United Phosphorus, Ltd. v. Angus Chemical Co.

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 01-1693
UNITED PHOSPHORUS, LTD., an Indian corporation;
SHROFF’S UNITED CHEMICALS, LTD., an Indian
corporation; and J.C. MILLER & ASSOCIATES,
INCORPORATED, an Illinois corporation,
Plaintiffs-Appellants,
v.
ANGUS CHEMICAL COMPANY, a Delaware corporation;
ANGUS CHEMIE GmbH, a German corporation;
the ESTATE of FREEMAN HUGHES through its
representative Yvonne Hughes; OLLIE W. CHANDLER;
LOWELL PALS; GARY W. GRANZOW; D.B. GUPTA; and
LUPIN LABORATORIES, LTD., an Indian corporation,
Defendants-Appellees.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 94 C 2078—Ian H. Levin, Magistrate Judge.
____________
ARGUED APRIL 4, 2002
REARGUED EN BANC NOVEMBER 6, 2002
DECIDED MARCH 10, 2003
____________

Chief Judge Flaum and Circuit Judge Williams did not
participate in the consideration or decision of this case.
2 No. 01-1693
Before POSNER, COFFEY, EASTERBROOK, RIPPLE, MANION,
KANNE, ROVNER, DIANE P. WOOD, and EVANS, Circuit
Judges.
EVANS, Circuit Judge. Today, for the first time in this
court, we encounter the Foreign Trade Antitrust Improve-
ments Act, 15 U.S.C. § 6a (FTAIA), a 1982 amendment
to the Sherman Act, which affects its reach in foreign
commerce. The primary issue involves whether the rele-
vant provision of FTAIA is jurisdictional or whether it
states an additional element of a Sherman Act claim. This
in turn affects how a court deals with it and, in this case,
what the outcome will be.
Plaintiffs United Phosphorus and Shroff’s United Chemi-
cals are chemical manufacturers based in India. J.C. Miller
& Associates is an American firm, which was involved in
a joint venture with the Indian plaintiffs. The defendants
are Angus Chemical and its officers, Angus Chemie GmbH,
and Lupin Laboratories—American companies or sub-
sidiaries of American companies, which we will refer to
collectively as Angus. The complaint alleges that Angus
attempted to monopolize, did monopolize, and conspired
to monopolize the market for certain chemicals, in violation
of § 2 of the Sherman Act.
The issue of the court’s subject matter jurisdiction was
first raised soon after the case was filed in 1994. Angus’
Rule 12(b)(1) motion was denied. Then, after considerable
discovery (24 depositions and 8,000 pages of exhibits),
Angus filed renewed motions to dismiss for lack of subject
matter jurisdiction and for summary judgment in 2000.
Angus contended that the court lacked subject matter
jurisdiction under FTAIA, which, as relevant here, limits
application of the Sherman Act to conduct with a “direct,
substantial, and reasonably foreseeable effect” on domestic
commerce. After a thorough analysis of the facts, Magis-
trate Judge Ian H. Levin, sitting by consent, agreed with
Angus and granted its motion to dismiss. United Phospho-
No. 01-1693 3
rus, Ltd. v. Angus Chem. Co., 131 F. Supp. 2d 1003 (N.D.
Ill. 2001).
Briefly, to the facts. In their original 1994 complaint, the
plaintiffs alleged that India had the “greatest incidence
of tuberculosis in the world.” That allegation is consis-
tent with a report from the Centers for Disease Control,
dated March 22, 2002, which says that every year approxi-
mately 2 million people in India develop tuberculosis,
accounting for 25 percent of the world’s new cases. The
parties tell us that “Ethambutol” is a primary pharma-
ceutical for the treatment of the disease. The chemicals
involved in its production are the subject of this lawsuit.
2-Amino-1 Butanol (AB)is the key ingredient of
Ethambutol, and 1-Nitro-Propane (1-NP) is the raw ma-
terial from which AB is made. To make Ethambutol,
defendant Lupin uses AB, which it buys from defendant
Chemie, currently the world’s only manufacturer of AB.
Chemie is a German subsidiary, wholly owned by defen-
dant Angus. The AB is manufactured in Germany. Angus
manufactures 1-NP at a plant in Louisiana and is the
world’s only manufacturer of 1-NP.
This lawsuit stems from prior trade-secret litigation
involving several of the parties. In the early 1990’s, the
Indian plaintiffs decided to acquire the technology for
making AB and 1-NP. They went to Dr. John Miller
(owner of J.C. Miller & Associates), who also had been the
vice-president of research and development at Angus
and supervised Angus’ efforts to improve its AB pro-
cesses. When Angus learned what was going on, it sued
Miller and the Indian entities (who are the plaintiffs here)
in an Illinois state court, seeking to enjoin Miller from
misappropriating its trade secrets. Two years later, when
Angus was faced with a discovery order which would
have required it to disclose the details of the technology,
Angus voluntarily dismissed the lawsuit.
4 No. 01-1693
The defendants in that case then filed this suit. As
plaintiffs here, they claim that but for the Illinois action
they would have sold AB for profit. They accuse Angus
et al. of using anticompetitive means—the lawsuit—
to thwart their plans.
As we said, the case was dismissed for lack of subject
matter jurisdiction under FTAIA, which amends the
Sherman Act, stating:
This Act shall not apply to conduct involving trade
or commerce (other than import trade or import com-
merce) with foreign nations unless—
(1) such conduct has a direct, substantial, and
reasonably foreseeable effect—
(A) on trade or commerce which is not trade
or commerce with foreign nations, or on import
trade or import commerce with foreign na-
tions; or
(B) on export trade or export commerce with
foreign nations, of a person engaged in such
trade or commerce in the United States; and
(2) such effect gives rise to a claim under the
provisions of this Act other than this section.
If this Act applies to such conduct only because of the
operation of paragraph (1)(B), then this Act shall ap-
ply to such conduct only for injury to export business in
the United States.
What is relevant here is that the conduct must have “a
direct, substantial, and reasonably foreseeable effect” on
trade or commerce within the United States, rather than
just on foreign commerce.
If the requirement for a substantial effect on commerce
in the United States goes to the court’s subject matter
jurisdiction, the case is analyzed under Federal Rule of
Civil Procedure 12(b)(1), which provides for dismissal of
No. 01-1693 5
an action for lack of subject matter jurisdiction. Subject
matter jurisdiction is, as we know, an issue that should be
resolved early but must be considered at any stage of
the litigation. If subject matter jurisdiction is not evident
on the face of the complaint, the motion to dismiss pursu-
ant to Rule 12(b)(1) would be analyzed as any other mo-
tion to dismiss, by assuming for purposes of the motion
that the allegations in the complaint are true. However, as
here, if the complaint is formally sufficient but the con-
tention is that there is in fact no subject matter jurisdic-
tion, the movant may use affidavits and other material to
support the motion. The burden of proof on a 12(b)(1) issue
is on the party asserting jurisdiction. Mortensen v. First
Fed. Sav. & Loan Ass’n, 549 F.2d 884 (3d Cir. 1977). And
the court is free to weigh the evidence to determine wheth-
er jurisdiction has been established. Capitol Leasing Co.
v. FDIC, 999 F.2d 188 (7th Cir. 1993); Filetech S.A. v.
France Telecom S.A., 157 F.3d 922 (2d Cir. 1998); Carpet
Group Int’l v. Oriental Rug Importers Ass’n, 227 F.3d 62(3rd Cir. 2000). Factual findings rendered during this
process are reviewed for clear error. Rexford Rand Corp. v.
Ancel, 58 F.3d 1215 (7th Cir. 1995); Kruman v. Christie’s
Int’l PLC, 284 F.3d 384 (2d Cir. 2002).
On the other hand, if the requirement for a substan-
tial effect on U.S. commerce is an element of the claim, then
the motion would be properly treated under Rule 56
summary judgment standards. Summary judgment on
the merits can be granted if, construing the facts against
the moving party, there is no genuine issue of material
fact and that party is entitled to judgment as a matter
of law. In short, at this stage of the litigation—that is,
when the court is considering a motion—the analysis
differs if the issue is one of jurisdiction or an issue on the
merits. We think it is fair to say that in this case the
procedure employed will dictate the result. The appel-
lants have made little effort to demonstrate that the district
court’s findings of fact are clearly erroneous. They claim,
6 No. 01-1693
however, that what we have here should be viewed as a
motion for summary judgment on the merits. Under the
summary judgment standard with the facts construed in
their favor, they contend that the defendants’ motion should
have been denied. The defendants, of course, contend that
they should win under either standard, a proposition on
which we need pass no judgment.
Over the years, the difficult issue of limiting the extrater-
ritorial reach of the United States laws in international
trade and international relations has received a good deal
of attention. Despite the fact that, using language bor-
rowed from the Foreign Commerce Clause of the Consti-
tution, the Sherman Act itself prohibits agreements re-
straining “trade or commerce . . . with foreign nations,”
there has long been concern about overreaching under
our antitrust laws. As far back as American Banana Co.
v. United Fruit Co., 213 U.S. 347 (1909), Justice Holmes
said that the almost universal rule is that the “character
of an act as lawful or unlawful must be determined
wholly by the law of the country where the act is done.”
American Banana’s strict territorial test was moderated, if
not rejected, in United States v. Aluminum Co. of America,
148 F.2d 416 (2d Cir. 1945). Judge Learned Hand was
writing for the Court of Appeals for the Second Circuit,
sitting pursuant to 15 U.S.C. § 29, which at the time
authorized the designation of a court of appeals as a
court of last resort for certain antitrust cases. The issue
was whether Congress intended to impose liability for
conduct outside the United States and whether the Consti-
tution permitted it to do so. The court recognized that
it should not read the words of Congress “without regard
to the limitations customarily observed by nations upon
the exercise of their powers.” At 443. Creating what be-
came known as the “effects test,” the court concluded
that the Sherman Act must be limited to acts which
were “intended to affect [U.S.] imports and did affect them.”
No. 01-1693 7
Rejected was the notion that Congress intended “to punish
all whom its courts can catch, for conduct which has
no consequences within the United States.” At 443. The
Supreme Court subsequently approved the effects test.
See Continental Ore Co. v. Union Carbide & Carbon Corp.,
370 U.S. 690 (1962).
Then FTAIA was enacted in 1982. There is some de-
bate over the extent to which the Act simply codifies the
“general understanding of when American antitrust
law should be concerned about restraints abroad . . . .” See
1A Phillip E. Areeda & Herbert Hovenkamp, Antitrust
Law, ¶ 272 (2d ed. 2000). In Hartford Fire Insurance v.
California, 509 U.S. 764 (1993), the Court declined to
decide whether FTAIA was a codification of prior law,
but concluded that an agreement among foreign reinsur-
ers and domestic insurers, under which the foreign reinsur-
ers would refuse to cover certain American domestic
insurance policies, met the effects test.
It is in Hartford, however, that Justice Scalia, in dissent,
sets out the view that FTAIA does not go to subject mat-
ter jurisdiction at all. He perceived two distinct ques-
tions: whether the district court had jurisdiction, and
whether the Sherman Act reaches the extraterritorial
conduct alleged. His conclusion was that the district
court had subject-matter jurisdiction, simply because
the Sherman Act claim was not frivolous and 28 U.S.C.
§ 1331 gives the district court jurisdiction over cases
“arising under” federal statutes. The second question, he
said, “has nothing to do with the jurisdiction of the
courts. It is a question of substantive law turning on
regulatory power over the challenged conduct.” At 813. If
the plaintiff were to fail to prevail on this question, the
case would be dismissed not for lack of subject matter
jurisdiction, but rather on the merits because the plain-
tiff had failed to state a cause of action. Justice Scalia
explained that what is involved is “legislative jurisdiction”
8 No. 01-1693
or “jurisdiction to prescribe,” which refers to the author-
ity of Congress to enact the law in the first place. The
Sherman Act, tracking, as it does, the Commerce Clause,
is well within legislative jurisdiction. Nevertheless, princi-
ples of international comity dictate how a statute will
be interpreted: “Though it clearly has constitutional au-
thority to do so, Congress is generally presumed not to
have exceeded those customary international-law limits
on jurisdiction to prescribe.” At 815.
The majority in Hartford carries out the debate with
Justice Scalia in footnotes. As to Justice Scalia’s content-
ion that what is involved in the case is prescriptive, as
opposed to subject-matter jurisdiction, Justice Souter says
that the parties “for good reason” do not question prescrip-
tive jurisdiction. He then quotes commentators who say
that the Sherman Act is a “prime exampl[e] of the simul-
taneous exercise of prescriptive jurisdiction and grant
of subject matter jurisdiction.” At 796 n.22. In explaining
the role of comity, Justice Souter says that comity comes
into play “if at all, only after a court has determined that
the acts complained of are subject to Sherman Act juris-
diction.” At 797 n.24. Principles of international comity
did not prevent the exercise of jurisdiction in that case.
One could argue that in Hartford it is not entirely clear
what the phrase “Sherman Act jurisdiction” means. After
all, “Jurisdiction is a word of many, too many, meanings.”
United States v. Vanness, 85 F.3d 661, 663, n.2 (D.C. Cir.
1996), quoted in Steel Co. v. Citizens for Better Environ-
ment, 523 U.S. 83 (1998). But it seems reasonable to
conclude, especially in light of the footnotes, that what
the Hartford Court refers to is the court’s subject-
matter jurisdiction for Sherman Act claims.
That reading receives some support in domestic Sherman
Act cases, which do not implicate FTAIA, but may shed
some light by analogy. McLain v. Real Estate Board of
No. 01-1693 9
New Orleans, Inc., 444 U.S. 232 (1980), was a private
antitrust action, alleging that real estate brokers in New
Orleans engaged in a price-fixing conspiracy. The issue
before the Court was whether the Sherman Act extended
to such a conspiracy. The procedural history shows that
the district court had dismissed the case under Federal
Rule of Civil Procedure 12(b)(6) for failure to state a
claim. The Court of Appeals for the Fifth Circuit said
that the appropriate designation of the dismissal was
for lack of subject-matter jurisdiction under Rule 12(b)(1)
but, nevertheless, affirmed. The Supreme Court disagreed
with the court of appeals on what is required for jurisdic-
tion to exist but implicitly agreed that the case presented
an issue of jurisdiction. The Court said:
To establish the jurisdictional element of a Sherman
Act violation it would be sufficient for petitioners to
demonstrate a substantial effect on interstate com-
merce generated by respondents’ brokerage activity.
At 242. The Court also said that despite “the breadth of
Sherman Act prohibitions, jurisdiction may not be in-
voked under that statute unless the relevant aspect of
interstate commerce is identified . . . .” At 242.
More recently, in Summit Health, Ltd. v. Pinhas, 500 U.S.
322 (1991), the Court considered
whether the interstate commerce requirement of
antitrust jurisdiction is satisfied by allegations that
petitioners conspired to exclude respondent, a duly
licensed and practicing physician and surgeon, from
the market for ophthalmological services in Los
Angeles because he refused to follow an unnecessarily
costly surgical procedure. [Emphasis added.]
The Court again had trouble agreeing on the precise an-
swer to that question, as its 5-4 split shows, but said
that the conspiracy at issue “has a sufficient nexus
10 No. 01-1693
with interstate commerce to support federal jurisdiction.”
At 333.
The Sherman Act and its FTAIA amendments are not
the only statutes which present the dilemma regarding
whether a statutory requirement is an element of a claim
or a matter of subject-matter jurisdiction. In Gwaltney
v. Chesapeake Bay Foundation, 484 U.S. 49 (1987), the
Court determined that for subject-matter jurisdiction to
exist under the Clean Water Act, 33 U.S.C. § 1251 et seq.,
a plaintiff need only make a good-faith allegation of a
continuous or intermittent violation of the Act. Justice
Scalia dissented, this time not because all the subject-
matter jurisdiction a court needs is provided under §1331,
but rather because “subject-matter jurisdiction can be
called into question either by challenging the sufficiency
of the allegation or by challenging the accuracy of the
jurisdictional facts alleged.” At 68 [emphasis in the origi-
nal]. A little over 10 years later, in Steel Company, the
Court considered the Emergency Planning and Community
Right-To-Know Act (EPCRA), 42 U.S.C. § 11046(a)(1).
Justice Scalia, writing for the Court, and Justice Stev-
ens, joined in part by Justices Souter and Ginsburg con-
curring in the judgment, debated, among other things,
whether a provision of EPCRA was jurisdictional or an
element of the claim. Looking to Gwaltney, Justice
Stevens thought it was jurisdictional; Justice Scalia dis-
missed Gwaltney as a “drive by” jurisdictional ruling. In
the Title VII context we have determined that the re-
quirement that the definition of employer as “a person . . .
who has fifteen or more employees” was an element of
the claim, not a matter of the subject matter jurisdiction of
the court. The plaintiff had presented “a non-frivolous
claim under federal law; no more is necessary for subject-
matter jurisdiction.” Sharpe v. Jefferson Distrib. Co., 148
F.3d 676, 677 (7th Cir. 1998). The jurisdiction-versus-
element-of-the-claim debate seems alive and well.
No. 01-1693 11
Turning back to FTAIA, we note that commentators
tend to discuss FTAIA in terms of jurisdiction. See, e.g.,
P. Areeda & H. Hovenkamp, ¶ 273; Herbert Hovenkamp,
Federal Antitrust Policy, § 21.2 (2d ed.). Referring di-
rectly to subject-matter jurisdiction, the ABA Section of
Antitrust Law, Antitrust Law Developments (5th ed. 2002),
at 1121, states that “to establish subject matter jurisdic-
tion under the FTAIA, a plaintiff must also show that
‘such effect’—i.e., the direct, substantial, and reasonably
foreseeable anticompetitive domestic effect—‘gives rise to’
a Sherman Act claim.” In addition, the Department of
Justice and the Federal Trade Commission both consider
the statute jurisdictional. Regarding jurisdiction over
conduct involving foreign commerce, the guidelines for
the agencies state “[T]he jurisdictional limits of the
Sherman Act and the FTC Act are delineated in the
FTAIA.” Antitrust, Unfairness, Deception Policies and
Guidelines, reprinted in 4 Trade Reg. Rep. (CCH) ¶13.107.
The ABA explains that with “respect to subject matter
jurisdiction, the International Antitrust Guidelines state
that ‘anticompetitive conduct that affects U.S. domestic
or foreign commerce may violate the U.S. antitrust
laws regardless of where such conduct occurs or the na-
tionality of the parties involved.’ ” Antitrust Law Develop-
ments, at 1120.
As we have said, this is our first foray into FTAIA. We
have, however, considered the reach of the Sherman Act
into foreign commerce prior to the enactment of FTAIA.
In In re Uranium Antitrust Litigation, 617 F.2d 1248(7th Cir. 1980), we considered issues raised by the gov-
ernments of Australia, Canada, South Africa, and Great
Britain as to whether the district court could proceed in
a case brought by Westinghouse Electric Corporation
alleging antitrust violations against 26 foreign and do-
mestic uranium producers. For our purposes, we need not
delve into the weighty issues of that case beyond noting
that we said at 1253:
12 No. 01-1693
We view the jurisdictional issue as two-pronged: (1)
does subject matter jurisdiction exist; and (2) if so,
should it be exercised?
However, we also determined in United States v. Martin,
147 F.3d 529 (7th Cir. 1998), a criminal case involving
the federal “bombing” statute, 18 U.S.C. § 844(I), that
the requirement that the bombing have an effect on in-
terstate commerce is not a matter of the court’s jurisdic-
tion over the crime or the defendant, but rather an ele-
ment of the crime. Relying on United States v. Lopez,
514 U.S. 549 (1995), Martin wanted to set aside his guilty
plea because, he said, it did not waive jurisdictional de-
fenses, and the requirement for an effect on interstate
commerce is jurisdictional. We rejected that claim, saying
that although the requirement is often referred to as
jurisdictional, it is “simply one of the essential elements of
§ 844(I).” It is, we said, simply a “shorthand sense that
without that nexus, there can be no federal crime . . . .” At
532. As we learned in Lopez, the nexus to the Commerce
Clause is of considerable importance, as a matter of legisla-
tive jurisdiction, when Congress seeks to federalize street
crimes—crimes which are otherwise the province of the
states. In those instances, it seems to us, the require-
ment for interstate commerce is a hook on which the
crime hangs. Once Congress has made the proper find-
ings that, say, a certain crime implicates interstate com-
merce in some way, proof of the interstate commerce
requirement has, at least traditionally, been rather perfunc-
tory. Criminal statutes of this type are far less than
compelling analogies to FTAIA.
We see the purity of an argument that 28 U.S.C. § 1331provides federal question jurisdiction for cases “arising
under the Constitution, laws, or treaties of the United
States” so that without more, the federal courts have
jurisdiction over Sherman Act claims. It would follow, then,
that any requirement for an effect on interstate com-
No. 01-1693 13
merce must be an element of the claim. We know, how-
ever, that nothing is quite that simple. For instance, a
frivolous suit which charges a violation of a federal stat-
ute “arises under” federal law. Yet, because the suit is
frivolous, subject matter jurisdiction over it is lacking. Bell
v. Hood, 327 U.S. 678, 682-83 (1946) ( “[A] suit may some-
times be dismissed for want of jurisdiction where the
alleged claim under the Constitution or federal statutes
clearly appears to be immaterial and made solely for the
purpose of obtaining jurisdiction or where such a claim
is wholly insubstantial and frivolous.”). See also Crowley
Cutlery Co. v. United States, 849 F.2d 273 (7th Cir. 1988).
On the other hand, it is also true that sometimes a refer-
ence to “jurisdiction” in statutes is merely, as we said in
Martin, a shorthand way of referring to an element of
the claim. Such references are a way of referring to that
part of a statute which sets out the basis for legislative
jurisdiction.
But with 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. Even
after the decision in Steel Company, the EPCRA case
decided in 1998, courts of appeals continue to treat
FTAIA as jurisdictional. Whatever their differences in
interpretation of the Act or the effect it has on prior judge-
made law, all have treated the issue as one of subject
matter jurisdiction. See Kruman (review of the district
court’s dismissal for lack of subject matter jurisdiction
under FTAIA); Den Norske Stats Oljeselskap AS v.
Heeremac V.O.F., 241 F.3d 420 (5th Cir. 2001), cert. denied
sub nom. Statoil ASA v. HeereMac V.O.F., 122 S. Ct. 1059(2002) (finding that the district court properly dis-
missed antitrust claim for lack of subject matter jurisdic-
tion under FTAIA); Carpet Group (finding that FTAIA
did not divest the court of subject matter jurisdiction on
the claims presented); Filetech S.A. (finding that the dis-
14 No. 01-1693
trict court should have looked to the factual matters
presented to it regarding whether subject matter juris-
diction existed under FTAIA); Caribbean Broad. Sys., Ltd.
v. Cable & Wireless, P.L.C., 148 F.3d 1080 (D.C. Cir. 1998)
(stating that a court has subject matter jurisdiction only
to the extent that the complaint alleges that the chal-
lenged conduct has a “direct, substantial, and reasonably
foreseeable effect” on domestic commerce under FTAIA).
The latter court has revisited the issue recently to
define the “jurisdictional reach of the federal antitrust
laws.” Empagran S.A. v. F. Hoffman-Larouche, Ltd., 315
F.3d 338 (D.C. Cir. 2003). The argument was whether
Den Norske or Kruman set out the proper view of
FTAIA’s jurisdictional reach. The court rejected both
approaches, saying that its view of the statute falls “some-
where between the views of the Fifth and Second Cir-
cuits . . . .” Holding that where the “anticompetitive con-
duct has the requisite harm on United States commerce,
FTAIA permits suits by foreign plaintiffs who are injured
solely by that conduct’s effect on foreign commerce,” the
court found that “subject matter jurisdiction is proper” in
the case before it. We simply cannot dismiss these cases
as “drive-by” jurisdictional rulings.
In Hartford, as well, it is not likely that references to
jurisdiction are really references to legislative, rather than
subject-matter, jurisdiction. Justice Souter made it clear
that he disagreed with Justice Scalia’s contention that
under FTAIA what is at issue is legislative jurisdiction. To
reiterate, he said:
JUSTICE SCALIA believes that what is at issue in
this litigation is prescriptive, as opposed to subject-
matter, jurisdiction. . . . The parties do not question
prescriptive jurisdiction, however, and for good
reason: it is well established that Congress has exer-
cised such jurisdiction under the Sherman Act. See
No. 01-1693 15
G. Born & D. Westin, International Civil Litigation in
United States Courts 542, n.5 (2d ed. 1992) (Sherman
Act is a “prime exampl[e] of the simultaneous exer-
cise of prescriptive jurisdiction and grant of subject
matter jurisdiction”).
So, while it might seem desirable to have no messy
extra jurisdictional requirements under some acts of
Congress, but not others, that is not how our system
necessarily works. There is no question that Congress
has the power to limit the jurisdiction of the federal
courts. Lauf v. E.G. Shinner & Co., 303 U.S. 323 (1938).
Every federal court, other than the Supreme Court, de-
rives its jurisdiction from Congress, which, within consti-
tutional bounds, may withhold or restrict jurisdiction.
Kline v. Burke Constr. Co., 260 U.S. 226 (1922). The Court
has visited the “jurisdiction stripping” issue recently in
the context of the Telecommunications Act of 1996, in
which it considered whether federal courts have jurisdic-
tion over a carrier’s claim that an order of a state utility
commission violated federal law. The Court declined to
consider whether 47 U.S.C. § 251(c) conferred jurisdiction,
it “at least does not divest the district courts of their
authority under 28 U.S.C. § 1331 . . . .” Verizon Md. Inc.
v. Public Serv. Comm’n of Md., 122 S. Ct. 1753, 1758
(2002). What is left unspoken is that Congress could divest
the courts of jurisdiction if it chose to.
As we have said, the legislative history shows that
jurisdiction stripping is what Congress had in mind in
enacting FTAIA. The statute was enacted against a back-
drop of almost 60 years of precedent which characterized
the application of the Sherman Act to the conduct of
foreign markets as a matter of subject matter jurisdiction.
We must presume that Congress expects statutes to be
read to conform with Supreme Court precedent. Porter v.
Nussle, 534 U.S. 516 (2002). Also as we have said, the
courts of appeals had applied the pre-FTAIA effects test as
16 No. 01-1693
a limit on subject matter jurisdiction.1 Nothing in FTAIA
hints that Congress intended to dramatically change this
approach. In fact, the legislative history indicates other-
wise. The House Report says that satisfying FTAIA
would be “the predicate for antitrust jurisdiction.” It also
says, “[t]his bill only establishes the standards necessary
for assertion of United States Antitrust jurisdiction. The
substantive antitrust issues on the merits of the plain-
tiffs’ claim would remain unchanged.” H.R. Rep. No. 97-686
at 11 (1982). Perhaps that is why after FTAIA courts
have continued to treat the issue as one of subject mat-
ter jurisdiction.
There are good policy reasons for the prevailing approach.
The extraterritorial scope of our antitrust laws touches
our relations with foreign governments, and so, it seems,
it is prudent to tread softly in this area. If FTAIA sets
out an issue on the merits, resolution of the issue could
be delayed until late in the case, and the potential for a
lawsuit to have an effect on foreign markets would exist
while the case remained pending. In contrast, if this im-
portant issue goes to subject matter jurisdiction, it can
be resolved early in the litigation. If missed early on, it can
be resolved whenever it becomes clear that the alleged
1
The dissent suggests, incorrectly we think, that our decision
will move government prosecutors to avoid the Seventh Circuit
when investigating criminal violations of the Sherman Act. We
don’t think so. But we add that if the dissent is correct, the
government will not only have to avoid the Seventh Circuit, but
also all the other circuits that say, as we do here, that the
requirement of an effect on U.S. commerce relates to subject
matter jurisdiction. Finally, we fail to see the harm to Sherman
Act criminal prosecutions that concerns the dissent. If the
government can’t prove to a judge a minimum requirement that
activity alleged to be in violation of U.S. criminal law had an
effect on U.S. commerce, it shouldn’t be bringing a Sherman Act
case in the first place.
No. 01-1693 17
anticompetitive activity does not have a substantial effect
on United States commerce. If the parties do not raise the
issue, a judge has an obligation to raise it. Treating the
matter as one of subject matter jurisdiction reduces the
potential for offending the economic policies of other
nations. In short, FTAIA limits the power of the United
States courts (and private plaintiffs) from nosing about
where they do not belong. And the power of the courts
is precisely what subject matter jurisdiction is about. For
all of these reasons, we find that the district court prop-
erly treated the issue as one of subject matter jurisdiction.
That being the case, we must determine whether the
court’s findings of fact are clearly erroneous. In its analysis,
the court examined thousands of pages of evidentiary
materials which formed the basis for its findings of fact.
The court found that there was virtually no evidence
that the plaintiffs would have made any sales in the
United States. They set out to produce a tuberculosis
drug for India. Experts say that the main application for
AB is to produce Ethambutol, which is primarily used in
India. The Lederle division of American Home Products
was at the relevant time the only company in the world
that had FDA approval to sell Ethambutol in the United
States. Lederle imported Ethambutol into the United
States from Italy using a product that it buys in India.
In fact, it appears that the very small amount of AB sold
in the United States was used as an ingredient in a prod-
uct for making rocket motors, not drugs. 3M used a very
small amount for this purpose, purchasing less than 0.4
percent of the world’s AB production—or $25,000 in total
volume. But 3M never conducted formal bidding for this
small purchase and shows no signs of changing its supplier.
Other than saying that “there is ample evidence to
support plaintiffs’ allegations,” plaintiffs do not tell us
how the court’s findings are clearly erroneous. True, the
plaintiffs outline the evidence reflecting their plans to
18 No. 01-1693
manufacture the products for sale in the United States.
And, in fact, it may be that there was evidence to support
that position. But the district court is allowed on this
motion to weigh the facts, and when it did, it found that
plaintiffs
had no actual plans to sell AB in this country and
that there would have been no significant AB sales
opportunities for Plaintiffs in this country even if
they had tried to sell AB here. For instance, Miller
testified that he “had no conversation with any po-
tential customers for AB in the United States.” Miller
Dep. 413. Moreover, Shroff testified that he and his
“marketing man” spoke with ten to twelve potential
AB customers, all of which were located in India. Shroff
Dep. 144-45, 161-62.
At 1012. Plaintiffs’ own liability expert testified that AB
sales in the United States would be “less than substantial.”
Similar findings were made regarding the other chem-
icals involved. The plaintiffs do not point out how these
findings were clearly erroneous, and our review leads us
to conclude that they were not. With the dismissal of the
federal claims, the dismissal of pendent state-law claims
was also proper. Accordingly, the judgment of the district
court is AFFIRMED.
No. 01-1693 19
DIANE P. WOOD, Circuit Judge, dissenting, with whom
Circuit Judges EASTERBROOK, MANION, and ROVNER join.
In straightforward language, the Foreign Trade Antitrust
Improvements Act of 1982 (FTAIA), 15 U.S.C. § 6a, says
that the Sherman Act “shall not apply” to conduct involving
foreign trade or commerce unless that conduct has a “di-
rect, substantial and reasonably foreseeable effect” on ei-
ther U.S. domestic commerce, U.S. import commerce, or (for
U.S. exporters only) on U.S. export commerce. The ques-
tion before us today, which not only reaches this court as
an issue of first impression, but which has also never
been analyzed thoroughly by any other court, is whether
these criteria for the statute’s “applicability” strip federal
district courts of their acknowledged subject matter juris-
diction under 28 U.S.C. §§ 1331 and 1337 over cases that
do not meet the test, or if instead they describe an element
of the plaintiff’s claim. The majority has opted for the
former approach, largely because the word “jurisdiction”
appears in many prior decisions of lower courts and in
certain materials published by the government’s antitrust
enforcement agencies and the American Bar Association.
But neither the majority nor those earlier opinions have
distinguished carefully between judicial and legislative
jurisdiction—or, to put it differently, between jurisdic-
tion to decide a case and jurisdiction to prescribe a rule
of law. The central question now before us is whether
the FTAIA affects the former or the latter power. Given the
fact that “jurisdiction is a word of many, too many, mean-
ings,” ante at 8, quoting United States v. Vanness, 85F.3d
661, 663 n.2 (D.C. Cir. 1996), which was quoted in Steel
Co. v. Citizens for a Better Environment, 523 U.S. 83, 90
(1998), it is plain that the analysis cannot stop with the
observation that the FTAIA somehow affects “jurisdiction.”
In my view, there are at least four compelling reasons
why we should not construe the FTAIA’s test as one go-
ing to the subject matter jurisdiction of the court, and
20 No. 01-1693
instead should adopt what I will call an “element” approach:
first, the language of the statute supports the position
that this is an element of the claim, especially when it is
contrasted to true jurisdiction-stripping statutes; second,
the “subject matter jurisdiction” characterization is in-
consistent with the Supreme Court’s decision in Steel Co.
and with the law of this court; third, the procedural conse-
quences of a “subject matter jurisdiction” reading would
have perverse effects, measured against the policies the
FTAIA and the federal antitrust laws were designed to
further; and finally, to call this “subject matter jurisdic-
tion” fails to take into account the long history of the
application of the U.S. antitrust laws to foreign conduct.
I
Although the majority has set forth the relevant lan-
guage of the FTAIA, it bears repeating here, both for
ease of reference and for emphasis. It reads as follows
(and there is equivalent language covering section 5 of the
Federal Trade Commission Act):
Sections 1 to 7 of this title [Sherman Act] shall not
apply to conduct involving trade or commerce (other
than import trade or import commerce) with foreign
nations unless—
(1) such conduct has a direct, substantial and
reasonably foreseeable effect—
A) on trade or commerce which is not trade
or commerce with foreign nations, or on import
trade or import commerce with foreign na-
tions; or
B) on export trade or export commerce with
foreign nations, of a person engaged in such
trade or in commerce in the United States; and
No. 01-1693 21
(2) such effect gives rise to a claim under the
provisions of sections 1 to 7 of this title, other than
this section.
15 U.S.C. § 6a.
One will search in vain in this brief passage for any
hint that the Congress was attempting to strip federal
courts of their competence to hear and decide antitrust
cases with a foreign element. In my view, that alone
should be enough to tip the balance toward the “element”
characterization. To begin with, while one can find exam-
ples in Supreme Court decisions of the Court’s treatment
of statutes with jurisdictional language as non-jurisdic-
tional (e.g., Steel Co., discussed below; Hughes Aircraft
Co. v. United States ex rel. Schumer, 520 U.S. 939, 950-51
(1997) (False Claims Act)), there are no examples of the
opposite approach—treating something as jurisdictional
that is phrased in terms of the scope of application of a
statute. Secondly, this court has recognized that juris-
diction-stripping rules must be expressed clearly. In
Czerkies v. U.S. Department of Labor, 73 F.3d 1435 (7th
Cir. 1996) (en banc), we held that the door-closing statute
prohibiting judicial review of certain federal workers’
compensation claims should not be construed to bar re-
view of constitutional claims in the absence of express
language to that effect. Id. at 1439. The same approach
is appropriate for other kinds of jurisdiction-stripping
statutes. Naturally, when Congress does speak clearly, as
it did in the statute that bars judicial review of certain
immigration decisions, see 8 U.S.C. §§ 1252(a)(2)(B) and
1255, the courts do and should recognize that their compe-
tence to act has been withdrawn. See McBrearty v.
Perryman, 212 F.3d 985 (7th Cir. 2000) (dismissing suit
attempting to avoid § 1252(a)(2)(B), which provides that
“notwithstanding any other provision of law, no court
shall have jurisdiction to review . . . any judgment regard-
ing the granting of relief under” section 1255). Language
22 No. 01-1693
like that of the FTAIA, stating that a law does not “apply”
in certain circumstances, cannot be equated to language
stating that the courts do not have fundamental compe-
tence to consider defined categories of cases.
II
The fact that the FTAIA does not contain a clear con-
gressional statement that it is intended to restrict
the subject matter jurisdiction of the federal courts (or
for that matter even a brief mention of the term “jurisdic-
tion”) should be enough to resolve the question before us.
If more is needed, then we must consider further how
to determine whether a particular law affects the compe-
tence of a federal court to entertain the case at all, or if
it simply outlines the scope of the statute and permits
the court to issue a decision on the merits either upholding
or rejecting a claim. Our starting point should be the
Supreme Court’s decision in Steel Co., supra, 523 U.S. 83.
In Steel Co., the Supreme Court held that the Emergency
Planning and Community Right-To-Know Act of 1986
(EPCRA), 42 U.S.C. § 11046(a)(1), which permitted a
private action only if certain prerequisites were satis-
fied, did not affect the district court’s subject matter
jurisdiction. 523 U.S. at 89-90. Although the EPCRA
actually used the word “jurisdiction” to describe the permit-
ted actions, the Court did not find that fact dispositive.
Instead, it reaffirmed the long-standing rule that power
to adjudicate a case does not depend on whether in the
final analysis the plaintiff has a valid claim. “[T]he dis-
trict court has jurisdiction if the right of the peti-
tioners to recover under their complaint will be sus-
tained if the Constitution and laws of the United States
are given one construction and will be defeated if they
are given another.” Id. at 89 (internal quotations omit-
ted). In the present case, the plaintiffs will have a right
No. 01-1693 23
to recover if defendants’ activities have the requisite ef-
fect on either U.S. domestic or import commerce (and
they can prove the remainder of their federal antitrust
claim), and they will lose if those effects are lacking.
It is worth noting that the extraterritorial reach of
statutes varies widely. Some statutes, such as Title VII of
the Civil Rights Act of 1964, have been interpreted by
the Supreme Court as having no application at all be-
yond U.S. borders, even if both the employer and the
employee are U.S. citizens. See EEOC v. Arabian Ameri-
can Oil Co., 499 U.S. 244 (1991). Other statutes, such as
18 U.S.C. § 2333, are virtually unlimited in their territo-
rial reach. Section 2333 provides a private right of action
for civil damages for any national of the United States
injured “by reason of an act of international terrorism”
(or the victim’s estate) to sue those responsible for the
act in a U.S. court for treble damages, no matter where
in the world the act occurred, and no matter what the
nationality of the perpetrator was. See Boim v. Quranic
Literacy Inst., 291 F.3d 1000 (7th Cir. 2002). Still other
statutes are like the FTAIA: they define a subset of ac-
tions and actors outside the United States whose actions
fall within the scope of U.S. law. It is up to Congress to
decide how broad or narrow a law it is enacting, and
what the plaintiff must prove to be entitled to relief.
That is what Congress did in the FTAIA: it estab-
lished the “direct, substantial, and reasonably foresee-
able” effect on commerce test as an element of the plain-
tiff’s claim. It did not disempower the federal courts from
ruling on the merits for a defendant when the plaintiff
is unable to make the requisite showing. The majority’s
suggestion that the Supreme Court held otherwise in
Hartford Fire Ins. v. California, 509 U.S. 764, 812 (1993)
is inaccurate. In fact, the Hartford Fire majority thought
it unnecessary to address the FTAIA’s effect on the case
24 No. 01-1693
at all, see id. at 797 n.23, and thus it had no need to en-
gage the dissenters on the “element” versus “jurisdiction”
point. It is true that Justice Scalia, writing for the four
dissenters, observed that “[a] cause of action under our
law was asserted here, and the court had power to deter-
mine whether it was or was not well founded in law and
in fact.” Id. at 812. Even though this isolated statement
was in a dissent and thus not authoritative at the time
it was made, the more important point is that the legal
principle it reflected was later adopted by a majority of
the Court first in Steel Co., and then later in United
States v. Cotton, 535 U.S. 625 (2002) (“Bain’s elastic con-
cept of jurisdiction is not what the term “jurisdiction”
means today, i.e., “the courts’ statutory or constitutional
power to adjudicate the case.”) (Emphasis in original,
quoting from Steel Co.). The approach I am advocating
is entirely consistent, therefore, with current Supreme
Court doctrine.
This court has had occasion to consider the question
whether effect-on-commerce elements analogous to those
in the FTAIA affect subject matter jurisdiction or the
statement of a claim, and we have concluded that they
do not. See United States v. Martin, 147 F.3d 529 (7th
Cir. 1998), cited with approval in United States v. Ray-
born, 312 F.3d 229, 231 (6th Cir. 2002); United States v.
Carr, 271 F.3d 172, 178 (4th Cir. 2001); United States v.
Prentiss, 256 F.3d 971, 982 (10th Cir. 2001); United States
v. Beck, 250 F.3d 1163, 1165 (8th Cir. 2001); Alikhani v.
United States, 200 F.3d 732, 734-35 (11th Cir. 2000). While
the statute at issue in Martin was a criminal law, 18 U.S.C.
§ 844(i), I agree with the First Circuit that there is
no jurisdictional distinction in the Sherman Act between
the civil and criminal reach of the statute. See United
States v. Nippon Paper Indus., 109 F.3d 1 (1st Cir. 1997).
(Indeed, I do not understand the majority to be taking
issue with this aspect of the Nippon Paper holding.) The
No. 01-1693 25
fact that the present case is civil, and Martin was crim-
inal, therefore provides no reason not to follow Martin’s
jurisdictional characterization. Nor do I see any other
principled distinction that can be drawn between our
analysis in Martin and the problem now before us.
III
Yet another reason why the majority’s rule is ill-advised
comes from the nature of jurisdictional rules and the
consequences of treating something as affecting the sub-
ject matter jurisdiction of the court. Rules about subject
matter jurisdiction define the allocation of business be-
tween the federal and the state courts. The federal courts
are courts of limited jurisdiction. Only if Article III of
the Constitution confers power on them to hear the par-
ticular kind of case or controversy at issue, and if a stat-
ute of Congress has implemented that constitutional
grant of power, can a case be heard in federal court.
The first point here is that a recognized issue of subject
matter jurisdiction must be resolved before any other
action is taken on the case. There is an important institu-
tional interest in resolving jurisdictional questions quick-
ly and simply. Congress recognized this in one of its
classic jurisdiction-stripping rules: federal appellate courts
have no jurisdiction to review district court decisions
remanding cases to state court when the district court
relies on a reason outlined in 28 U.S.C. § 1447(c). See
28 U.S.C. § 1447(d). Inquiries into whether a case “arises
under” federal law, for purposes of § 1331 jurisdiction,
can normally be completed by a review of the complaint.
Inquiries into diversity jurisdiction are often just as
straightforward, even though fact-finding might be neces-
sary in the occasional case in which it is unclear where
a person is domiciled, or what amount is in controversy,
or which of several corporate facilities should count as
the corporation’s principal place of business.
26 No. 01-1693
The jurisdictional inquiries just described are well-
defined and do not normally consume enormous judicial
resources. In contrast, an inquiry into whether a par-
ticular course of conduct has a “direct, substantial, and
reasonably foreseeable effect” on either the domestic
commerce of the United States or its import commerce
threatens to become a preliminary trial on the merits.
Indeed, the record in one famous international antitrust
case, Timberlane Lumber Co. v. Bank of America, N.T.
& S.A., should give advocates of the “subject matter juris-
diction” approach serious pause. That case was originally
filed in the district court in 1973. In 1974, the district
court dismissed for want of “subject matter jurisdiction.”
The Ninth Circuit reversed in 1976. See 549 F.2d 597(9th Cir. 1976). Six years of discovery then took place, in
which the parties explored the effects of the alleged con-
spiracy on U.S. commerce. In 1983, the district court
again dismissed the action for want of jurisdiction. See
574 F. Supp. 1453 (N.D. Cal. 1983). Up on appeal again to
the Ninth Circuit, the case was affirmed, though on some-
what different grounds. 749 F.2d 1378 (9th Cir. 1984).
In 1985, the Supreme Court denied certiorari, see 472
U.S. 1032 (1985), with a note indicating that Justices
White and Blackmun would have granted review. Thus,
at least 12 years after the case was filed, the “jurisdictional”
issue was finally resolved. Had it been resolved in the
affirmative, there is no telling how many more years
would have passed before the litigation was over. This
is no way to decide whether the federal courts are com-
petent to hear a case.
The element approach, in contrast, has none of those
defects. In some instances, it will be possible to resolve
the FTAIA issue on the pleadings or on summary judg-
ment, and appellate review from either kind of decision
de novo. If the issue is not capable of resolution on sum-
mary judgment, that should be a red flag in any event.
No. 01-1693 27
Effect on commerce issues will often be closely inter-
twined with the merits. Yet if the case reaches the merits,
there is no reason why the court cannot resolve the most
straightforward issue first. Many antitrust cases founder
on the issue of market power, especially when world
markets are at issue. But Steel Co. made it abundantly
clear that courts are not entitled simply to assume juris-
diction and resolve an easy merits issue, if true subject
matter jurisdiction is at stake.
If something affects the subject matter jurisdiction of
the court, there are a number of other consequences
which would be undesirable for the FTAIA. First, there
is necessarily never a time when the question cannot be
raised. As the Supreme Court has repeatedly emphasized,
the fundamental competence of the court to act can be
challenged at any time, up to and including at the Su-
preme Court level. See, e.g., Mansfield, C. & L.M. Ry. Co.
v. Swan, 111 U.S. 379 (1884); Charles Alan Wright, Fed-
eral Courts § 7 at 28 (5th ed. 1994). This would offer an
irresistible invitation to the losing party in an interna-
tional antitrust case to invite the Supreme Court to re-
visit the complex question whether there are direct, sub-
stantial, and reasonably foreseeable effects on U.S. com-
merce, whether or not that objection was preserved be-
fore the district court or the court of appeals. Indeed, the
court will be required to raise the issue on its own, even
if the parties have been content to stipulate to dollar
amounts of commerce, destinations of goods, business
plans tending to show foreseeability, and other pertinent
facts. In many cases, the parties may be willing to stipu-
late that the necessary effects on U.S. commerce are
present, so that they can get down to the business of
resolving their dispute. All that is impossible if we are
dealing with subject matter jurisdiction.
Second, characterization affects removal. Recall that the
subject matter rules indicate whether the case falls within
28 No. 01-1693
the limited jurisdiction of the federal courts. If it does
not, then it presumptively can be heard by a state court
of general jurisdiction. Although the federal antitrust
laws are commonly held to fall within the exclusive juris-
diction of the federal courts, nothing requires Congress
to keep things that way. If Congress indeed meant to
strip the federal courts of subject matter jurisdiction
over foreign commerce antitrust cases, then those cases
revert to state courts. No one has suggested that we can
also divine from the language of the FTAIA a congres-
sional intent to deny any U.S. forum whatsoever for
foreign commerce cases. (Indeed, serious constitutional
questions would arise if we were to read the statute
as purporting to define the jurisdiction of the state
courts, given the degree of sovereignty the states retain
under the federal Constitution.) Thus, state courts can
and will hear foreign commerce antitrust cases where
“direct, substantial, and reasonably foreseeable” effects
are missing. Some of those state courts might dismiss on
forum non conveniens grounds; some might apply their
own test for whether a claim is stated and dismiss on the
merits; some might keep the case and adjudicate it, creat-
ing far greater friction with foreign sovereigns than
would result from exclusive federal jurisdiction and an
elements-based test. Naturally, if this kind of case is
filed in state court, it cannot be removed to federal court,
because suits may be removed only if they could have
been filed originally in a federal court. See 28 U.S.C.
§ 1441; Syngenta Crop Protection, Inc. v. Henson, 123
S. Ct. 366, 369-70 (2002). Furthermore, even if such a case
is physically removed and is lodged in the federal court
on an untenable claim of federal jurisdiction, the federal
court (after potentially lengthy inquiries into the FTAIA
test) will be required to remand it for lack of jurisdic-
tion. See 28 U.S.C. § 1447(c). Such a decision is not a
decision on the merits, and it will thus not block further
proceedings in the state court.
No. 01-1693 29
There are also consequences for appellate review if this
is a jurisdictional issue. As already noted, district courts
resolve whatever jurisdictional facts are contested in ad-
vance of the trial. Appellate review of those fact-findings
is deferential. Although the defendants argued that the
policies behind the FTAIA—particularly the avoidance
of diplomatic tensions with other countries—are better
served by the jurisdictional characterization, that as-
sumes that district courts will systematically reject juris-
diction. There is no reason at all to make such an assump-
tion. If district courts find the FTAIA test satisfied, foreign
parties will be stuck with deferential appellate review
of those facts. This also means that appellate courts will
not be free to give plenary consideration to the sensi-
tive issues of international comity that can arise in
these cases—issues better resolved at the level of the
court of appeals or the Supreme Court than by a solitary
district judge. For all these reasons as well, it is prefer-
able to treat the FTAIA as establishing an element of
the claim.
The subject matter jurisdiction characterization makes
no sense, either from the point of view of the policies
being furthered by the FTAIA, or from the standpoint
of judicial administration. We should not adopt a per-
verse decision just because parties have chosen to file
motions under Rule 12(b)(1) instead of Rule 12(b)(6) or
Rule 56, or because courts have unquestioningly adopted
the diction of “subject matter jurisdiction” without care-
ful examination.
IV
Finally, if all the rest of these reasons were not enough
to compel an “element” reading, a review of the history
of the application of the antitrust laws to persons and
conduct beyond the borders of the United States also leads
30 No. 01-1693
to that result. As the majority notes, the first time the
Supreme Court had occasion to consider the question
whether the Sherman Act applied to activities outside
the United States occurred less than 20 years after the
passage of the Act, in American Banana Co. v. United
Fruit Co., 213 U.S. 347 (1909). There, writing for the
Court, Justice Holmes rejected the plaintiff’s argument
that the Sherman Act penalized an elaborate arrange-
ment by the defendant that affected banana imports into
the United States. At the center of the case was a dis-
pute between Panama and Costa Rica over which country
had sovereign authority over a particular banana plan-
tation; plaintiff claimed that the defendant had instigated
the border war for purposes of controlling the banana
trade. Using language that proved to be far broader than
later courts were willing to accept, Justice Holmes wrote
that “the general and almost universal rule is that the
character of an act as lawful or unlawful must be deter-
mined wholly by the law of the country where the act
is done.” Id. at 356. Moreover, he wrote, “in case of doubt,
[one would be led to] . . . a construction of any statute
as intended to be confined in its operation and effect to
the territorial limits over which the lawmaker has gen-
eral and legitimate power.” Id. at 357. Nothing in this
language suggests that the Court thought it was address-
ing federal court subject matter jurisdiction in the sense
of the competence of a court with limited powers to resolve
the dispute. This was a topic with which the Justices
were certainly familiar, having dismissed an action only
one year earlier themselves for failure to satisfy the well-
pleaded complaint rule, despite the fact that no one had
noticed the problem before the case reached the high
court. See Louisville & Nashville R.R. v. Mottley, 211 U.S.
149, 152 (1908). Instead, it was talking about how broad
a statute Congress had enacted, and how much conduct
Congress was trying to regulate. It was the legislative
branch, in short, which the Court thought had not reached
No. 01-1693 31
out to cover an intergovernmental dispute affecting inter-
national trade in bananas. There was not a hint that the
federal courts had no competence to decide that the
Sherman Act did not reach that far.
Between the time American Banana was decided and
the time when the Second Circuit rendered its Alcoa
decision, the Court handed down at least two decisions
that qualified the strict territorial view of the former case.
See United States v. American Tobacco Co., 221 U.S.
106 (1911); United States v. Sisal Sales Corp., 274 U.S.
268 (1927). Both cases also talk in terms of the coverage
of the antitrust statutes with respect to the foreign activi-
ties and actors. American Tobacco upheld the application
of the statute to two English corporations, see 221 U.S. at
172, 184-85, and Sisal Sales upheld the application of
the laws to a Mexican-based conspiracy to control the
importation of sisal from Mexico into the United States
and its subsequent sale.
The next major decision addressing the extent to which
the U.S. antitrust laws reach foreign parties and con-
duct was United States v. Aluminum Co. of America, 148
F.2d 416 (2d Cir. 1945) [hereinafter Alcoa]. In that case,
the court had to decide whether certain foreign parties,
who had acted wholly outside the United States, had none-
theless violated the Sherman Act. As the court put it, “[d]id
either [agreement] violate § 1 of the Act? . . . [W]e are con-
cerned only with whether Congress chose to attach liabil-
ity to the conduct outside the United States of persons
not in allegiance to it. That being so, the only question
open is whether Congress intended to impose the liabil-
ity . . . .” 148 F.2d at 443. Turning to the field of “conflict
of laws” for guidance, the court concluded that “the Act
does not cover agreements, even though intended to af-
fect imports or exports, unless its performance is shown
actually to have had some effect upon them.” Id. at 444. In
time, this became known as the “intended effects” test,
32 No. 01-1693
which in various forms governed until the FTAIA was
passed, and arguably still applies in import cases. See
Hartford Fire, 509 U.S. at 796 (“it 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”) and at 797 n.23
(indicating that it was not necessary to address the ques-
tion whether the FTAIA affected the case).
The Alcoa decision was not warmly received in other
countries, which as of the mid-1940s did not as a rule
have antitrust laws and which resented the apparent
effort of the United States to act as the world’s competition
police officer.1 See generally Spencer Weber Waller, Anti-
trust and American Business Abroad, vol. I, ch. 4. This led
to an outpouring of scholarly writing on the general ques-
tion of the way prescriptive jurisdictional lines should
be drawn among nations from the perspective of public
international law. The fruits of this effort appear today
in the American Law Institute’s influential Restatement
(Third) of the Foreign Relations Law of the United States
(“Restatement Third”), Part IV (1987), which addresses
the subject of jurisdiction and judgments. The Restate-
ment Third identifies three types of jurisdictional limita-
tions recognized by international law: those on jurisdic-
tion to prescribe (“i.e. to make [the state’s] law applicable
1
Today, over 90 countries have competition laws. See, e.g., Diane
P. Wood, “International Harmonization of Antitrust Law: The
Tortoise or the Hare?” 3 Chicago J. Int’l L. 391, 392 n.6 (2002).
Interestingly, the number of disputes over so-called extraterrito-
rial applications of national laws, whether by the United States,
the European Union, or others, has dropped dramatically. Dis-
cussions today tend to focus on better ways of coordinating
these many national-level regimes, and antitrust authorities
around the world are eager to cooperate with one another with-
in the confines established by national confidentiality laws.
No. 01-1693 33
to the activities, relations, or status of persons, or the
interests of persons in things, whether by legislation, by
executive act or order, by administrative rule or regula-
tion, or by determination of a court”), those on jurisdic-
tion to adjudicate, and those on jurisdiction to enforce.
Restatement Third, § 401. Section 415 of the Restate-
ment Third is devoted specifically to jurisdiction to reg-
ulate anti-competitive activities.
The commentary to section 401 addresses exactly the
problem now before us: that is, what is the relation be-
tween the various heads of jurisdiction identified in the
Restatement and the domestic U.S. concept of “subject
matter jurisdiction.” Comment c reads as follows:
“Subject matter jurisdiction,” in common usage in
other contexts, is not used in this Restatement. This
term sometimes refers to the constitutional authority
of a governmental body, for example the authority of
Congress under the United States Constitution to
legislate on a subject (principally under Article I,
Section 8), or the authority of a State of the United
States to legislate within constitutional limitations on
State authority (Article I, Section 10). The term is
also often used in judicial decisions to describe other
limitations on governmental authority, including those
involving the reach of United States law, addressed
in this Restatement as jurisdiction to prescribe. Juris-
diction to prescribe with respect to transnational
activity depends not on a particular link, such as
minimum contacts (“use of the mails,” or “crossing
state lines”), which have been used to define “subject
matter jurisdiction” for constitutional purposes, but
on a concept of reasonableness based on a number of
factors to be considered and evaluated. §§ 402-403.
Thus, the domestic concept of subject matter jurisdiction
has no bearing on the question whether the United States
34 No. 01-1693
validly prescribed a certain rule of law. Section 415 offers
detailed guidance on the scope of prescriptive jurisdiction
in cases dealing with anticompetitive activities.2
2
The text and commentary of section 415 is also informative:
§ 415. Jurisdiction To Regulate Anti-Competitive Activities
(1) Any agreement in restraint of United States trade
that is made in the United States, and any conduct or
agreement in restraint of such trade that is carried
out in significant measure in the United States, are
subject to the jurisdiction to prescribe of the United
States, regardless of the nationality or place of business
of the parties to the agreement or of the participants
in the conduct.
(2) Any agreement in restraint of United States trade
that is made outside of the United States, and any
conduct or agreement in restraint of such trade that is
carried out predominantly outside of the United States,
are subject to the jurisdiction to prescribe of the United
States, if a principal purpose of the conduct or agree-
ment is to interfere with the commerce of the United
States, and the agreement or conduct has some effect
on that commerce.
(3) Other agreements or conduct in restraint of United
States trade are subject to the jurisdiction to prescribe of
the United States if such agreements or conduct have
substantial effect on the commerce of the United States
and the exercise of jurisdiction is not unreasonable.
Comment b to this section quotes the FTAIA in full, and goes
on to say that “Congress apparently believed that activity whose
anti-competitive effects are felt only in foreign states should not
be a concern of United States antitrust regulation, but that
activities carried out abroad that have ‘direct, substantial, and
reasonably foreseeable’ effect in the United States or on the
import trade of the United States (as by limiting imports or fix-
ing the price of imported products) should be subject to the
Sherman and FTC Acts.”
No. 01-1693 35
It is this topic of prescriptive jurisdiction, and how far
the U.S. antitrust laws were actually reaching, that was
before Congress when it enacted the FTAIA. (While it
is true that the House Report on the FTAIA uses the
word “jurisdiction” with some regularity, it also speaks
repeatedly about whether U.S. antitrust law should be
applied to particular transactions. See H.R. Rep. No. 97-
686, 97th Cong., 2d Sess. (1982). It is therefore impos-
sible to draw any firm conclusions from that brief doc-
ument that will assist us in resolving the issue presently
before us.) Congress was trying simultaneously to assure
U.S. companies that they would not be subject to potentially
stricter U.S. antitrust laws when they were conducting
business wholly in foreign markets, and to assure foreign
countries and their citizens that they would not be swept
into a U.S. court to answer under U.S. law for actions
that were of no legitimate concern to the United States.
Ronald W. Davis, International Cartel and Monopolization
Cases Expose a Gap in Foreign Trade Antitrust Improve-
ments Act, 15 Sum-Antitrust 53, 53-58 (2001). This much
is fairly clear. What has not been clear has been the way
in which the FTAIA itself has been handled in the fed-
eral courts.
At one level, virtually everyone concedes that federal
subject matter jurisdiction exists in cases like United
Phosphorus’s. The claim certainly arises under a federal
law—the Sherman Act—and thus falls within the scope
of 28 U.S.C. § 1331 and 28 U.S.C. § 1337. Furthermore,
typically no one claims that the claim presented is so
frivolous that jurisdiction fails under the principle ac-
knowledged in Bell v. Hood, 327 U.S. 678 (1946). Never-
theless, as the majority has accurately noted, defendants
who believe that their activities were too “foreign” to be
swept under the U.S. antitrust laws have usually at-
tacked the plaintiff’s case with a motion under FED. R.
CIV. P. 12(b)(1), which covers “lack of jurisdiction over
36 No. 01-1693
the subject matter,” and sometimes in the alternative
with a motion under Rule 12(b)(6), which covers “failure
to state a claim upon which relief can be granted.”
Although several courts of appeals have decided dismiss-
al motions based on the FTAIA under the rubric of “sub-
ject matter jurisdiction,” see, e.g., Empagran S.A. v.
F. Hoffman-LaRoche, Ltd., 2003 WL 131804 (D.C. Cir.,
Jan. 17, 2003); Kruman v. Christie’s Int’l PLC, 284 F.3d
384 (2d Cir. 2002); Den Norske Stats Oljeselskap AS
v. HeereMac Vof, 241 F.3d 420 (5th Cir. 2001), cert.
denied, 534 U.S. 1127, 122 S. Ct. 1059 (U.S. Feb. 19, 2002)
(00-1842); Caribbean Broad. Sys., Ltd. v. Cable & Wireless
PLC, 148 F.3d 1080 (D.C. Cir. 1998), most have focused
on the merits of the FTAIA analysis rather than the pre-
cise procedural manner in which it was presented. None
of them has given the sustained attention to the “juris-
diction vs. element” inquiry that this court has now done.
Indeed, in the most recent of these decisions, Empagran,
the court was singularly unconcerned with the distinc-
tion between these two approaches. It certainly speaks of
a lack of “subject matter jurisdiction” under the federal
antitrust laws, 2003 WL 131804 at *1, and the issue
reached the court on a motion made under FED. R. CIV. P.
12(b)(1), but both the test the court adopted and its anal-
ysis are telling for our purposes. The test it chose to use
for FTAIA cases was as follows:
We hold that where the anticompetitive conduct
has the requisite harm on United States commerce,
FTAIA permits suits by foreign plaintiffs who are
injured solely by that conduct’s effect on foreign com-
merce. The anticompetitive effect itself must violate
the Sherman Act and the conduct’s harmful effect on
United States commerce must give rise to “a claim” by
someone, even if not the foreign plaintiff who is be-
fore the court.
No. 01-1693 37
Id. at *2. In other words, if one is to take the “subject
matter jurisdiction” characterization seriously, the court
is competent to decide the case only if it concludes (ten-
tatively? conclusively?) that the statute has been violated
and someone has standing to sue. With all due respect
to my colleagues in the D.C. Circuit, I find such an ap-
proach to subject matter to be inconsistent with the Su-
preme Court’s decisions in cases like Steel Co. and Bell v.
Hood. (For the record, I am not necessarily expressing
any disagreement with the ultimate result in Empagran;
my concern is only with this implicit part of the court’s
rationale.)
Even more troublesome is the court’s analysis of sub-
ject matter jurisdiction. It begins with the observation
that its review is de novo. 2003 WL 131804 at *5. This, of
course, would be true if the dismissal were under Rule
12(b)(6) or Rule 56. If it is really under Rule 12(b)(1) and
the district court has made findings of fact, then it is
not accurate; the legal conclusion would be reviewed
de novo, but the facts would be reviewed deferentially.
In any event, the court continues with the following pas-
sage:
A complaint may be dismissed for lack of subject
matter jurisdiction only if “ ‘it appears beyond doubt
that the plaintiff can prove no set of facts in support
of his claim which would entitle him to relief.’ ” Sinclair
v. Kleindienst, 711 F.2d 291, 293 (D.C. Cir. 1983)
(quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct.
99, 101-02, 2 L.Ed.2d 80 (1957)). In our review, this
court assumes the truth of the allegations made and
construes them favorably to the pleader. Scheuer v.
Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40
L.Ed.2d 90 (1974).
2003 WL 131804 at *5. The problem with this passage
is that almost all of it describes not the rule that applies
38 No. 01-1693
to motions to dismiss for lack of subject matter jurisdic-
tion, but instead motions to dismiss for failure to state
a claim. In Sinclair, for example, the district court had
dismissed the claim under Rule 12(b)(6), and the passage
to which the Empagran court referred correctly quotes
the governing standard from Conley. But the passage in
Conley has nothing to do with subject matter jurisdic-
tion dismissals. It says instead that “a complaint should
not be dismissed for failure to state a claim unless it
appears beyond doubt that the plaintiff can prove no set
of facts in support of his claim which would entitle him
to relief.” 355 U.S. at 45-46. While Scheuer states that
“in passing on a motion to dismiss, whether on the ground
of lack of jurisdiction over the subject matter or for fail-
ure to state a claim, the allegations of the complaint
should be construed favorably to the pleader,” 416 U.S.
at 236, it made this comment in the context of its review
of a dismissal based on the Eleventh Amendment, on its
way to remanding the case to the lower courts for fur-
ther fact-finding. It in no way purported to change the
rule that when subject matter jurisdiction is contested,
the district court itself must hold a hearing to resolve
the jurisdictional facts, and that the ultimate decision is
for the court, not for a jury. See generally 5A Charles
Alan Wright and Arthur R. Miller, Federal Practice
and Procedure § 1350 at 234-35 (2d ed. 1990). Thus, to the
extent that others should follow what the Empagran
court did, rather than what it said in passing, one
should take this as a case acknowledging that a dismiss-
al for failure to meet the standards of the FTAIA is one
for failure to state a claim.
The Second Circuit’s Kruman decision also spoke in
terms of a “subject matter jurisdiction” dismissal, see
284 F.3d at 390, and it correctly noted that the dis-
trict court could “resolve disputed jurisdictional issues
of fact through reference to evidence outside of the plead-
No. 01-1693 39
ings.” Id. Nevertheless, as in Empagran, the court paid
no attention to the issue now before us; it was con-
cerned instead about the type of effect on domestic (or
import) commerce the FTAIA requires before conduct
could be “regulated by the Sherman Act.” Id. The same
is true of the Fifth Circuit’s decision in Den Norske, see
241 F.3d at 424-25, and the D.C. Circuit’s earlier deci-
sion in Caribbean Broadcasting, see 148 F.3d at 1085. It
is this court, sitting en banc, that will be the first one
to give a fully considered answer to the question whether
the FTAIA strips the federal courts of their competence
to hear certain cases that lack sufficient connections to
the United States, or if it affirmatively imposes on a
plaintiff the burden of proving as an element of its case
the existence of those connections.
V
For all these reasons, I believe that the FTAIA adds
an element to an antitrust claim for cases, as the statute
puts it, that present “conduct involving trade or com-
merce (other than import trade or import commerce)
with foreign nations.” It does not strip the federal courts
of subject matter jurisdiction in those cases—a conclu-
sion that would leave the court powerless to make a
ruling on the merits of the case, and that would leave
the defendants open to suit either in state courts or
before other tribunals, judicial or arbitral. The majority’s
conclusion will also have significant effects on the gov-
ernment’s criminal antitrust enforcement program. The
Sherman Act, of course, makes it a serious felony to enter
into an agreement in restraint of trade. The current Act-
ing Assistant Attorney General in charge of the Depart-
ment of Justice’s Antitrust Division, R. Hewitt Pate,
recently had the following comments about the Depart-
ment’s international criminal enforcement:
40 No. 01-1693
Since late 1996, the Division has prosecuted inter-
national cartels affecting over $10 billion in U.S.
commerce. Well over 90 percent of the total criminal
fines we have obtained in this time period were
from international cartel cases. . . . The international
cartels we have uncovered involved a wide range of
industries, including the food and feed additives,
graphite electrode, vitamins, construction, fine arts,
and textile industries. . . .
Recently, we have concentrated not just on pros-
ecuting corporate cartel members but also on pun-
ishing individuals who create and operate the car-
tels. . . . In the past fiscal year, defendants in Divi-
sion cases were sentenced to more than 10,000 jail
days—a record—with an average sentence of more
than 18 months. . . . It is not just U.S. executives
who are facing prison sentences, but foreign execu-
tives as well. . . .
Turning to our current docket, we now have al-
most forty grand juries investigating suspected inter-
national cartel activity, representing almost half of
the Division’s criminal investigations.
R. Hewitt Pate, “The DOJ International Antitrust Pro-
gram—Maintaining Momentum,” Speech Before the Amer-
ican Bar Association Section of Antitrust Law, 2003
Forum on International Competition Law, New York City,
February 6, 2003, available at http://www.usdoj.gov/atr/
public/speeches/200736.pdf (emphasis in original). The
government will not want to conduct these investiga-
tions in the Seventh Circuit. Defects going to the subject
matter of the court can be raised at any time, even if a
defendant has pleaded guilty (and guilty pleas play the
same important role in antitrust prosecutions as they do
in other fields of criminal law). See, e.g., United States v.
Cotton, 535 U.S. 625, 122 S. Ct. 1781, 1785 (2002) (“Bain’s
No. 01-1693 41
elastic concept of jurisdiction is not what the term ‘juris-
diction’ means today, i.e. ‘the courts’ statutory or constitu-
tional power to adjudicate the case,” [citing Steel Co.].
This latter concept of subject-matter jurisdiction, because
it involves a court’s power to hear a case, can never be
forfeited or waived.”); United States v. Broce, 488 U.S. 563,
569 (1989). Indeed, even after direct appeals are over, a
defect going to the subject-matter jurisdiction of the
court can be raised in a motion under 28 U.S.C. § 2255.
From this time forth, therefore, any defendant who be-
lieves that the prosecutor has failed to meet the stan-
dards of the FTAIA in an antitrust prosecution will be
free to raise this point either for the first time on appeal, or
in a § 2255 petition. Compare United States v. Gonzalez,
311 F.3d 440, 443-44 (1st Cir. 2002) (rejecting a subject-
matter-jurisdictional interpretation of a statute permit-
ting drug prosecutions on stateless vessels).
It is important to recall, finally, that there is nothing
unique about international antitrust cases. If effect-on-
commerce rules are truly jurisdictional, then they are
jurisdictional for every statute that contains commerce
elements. Countless statutes do, particularly since the
Supreme Court’s decision in United States v. Lopez, 514
U.S. 549 (1995), because that is what justifies congres-
sional action whenever it legislates under its Article I,
Section 8 Commerce Clause powers. The majority’s ap-
proach therefore has the potential of upsetting far more
than the small set of cases that present foreign trade
antitrust issues.
I respectfully dissent.
42 No. 01-1693
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—3-10-03