Competitive harm in global supply chains: assessing current responses and identifying potential future responses

Competitive harm in global supply chains: assessing current responses and identifying potential... Abstract Global supply (or ‘value’) chains add much to the value of global markets, offering benefits to both producers and consumers. Yet, global supply chains also carry a potential for harm that is often beyond the reach of current legal remedies. They can shield those that produce faulty or hazardous products or artificially raise prices from legal responsibility for the harms they cause to markets, consumers, or the environment. This article focuses on one set of those potential harms—those caused by anti-competitive conduct, but many of the issues also arise in relation to environmental, financial, and other types of harm. Producers anywhere in a chain can impede competition and raise prices for all subsequent purchasers. Such conduct may have effects in many jurisdictions, and its harmful effects are likely to be incurred outside the jurisdiction in which the conduct is located. Few legal tools are available for deterring such harms, and until very recently legal analysts have tended to subsume the issues under existing categories, often failing to notice that these categories and the tools based on them may be inadequate and ineffective in responding to a new organizational form. The inadequacy of the current legal framework calls for efforts to develop more effective tools, both domestic and transnational. This article reviews current responses to the problem and identifies the potential value of transnational coordination as a response. Global supply chains (GSC) (or ‘value chains’) contribute to many of the manufactured products used by most people in most developed countries most of the time.1 In these economic arrangements, multiple firms located in multiple jurisdictions provide components for and/or assemble and manufacture end-use products. They have developed rapidly since the 1990s, largely as a result of reduced transportation and communication costs and the increased mobility and concentration of financial resources. Together, these forces make it easier and more efficient to shift production across borders. They offer potential benefits to both producers and consumers. Yet, GSCs also carry a potential for harm that is often beyond the reach of current legal remedies. They can shield those that produce faulty or hazardous products or artificially raise prices from legal responsibility for the harms they cause to markets, consumers, or the environment.2 This article focuses on one set of those potential harms—those caused by anti-competitive conduct, but many of the issues also arise in relation to environmental, financial, and other types of harm. The issues are central to the evolution of markets almost everywhere. Any producers anywhere in a GSC can reduce competition and raise prices for all subsequent purchasers. As a result, such conduct may have effects in many jurisdictions. Moreover, the harmful effects from the conduct are likely to be incurred outside the jurisdiction in which the conduct is located. Where producers can be confident that they are shielded from competition law enforcement, they are more likely to engage in such conduct. Few legal tools are available for deterring such harms, and they evolved in a very different economic context to deal with very different problems. Until very recently, there has been limited recognition within the legal community that GSCs represent a new form of economic organization that is not easily amenable to effective treatment with these tools. Legal discussions have tended to subsume the issues under existing categories, often failing to notice that these categories and the tools based on them may be inadequate and ineffective in responding to a new organizational form. As is common (and often appropriate) in legal thinking, new phenomena are subsumed within older categories until it becomes imperative to think about them as something new. GSC harms represent a transnational problem, but little has been done on the transnational level to respond to the harms. As a result, the tools available for dealing with them remain primarily domestic (ie, usually national). Existing domestic legal tools remain, however, either limited in scope or applied in ways that render them largely ineffective. The inadequacy of the current legal framework calls for efforts to develop more effective tools, both domestic and transnational. US antitrust law may be in a position to contribute to creating such tools, but, as we shall see, efforts to realize this potential encounter major obstacles. The article has three main goals. One is to identify the dimensions of the problem. Economists and business decision makers have been identifying the characteristics and consequences of GSCs since at least the 1990s,3 but, until very recently, these issues have been either absent from or at the margins of legal discussions. A second objective is to explore and assess experience in responding to competition harms associated with GSCs, focusing primarily on US experience with private enforcement of antitrust law. Finally, the article suggests potential transnational responses to this transnational problem. I. Global supply chains GSCs are a feature of what I call ‘deep globalization’—ie, the cross-border interpenetration of economic functions.4 Reduced transportation and communication costs have led to the fragmentation of production processes and the distribution of economic production functions, often across political borders. This creates opportunities for firms to exploit differences in production costs in both acquiring and selling products and services. Arrangements for exploiting these differences may be managed and organized in a variety of ways. All refer to organizing the production of goods and services in order to supply specific needs. Some are organized by a firm or firms in the destination country and ‘buyer-driven’. Others are organized by sellers (who are typically outside the destination country) and referred to as ‘supply-driven’ chains. It has become increasingly common for firms in destination countries to ‘manage’ the entire process through agreements of various kinds that may relate to the products themselves or to the characteristics of the producers and the production process.5 In these arrangements, the organizing firms often seek to avoid responsibility for conduct by their suppliers that might violate environmental and labour standards. Although there are many variations on the theme, one common scenario is something like the following: Firm A (typically from a high income country) seeks to sell a product in a developed market such as the United States or Europe where labour and related factor costs are high. It therefore contracts with a firm (B) in a lower cost country to produce the goods there. It presses firm B to produce at the lowest possible prices. Firm B, in turn, acquires components from suppliers (firms C, D, and E) in countries with even lower costs and manufactures the product from those components. It then sells the product to Firm A for resale in the high-income market (perhaps with further elaboration).6 At any point in this chain of production, participants may engage in practices designed to raise the price they receive for their contribution to the value of the good or service being produced. Some estimate the potential losses to US consumers per year as high as several hundreds of billions of dollars, with an estimated $2 trillion dollars overcharged to consumers world-wide.7 II. Potential legal tools: transnational level Global supply chains have major consequences for many countries, so we might expect them to have generated legal developments on the transnational level. Yet, little attention has been paid to developing transnational legal tools for responding to their threats. There are no enforceable competition law provisions on the global level. Some regional and bilateral agreements provide for exchange of information related to competition law violations, and these could, in principle, be used to gain information and support enforcement. For example, the Mutual Legal Assistance Agreement (MLAT) between the United States and Canada enhances the countries’ exchange of information and cooperation in investigation and prosecuting cartels.8 These agreements do not require, however, that host countries provide information that may contravene their own interests. As a result, they are seldom of value in combating GSC’s harms, because officials in countries where the conduct occurs seldom have incentives to report such violations to officials in countries in which the anticompetitive harm results. III. National competition laws: public enforcement The paucity of transnational tools means that domestic (ie, typically, national) legal systems provide whatever tools are available for deterring GSC harm. Here, the central issues relate to jurisdiction and to enforcement incentives: the starting point is the issue of whether a state is entitled under public international law to apply its law to conduct outside its territory and the extent to which its national laws authorize application of competition law to such conduct. The public international law issue is often overlooked, especially in the United States, but it can be important in understanding not only statutes and cases, but also options available for responding to GSC challenges.9 The effects principle and national versions of it Until the end of the Second World War, the long-established principles of territoriality and nationality were considered the sole basis of authority for a state to apply its law to conduct outside its territory. A state could not apply its law to conduct outside its territory, except to its own nationals. In 1944, however, a US court of appeals sitting for the Supreme Court enunciated what came be known as the ‘effects principle’.10 This provides generally that a state is entitled to apply its laws to conduct outside its territory where the conduct has a significant effect within its territory.11 The case involved the extraterritorial application of US antitrust law. Despite initial resistance, primarily from the UK and other European countries, this principle has come to be generally accepted.12 Accordingly, if firms outside country X collude to raise prices on products that are destined for sale in county X, the resulting harm would in principle justify the application of country X’s law to the conduct. Public international law is, however, only the starting point for jurisdictional analysis. Each jurisdiction incorporates and interprets the effects principle for application by its own institutions, typically enacting a statute that incorporates it in some form. For example, the relevant statute in the US specifies that US antitrust law applies to conduct that has a ‘direct, substantial and foreseeable’ effect within the United States.13 The incorporation of the effects principle in various forms and subject to various conceptual, institutional, and procedural limitations—both formal and informal—is central to dealing with GSCs. Public enforcement of competition law for foreign-based conduct Domestic laws typically authorize public institutions to apply domestic law to foreign conduct that has the requisite domestic effects. Public enforcement by competition authorities (CAs) provides, therefore, a potential tool for combating GSC harm. In most countries, competition law is primarily or exclusively applied by public institutions, however, and thus application of the jurisdiction’s laws to GSCs depends on the capacity and willingness of these institutions to take enforcement action. Public enforcement cases remain uncommon (although in the United States and Europe they have been increasing in recent years).14 For example, when in 1996 the Antitrust Division of the US Department of Justice (DoJ) prosecuted ADM of Illinois and four other companies for participating in a global price-fixing cartel in the artificial sweeteners businesses, fining them over $10 million,15 it was the first completely successful conviction of a global cartel in more than four decades. Prior to this case the DoJ had attempted to prosecute only three international cartels, failing each time.16 Since then, the DoJ has successfully prosecuted and levied fines in a few major cases, including, for example, fining Hoffman-La Roche over $500 million in 1999 for its participation in global cartels for bulk vitamins and, more recently, Bridgestone Corporation of Japan over $425 million in 2014 for cartel participation.17 In part, this reluctance can be ascribed to the difficulty of prosecuting such cases. The DoJ has been described as ‘risk-averse’, as it tends to only pursue cases where there is a substantial chance of successful conviction,18 and success in such cases is far from predictable. Several additional factors limit the potential utility of public enforcement by destination countries. First, public officials may be unlikely to learn about foreign conduct that causes GSC harms. The conduct could occur anywhere in the world, and public officials in destination countries are unlikely to learn about it through their own surveillance efforts. Victims may provide information to public officials that suggests collusion to raise prices, but this is likely only in the case of corporate purchasers whose potential losses are significant enough to justify such efforts and whose knowledge of the industry makes them aware of it. Moreover, competition officials in a source country have little incentive to provide information about domestic conduct to destination country competition officials. Although there is regular information exchange among some enforcement officials—primarily between the United States and Europe, such exchanges with smaller competition authorities are limited. Second, even if a CA in a destination country becomes aware of such conduct, there are significant obstacles to acquiring sufficient evidence to support legal procedures against those engaged in it. Potential evidence is likely to be located on foreign territory, and foreign institutions may have little capacity or willingness to undertake investigations there or to acquire evidence from foreign witnesses and foreign institutions. Moreover, any such efforts are likely to be highly time-consuming and expensive. Public enforcement by source countries is limited by the lack of enforcement incentives. CAs in source countries seldom have significant competition law experience. They are typically underfunded and often subject to political pressures to protect domestic firms. Often the source firms for GSCs are small and medium-sized industries that provide jobs for the economy and political support for local governments. Under these circumstances, a CA in a source country is likely to have few incentives to apply competition law to firms participating in GSCs. IV.Private enforcement: the general picture Private enforcement provides another potential tool for deterring anticompetitive conduct caused in supply chains. It allows a private party to pursue litigation against those whose anticompetitive conduct has caused it harm. There are two types of private enforcement. Direct private enforcement allows an injured party to bring a claim without prior action by public authorities. This type of enforcement is common in the United States, but in most jurisdictions private enforcement is limited to ‘follow on’ (or ‘piggyback’) litigation. Here, private litigation follows public enforcement, either because the law requires it or because procedural and practical reasons dictate it.19 Private litigation may often be more useful than public enforcement for deterring competitive harm in global supply chains, primarily because firms injured by such conduct often have strong incentives to seek compensation for their losses. A firm in a destination market (eg, the United States) may lose market share and competitive position where price-increasing agreements within a SC raise the cost of the products it sells. It may, therefore, be willing to incur the risk and expense of litigation in order to seek compensation and deter similar conduct. Consumers may also be harmed, but the harm to each individual is unlikely to justify private litigation, and class actions in this context are rare. Despite its potential value, the obstacles to pursuing private litigation are high in most jurisdictions. First, in many jurisdictions private enforcement of competition law claims is unavailable. Competition law enforcement is considered a matter for public enforcement.20 Second, even where it is available, there are often major procedural obstacles to using it. For example, procedures in civil courts often provide very limited means and opportunities to acquire evidence, and competition legislation typically depends on providing economic evidence.21 Third, the cost of private enforcement tends to discourage plaintiffs from pursuing such litigation. In GSC, situations witnesses and documents are typically located outside the destination country, and acquiring access often requires complicated and constrained strategies as well as high translation costs.22 Fourth, the risks are high. In most countries, decisions in competition law litigation tend to be especially difficult to predict. Judges typically are not accustomed to such litigation and unfamiliar with the economic arguments that are often required. Relevant legal principles may be vague, and acquiring sufficient evidence clearly to identify competition harms may be difficult, if not impossible. Finally, even where a plaintiff wins a domestic judgment against a foreign defendant, enforcing the judgment is likely to be difficult and costly in many source country jurisdictions. V. US Private enforcement—potential These obstacles to private enforcement are, however, significantly lower in the United States than in other countries. This creates the opportunity for US private enforcement to contribute to a more effective legal framework for deterring anticompetitive conduct in GSCs. US private enforcement has extensive direct deterrence capacity, and it can provide impetus and example for developing more effective tools in other jurisdictions and on the transnational level. Direct deterrence: enforcement opportunities US private enforcement can itself play a direct role in deterring harmful GSC conduct. The procedural tools supporting it are well developed and supported, and there is extensive experience with using them. Procedural rules encourage private enforcement. For example, US law triples compensation awards for harm due to antitrust infringements (‘treble damages’), thereby greatly increasing the incentive to bring private suits.23 Similarly, punitive damages may also be awarded for violation of the antitrust laws. Moreover, procedural rules provide litigants with means for acquiring data from other litigants and introducing this data into evidence in litigation.24 This greatly increases the capacity of plaintiffs to search for and acquire evidence of anticompetitive conduct and to analyse its effects. Finally, these tools are routinely used, and thus there is extensive experience in using them. Private cases represent the majority of US antitrust cases.25 In addition, the United States has both the political and economic leverage to induce compliance with its laws. Economic leverage comes from the size of its market. GSCs often target the US market, and many are organized and controlled by US firms.26 This means that a firm located outside the United States may have strong incentives to comply with US administrative requests and court judgments. Even though a US judgment may not be easily enforced abroad, a foreign firm may have assets in the United States that would be subject to claims arising from litigation. Moreover, US purchasers may avoid buying from firms that may be subject to such legal liability. The political leverage of the US government further increases the likelihood that sanctions imposed by US courts will be taken seriously by source country firms and officials. US institutions are often in a position to put pressure on foreign governments and officials to support US claims. Indirect support: information and experience US private enforcement experience can also provide valuable indirect support for dealing with anticompetitive conduct in GSCs.27 The extensive use of private enforcement tools represents a valuable source of data and experience for other countries that may wish to develop such tools. US case reports provide detailed information about the way these tools are used in specific cases, and these records are often easily accessible. These tools have not yet been widely used in GSC contexts, but if they were used more extensively in such cases, the experience could be a particularly valuable source of information for other countries that wish to develop private enforcement capacity to deal with these issues. As a source of impetus The United States could also provide important impetus for other countries to develop more effective tools to deal with the competition law issues associated with GSCs. Many members of the US antitrust community are in a position to encourage, instruct, and cajole others to be aware of the problem and to take steps to deal with it. US officials, practitioners, and academics play major roles in virtually all important international and many regional competition law meetings and organizations. Moreover, US institutions provide extensive opportunities for study of antitrust law in the United States, and they often offer significant support to competition authorities in many parts of the world.28 The capacity to play these roles effectively depends on many factors, but principally on the dynamics and characteristics of US law itself. To the extent that US courts and legislators provide clear and accessible guidelines for evaluating the potential for competitive harm from GSCs, this is likely to increase not only its potential for direct deterrence, but also its capacity to support deterrence by others. VI. Potential unrealized: the obstacles US antitrust law has not realized its potential for playing these roles. Three major obstacles impede it. First, it relies on an outdated and exceptionally opaque statute. Second, US cases in the area often send widely divergent and often conflicting messages about the statute’s content, reflecting not only the opacity of the statute, but also the lack of a widely shared understanding of the problems, objectives and issues of transnational competition law enforcement. And third, courts and commentators often fail to recognize the specific characteristics of GSCs. As a result, they often apply principles and reasoning developed for use in the US domestic context to foreign contexts for which they were not designed and may not be appropriate. The FTAIA The FTAIA is itself a major obstacle to realizing the potential of US private enforcement. Enacted in 1982, it provides authority for US institutions to apply US antitrust law to private conduct outside US territory.29 It incorporates the effects principle of public international law and interprets it for use in US law.30 There is widespread agreement that the statute is exceptionally opaque, and its opacity hampers both US enforcement and the potential influence of US law in other countries.31 The FTAIA’s relationship to other antitrust legislation creates one level of difficulty. The statute represents an exception to the coverage of the basic antitrust statute, the Sherman act.32 If the FTAIA applies to conduct, the Sherman Act does not apply. Moreover, the FTAIA contains exceptions to its general provisions.33 As a result, interpreting the statute typically involves dealing with double negatives—ie exceptions to exceptions. The statute’s structure increases the difficulty of using it. It establishes three basic categories of commerce—domestic, import, and foreign—and bases conclusions regarding the legality of foreign conduct on whether the conduct falls within one or more of those categories. The basic idea is that conduct in domestic commerce is subject to US antitrust law; conduct wholly in foreign commerce is not subject to it unless it has a ‘direct, substantial, and reasonably foreseeable effect’ in the United States; and conduct in or affecting import commerce may be subject to US law. The boundaries of these categories remain highly contested, however, despite more than three decades of extensive litigation.34 These categories are used in conjunction with two main operative provisions—each of which has also generated controversy and uncertainty. The first incorporates the effects principle of public international law and interprets it for application of the US antitrust laws. It exempts from the antitrust laws anticompetitive conduct outside US territory unless such conduct causes a ‘direct, substantial, and reasonably foreseeable effect’ within the United States. This language has been interpreted in a large number of cases, but the opinions have not clarified the meaning of the terms. The second requires that the conduct ‘give rise to a claim’ under the Sherman Act. Again, there have been many interpretations of this provision, but the cases have exacerbated rather than reduced uncertainty. The history behind the statute reveals some of the factors that shaped it and that have contributed to the confusion surrounding it.35 When the United States articulated and supported the effects principle after the Second World War, many outside the United States viewed its claim to expanded jurisdiction as a vehicle through which it sought to impose its form of economic organization on other countries. For decades, several major European countries (particularly the UK) protested the validity of the effects principle under international law.36 This led US courts to develop the so-called ‘comity’ principle, according to which US courts would refrain from applying US law in situations where the US interest in such application was less than the interest of the states in which the conduct occurred. These responses to foreign concerns about US jurisdictional assertions did not implicate the authority itself, but rather the use of that authority. By the late 1970s, the courts had produced long lists of factors to be considered in applying the law extraterritorially.37 There was, however, much criticism among US commentators and judges about the viability of this effort.38 The confusion and uncertainty created by this comity approach encouraged Congress to pass the FTAIA and shaped its content. The basic objective was to clarify and limit the scope of the effects principle as incorporated in US antitrust law while assuring that the law could not be used by others to interfere with the activities of US businesses overseas.39 The statute also represents an attempt by Congress to reduce the potential for applying US law to foreign conduct and thereby to reduce criticism and resistance to US law. Defining the scope of the effects principle was seen as preferable to the failed efforts to achieve this end by relying on judicial use of the amorphous comity principle. The statute dramatically changed analysis of the issue and moved toward a potentially more effective solution. Unfortunately, however, it has not provided the clarity needed to make the solution effective. The amorphous case law The courts have increased rather than decreased the uncertainty and confusion created by the statute itself. They have not developed principles that give coherent shape to the case law. Courts have wandered in many directions—without any apparent shared sense of the issues and problems involved in applying US competition law to foreign anticompetitive conduct. I mention here only a few examples. ‘Direct’ and ‘substantial’ effects The statute’s reference to ‘direct’ effect has elicited numerous interpretations. Many courts use the concept of ‘proximate cause’ drawn from the law of torts to interpret ‘direct’, and in so doing they import from tort law extensive and still highly contested discussions of what ‘proximate cause’ means. For example, the Seventh Circuit has adopted the traditional tort-based approach to proximate causation, requiring only that a ‘reasonably proximate causal nexus’ exist between the anticompetitive conduct and the effect on domestic trade.40 Other courts use other and often inconsistent approaches to interpret ‘direct’. For example, the Ninth Circuit requires that a plaintiff show that the domestic injury (the ‘effect’) ‘follow as an immediate consequence of the defendant’s actions.’ This focuses on a single factor—the ‘spatial and temporal separation between the defendant’s conduct and the relevant effect’.41 In contrast, The qualifier ‘substantial’ has also been interpreted in various ways. The Ninth Circuit has developed a stringent test, requiring a plaintiff to show both injury to a specific firm and injury to the market and competition in general.42 Other courts merely consider the amount of injury to firms and the harm of the anticompetitive foreign conduct as factors in determining whether the effect was substantial. The Fifth Circuit found a ‘substantial’ effect to the market as a whole where only one firm was injured because that one firm held a substantial amount of the market share.43 The ‘arising under’ language The arising under language has proven similarly opaque. Interpretations of its function and meaning vary widely. Some courts conflate it with the effects test and treat it as a test of the reach of US law.44 Others refer to it as an element of standing to sue.45 There is also a major debate as to whether it should be seen as an element of the claim itself—a substantive law issue—or an issue of who can sue—a procedural issue.46 Misapplication of domestic cases: missing the transnational A third factor limiting both the direct enforcement effect and the potential guidance effect of US private enforcement is a tendency among US judges, officials, and legal scholars to use domestic doctrines and rules in the transnational context without asking whether the policy basis for the domestic doctrine is served by applying it in the transnational context. As we shall see below, application of domestic rules without considering their likely consequences in international contexts may produce results inconsistent with or even directly opposed to the initial policy basis for the rules. VII. The Motorola-mobility case: showcasing the obstacles The 2015 Motorola-Mobility case of the Seventh Circuit highlights the obstacles.47 It is a major case that has drawn much attention in relation to the shaping of GSCs.48 This fact not only underscores the potential for constructive influence of the US private enforcement regime in the evolution of GSCs, but it also reflects many of the factors that we have identified as obstacles to realizing that potential. The US Supreme Court declined to review the case,49 and it may therefore remain an important component of US law relating to extraterritoriality, in general, and GSCs, in particular.50 The opinion The basic fact pattern is typical of global supply chains. The plaintiff, Motorola-Mobility, Inc., is a large US electronics manufacturer. It incorporates LCD screens in many of its products, purchasing most in Asia through a global supply chain. In this case, a small percentage of the component sales were made directly to the US parent (ca 1 per cent), but most were made to its wholly owned foreign subsidiaries. These units then sold some of the products to the parent and others to buyers outside the United States. On discovering that some suppliers that were part of the supply chain had agreed among themselves to increase the prices they charged for such screens, Motorola filed suit in US court for compensation for the losses incurred as a result of the agreements. The appeals court upheld the lower court ruling that the plaintiff was not entitled to sue. At issue was the harm caused to the parent company as a result of purchases it made through its overseas subsidiaries. The opinion by Judge Posner did not treat that portion of the FTAIA that specifically deals with the extraterritorial reach of the statute (the effects principle). A criminal proceeding on the same basic facts had found that the effects of the foreign conduct on US commerce were ‘direct, substantial and reasonably foreseeable’ and, therefore, that the statute did apply to the conduct. Judge Posner accepted this finding. The opinion focused instead on the issue of the plaintiff’s standing to sue. It analysed the issue by reference to the statute’s ‘arising under’ language. In Judge Posner’s view, the effect of the cartel agreements on US commerce occurred outside the United States and therefore did not ‘arise under’ US law. Accordingly, the plaintiff was barred from bringing suit in the United States because the losses were suffered by Motorola’s foreign subsidiaries rather than Motorola itself. In reaching this conclusion, the Court rejected the plaintiff’s argument that the harm was suffered by the parent, because the foreign subsidiaries were completely owned and controlled by the parent and functionally part of the parent. According the opinion, this claim was a ‘fatal flaw’ in the plaintiff’s case. Judge Posner apparently did not consider total ownership and control of the subsidiaries as a sound basis for identifying them as functionally part of the parent. He buttressed the denial of standing by referring to a US domestic antitrust law doctrine referred to as the indirect purchaser rule, which denies indirect purchasers the right to sue for harm suffered as a result of antitrust violations. This so-called ‘Illinois Brick’ rule was specifically crafted to achieve policy objectives—specifically, to increase enforcement of the antitrust laws by increasing the incentives for private actions.51 By assuring that at least the direct seller suffered sufficient harm to justify litigation, it sought to provide this incentive. The rule has been heavily criticized, and numerous states have contravened it in their own antitrust laws.52 Obstacles to a constructive role for US private enforcement The opinion reflects some of the obstacles that impede US law from performing a constructive role in shaping responses to GSC-based harms. It applies the statute in ways that provide little guidance for future cases, uses the confused case law in ways that further contribute to the confusion, and inappropriately applies domestic doctrine to a transnational context. Struggling with the statute The Court struggles to make sense of the statute. First, it turns the ‘arising under’ language into a test of standing to sue, despite the fact that the statutory language has been understood to refer to other issues and that the legislative history does not support that interpretation. Second, it uses this language to define, in effect, the extraterritorial reach of the US antitrust laws in private enforcement cases. And third, the opinion applies the statute formalistically despite the fact that it is being applied to new circumstances that call for careful analysis of the consequences of its application. In particular, it claims that the Motorola’s wholly owned subsidiaries were not functionally part of Motorola, although they were completely owned and controlled by Motorola and, therefore, functioned as part of it. Confused by the confused case law? The opinion also reflects the confusion of the case law. Judge Posner injects issues from earlier cases that have little if any relevance to the case at hand and are likely to exacerbate the uncertainty and inconsistency of the case law. For example, the opinion inserts language about ‘comity’ from earlier cases, but uses it in ways that are misleading in relation to the cases from which the language is taken and which tend to obfuscate the issues relating to GSCs. Missing the transnational: applying domestic doctrine to transborder contexts The opinion’s ‘domestic blinders’ represent a third obstacle to the development of antitrust law relating to GSCs. The Court applies domestic rules to the transnational context without accounting for the changed context in which they are being applied. The result is an outcome that directly contravenes the policy on which the domestic rules were based. Judge Posner’s application of the ‘indirect purchaser rule’ provides a particularly poignant example.53 According to this rule, only direct purchasers may sue for damages for harm caused by anticompetitive conduct. The rule was established in the Illinois Brick decision and based on ‘the longstanding policy of encouraging vigorous private enforcement of antitrust laws’. According to Illinois Brick, this policy called for ‘concentrating the full recovery for the overcharge in the direct purchasers’.54 Otherwise, there was a risk that ‘those who violate the antitrust laws by price fixing … would retain the fruits of their illegality because no one was available who would bring suit against them’.55 The policy behind the rule was to encourage private enforcement. In the GSC context, the application of the indirect-purchaser doctrine has precisely the opposite effect. It discourages private enforcement, because it all but precludes recovery by the victims of anticompetitive conduct. Except in unlikely cases, it virtually ensures that foreign cartels will ‘retain the fruits of their illegality’. Barring parent companies from bringing suit where they make purchases through their wholly owned foreign subsidiaries means that price-fixing within the supply chain will escape liability for such purchases, because the subsidiaries are unlikely to have a remedy under foreign antitrust laws. Judge acknowledges that ‘foreign antitrust laws rarely authorize private damages actions’, but ignores the consequences of this fact.56 VIII. Possible responses: national level The lack of effective tools for addressing competitive harms associated with GSCs reveals the need to expand and improve the available tools, eliminate obstacles to their use and search for new ones. In this section, we identify potential responses to that need. United States: dismantling the obstacles The central role of US law and institutions in the transnational competition law arena points to the potential value of reconsidering US law in the area. Increased public enforcement of US law may deter some harmful conduct, but, as we have seen, the potential for increasing public enforcement is limited. Our focus here, therefore, is on steps that can be taken to make the private enforcement mechanism more effective. A new statute? Eliminating or amending the FTAIA could remove one major obstacle to more effective use of US private enforcement. The potential harm from GSCS gives further impetus to the decades of complaints about the difficulty of interpreting the statute or even making sense of it.57 A statute that more clearly defines the US interpretation of the effects principle, clarifies the principles governing standing to sue, and distinguishes between the two issues would itself be of major value. Replacing the statute is likely, however, to encounter significant resistance. It would face the conventional argument that at least the problems of the current statute are known and that a new statute may be no better at clarifying the situation than the current one. Moreover, political support for a new statute may be limited, because changing the principles governing the extraterritorial application of antitrust law may implicate other areas of US law such as securities regulation. Lobbyists may fear that it could lead to exposing their clients to environmental or other liabilities related to GSCs. Amending the FTAIA The statute could also be amended to deal specifically with GSC issues. For example, a provision could be included to the effect that in applying the statute a wholly owned or controlled subsidiary of a US parent would be considered part of the parent rather than an independent entity.58 This would solve a key problem in the Motorola-Mobility case. It would also avoid the concern that blurring the line between parent and subsidiary in a more general way could expose US firms to liability in other areas. Focusing the case law Even without legislative changes courts and scholars could generate clearer principles for applying US antitrust law in the context of GSCs. A first step in this direction would be to recognize the specific characteristics of GSCs. They represent a new form of transnational economic organization in which the production, transport and sale of goods is managed, structured, interrelated, and controlled in ways that create legal relationships very different from those that existed previously. Identifying these new relationships and conceptualizing the legal problems they create would be a necessary first step to developing effective responses to them. Clearer recognition of the distinctiveness of GSCs could also give greater shape and consistency to the case law. It would alert judges to the importance of considering the consequences of applying domestic antitrust doctrines to transnational contexts for which they were not intended. As we have seen, the court in Motorola-Mobility applied the indirect purchaser rule without apparent recognition of the distinctiveness of the context of GSCs. Over time such recognition should lead to a clearer picture of the appropriate policy foundations for applying US antitrust law to GSCs. Other jurisdictions: divergent interests Other countries could also reduce the potential harms associated with GSCs, but here the interests of individual countries diverge. Destination countries may have much to gain by pursuing more effective competition law responses to GSC harms, but source countries may have much to lose.Destination countries could increase public enforcement, but, as noted above, this is likely to have limited effect. They could also increase private enforcement by enabling it where it is not currently available or providing incentives for plaintiffs to use private enforcement tools where they do exist. As we have seen, however, experience with private enforcement outside the United States is limited and developing very slowly. Source countries, on the other hand, have quite different incentives that often clash sharply with the incentives of destination states. They may benefit, for example, from cartel agreements among domestic firms, because these agreements tend to yield higher profits for such firms as well as more jobs for inhabitants. This results in benefits for the state itself (eg, through higher tax revenues and increased employment, etc.) and its officials. As a result, such countries have few, if any, incentives to apply their own competition laws, if any, to GSCs or to aid enforcement by destination countries. The divergence in interests is rooted in the structure of the global economy. Large discrepancies in labour and other production costs between high-income countries and low-income countries mean that resources for the production of goods and services tend to flow from the former to the latter. The lower the obstacles to the movement of capital, persons and goods, the more rapid and extensive this flow is likely to be. These contrasting and conflicting interests meet and interact to forge global supply chains, and law, perhaps especially competition law, necessarily influences the shape of those interactions. Transnational coordination? These conflicting interests brings into sharp relief the potential value—and risks—of transnational coordination as a means of dealing with GSC harms. Coordination here refers to an exchange of obligations, although these can be either formal or informal. It provides a mechanism for exchanging benefits and reducing harms, potentially enabling each side to achieve some, but not all of its objectives. The potential for success in coordination rests on identifying congruent incentives. Despite the conflicts we have identified, firms in both source states and destination states can benefit from effective working relations that allow them to increase their profits. Where the potential value of coordination is recognized, firms can be expected to urge their respective governments to support such coordination. The examples below suggest this potential. Components of coordination Some or all of the following objectives could play a role in coordination: Destination states Information: Destination states that seek to deter anticompetitive conduct need information about suppliers who may be involved in such conduct. They have incentives, therefore, to seek obligations from producer states to provide such information. Enforcement support: They may also seek support for their enforcement efforts—agreement by a source state, for example, to permit the destination state to conduct investigations within source state territory, to interview potential witnesses there and to receive information from government sources. Positive comity: They may even seek so-called ‘positive comity’ obligations which would require a foreign state itself to engage in specified enforcement action where a destination state requests such action, provided that certain conditions are met. Environmental and labour standards: Finally, a destination state may seek obligations from a source state to increase its enforcement of environmental, safety, and labour standards. Firms in destination states often require that firms subject to their jurisdiction meet high standards in these areas. Meeting these requirements is often difficult and expensive. This provides incentives for those firms (and governments) to transfer the costs to source country institutions. Source states ‘Safe harbours’: In return, source states have incentives to seek protection from destination state enforcement actions. This might, for example, include exemption from cartel prohibitions for cartels among small and medium-size enterprises located in emerging markets.59 Enforcement information: They may also seek information regarding enforcement efforts in the destination state that may influence source-state interests. Enforcement supervision and control: Finally, they may seek to control any foreign investigations carried out within their territory. Coordination levels Coordination can be pursued at global, regional, or bilateral levels. Global: Agreement on such issues at the global level is likely to be particularly difficult. The interests of potential participants are too varied, and the conflicts described above may inhibit negotiation. Moreover, even if destination states could induce source states to agree to some of these obligations, the likelihood of compliance with such obligations is likely to remain uncertain. Regional: Coordination efforts at the regional level would encounter similar obstacles. In some cases, the interests of the regional group may align in ways that support coordination, but individual members of the group may have widely differing assessments of the potential impact of an agreement with a destination state (or states) and it may be difficult to achieve the internal agreement necessary for effective bargaining. Moreover, existing regional agreements may also increase obstacles to coordination. Such agreements are generally designed to promote the interests of states with at least somewhat aligned interests—eg, African regional agreements or ASEAN (Association of South East Asian Nations). One of their objectives is often to give economically weaker and smaller states better bargaining position vis-a-vis stronger and wealthier ones. The internal dynamics of the group may lead them to place higher demands on destination states than individual countries would, and such demands may be difficult to accept. Bilateral: Bilateral coordination between destination states and source states promises more flexibility than global and regional coordination. In the bilateral context, coordination can focus on the specific needs of the parties and on the potential for crafting a cooperative arrangement that has benefits for both. It poses the risk that the stronger party (usually the destination state) will be in a position to impose its will, but in the GSC context the source state’s negotiating position is enhanced by the fact that the destination state actually needs it active cooperation. Efforts to deal with the GSC issue at any of these coordination levels can at least raise awareness of the legal problems associated with GSCs. This, in turn, can be expected to enhance understanding of the issues and facilitate—eventually—more productive and efficiency-creating arrangements. Rhetoric and actions in some countries that abjure coordination may find this an area where their own economic interests demand coordination. IX. Concluding comments This brief look at the relationship between GSCs and competition law highlights a fundamental tension in the development of global markets. In it, firms establish value chains across borders in order to achieve private profits, but the potential value of such transborder relationships to the participants depends on the structure and functioning of the legal framework within which they operate, and the legal framework is created and managed primarily by public institutions. Rules and principles applied to competition are at the center of that intersection. This analysis underscores the potential value of moving toward a more broad-based, flexible and adaptive set of transnational legal relationships. It can be seen as a continuation of the historical process that led to the creation and acceptance of the effects principle in international law in the decades since the Second World War. During this process, states developed legal principles and institutions to respond to increasing political and economic interconnectedness. They used the effects principle to protect their interests and their citizens from harm, including harms resulting from anticompetitive conduct. Markets have continued become increasingly global, however, and the limits of that principle have also become clearer. GSCs can have great value, but they can also increase the breadth and intensity of harm from anticompetitive conduct and limit the capacity of competition law to respond to and deter such harm. Current legal doctrines often fail adequately to take into account these dramatic changes in the global economy. Competitive harm from within GSCs creates an important challenge to legal institutions, thinkers, and policy makers. Dealing effectively with this challenge is likely to require increased recognition of the specific characteristics of GSCs as well as efforts by both source and destination states to understand their consequences. Above all, it calls for creative responses to the problems created by this form of economic organization. The author thanks Prof. D. Daniel Sokol and the participants at the Oxford JAE Symposium (June 2016). He also thanks Symone Shinton, a third-year student at Chicago-Kent College of Law, for her excellent research assistance. Footnotes 1 About 60 per cent of global trade (more than $20 trillion) comes from global supply chains. World Investment Report 2013, UNCTAD (2013) http://unctad.org/en/PublicationsLibrary/wir2013_en.pdf; See also De Backer & Miroudot, Mapping Global Value Chains, OECD Trade Policy Papers, No 159 (OECD Publishing 2013) http://dx.doi.org/10.1787/5k3v1trgnbr4-en. The terms ‘global supply chain’ and ‘global value chain’ are sometimes used synonymously, although sometimes distinctions are made for specific contexts. The distinctions are controversial, and there is as yet no settled usage. For our purposes, however, there is no need to identify the differences. 2 See, eg, Emma M Lloyd, ‘Greening the Supply Chain: Why Corporate Leaders Make It Matter’ (2011–2012) 27 J Land Use & Envtl L 31; See also Allie Robbins, ‘Toxic Sweatshops: Regulating the Import of Hazardous Electronics’ (2015) 18 CUNY L Rev 2267. 3 The literature is now extensive. See, eg, Gary Gereffi et al, ‘The Governance of Global Value Chains’ (2005) 12 Rev Intl Pol Econ 78; Kojo Yelpaala, ‘Strategy and Planning in Global Product Distribution – Beyond the Distribution Contract’ (1993–1994) 25 Law & Pol’y Int’l Bus 839; LC Giunipero et al, ‘A Decade of SCM Literature: Past, Present and Future Implications’ (2008) 44 J Sup Chain M’gmt 66–86; Jodi L et al, ‘Monitoring Global Value Chains’ (2016) 37 Strat Mgt J 1878; For a broad economic and political analysis, see William Milberg & Deborah Winkler, ‘Outsourcing Economics: Global Value Chains in Capitalist Development’ (2013). 4 See David J Gerber, ‘Global Competition: Law, Markets, and Globalization’ 274–281 (2010). 5 See, eg, Mark Millar, ‘Global Supply Chain Ecosystems: Strategies for Competitive Advantage in a Complex World’ (2015) and Kate Macdonald, ‘The Politics of Global Supply Chains’ (2014). 6 ‘Global supply chain is loosely defined as an international network of companies that cooperate to convert ideas into good or services for customers.’ Barry Cross & Jason Bonin, ‘How To Manage Risk In a Global Supply Chain’ (2010) Ivey Bus J. 7 John M Connor & Robert H Lande, ‘Cartels As Rational Business Strategy: Crime Pays’ (2012–2013) 34 Cardozo L Rev 427, 475; one single cartel inflicted almost $3 billion in consumer over-charges to US market in 2005 dollars. John M Connor, Global Price Fixing, 338 tbl. 12.1 (2d ed., Springer, New York, Global Price Fixing, 2008); Estimates in the United States suggest that some hard core cartels can result in prices increases of up to 60 per cent or 70 per cent. Hard Core Cartels: Third Report on the Implementation of the 1998 Council Recommendation, 25 OECD (2005), <http://www.oecd.org/daf/competition/cartels/35863307.pdf>. 8 OECD, Hard Core Cartels. Recent Progress and Challenges Ahead, 45, n 47 (2005) <http://www.oecd.org/competition/cartels/35863307.pdf> accessed March 2017; Marek Martyniszyn, ‘Inter-Agency Evidence Sharing in Competition Law Enforcement’ (2015) 19 Int'l J. Evidence & Proof 11. 9 See, eg, Radu Mares, ‘The Limits of Supply Chain Responsibility: A Critical Analysis of Corporate Responsibility Instruments’ (2010) 79 Nordic J Int’l L 193; David Neipert, ‘The Legal and Regulatory Framework of International Supply Chain Security’ (2010–2011) 19 Currents: Int’l Trade LJ 3. 10 United States v Aluminum Co of America (Alcoa), 148 F 2d 416 (2d Cir 1945). 11 For discussion, see David J Gerber, ‘Beyond Balancing: International Law Restraints on the Reach of National Laws’ (1984) 10 Yale J Int'l L 185. 12 Hartford Fire Ins Co v California, 509 US 764, 796 (1993) (citing Alcoa) (‘[I]t is well established by now that the Sherman Act applies to foreign conduct that was meant to produce and did in fact produce some substantial effect in the United States.’). 13 15 USCA s 6(a). 14 This is in part due to the difficulty of detecting cartels—80–90 per cent of cartels are not detected. John M Connor & Robert H Lande, ‘Cartels as Rational Business Strategy: Crime Pays’ (2012–2013) 34 Cardozo L Rev 427, 462. From 2005–2009, the DoJ only convicted 68 individuals for cartel participation. ibid at 465. 15 John M Connor, ‘Global Cartels Redux: The Amino Acid Lysine Antitrust Litigation’, in John E Kwoka, Jr & Lawrencce J Whiute (eds), The Antitrust Revolution (1996) (John E. Kwoka, Jr. & Lawrencce J. Whiute eds5th ed. 2009) 300. 16 ibid. 17 Sherman Act Violations Yielding a Corporate Fine of $10 Million or More, The United States Department of Justice (21 January 2016) <http://www.justice.gov/atr/sherman-act-violations-yielding-corporate-fine-10-million-or-more>. 18 ibid at 467. 19 See, eg, George Berrisch et al, ‘E.U. Competition and Private Actions for Damages: The Symposium on European Competition Law’ (2004) 24 NW J INT'L L & Bus 585, 598. 20 As of 2009, only forty-four countries allowed some form of private enforcement. Aaron Schnur, Private Enforcement: Adding to the Complexity? (American Antitrust Institute 2009) <http://www.antitrustinstitute.org/files/Breakout%20Report-Private%20Enforcement_072920091440.pdf>. In addition, states have cited concerns of manipulation and overuse in the private system in their decision to rely solely on public enforcement. Hedvig KS Schmidt, ‘Private Enforcement – Is Article 82 EC Special?’ in Mark-Oliver Mackenrodt et al (eds), Abuse of Dominant Position: New Interpretation, New Enforcement Mechanisms? (2008) 140. 21 See, eg, Yoshiro Miwa, J Mark Ramseyer, ‘Toward a Theory of Jurisdictional Competition: The Case of the Japanese FTC’ (2004) Harvard John M Olin Center for Law, Econ, and Bus, <http://www.law.harvard.edu/programs/olin_center/papers/pdf/Miwa_Ramseyer_482.pdf>. 22 See Marek Martyniszyn, ‘Discovery and Evidence in Transnational Antitrust Cases: Current Framework and The Way Forward’ (Sept 2012), available at <http://ssrn.com/abstract=2142978>; Nina Hachigian, ‘Essential Mutual Assistance in International Antitrust Enforcement’ (1995) 29 INT'L LAW 117, 132–33; Simon Van de Walle, What Keeps Plaintiffs Away From The Court? An Analysis of Antitrust Litigation in Japan, Europe and the US, (26 March 2014). 23 The Clayton Act, 15 USCA s 15. 24 Fed R Civ P 26; See Daniel A Crane, ‘Optimizing Private Antitrust Enforcement’ (2010) 63 Vand L Rev 673, 700–702 (discussing, inter alia, differences between EU and US views on discovery); Joseph P Griffin, ‘Foreign Governmental Reactions to U.S. Assertions of Extraterritorial Jurisdiction’ (1998) 6 Geo Mason L Rev 505, 516 (1998) (The US system promises ‘jury trials, wide-ranging pretrial discovery without judicial supervision … extraterritorial discovery, treble damages, class actions, [and] contingent fees.’). 25 There are roughly ten private lawsuits filed for every case brought by the DoJ or FTC. Daniel A Crane, ‘Technocracy and Antitrust’ (2008) 86 Tex L Rev 1159, 1179. 26 Scott D Hammond, ‘Caught in the Act: Inside an International Cartel’, The Department of Justice <http://www.justice.gov/atr/speech/caught-act-inside-international-cartel> (last updated 25 June 2015); Peter Z. Grossman, ‘How Cartels Endure and How They Fail: Studies of Industrial Collusion’ (2004); Margaret C Levenstein et al, ‘What Determines Cartel Success?’ (2006) 44 J Econ Lit 43–95. 27 Daniel A Crane, ‘Optimizing Private Antitrust Enforcement’ (2010) 63 Vand L Rev 675, 676–77. 28 Diane P Wood, ‘Antitrust at the Global Level’ (2005) 72 U Chi L Rev 309, 323; Eleanor M Fox, ‘The End of Antitrust Isolationism: The Vision of One World’, University of Chicago Legal Forum: Vol 1992, art 9. <http://chicagounbound.uchicago.edu/uclf/vol1992/iss1/9>. 29 15 USC s 6; Max Huffman, ‘A Retrospective on Twenty-Five Years of the Foreign Trade Antitrust Improvements Act’, (2007) 44 Hous L Rev 285, 287–90. 30 The FTAIA’s elements exist in the conjunctive: the overseas conduct must have ‘a direct, substantial, and reasonably foreseeable effect’ on domestic US commerce. 15 USC s 6a(1) (2000); See also United States v Aluminum Co of America (Alcoa), 148 F2d 416, 444 (2d Cir 1945) (discussing the effects principle). 31 Craig Corbitt & Aaron Sheanin, ‘Appellate Courts Grapple With The Foreign Trade Antitrust Improvements Act: Plaintiff’s Perspective’ (2014) 23 Competition: J Anti & Unfair Comp L Sec St B Cal 1, 5; Den Norske Stats Oljeselskap As v HeereMac Vof, 241 F 3d 420, 424 (5th Cir 2001) (‘The history of this body of case law is confusing and unsettled.’); US v Hui Hsiung, 778 F 3d 738, 750 (9th Cir 2014) (The FTAIA is a ‘web of words’.). 32 ‘Sections 1 to 7 of [The Sherman Act] shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless …’ 15 USC s 6a (2000) (emphasis added). 33 F Hoffmann-La Roche Ltd v Empagran, 542 US 155, 162–63 (2004) (stating that where the anticompetitive effect is foreign, the FTAIA general rule applies, precluding the US court's authority to hear the claim). 34 Huffman (n 29) 285, 327–29 (discussing difficulties in distinguishing types of cross-border commerce); See, eg, Turicentro SA v Am Airlines, Inc, 303 F 3d 293, 303 (3d Cir 2002) (struggling with the definition of ‘import trade or commerce’). 35 Huffman, ibid 289–304. 36 See Gerber (n 11). 37 See, eg, Timberlane Lumber Co v Bank of America, 549 F 2d 597, 614 (9th Cir 1976) (listing the following factors: the degree of conflict with foreign law or policy, the nationality or allegiance of the parties and the locations or principle places of business of corporations, the extent to which enforcement by either state can be expected to achieve compliance, the relative significance of effects on the United States as compared with those elsewhere, the extent to which there is explicit purpose to harm or affect American commerce, the foreseeability of such effect, and the relative importance to the violations charged of conduct within the United States as compared with conduct abroad); for other lists see, eg, Mannington Mills v Congoleum Corp, 595 F 2d 1287, 1297 (3d Cir 1979); In re Uranium Antitrust Litigation, 617 F 2d 1248 (7th Cir 1980); Zenith Radio Corp v Matsushita Elec Indus, 494 F Supp 1161 (ED Pa 1980). 38 D Rosenthal & W Knighton, ‘Nations Laws and International Commerce’ viii, 68–80 (1982); Maier, ‘Extraterritorial Jurisdiction at a Crossroads: An Intersection Between Public and Private International Law’ (1982) 76 Am J Int’l L 280. 39 The stated primary purpose of the statute was to address the ‘apparent perception among businessmen that American antitrust laws are a barrier to joint export activities that promote efficiencies in the export of American goods and services’. HR REP No 97-686, 9-12 (1982); See Joseph P Bauer, ‘The Foreign Trade Antitrust Improvements Act: Do We Really Want to Return to American Banana?’ (2012) 65 Me L Rev 3. 40 Minn-Chem Inc v Agrium Inc, 683 F 3d 845, 857 (7th Cir 2012). 41 United States v LSL Biotech, 379 F 3d 672, 681 (9th Cir 2004). 42 McGlinchy v Shell Chemical Co, 845 F.2d 802, 812-13 (9th Cir 1988). 43 Access Telecom, Inc v MCI Telecom Corp, 197 F 3d 694, 712 (5th Cir 1999). 44 F Hoffman-La Roche Ltd v Empagran SA, 542 US 155, 174 (‘The considerations previously mentioned—those of comity and history—make clear that the respondent’s reading [of the “gives to a claim” requirement] is not consistent with the FTAIA’s basic intent’). 45 See, eg, In re Canadian Import Antitrust Litig, 470 F 3d 785, 791 (8th Cir 2006) (‘Unlike a governmental entity … a private plaintiff must demonstrate that he has suffered an “antitrust injury” as a result of the alleged conduct of the defendants, and that he has standing to pursue a claim under the federal antitrust laws.’). 46 See United Phosphorous, Ltd v Angus Chem Co, 322 F 3d 942, 950-51 (7th Cir 2003) (en banc) (‘[W]ith reference to FTAIA, the argument that the statute sets out an element of the claim or a basis for legislative jurisdiction has not gained approval.’); Den Norske Stats Oljeselskap As v Heeremac Vof, 241 F 3d 420, 428 (5th Cir 2001), abrogated on other grounds by Empagran, 542 US at 164 (interpreting the second prong of the FTAIA to require the effect give rise to the specific plaintiff’s claim, not merely ‘a claim’ as the statute reads). For a general discussion of whether the second prong is a procedural or substantive issue, see Huffman (n 29) 318–323. 47 Motorola Mobility v AU Optronics Corp, 775 F 3d 816 (7th Cir 2014). 48 See eg, Ellen Meriwether, ‘Motorola Mobility and the FTAIA: If Not Here, Then Where?’ (2015) 29 Antitrust Magazine 8; David Goldstein, ‘Clarity And Confusion: FTAIA Developments In 2014’ Law360 (16 January 2015, 11:05 AM ET), <https://www.orrick.com/Events-and-Publications/Documents/Clarity-And-Confusion-FTAIA-Developments-In-2014.pdf>; Joseph E Harrington, The Comity-Deterrence Trade-off and the FTAIA: Motorola Mobility Revisited, CPI Antitrust Chronicle, January 2015 (2). 49 Motorola Mobility (n 47), cert denied, 135 S Ct 2837 (2015). 50 See Holmes & Mangiaracina, Other Noteworthy Recent Developments, Antitrust L. Handbook s 1:3, November 2015 ; Ellen Meriwether, ‘Motorola Mobility and the FTAIA: If Not Here, Then Where?’ (2015) 29 Antitrust Magazine 8. 51 Illinois-Brick Co v Illinois, 431 US 720, 735, 745 (1977). 52 In the wake of Illinois Brick, most states passed so-called ‘Illinois Brick-repealer’ statutes. Matthew M Duffy, Note, ‘Chipping Away at the Illinois Brick Wall: Expanding Exceptions to the Indirect Purchaser Rule’ (2012) 87 Notre Dame L Rev 1709, 1722. At present, more than thirty-five states [over 70 per cent of the nation] have ‘Illinois Brick-repealer’ statutes. Antitrust Modernization Commission, Report and Recommendations 267–269 (2007), <gov.info.library.unt.edu/amc/report_recommendation/amc_find_report.pdf>. 53 Motorola Mobility (n 47) (‘An important, and highly relevant, application of the concept of “antitrust standing” is the indirect-purchaser doctrine of the Illinois Brick case’). 54 Illinois-Brick Co (n 51). 55 Hanover Shoe, Inc v United Shoe Machinery Corp, 392 US 481, 494 (1968). 56 Motorola Mobility (n 47). 57 See, eg, Working Group on International Issues, American Antitrust Institute (July 15, 2005) <http://govinfo.library.unt.edu/amc/public_studies_fr28902/international_pdf/050715_AAI_International.pdf> (‘The [FTAIA] is widely regarded as a textbook example of poor drafting, a statute whose full meaning eludes even the most careful reader … we do not advocate any legislative change at this time, unless, perhaps, it would be to repeal the statute completely.’); Robert E Connolly, Repeal the FTAIA! (Or At Least Consider It as Coextensive with Hartford Fire, CPI Antitrust Chronicle (Sep 2014) <www.competitionpolicyinternational.com/repeal-the-ftaia-or-at-least-considerit-as-coextensive-with-hartford-fire/.> 58 Although this concept has not been suggested in the literature, it mirrors the treatment of parents and subsidiaries under s 1 of the Sherman Act. 15 USC s 1. In addition, the Supreme Court has implicitly supported the idea as well. Copperweld Corp v Independence Tube Corp, 467 US 752, 777 (1984) (‘[f]rom the standpoint of the antitrust laws, there is no reason to treat [the parent or the subsidiary] more harshly than the other.’). 59 Lloyd (n 2); See Robbins (n 2); See also Everywhere in (Supply) Chains, The Economist (14 March 2015) <http://www.economist.com/news/international/21646199-how-reduce-bonded-labour-and-human-trafficking-everywhere-supply-chains>. © The Author 2017. Published by Oxford University Press. All rights reserved. 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Competitive harm in global supply chains: assessing current responses and identifying potential future responses

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Abstract

Abstract Global supply (or ‘value’) chains add much to the value of global markets, offering benefits to both producers and consumers. Yet, global supply chains also carry a potential for harm that is often beyond the reach of current legal remedies. They can shield those that produce faulty or hazardous products or artificially raise prices from legal responsibility for the harms they cause to markets, consumers, or the environment. This article focuses on one set of those potential harms—those caused by anti-competitive conduct, but many of the issues also arise in relation to environmental, financial, and other types of harm. Producers anywhere in a chain can impede competition and raise prices for all subsequent purchasers. Such conduct may have effects in many jurisdictions, and its harmful effects are likely to be incurred outside the jurisdiction in which the conduct is located. Few legal tools are available for deterring such harms, and until very recently legal analysts have tended to subsume the issues under existing categories, often failing to notice that these categories and the tools based on them may be inadequate and ineffective in responding to a new organizational form. The inadequacy of the current legal framework calls for efforts to develop more effective tools, both domestic and transnational. This article reviews current responses to the problem and identifies the potential value of transnational coordination as a response. Global supply chains (GSC) (or ‘value chains’) contribute to many of the manufactured products used by most people in most developed countries most of the time.1 In these economic arrangements, multiple firms located in multiple jurisdictions provide components for and/or assemble and manufacture end-use products. They have developed rapidly since the 1990s, largely as a result of reduced transportation and communication costs and the increased mobility and concentration of financial resources. Together, these forces make it easier and more efficient to shift production across borders. They offer potential benefits to both producers and consumers. Yet, GSCs also carry a potential for harm that is often beyond the reach of current legal remedies. They can shield those that produce faulty or hazardous products or artificially raise prices from legal responsibility for the harms they cause to markets, consumers, or the environment.2 This article focuses on one set of those potential harms—those caused by anti-competitive conduct, but many of the issues also arise in relation to environmental, financial, and other types of harm. The issues are central to the evolution of markets almost everywhere. Any producers anywhere in a GSC can reduce competition and raise prices for all subsequent purchasers. As a result, such conduct may have effects in many jurisdictions. Moreover, the harmful effects from the conduct are likely to be incurred outside the jurisdiction in which the conduct is located. Where producers can be confident that they are shielded from competition law enforcement, they are more likely to engage in such conduct. Few legal tools are available for deterring such harms, and they evolved in a very different economic context to deal with very different problems. Until very recently, there has been limited recognition within the legal community that GSCs represent a new form of economic organization that is not easily amenable to effective treatment with these tools. Legal discussions have tended to subsume the issues under existing categories, often failing to notice that these categories and the tools based on them may be inadequate and ineffective in responding to a new organizational form. As is common (and often appropriate) in legal thinking, new phenomena are subsumed within older categories until it becomes imperative to think about them as something new. GSC harms represent a transnational problem, but little has been done on the transnational level to respond to the harms. As a result, the tools available for dealing with them remain primarily domestic (ie, usually national). Existing domestic legal tools remain, however, either limited in scope or applied in ways that render them largely ineffective. The inadequacy of the current legal framework calls for efforts to develop more effective tools, both domestic and transnational. US antitrust law may be in a position to contribute to creating such tools, but, as we shall see, efforts to realize this potential encounter major obstacles. The article has three main goals. One is to identify the dimensions of the problem. Economists and business decision makers have been identifying the characteristics and consequences of GSCs since at least the 1990s,3 but, until very recently, these issues have been either absent from or at the margins of legal discussions. A second objective is to explore and assess experience in responding to competition harms associated with GSCs, focusing primarily on US experience with private enforcement of antitrust law. Finally, the article suggests potential transnational responses to this transnational problem. I. Global supply chains GSCs are a feature of what I call ‘deep globalization’—ie, the cross-border interpenetration of economic functions.4 Reduced transportation and communication costs have led to the fragmentation of production processes and the distribution of economic production functions, often across political borders. This creates opportunities for firms to exploit differences in production costs in both acquiring and selling products and services. Arrangements for exploiting these differences may be managed and organized in a variety of ways. All refer to organizing the production of goods and services in order to supply specific needs. Some are organized by a firm or firms in the destination country and ‘buyer-driven’. Others are organized by sellers (who are typically outside the destination country) and referred to as ‘supply-driven’ chains. It has become increasingly common for firms in destination countries to ‘manage’ the entire process through agreements of various kinds that may relate to the products themselves or to the characteristics of the producers and the production process.5 In these arrangements, the organizing firms often seek to avoid responsibility for conduct by their suppliers that might violate environmental and labour standards. Although there are many variations on the theme, one common scenario is something like the following: Firm A (typically from a high income country) seeks to sell a product in a developed market such as the United States or Europe where labour and related factor costs are high. It therefore contracts with a firm (B) in a lower cost country to produce the goods there. It presses firm B to produce at the lowest possible prices. Firm B, in turn, acquires components from suppliers (firms C, D, and E) in countries with even lower costs and manufactures the product from those components. It then sells the product to Firm A for resale in the high-income market (perhaps with further elaboration).6 At any point in this chain of production, participants may engage in practices designed to raise the price they receive for their contribution to the value of the good or service being produced. Some estimate the potential losses to US consumers per year as high as several hundreds of billions of dollars, with an estimated $2 trillion dollars overcharged to consumers world-wide.7 II. Potential legal tools: transnational level Global supply chains have major consequences for many countries, so we might expect them to have generated legal developments on the transnational level. Yet, little attention has been paid to developing transnational legal tools for responding to their threats. There are no enforceable competition law provisions on the global level. Some regional and bilateral agreements provide for exchange of information related to competition law violations, and these could, in principle, be used to gain information and support enforcement. For example, the Mutual Legal Assistance Agreement (MLAT) between the United States and Canada enhances the countries’ exchange of information and cooperation in investigation and prosecuting cartels.8 These agreements do not require, however, that host countries provide information that may contravene their own interests. As a result, they are seldom of value in combating GSC’s harms, because officials in countries where the conduct occurs seldom have incentives to report such violations to officials in countries in which the anticompetitive harm results. III. National competition laws: public enforcement The paucity of transnational tools means that domestic (ie, typically, national) legal systems provide whatever tools are available for deterring GSC harm. Here, the central issues relate to jurisdiction and to enforcement incentives: the starting point is the issue of whether a state is entitled under public international law to apply its law to conduct outside its territory and the extent to which its national laws authorize application of competition law to such conduct. The public international law issue is often overlooked, especially in the United States, but it can be important in understanding not only statutes and cases, but also options available for responding to GSC challenges.9 The effects principle and national versions of it Until the end of the Second World War, the long-established principles of territoriality and nationality were considered the sole basis of authority for a state to apply its law to conduct outside its territory. A state could not apply its law to conduct outside its territory, except to its own nationals. In 1944, however, a US court of appeals sitting for the Supreme Court enunciated what came be known as the ‘effects principle’.10 This provides generally that a state is entitled to apply its laws to conduct outside its territory where the conduct has a significant effect within its territory.11 The case involved the extraterritorial application of US antitrust law. Despite initial resistance, primarily from the UK and other European countries, this principle has come to be generally accepted.12 Accordingly, if firms outside country X collude to raise prices on products that are destined for sale in county X, the resulting harm would in principle justify the application of country X’s law to the conduct. Public international law is, however, only the starting point for jurisdictional analysis. Each jurisdiction incorporates and interprets the effects principle for application by its own institutions, typically enacting a statute that incorporates it in some form. For example, the relevant statute in the US specifies that US antitrust law applies to conduct that has a ‘direct, substantial and foreseeable’ effect within the United States.13 The incorporation of the effects principle in various forms and subject to various conceptual, institutional, and procedural limitations—both formal and informal—is central to dealing with GSCs. Public enforcement of competition law for foreign-based conduct Domestic laws typically authorize public institutions to apply domestic law to foreign conduct that has the requisite domestic effects. Public enforcement by competition authorities (CAs) provides, therefore, a potential tool for combating GSC harm. In most countries, competition law is primarily or exclusively applied by public institutions, however, and thus application of the jurisdiction’s laws to GSCs depends on the capacity and willingness of these institutions to take enforcement action. Public enforcement cases remain uncommon (although in the United States and Europe they have been increasing in recent years).14 For example, when in 1996 the Antitrust Division of the US Department of Justice (DoJ) prosecuted ADM of Illinois and four other companies for participating in a global price-fixing cartel in the artificial sweeteners businesses, fining them over $10 million,15 it was the first completely successful conviction of a global cartel in more than four decades. Prior to this case the DoJ had attempted to prosecute only three international cartels, failing each time.16 Since then, the DoJ has successfully prosecuted and levied fines in a few major cases, including, for example, fining Hoffman-La Roche over $500 million in 1999 for its participation in global cartels for bulk vitamins and, more recently, Bridgestone Corporation of Japan over $425 million in 2014 for cartel participation.17 In part, this reluctance can be ascribed to the difficulty of prosecuting such cases. The DoJ has been described as ‘risk-averse’, as it tends to only pursue cases where there is a substantial chance of successful conviction,18 and success in such cases is far from predictable. Several additional factors limit the potential utility of public enforcement by destination countries. First, public officials may be unlikely to learn about foreign conduct that causes GSC harms. The conduct could occur anywhere in the world, and public officials in destination countries are unlikely to learn about it through their own surveillance efforts. Victims may provide information to public officials that suggests collusion to raise prices, but this is likely only in the case of corporate purchasers whose potential losses are significant enough to justify such efforts and whose knowledge of the industry makes them aware of it. Moreover, competition officials in a source country have little incentive to provide information about domestic conduct to destination country competition officials. Although there is regular information exchange among some enforcement officials—primarily between the United States and Europe, such exchanges with smaller competition authorities are limited. Second, even if a CA in a destination country becomes aware of such conduct, there are significant obstacles to acquiring sufficient evidence to support legal procedures against those engaged in it. Potential evidence is likely to be located on foreign territory, and foreign institutions may have little capacity or willingness to undertake investigations there or to acquire evidence from foreign witnesses and foreign institutions. Moreover, any such efforts are likely to be highly time-consuming and expensive. Public enforcement by source countries is limited by the lack of enforcement incentives. CAs in source countries seldom have significant competition law experience. They are typically underfunded and often subject to political pressures to protect domestic firms. Often the source firms for GSCs are small and medium-sized industries that provide jobs for the economy and political support for local governments. Under these circumstances, a CA in a source country is likely to have few incentives to apply competition law to firms participating in GSCs. IV.Private enforcement: the general picture Private enforcement provides another potential tool for deterring anticompetitive conduct caused in supply chains. It allows a private party to pursue litigation against those whose anticompetitive conduct has caused it harm. There are two types of private enforcement. Direct private enforcement allows an injured party to bring a claim without prior action by public authorities. This type of enforcement is common in the United States, but in most jurisdictions private enforcement is limited to ‘follow on’ (or ‘piggyback’) litigation. Here, private litigation follows public enforcement, either because the law requires it or because procedural and practical reasons dictate it.19 Private litigation may often be more useful than public enforcement for deterring competitive harm in global supply chains, primarily because firms injured by such conduct often have strong incentives to seek compensation for their losses. A firm in a destination market (eg, the United States) may lose market share and competitive position where price-increasing agreements within a SC raise the cost of the products it sells. It may, therefore, be willing to incur the risk and expense of litigation in order to seek compensation and deter similar conduct. Consumers may also be harmed, but the harm to each individual is unlikely to justify private litigation, and class actions in this context are rare. Despite its potential value, the obstacles to pursuing private litigation are high in most jurisdictions. First, in many jurisdictions private enforcement of competition law claims is unavailable. Competition law enforcement is considered a matter for public enforcement.20 Second, even where it is available, there are often major procedural obstacles to using it. For example, procedures in civil courts often provide very limited means and opportunities to acquire evidence, and competition legislation typically depends on providing economic evidence.21 Third, the cost of private enforcement tends to discourage plaintiffs from pursuing such litigation. In GSC, situations witnesses and documents are typically located outside the destination country, and acquiring access often requires complicated and constrained strategies as well as high translation costs.22 Fourth, the risks are high. In most countries, decisions in competition law litigation tend to be especially difficult to predict. Judges typically are not accustomed to such litigation and unfamiliar with the economic arguments that are often required. Relevant legal principles may be vague, and acquiring sufficient evidence clearly to identify competition harms may be difficult, if not impossible. Finally, even where a plaintiff wins a domestic judgment against a foreign defendant, enforcing the judgment is likely to be difficult and costly in many source country jurisdictions. V. US Private enforcement—potential These obstacles to private enforcement are, however, significantly lower in the United States than in other countries. This creates the opportunity for US private enforcement to contribute to a more effective legal framework for deterring anticompetitive conduct in GSCs. US private enforcement has extensive direct deterrence capacity, and it can provide impetus and example for developing more effective tools in other jurisdictions and on the transnational level. Direct deterrence: enforcement opportunities US private enforcement can itself play a direct role in deterring harmful GSC conduct. The procedural tools supporting it are well developed and supported, and there is extensive experience with using them. Procedural rules encourage private enforcement. For example, US law triples compensation awards for harm due to antitrust infringements (‘treble damages’), thereby greatly increasing the incentive to bring private suits.23 Similarly, punitive damages may also be awarded for violation of the antitrust laws. Moreover, procedural rules provide litigants with means for acquiring data from other litigants and introducing this data into evidence in litigation.24 This greatly increases the capacity of plaintiffs to search for and acquire evidence of anticompetitive conduct and to analyse its effects. Finally, these tools are routinely used, and thus there is extensive experience in using them. Private cases represent the majority of US antitrust cases.25 In addition, the United States has both the political and economic leverage to induce compliance with its laws. Economic leverage comes from the size of its market. GSCs often target the US market, and many are organized and controlled by US firms.26 This means that a firm located outside the United States may have strong incentives to comply with US administrative requests and court judgments. Even though a US judgment may not be easily enforced abroad, a foreign firm may have assets in the United States that would be subject to claims arising from litigation. Moreover, US purchasers may avoid buying from firms that may be subject to such legal liability. The political leverage of the US government further increases the likelihood that sanctions imposed by US courts will be taken seriously by source country firms and officials. US institutions are often in a position to put pressure on foreign governments and officials to support US claims. Indirect support: information and experience US private enforcement experience can also provide valuable indirect support for dealing with anticompetitive conduct in GSCs.27 The extensive use of private enforcement tools represents a valuable source of data and experience for other countries that may wish to develop such tools. US case reports provide detailed information about the way these tools are used in specific cases, and these records are often easily accessible. These tools have not yet been widely used in GSC contexts, but if they were used more extensively in such cases, the experience could be a particularly valuable source of information for other countries that wish to develop private enforcement capacity to deal with these issues. As a source of impetus The United States could also provide important impetus for other countries to develop more effective tools to deal with the competition law issues associated with GSCs. Many members of the US antitrust community are in a position to encourage, instruct, and cajole others to be aware of the problem and to take steps to deal with it. US officials, practitioners, and academics play major roles in virtually all important international and many regional competition law meetings and organizations. Moreover, US institutions provide extensive opportunities for study of antitrust law in the United States, and they often offer significant support to competition authorities in many parts of the world.28 The capacity to play these roles effectively depends on many factors, but principally on the dynamics and characteristics of US law itself. To the extent that US courts and legislators provide clear and accessible guidelines for evaluating the potential for competitive harm from GSCs, this is likely to increase not only its potential for direct deterrence, but also its capacity to support deterrence by others. VI. Potential unrealized: the obstacles US antitrust law has not realized its potential for playing these roles. Three major obstacles impede it. First, it relies on an outdated and exceptionally opaque statute. Second, US cases in the area often send widely divergent and often conflicting messages about the statute’s content, reflecting not only the opacity of the statute, but also the lack of a widely shared understanding of the problems, objectives and issues of transnational competition law enforcement. And third, courts and commentators often fail to recognize the specific characteristics of GSCs. As a result, they often apply principles and reasoning developed for use in the US domestic context to foreign contexts for which they were not designed and may not be appropriate. The FTAIA The FTAIA is itself a major obstacle to realizing the potential of US private enforcement. Enacted in 1982, it provides authority for US institutions to apply US antitrust law to private conduct outside US territory.29 It incorporates the effects principle of public international law and interprets it for use in US law.30 There is widespread agreement that the statute is exceptionally opaque, and its opacity hampers both US enforcement and the potential influence of US law in other countries.31 The FTAIA’s relationship to other antitrust legislation creates one level of difficulty. The statute represents an exception to the coverage of the basic antitrust statute, the Sherman act.32 If the FTAIA applies to conduct, the Sherman Act does not apply. Moreover, the FTAIA contains exceptions to its general provisions.33 As a result, interpreting the statute typically involves dealing with double negatives—ie exceptions to exceptions. The statute’s structure increases the difficulty of using it. It establishes three basic categories of commerce—domestic, import, and foreign—and bases conclusions regarding the legality of foreign conduct on whether the conduct falls within one or more of those categories. The basic idea is that conduct in domestic commerce is subject to US antitrust law; conduct wholly in foreign commerce is not subject to it unless it has a ‘direct, substantial, and reasonably foreseeable effect’ in the United States; and conduct in or affecting import commerce may be subject to US law. The boundaries of these categories remain highly contested, however, despite more than three decades of extensive litigation.34 These categories are used in conjunction with two main operative provisions—each of which has also generated controversy and uncertainty. The first incorporates the effects principle of public international law and interprets it for application of the US antitrust laws. It exempts from the antitrust laws anticompetitive conduct outside US territory unless such conduct causes a ‘direct, substantial, and reasonably foreseeable effect’ within the United States. This language has been interpreted in a large number of cases, but the opinions have not clarified the meaning of the terms. The second requires that the conduct ‘give rise to a claim’ under the Sherman Act. Again, there have been many interpretations of this provision, but the cases have exacerbated rather than reduced uncertainty. The history behind the statute reveals some of the factors that shaped it and that have contributed to the confusion surrounding it.35 When the United States articulated and supported the effects principle after the Second World War, many outside the United States viewed its claim to expanded jurisdiction as a vehicle through which it sought to impose its form of economic organization on other countries. For decades, several major European countries (particularly the UK) protested the validity of the effects principle under international law.36 This led US courts to develop the so-called ‘comity’ principle, according to which US courts would refrain from applying US law in situations where the US interest in such application was less than the interest of the states in which the conduct occurred. These responses to foreign concerns about US jurisdictional assertions did not implicate the authority itself, but rather the use of that authority. By the late 1970s, the courts had produced long lists of factors to be considered in applying the law extraterritorially.37 There was, however, much criticism among US commentators and judges about the viability of this effort.38 The confusion and uncertainty created by this comity approach encouraged Congress to pass the FTAIA and shaped its content. The basic objective was to clarify and limit the scope of the effects principle as incorporated in US antitrust law while assuring that the law could not be used by others to interfere with the activities of US businesses overseas.39 The statute also represents an attempt by Congress to reduce the potential for applying US law to foreign conduct and thereby to reduce criticism and resistance to US law. Defining the scope of the effects principle was seen as preferable to the failed efforts to achieve this end by relying on judicial use of the amorphous comity principle. The statute dramatically changed analysis of the issue and moved toward a potentially more effective solution. Unfortunately, however, it has not provided the clarity needed to make the solution effective. The amorphous case law The courts have increased rather than decreased the uncertainty and confusion created by the statute itself. They have not developed principles that give coherent shape to the case law. Courts have wandered in many directions—without any apparent shared sense of the issues and problems involved in applying US competition law to foreign anticompetitive conduct. I mention here only a few examples. ‘Direct’ and ‘substantial’ effects The statute’s reference to ‘direct’ effect has elicited numerous interpretations. Many courts use the concept of ‘proximate cause’ drawn from the law of torts to interpret ‘direct’, and in so doing they import from tort law extensive and still highly contested discussions of what ‘proximate cause’ means. For example, the Seventh Circuit has adopted the traditional tort-based approach to proximate causation, requiring only that a ‘reasonably proximate causal nexus’ exist between the anticompetitive conduct and the effect on domestic trade.40 Other courts use other and often inconsistent approaches to interpret ‘direct’. For example, the Ninth Circuit requires that a plaintiff show that the domestic injury (the ‘effect’) ‘follow as an immediate consequence of the defendant’s actions.’ This focuses on a single factor—the ‘spatial and temporal separation between the defendant’s conduct and the relevant effect’.41 In contrast, The qualifier ‘substantial’ has also been interpreted in various ways. The Ninth Circuit has developed a stringent test, requiring a plaintiff to show both injury to a specific firm and injury to the market and competition in general.42 Other courts merely consider the amount of injury to firms and the harm of the anticompetitive foreign conduct as factors in determining whether the effect was substantial. The Fifth Circuit found a ‘substantial’ effect to the market as a whole where only one firm was injured because that one firm held a substantial amount of the market share.43 The ‘arising under’ language The arising under language has proven similarly opaque. Interpretations of its function and meaning vary widely. Some courts conflate it with the effects test and treat it as a test of the reach of US law.44 Others refer to it as an element of standing to sue.45 There is also a major debate as to whether it should be seen as an element of the claim itself—a substantive law issue—or an issue of who can sue—a procedural issue.46 Misapplication of domestic cases: missing the transnational A third factor limiting both the direct enforcement effect and the potential guidance effect of US private enforcement is a tendency among US judges, officials, and legal scholars to use domestic doctrines and rules in the transnational context without asking whether the policy basis for the domestic doctrine is served by applying it in the transnational context. As we shall see below, application of domestic rules without considering their likely consequences in international contexts may produce results inconsistent with or even directly opposed to the initial policy basis for the rules. VII. The Motorola-mobility case: showcasing the obstacles The 2015 Motorola-Mobility case of the Seventh Circuit highlights the obstacles.47 It is a major case that has drawn much attention in relation to the shaping of GSCs.48 This fact not only underscores the potential for constructive influence of the US private enforcement regime in the evolution of GSCs, but it also reflects many of the factors that we have identified as obstacles to realizing that potential. The US Supreme Court declined to review the case,49 and it may therefore remain an important component of US law relating to extraterritoriality, in general, and GSCs, in particular.50 The opinion The basic fact pattern is typical of global supply chains. The plaintiff, Motorola-Mobility, Inc., is a large US electronics manufacturer. It incorporates LCD screens in many of its products, purchasing most in Asia through a global supply chain. In this case, a small percentage of the component sales were made directly to the US parent (ca 1 per cent), but most were made to its wholly owned foreign subsidiaries. These units then sold some of the products to the parent and others to buyers outside the United States. On discovering that some suppliers that were part of the supply chain had agreed among themselves to increase the prices they charged for such screens, Motorola filed suit in US court for compensation for the losses incurred as a result of the agreements. The appeals court upheld the lower court ruling that the plaintiff was not entitled to sue. At issue was the harm caused to the parent company as a result of purchases it made through its overseas subsidiaries. The opinion by Judge Posner did not treat that portion of the FTAIA that specifically deals with the extraterritorial reach of the statute (the effects principle). A criminal proceeding on the same basic facts had found that the effects of the foreign conduct on US commerce were ‘direct, substantial and reasonably foreseeable’ and, therefore, that the statute did apply to the conduct. Judge Posner accepted this finding. The opinion focused instead on the issue of the plaintiff’s standing to sue. It analysed the issue by reference to the statute’s ‘arising under’ language. In Judge Posner’s view, the effect of the cartel agreements on US commerce occurred outside the United States and therefore did not ‘arise under’ US law. Accordingly, the plaintiff was barred from bringing suit in the United States because the losses were suffered by Motorola’s foreign subsidiaries rather than Motorola itself. In reaching this conclusion, the Court rejected the plaintiff’s argument that the harm was suffered by the parent, because the foreign subsidiaries were completely owned and controlled by the parent and functionally part of the parent. According the opinion, this claim was a ‘fatal flaw’ in the plaintiff’s case. Judge Posner apparently did not consider total ownership and control of the subsidiaries as a sound basis for identifying them as functionally part of the parent. He buttressed the denial of standing by referring to a US domestic antitrust law doctrine referred to as the indirect purchaser rule, which denies indirect purchasers the right to sue for harm suffered as a result of antitrust violations. This so-called ‘Illinois Brick’ rule was specifically crafted to achieve policy objectives—specifically, to increase enforcement of the antitrust laws by increasing the incentives for private actions.51 By assuring that at least the direct seller suffered sufficient harm to justify litigation, it sought to provide this incentive. The rule has been heavily criticized, and numerous states have contravened it in their own antitrust laws.52 Obstacles to a constructive role for US private enforcement The opinion reflects some of the obstacles that impede US law from performing a constructive role in shaping responses to GSC-based harms. It applies the statute in ways that provide little guidance for future cases, uses the confused case law in ways that further contribute to the confusion, and inappropriately applies domestic doctrine to a transnational context. Struggling with the statute The Court struggles to make sense of the statute. First, it turns the ‘arising under’ language into a test of standing to sue, despite the fact that the statutory language has been understood to refer to other issues and that the legislative history does not support that interpretation. Second, it uses this language to define, in effect, the extraterritorial reach of the US antitrust laws in private enforcement cases. And third, the opinion applies the statute formalistically despite the fact that it is being applied to new circumstances that call for careful analysis of the consequences of its application. In particular, it claims that the Motorola’s wholly owned subsidiaries were not functionally part of Motorola, although they were completely owned and controlled by Motorola and, therefore, functioned as part of it. Confused by the confused case law? The opinion also reflects the confusion of the case law. Judge Posner injects issues from earlier cases that have little if any relevance to the case at hand and are likely to exacerbate the uncertainty and inconsistency of the case law. For example, the opinion inserts language about ‘comity’ from earlier cases, but uses it in ways that are misleading in relation to the cases from which the language is taken and which tend to obfuscate the issues relating to GSCs. Missing the transnational: applying domestic doctrine to transborder contexts The opinion’s ‘domestic blinders’ represent a third obstacle to the development of antitrust law relating to GSCs. The Court applies domestic rules to the transnational context without accounting for the changed context in which they are being applied. The result is an outcome that directly contravenes the policy on which the domestic rules were based. Judge Posner’s application of the ‘indirect purchaser rule’ provides a particularly poignant example.53 According to this rule, only direct purchasers may sue for damages for harm caused by anticompetitive conduct. The rule was established in the Illinois Brick decision and based on ‘the longstanding policy of encouraging vigorous private enforcement of antitrust laws’. According to Illinois Brick, this policy called for ‘concentrating the full recovery for the overcharge in the direct purchasers’.54 Otherwise, there was a risk that ‘those who violate the antitrust laws by price fixing … would retain the fruits of their illegality because no one was available who would bring suit against them’.55 The policy behind the rule was to encourage private enforcement. In the GSC context, the application of the indirect-purchaser doctrine has precisely the opposite effect. It discourages private enforcement, because it all but precludes recovery by the victims of anticompetitive conduct. Except in unlikely cases, it virtually ensures that foreign cartels will ‘retain the fruits of their illegality’. Barring parent companies from bringing suit where they make purchases through their wholly owned foreign subsidiaries means that price-fixing within the supply chain will escape liability for such purchases, because the subsidiaries are unlikely to have a remedy under foreign antitrust laws. Judge acknowledges that ‘foreign antitrust laws rarely authorize private damages actions’, but ignores the consequences of this fact.56 VIII. Possible responses: national level The lack of effective tools for addressing competitive harms associated with GSCs reveals the need to expand and improve the available tools, eliminate obstacles to their use and search for new ones. In this section, we identify potential responses to that need. United States: dismantling the obstacles The central role of US law and institutions in the transnational competition law arena points to the potential value of reconsidering US law in the area. Increased public enforcement of US law may deter some harmful conduct, but, as we have seen, the potential for increasing public enforcement is limited. Our focus here, therefore, is on steps that can be taken to make the private enforcement mechanism more effective. A new statute? Eliminating or amending the FTAIA could remove one major obstacle to more effective use of US private enforcement. The potential harm from GSCS gives further impetus to the decades of complaints about the difficulty of interpreting the statute or even making sense of it.57 A statute that more clearly defines the US interpretation of the effects principle, clarifies the principles governing standing to sue, and distinguishes between the two issues would itself be of major value. Replacing the statute is likely, however, to encounter significant resistance. It would face the conventional argument that at least the problems of the current statute are known and that a new statute may be no better at clarifying the situation than the current one. Moreover, political support for a new statute may be limited, because changing the principles governing the extraterritorial application of antitrust law may implicate other areas of US law such as securities regulation. Lobbyists may fear that it could lead to exposing their clients to environmental or other liabilities related to GSCs. Amending the FTAIA The statute could also be amended to deal specifically with GSC issues. For example, a provision could be included to the effect that in applying the statute a wholly owned or controlled subsidiary of a US parent would be considered part of the parent rather than an independent entity.58 This would solve a key problem in the Motorola-Mobility case. It would also avoid the concern that blurring the line between parent and subsidiary in a more general way could expose US firms to liability in other areas. Focusing the case law Even without legislative changes courts and scholars could generate clearer principles for applying US antitrust law in the context of GSCs. A first step in this direction would be to recognize the specific characteristics of GSCs. They represent a new form of transnational economic organization in which the production, transport and sale of goods is managed, structured, interrelated, and controlled in ways that create legal relationships very different from those that existed previously. Identifying these new relationships and conceptualizing the legal problems they create would be a necessary first step to developing effective responses to them. Clearer recognition of the distinctiveness of GSCs could also give greater shape and consistency to the case law. It would alert judges to the importance of considering the consequences of applying domestic antitrust doctrines to transnational contexts for which they were not intended. As we have seen, the court in Motorola-Mobility applied the indirect purchaser rule without apparent recognition of the distinctiveness of the context of GSCs. Over time such recognition should lead to a clearer picture of the appropriate policy foundations for applying US antitrust law to GSCs. Other jurisdictions: divergent interests Other countries could also reduce the potential harms associated with GSCs, but here the interests of individual countries diverge. Destination countries may have much to gain by pursuing more effective competition law responses to GSC harms, but source countries may have much to lose.Destination countries could increase public enforcement, but, as noted above, this is likely to have limited effect. They could also increase private enforcement by enabling it where it is not currently available or providing incentives for plaintiffs to use private enforcement tools where they do exist. As we have seen, however, experience with private enforcement outside the United States is limited and developing very slowly. Source countries, on the other hand, have quite different incentives that often clash sharply with the incentives of destination states. They may benefit, for example, from cartel agreements among domestic firms, because these agreements tend to yield higher profits for such firms as well as more jobs for inhabitants. This results in benefits for the state itself (eg, through higher tax revenues and increased employment, etc.) and its officials. As a result, such countries have few, if any, incentives to apply their own competition laws, if any, to GSCs or to aid enforcement by destination countries. The divergence in interests is rooted in the structure of the global economy. Large discrepancies in labour and other production costs between high-income countries and low-income countries mean that resources for the production of goods and services tend to flow from the former to the latter. The lower the obstacles to the movement of capital, persons and goods, the more rapid and extensive this flow is likely to be. These contrasting and conflicting interests meet and interact to forge global supply chains, and law, perhaps especially competition law, necessarily influences the shape of those interactions. Transnational coordination? These conflicting interests brings into sharp relief the potential value—and risks—of transnational coordination as a means of dealing with GSC harms. Coordination here refers to an exchange of obligations, although these can be either formal or informal. It provides a mechanism for exchanging benefits and reducing harms, potentially enabling each side to achieve some, but not all of its objectives. The potential for success in coordination rests on identifying congruent incentives. Despite the conflicts we have identified, firms in both source states and destination states can benefit from effective working relations that allow them to increase their profits. Where the potential value of coordination is recognized, firms can be expected to urge their respective governments to support such coordination. The examples below suggest this potential. Components of coordination Some or all of the following objectives could play a role in coordination: Destination states Information: Destination states that seek to deter anticompetitive conduct need information about suppliers who may be involved in such conduct. They have incentives, therefore, to seek obligations from producer states to provide such information. Enforcement support: They may also seek support for their enforcement efforts—agreement by a source state, for example, to permit the destination state to conduct investigations within source state territory, to interview potential witnesses there and to receive information from government sources. Positive comity: They may even seek so-called ‘positive comity’ obligations which would require a foreign state itself to engage in specified enforcement action where a destination state requests such action, provided that certain conditions are met. Environmental and labour standards: Finally, a destination state may seek obligations from a source state to increase its enforcement of environmental, safety, and labour standards. Firms in destination states often require that firms subject to their jurisdiction meet high standards in these areas. Meeting these requirements is often difficult and expensive. This provides incentives for those firms (and governments) to transfer the costs to source country institutions. Source states ‘Safe harbours’: In return, source states have incentives to seek protection from destination state enforcement actions. This might, for example, include exemption from cartel prohibitions for cartels among small and medium-size enterprises located in emerging markets.59 Enforcement information: They may also seek information regarding enforcement efforts in the destination state that may influence source-state interests. Enforcement supervision and control: Finally, they may seek to control any foreign investigations carried out within their territory. Coordination levels Coordination can be pursued at global, regional, or bilateral levels. Global: Agreement on such issues at the global level is likely to be particularly difficult. The interests of potential participants are too varied, and the conflicts described above may inhibit negotiation. Moreover, even if destination states could induce source states to agree to some of these obligations, the likelihood of compliance with such obligations is likely to remain uncertain. Regional: Coordination efforts at the regional level would encounter similar obstacles. In some cases, the interests of the regional group may align in ways that support coordination, but individual members of the group may have widely differing assessments of the potential impact of an agreement with a destination state (or states) and it may be difficult to achieve the internal agreement necessary for effective bargaining. Moreover, existing regional agreements may also increase obstacles to coordination. Such agreements are generally designed to promote the interests of states with at least somewhat aligned interests—eg, African regional agreements or ASEAN (Association of South East Asian Nations). One of their objectives is often to give economically weaker and smaller states better bargaining position vis-a-vis stronger and wealthier ones. The internal dynamics of the group may lead them to place higher demands on destination states than individual countries would, and such demands may be difficult to accept. Bilateral: Bilateral coordination between destination states and source states promises more flexibility than global and regional coordination. In the bilateral context, coordination can focus on the specific needs of the parties and on the potential for crafting a cooperative arrangement that has benefits for both. It poses the risk that the stronger party (usually the destination state) will be in a position to impose its will, but in the GSC context the source state’s negotiating position is enhanced by the fact that the destination state actually needs it active cooperation. Efforts to deal with the GSC issue at any of these coordination levels can at least raise awareness of the legal problems associated with GSCs. This, in turn, can be expected to enhance understanding of the issues and facilitate—eventually—more productive and efficiency-creating arrangements. Rhetoric and actions in some countries that abjure coordination may find this an area where their own economic interests demand coordination. IX. Concluding comments This brief look at the relationship between GSCs and competition law highlights a fundamental tension in the development of global markets. In it, firms establish value chains across borders in order to achieve private profits, but the potential value of such transborder relationships to the participants depends on the structure and functioning of the legal framework within which they operate, and the legal framework is created and managed primarily by public institutions. Rules and principles applied to competition are at the center of that intersection. This analysis underscores the potential value of moving toward a more broad-based, flexible and adaptive set of transnational legal relationships. It can be seen as a continuation of the historical process that led to the creation and acceptance of the effects principle in international law in the decades since the Second World War. During this process, states developed legal principles and institutions to respond to increasing political and economic interconnectedness. They used the effects principle to protect their interests and their citizens from harm, including harms resulting from anticompetitive conduct. Markets have continued become increasingly global, however, and the limits of that principle have also become clearer. GSCs can have great value, but they can also increase the breadth and intensity of harm from anticompetitive conduct and limit the capacity of competition law to respond to and deter such harm. Current legal doctrines often fail adequately to take into account these dramatic changes in the global economy. Competitive harm from within GSCs creates an important challenge to legal institutions, thinkers, and policy makers. Dealing effectively with this challenge is likely to require increased recognition of the specific characteristics of GSCs as well as efforts by both source and destination states to understand their consequences. Above all, it calls for creative responses to the problems created by this form of economic organization. The author thanks Prof. D. Daniel Sokol and the participants at the Oxford JAE Symposium (June 2016). He also thanks Symone Shinton, a third-year student at Chicago-Kent College of Law, for her excellent research assistance. Footnotes 1 About 60 per cent of global trade (more than $20 trillion) comes from global supply chains. World Investment Report 2013, UNCTAD (2013) http://unctad.org/en/PublicationsLibrary/wir2013_en.pdf; See also De Backer & Miroudot, Mapping Global Value Chains, OECD Trade Policy Papers, No 159 (OECD Publishing 2013) http://dx.doi.org/10.1787/5k3v1trgnbr4-en. The terms ‘global supply chain’ and ‘global value chain’ are sometimes used synonymously, although sometimes distinctions are made for specific contexts. The distinctions are controversial, and there is as yet no settled usage. For our purposes, however, there is no need to identify the differences. 2 See, eg, Emma M Lloyd, ‘Greening the Supply Chain: Why Corporate Leaders Make It Matter’ (2011–2012) 27 J Land Use & Envtl L 31; See also Allie Robbins, ‘Toxic Sweatshops: Regulating the Import of Hazardous Electronics’ (2015) 18 CUNY L Rev 2267. 3 The literature is now extensive. See, eg, Gary Gereffi et al, ‘The Governance of Global Value Chains’ (2005) 12 Rev Intl Pol Econ 78; Kojo Yelpaala, ‘Strategy and Planning in Global Product Distribution – Beyond the Distribution Contract’ (1993–1994) 25 Law & Pol’y Int’l Bus 839; LC Giunipero et al, ‘A Decade of SCM Literature: Past, Present and Future Implications’ (2008) 44 J Sup Chain M’gmt 66–86; Jodi L et al, ‘Monitoring Global Value Chains’ (2016) 37 Strat Mgt J 1878; For a broad economic and political analysis, see William Milberg & Deborah Winkler, ‘Outsourcing Economics: Global Value Chains in Capitalist Development’ (2013). 4 See David J Gerber, ‘Global Competition: Law, Markets, and Globalization’ 274–281 (2010). 5 See, eg, Mark Millar, ‘Global Supply Chain Ecosystems: Strategies for Competitive Advantage in a Complex World’ (2015) and Kate Macdonald, ‘The Politics of Global Supply Chains’ (2014). 6 ‘Global supply chain is loosely defined as an international network of companies that cooperate to convert ideas into good or services for customers.’ Barry Cross & Jason Bonin, ‘How To Manage Risk In a Global Supply Chain’ (2010) Ivey Bus J. 7 John M Connor & Robert H Lande, ‘Cartels As Rational Business Strategy: Crime Pays’ (2012–2013) 34 Cardozo L Rev 427, 475; one single cartel inflicted almost $3 billion in consumer over-charges to US market in 2005 dollars. John M Connor, Global Price Fixing, 338 tbl. 12.1 (2d ed., Springer, New York, Global Price Fixing, 2008); Estimates in the United States suggest that some hard core cartels can result in prices increases of up to 60 per cent or 70 per cent. Hard Core Cartels: Third Report on the Implementation of the 1998 Council Recommendation, 25 OECD (2005), <http://www.oecd.org/daf/competition/cartels/35863307.pdf>. 8 OECD, Hard Core Cartels. Recent Progress and Challenges Ahead, 45, n 47 (2005) <http://www.oecd.org/competition/cartels/35863307.pdf> accessed March 2017; Marek Martyniszyn, ‘Inter-Agency Evidence Sharing in Competition Law Enforcement’ (2015) 19 Int'l J. Evidence & Proof 11. 9 See, eg, Radu Mares, ‘The Limits of Supply Chain Responsibility: A Critical Analysis of Corporate Responsibility Instruments’ (2010) 79 Nordic J Int’l L 193; David Neipert, ‘The Legal and Regulatory Framework of International Supply Chain Security’ (2010–2011) 19 Currents: Int’l Trade LJ 3. 10 United States v Aluminum Co of America (Alcoa), 148 F 2d 416 (2d Cir 1945). 11 For discussion, see David J Gerber, ‘Beyond Balancing: International Law Restraints on the Reach of National Laws’ (1984) 10 Yale J Int'l L 185. 12 Hartford Fire Ins Co v California, 509 US 764, 796 (1993) (citing Alcoa) (‘[I]t is well established by now that the Sherman Act applies to foreign conduct that was meant to produce and did in fact produce some substantial effect in the United States.’). 13 15 USCA s 6(a). 14 This is in part due to the difficulty of detecting cartels—80–90 per cent of cartels are not detected. John M Connor & Robert H Lande, ‘Cartels as Rational Business Strategy: Crime Pays’ (2012–2013) 34 Cardozo L Rev 427, 462. From 2005–2009, the DoJ only convicted 68 individuals for cartel participation. ibid at 465. 15 John M Connor, ‘Global Cartels Redux: The Amino Acid Lysine Antitrust Litigation’, in John E Kwoka, Jr & Lawrencce J Whiute (eds), The Antitrust Revolution (1996) (John E. Kwoka, Jr. & Lawrencce J. Whiute eds5th ed. 2009) 300. 16 ibid. 17 Sherman Act Violations Yielding a Corporate Fine of $10 Million or More, The United States Department of Justice (21 January 2016) <http://www.justice.gov/atr/sherman-act-violations-yielding-corporate-fine-10-million-or-more>. 18 ibid at 467. 19 See, eg, George Berrisch et al, ‘E.U. Competition and Private Actions for Damages: The Symposium on European Competition Law’ (2004) 24 NW J INT'L L & Bus 585, 598. 20 As of 2009, only forty-four countries allowed some form of private enforcement. Aaron Schnur, Private Enforcement: Adding to the Complexity? (American Antitrust Institute 2009) <http://www.antitrustinstitute.org/files/Breakout%20Report-Private%20Enforcement_072920091440.pdf>. In addition, states have cited concerns of manipulation and overuse in the private system in their decision to rely solely on public enforcement. Hedvig KS Schmidt, ‘Private Enforcement – Is Article 82 EC Special?’ in Mark-Oliver Mackenrodt et al (eds), Abuse of Dominant Position: New Interpretation, New Enforcement Mechanisms? (2008) 140. 21 See, eg, Yoshiro Miwa, J Mark Ramseyer, ‘Toward a Theory of Jurisdictional Competition: The Case of the Japanese FTC’ (2004) Harvard John M Olin Center for Law, Econ, and Bus, <http://www.law.harvard.edu/programs/olin_center/papers/pdf/Miwa_Ramseyer_482.pdf>. 22 See Marek Martyniszyn, ‘Discovery and Evidence in Transnational Antitrust Cases: Current Framework and The Way Forward’ (Sept 2012), available at <http://ssrn.com/abstract=2142978>; Nina Hachigian, ‘Essential Mutual Assistance in International Antitrust Enforcement’ (1995) 29 INT'L LAW 117, 132–33; Simon Van de Walle, What Keeps Plaintiffs Away From The Court? An Analysis of Antitrust Litigation in Japan, Europe and the US, (26 March 2014). 23 The Clayton Act, 15 USCA s 15. 24 Fed R Civ P 26; See Daniel A Crane, ‘Optimizing Private Antitrust Enforcement’ (2010) 63 Vand L Rev 673, 700–702 (discussing, inter alia, differences between EU and US views on discovery); Joseph P Griffin, ‘Foreign Governmental Reactions to U.S. Assertions of Extraterritorial Jurisdiction’ (1998) 6 Geo Mason L Rev 505, 516 (1998) (The US system promises ‘jury trials, wide-ranging pretrial discovery without judicial supervision … extraterritorial discovery, treble damages, class actions, [and] contingent fees.’). 25 There are roughly ten private lawsuits filed for every case brought by the DoJ or FTC. Daniel A Crane, ‘Technocracy and Antitrust’ (2008) 86 Tex L Rev 1159, 1179. 26 Scott D Hammond, ‘Caught in the Act: Inside an International Cartel’, The Department of Justice <http://www.justice.gov/atr/speech/caught-act-inside-international-cartel> (last updated 25 June 2015); Peter Z. Grossman, ‘How Cartels Endure and How They Fail: Studies of Industrial Collusion’ (2004); Margaret C Levenstein et al, ‘What Determines Cartel Success?’ (2006) 44 J Econ Lit 43–95. 27 Daniel A Crane, ‘Optimizing Private Antitrust Enforcement’ (2010) 63 Vand L Rev 675, 676–77. 28 Diane P Wood, ‘Antitrust at the Global Level’ (2005) 72 U Chi L Rev 309, 323; Eleanor M Fox, ‘The End of Antitrust Isolationism: The Vision of One World’, University of Chicago Legal Forum: Vol 1992, art 9. <http://chicagounbound.uchicago.edu/uclf/vol1992/iss1/9>. 29 15 USC s 6; Max Huffman, ‘A Retrospective on Twenty-Five Years of the Foreign Trade Antitrust Improvements Act’, (2007) 44 Hous L Rev 285, 287–90. 30 The FTAIA’s elements exist in the conjunctive: the overseas conduct must have ‘a direct, substantial, and reasonably foreseeable effect’ on domestic US commerce. 15 USC s 6a(1) (2000); See also United States v Aluminum Co of America (Alcoa), 148 F2d 416, 444 (2d Cir 1945) (discussing the effects principle). 31 Craig Corbitt & Aaron Sheanin, ‘Appellate Courts Grapple With The Foreign Trade Antitrust Improvements Act: Plaintiff’s Perspective’ (2014) 23 Competition: J Anti & Unfair Comp L Sec St B Cal 1, 5; Den Norske Stats Oljeselskap As v HeereMac Vof, 241 F 3d 420, 424 (5th Cir 2001) (‘The history of this body of case law is confusing and unsettled.’); US v Hui Hsiung, 778 F 3d 738, 750 (9th Cir 2014) (The FTAIA is a ‘web of words’.). 32 ‘Sections 1 to 7 of [The Sherman Act] shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless …’ 15 USC s 6a (2000) (emphasis added). 33 F Hoffmann-La Roche Ltd v Empagran, 542 US 155, 162–63 (2004) (stating that where the anticompetitive effect is foreign, the FTAIA general rule applies, precluding the US court's authority to hear the claim). 34 Huffman (n 29) 285, 327–29 (discussing difficulties in distinguishing types of cross-border commerce); See, eg, Turicentro SA v Am Airlines, Inc, 303 F 3d 293, 303 (3d Cir 2002) (struggling with the definition of ‘import trade or commerce’). 35 Huffman, ibid 289–304. 36 See Gerber (n 11). 37 See, eg, Timberlane Lumber Co v Bank of America, 549 F 2d 597, 614 (9th Cir 1976) (listing the following factors: the degree of conflict with foreign law or policy, the nationality or allegiance of the parties and the locations or principle places of business of corporations, the extent to which enforcement by either state can be expected to achieve compliance, the relative significance of effects on the United States as compared with those elsewhere, the extent to which there is explicit purpose to harm or affect American commerce, the foreseeability of such effect, and the relative importance to the violations charged of conduct within the United States as compared with conduct abroad); for other lists see, eg, Mannington Mills v Congoleum Corp, 595 F 2d 1287, 1297 (3d Cir 1979); In re Uranium Antitrust Litigation, 617 F 2d 1248 (7th Cir 1980); Zenith Radio Corp v Matsushita Elec Indus, 494 F Supp 1161 (ED Pa 1980). 38 D Rosenthal & W Knighton, ‘Nations Laws and International Commerce’ viii, 68–80 (1982); Maier, ‘Extraterritorial Jurisdiction at a Crossroads: An Intersection Between Public and Private International Law’ (1982) 76 Am J Int’l L 280. 39 The stated primary purpose of the statute was to address the ‘apparent perception among businessmen that American antitrust laws are a barrier to joint export activities that promote efficiencies in the export of American goods and services’. HR REP No 97-686, 9-12 (1982); See Joseph P Bauer, ‘The Foreign Trade Antitrust Improvements Act: Do We Really Want to Return to American Banana?’ (2012) 65 Me L Rev 3. 40 Minn-Chem Inc v Agrium Inc, 683 F 3d 845, 857 (7th Cir 2012). 41 United States v LSL Biotech, 379 F 3d 672, 681 (9th Cir 2004). 42 McGlinchy v Shell Chemical Co, 845 F.2d 802, 812-13 (9th Cir 1988). 43 Access Telecom, Inc v MCI Telecom Corp, 197 F 3d 694, 712 (5th Cir 1999). 44 F Hoffman-La Roche Ltd v Empagran SA, 542 US 155, 174 (‘The considerations previously mentioned—those of comity and history—make clear that the respondent’s reading [of the “gives to a claim” requirement] is not consistent with the FTAIA’s basic intent’). 45 See, eg, In re Canadian Import Antitrust Litig, 470 F 3d 785, 791 (8th Cir 2006) (‘Unlike a governmental entity … a private plaintiff must demonstrate that he has suffered an “antitrust injury” as a result of the alleged conduct of the defendants, and that he has standing to pursue a claim under the federal antitrust laws.’). 46 See United Phosphorous, Ltd v Angus Chem Co, 322 F 3d 942, 950-51 (7th Cir 2003) (en banc) (‘[W]ith reference to FTAIA, the argument that the statute sets out an element of the claim or a basis for legislative jurisdiction has not gained approval.’); Den Norske Stats Oljeselskap As v Heeremac Vof, 241 F 3d 420, 428 (5th Cir 2001), abrogated on other grounds by Empagran, 542 US at 164 (interpreting the second prong of the FTAIA to require the effect give rise to the specific plaintiff’s claim, not merely ‘a claim’ as the statute reads). For a general discussion of whether the second prong is a procedural or substantive issue, see Huffman (n 29) 318–323. 47 Motorola Mobility v AU Optronics Corp, 775 F 3d 816 (7th Cir 2014). 48 See eg, Ellen Meriwether, ‘Motorola Mobility and the FTAIA: If Not Here, Then Where?’ (2015) 29 Antitrust Magazine 8; David Goldstein, ‘Clarity And Confusion: FTAIA Developments In 2014’ Law360 (16 January 2015, 11:05 AM ET), <https://www.orrick.com/Events-and-Publications/Documents/Clarity-And-Confusion-FTAIA-Developments-In-2014.pdf>; Joseph E Harrington, The Comity-Deterrence Trade-off and the FTAIA: Motorola Mobility Revisited, CPI Antitrust Chronicle, January 2015 (2). 49 Motorola Mobility (n 47), cert denied, 135 S Ct 2837 (2015). 50 See Holmes & Mangiaracina, Other Noteworthy Recent Developments, Antitrust L. Handbook s 1:3, November 2015 ; Ellen Meriwether, ‘Motorola Mobility and the FTAIA: If Not Here, Then Where?’ (2015) 29 Antitrust Magazine 8. 51 Illinois-Brick Co v Illinois, 431 US 720, 735, 745 (1977). 52 In the wake of Illinois Brick, most states passed so-called ‘Illinois Brick-repealer’ statutes. Matthew M Duffy, Note, ‘Chipping Away at the Illinois Brick Wall: Expanding Exceptions to the Indirect Purchaser Rule’ (2012) 87 Notre Dame L Rev 1709, 1722. At present, more than thirty-five states [over 70 per cent of the nation] have ‘Illinois Brick-repealer’ statutes. Antitrust Modernization Commission, Report and Recommendations 267–269 (2007), <gov.info.library.unt.edu/amc/report_recommendation/amc_find_report.pdf>. 53 Motorola Mobility (n 47) (‘An important, and highly relevant, application of the concept of “antitrust standing” is the indirect-purchaser doctrine of the Illinois Brick case’). 54 Illinois-Brick Co (n 51). 55 Hanover Shoe, Inc v United Shoe Machinery Corp, 392 US 481, 494 (1968). 56 Motorola Mobility (n 47). 57 See, eg, Working Group on International Issues, American Antitrust Institute (July 15, 2005) <http://govinfo.library.unt.edu/amc/public_studies_fr28902/international_pdf/050715_AAI_International.pdf> (‘The [FTAIA] is widely regarded as a textbook example of poor drafting, a statute whose full meaning eludes even the most careful reader … we do not advocate any legislative change at this time, unless, perhaps, it would be to repeal the statute completely.’); Robert E Connolly, Repeal the FTAIA! (Or At Least Consider It as Coextensive with Hartford Fire, CPI Antitrust Chronicle (Sep 2014) <www.competitionpolicyinternational.com/repeal-the-ftaia-or-at-least-considerit-as-coextensive-with-hartford-fire/.> 58 Although this concept has not been suggested in the literature, it mirrors the treatment of parents and subsidiaries under s 1 of the Sherman Act. 15 USC s 1. In addition, the Supreme Court has implicitly supported the idea as well. Copperweld Corp v Independence Tube Corp, 467 US 752, 777 (1984) (‘[f]rom the standpoint of the antitrust laws, there is no reason to treat [the parent or the subsidiary] more harshly than the other.’). 59 Lloyd (n 2); See Robbins (n 2); See also Everywhere in (Supply) Chains, The Economist (14 March 2015) <http://www.economist.com/news/international/21646199-how-reduce-bonded-labour-and-human-trafficking-everywhere-supply-chains>. © The Author 2017. Published by Oxford University Press. All rights reserved. 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Published: Apr 1, 2018

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