Throwback Thursday: Empagran’s Complicated Legacy
June 13, 2024
Twenty years ago tomorrow, on June 14, 2004, the Supreme Court handed down its decision in F. Hoffman-La Roche Ltd. v. Empagran S.A. The majority opinion, authored by Justice Stephen Breyer, interpreted the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA) to preclude the application of U.S. antitrust law to injuries in other countries.
Empagran articulated a principle of “constru[ing] ambiguous statutes to avoid unreasonable interference with the sovereign authority of other nations.” This principle may have been Breyer’s effort to articulate an alternative to the presumption against extraterritoriality for determining the geographic scope of federal statutes. Empagran’s principle provided the basis for § 405 of the Restatement (Fourth) of Foreign Relations Law, which sits beside § 404’s restatement of the presumption against extraterritoriality. With the Supreme Court currently divided over how to apply the presumption, Empagran reminds us that there are alternative approaches to extraterritoriality.
But Empagran has a darker side that might make us hesitate. As Ralf Michaels has insightfully observed, although Empagran is “transnationalist in rhetoric,” it is “isolationist in application,” confining U.S. antitrust law to the territorial boundaries of the United States. Empagran is, moreover, “hegemonial in its effects,” Michaels explains, because it allows companies from more developed countries to operate cartels that prey upon less developed countries free from the restraints of effective antitrust laws. This post explores Empagran’s complicated legacy.
What Empagran Decided
Empagran grew out of a global price-fixing conspiracy among mostly European manufacturers of vitamins. In addition to public enforcement by the U.S. Department of Justice, the European Commission, and competition agencies in several other countries, vitamin purchasers filed civil claims in several countries. In the United States, the claims of U.S. purchasers were separated from those of foreign purchasers. Empagran involved the foreign purchasers’ claims, with companies from Ecuador, Panama, and Ukraine asking to represent a class of purchasers from outside the United States.
Price fixing is a per se violation of the U.S. Sherman Act. The U.S. Supreme Court has taken various approaches to determining the geographic scope of that act, holding in American Banana Co. v. United Fruit Co. (1909) that it does not apply to conduct in foreign countries and in Hartford Fire Insurance Co. v. California(1993) that it does apply to foreign conduct that causes anticompetitive effects in the United States. In 1982, Congress addressed the question to a limited extent with the FTAIA, providing that the Sherman Act does not apply to conduct involving export commerce or commerce between foreign nations unless “such conduct has a direct, substantial, and reasonably foreseeable effect” on domestic commerce, imports, or U.S. exporters and such effect gives rise to “a claim” under the Sherman Act.
The foreign purchasers argued that they met this test. The vitamin cartel was global. It did have a substantial effect in the United States and did give rise to claims under the Sherman Act, specifically the claims of U.S. purchasers. The foreign purchasers argued that once these conditions were satisfied, they could bring their claims under the Sherman Act too, even though they purchased their vitamins—and suffered their injuries—outside the United States.
Writing for the Supreme Court, Justice Breyer disagreed. He wrote, “this Court ordinarily construes ambiguous statutes to avoid unreasonable interference with the sovereign authority of other nations.” “This rule of statutory construction cautions courts to assume that legislators take account of the legitimate sovereign interests of other nations when they write American laws,” he continued. “It thereby helps the potentially conflicting laws of different nations work together in harmony—a harmony particularly needed in today’s highly interdependent commercial world.”
It was reasonable, Breyer explained, for the United States to apply its antitrust laws to foreign conduct that caused anticompetitive injury in the United States, even if doing so interfered with another nation’s authority. But he questioned the reasonableness of applying U.S. antitrust laws to foreign conduct that caused foreign injury. “Why,” he asked, “should American law supplant, for example, Canada’s or Great Britain’s or Japan’s own determination about how best to protect Canadian or British or Japanese customers from anticompetitive conduct engaged in significant part by Canadian or British or Japanese or other foreign companies?”
Breyer also rejected a multifactor, case-by-case approach to accommodating the interests of other countries, calling such an approach “too complex to prove workable.” Instead, he drew a bright line between claims based on injuries inside the United States, which the FTAIA permitted, and injuries outside the United States, which it did not.
Empagran’s New Principle of Interpretation
Empagran’s principle of avoiding unreasonable interference with the sovereign authority of other nations was new. In support, Justice Breyer cited three maritime cases, McCulloch v. Sociedad Nacional de Marineros de Honduras (1963), Romero v. International Terminal Operating Co. (1959) and, Lauritzen v. Larsen (1953). McCulloch, however, involved application of the Charming Betsy canon of avoiding violations of international law. And despite Breyer’s assertions to the contrary, no rule of customary international law requires the United States to avoid unreasonable interference with the sovereign authority of other nations.
Romero and Lauritzen involved choice of law questions under the Jones Act. Both applied a multifactor, case-by-case approach, first articulated in Lauritzen. The Restatement (Third) of Foreign Relations Law, in § 403, tried to extend this approach to the extraterritoriality of federal statutes more generally. But although Breyer also cited § 403 in support of his new canon, his opinion expressly rejected such a case-by-case approach as “too complex.” Empagran’s principle of reasonableness has sharper edges. It considers the application of U.S. law to be reasonable if it serves U.S. interests despite potential conflict with foreign law and unreasonable if it does not serve U.S. interests.
When Empagran was decided, the Supreme Court’s principal tool for determining the geographic scope of federal statutes was the presumption against extraterritoriality, as it still is today. But the Court declined to apply the presumption to the Sherman Act in Hartford Fire a decade earlier (perhaps based on precedent, though that is debatable). So, Justice Breyer had to look elsewhere for a limiting principle. It may also be the case, as I have previously suggested, that Breyer was trying to develop alternatives to the presumption that were less strictly territorial, as he would again the following year in Small v. United States (2005).
Empagran’s principle of reasonableness, however, has not caught on with the Supreme Court. The majority mentioned Empagran in RJR Nabisco, Inc. v. European Community (2016) and Justice Stevens cited it in his concurring opinion in Morrison v. National Australia Bank Ltd. (2010). In both cases, however, the Court determined the scope of federal statutes by applying the presumption against extraterritoriality rather than a principle of reasonableness.
This approach found greater traction with the American Law Institute, which incorporated a principle of “reasonableness in interpretation” in § 405, based expressly on Empagran. (Disclosure: I served as a reporter for this provision of the Restatement (Fourth).) Section 405 of the Restatement (Fourth) is, however, significantly narrower than § 403 of the Restatement (Third). It comes into play only if the presumption against extraterritoriality has not already accounted for other countries’ interests. The Second Circuit’s decision in Parkcentral Global Hub Ltd. v. Porsche Automobile Holdings SE (2014) offers an illustration of how this might work, fashioning other limits on U.S. securities laws even when a transaction occurs in the United States, although it is important to note that other circuits have rejected this approach. Until recently, the lower courts’ trademark decisions offered other examples. But the Supreme Court overruled these decisions in Abitron Austria GmbH v. Hetronic International, Inc. (2023), applying the presumption against extraterritoriality to the Lanham Act instead.
As regular TLB readers know, the current Supreme Court seems divided over how to apply the presumption against extraterritoriality. In Yegiazaryan v. Smagin (2023), the Court seemed to embrace a more contextual approach. Yet just a week later, by a narrow 5-4 vote, Abitron applied the presumption in a rigidly territorial way. I am no fan of Abitron’s territorial approach, but I am not convinced that Empagran’s is any better.
Empagran’s Dark Side
Empagran reads like the enlightened opinion of a committed transnationalist. It notes the “legitimate sovereign interests of other nations” and the need for “harmony … in today’s highly interdependent commercial world.” The opinion gives substantial weight to amicus briefs filed by foreign governments, arguing that their interest would be undermined by the extraterritorial application of U.S. law. (There were four such briefs altogether, submitted by Canada; Germany and Belgium; Great Britain, Ireland, and the Netherlands; and Japan.) And Justice Breyer specifically asks way American law should “supplant, for example, Canada’s or Great Britain’s or Japan’s own determination about how best to protect Canadian or British or Japanese customers from anticompetitive conduct.”
As Ralf Michaels has noted, however, Empagran did not involve customers from Canada, Great Britain, or Japan. Instead, the plaintiffs were from Ecuador, Panama, and Ukraine, countries that lack effective antitrust remedies. To deny these plaintiffs the right to bring claims under another nation’s laws is to deny them any remedy at all.
As Ralf writes, despite its transnationalist rhetoric, Empagran is “isolationist in application.” Justice Breyer cites the need for “harmony … in today’s highly interdependent commercial world.” But he concludes that the only way to achieve such harmony is, in Ralf’s words, for “each nation [to] act in isolation for itself.” “Suddenly,” Ralf writes, “we have moved away from the twenty-first-century world of interdependence and cooperation into a nineteenth-century U.S. role of isolationism and the desire to keep exclusive territorial competences strictly separate.”
Ralf goes on to charge that Empagran is “hegemonial in its effect.” The extraterritorial application of developed countries’ laws has been criticized for depriving developing countries of their own regulatory autonomy. But, as he notes, “the refusal to apply law extraterritorially … can also be a problem, because it leaves Third World countries unprotected against the power of transnational commercial actors.” That was certainly true in Empagran, where the named plaintiffs hailed from countries whose competition laws were no match for global cartels. “In the end,” Ralf writes,
Justice Breyer is not allowing Canada, Great Britain, or Japan to determine who best to protect their consumers as he proclaims. Instead, he is protecting Canadian, British, and Japanese corporations against their overcharged customers abroad. All named plaintiffs come from developing countries; all defendants and all amicus briefs come from developed countries. The court will apparently listen to the latter and ignore the former.
This is a devasting critique (for Maggie Gardner’s earlier appreciation of Ralf’s piece, see here).
Conclusion
Empagran is a complicated case. I certainly applaud its transnational orientation, which is increasingly rare in the current era of “litigation isolationism.” But twenty years later, its effort to create an alternative to the presumption against extraterritoriality seems like a failed experiment—and one that may have been misconceived in the first place.