the defendants assert that it is impossible for the plaintiffs to allege both that their injuries gave rise to domestic effects on commerce and that domestic effects also gave rise to their injuries. The plaintiffs respond that the Empagran decision “was expressly limited to whether the Sherman Act conferred jurisdiction over foreign effects that are ‘entirely independent’ of domestic effect[s].” In the plaintiffs’ view, “there is nothing in [Empagran] that precludes jurisdiction over domestic effects ‘flowing’ to and from foreign effects.” In other words, the plaintiffs assert that their injuries were not independent from effects on U.S. commerce, and contend that it is possible for their [foreign] injuries to both arise from and give rise to effects on domestic commerce.

There are a couple of ancillary questions raised by this case. First, is there really a “direct, substantial, and reasonably foreseeable effect” on U.S. commerce, as required by §(1)? (The court acknowledges that MM’s allegations “amount to little more than activities directed at a foreign market with domestic spill-over effects.” (2004 WL 556577, at 6). But considering the procedural posture (motion to dismiss), the court allowed the case to proceed.) Second, what exactly is MM’s antitrust injury, given that it was a party to the RPM conspiracy and as a seller of Union’s products presumably benefitted from the elevated prices? Third, is the question of whether the Sherman Act applies to certain foreign conduct really an issue of subject matter jurisdiction? This issue will require a separate discussion, as it affects not only MM v. Dow, but also In re MSG litigation, and very likely the D.C. Circuit’s upcoming Empagran decision on remand.

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