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INTRODUCTION:
As globalization and the wave of deregulation increasingly broaden the sphere of operations of companies, antitrust legislation has become very necessary in both developed and developing economies.1 Antitrust laws are designed to encourage competition and ensure that restructured state monopolies do not transmute into private monopolies. Further thereto, the fact that antitrust or anti-competition activities which are purely domestic may now have direct effect in other countries makes it necessary to extend extraterritorial jurisdiction to such domestic legislation. As a positive response to this New World order, countries protect their citizens and domestic market participants by passing antitrust laws with extraterritorial jurisdiction.2
This paper traces the meaning of anti-trust, the problems with the current playing field, and the jurisprudential conflicts and obstacles to extraterritorial application of domestic antitrust laws, taking examples from American cases. This paper goes further to discuss why it is imperative that these obstacles are removed and the conflicts resolved by harmonizing antitrust laws, raising them to the status of laws of nations under the administration of a common international agency.
1. WHAT IS ANTI-TRUST?
The term "antitrust" encompasses a set of national policies designed with four general goals: (1) to govern big businesses, (2) to provide efficient performance, (3) to ensure fair business conduct, and (4) to protect competitive processes by restricting market power.
Standard antitrust legislation usually provides for the creation of a "commission" with jurisdiction to entertain civil and criminal matters. Criminal offences include conspiracies, price discrimination, predatory trade practices, bid rigging or collusion, and unfair trade practices like pyramid schemes or misleading telemarketing. Civil antitrust practices include abuse of dominant position, restrictive trade practices and misleading trade practices. The civil jurisdiction also encompasses control of monopolies and review of mergers and acquisitions that may have a chilling effect on competition. Punishments include fines and terms of imprisonment. Depending on the interpretation of the law, one may argue that particular antitrust legislation has extraterritorial jurisdiction.
But not every person agrees with antitrust legislation. Many societies frown on antitrust laws arguing that they encourage inefficiency and punish successful businesses for being too successful or dominant. Very traditional societies with egalitarian tendencies dismiss antitrust concerns as animated by petty jealousy, proverbially saying that a kid who fetches more firewood than his peers is usually accused of having entered the evil forest. Notwithstanding the position taken by any party, modern antitrust laws address the same problems as they arise around the world. Let us examine two scenarios from two different countries on two different continents.
KENYA: Because of scarcity of sugar, merchants forced consumers to buy other products before they could be sold sugar. Some retailers even designated the products that the consumer had to "bundle" with sugar. The list of a particular retailer could sometimes consist of items the consumer had no use for.
UNITED STATES: One of the allegations against Microsoft is that consumers were forced to buy what they need along with what they do not need. Personal Computer makers are required to "bundle" Microsoft software and operating systems together in order to sell to consumers.
In both instances, allegations of antitrust were maintained. The culpable activities were similar, though the peoples and commodities were different. The terms of the trade could not be said to be fair or agreeable to both buyers and sellers as the buyers were sold what they did not need.
2. THE CURRENT PLAYING FIELD:
The purpose of anti-competition laws is to protect the economic territorial integrity of any country and save consumers within the territorial jurisdiction of that country from monopolies. Currently, over one hundred countries have anti-trust or anti-competition laws as part of their domestic legislation, creating a cacophony of laws in international circles. While some countries depend on bilateral agreements to deal with anti-competition activities,2a others expressly assume extraterritorial jurisdiction over matters arising under such domestic law. As the volume of international trade increases, nations are obliged to show a lot of tact and discipline in the administration of antitrust laws to avoid or at least minimize the possible risk of conflicting jurisdictions.
It is an arduous task to achieve any respectable balance in the conflict between domestic and international laws when economics is involved. Many countries find it difficult to protect their sovereignty and obligations to their citizens on the one hand and their commitment to international cooperation on the other. Developing nations face multitudinous inconsistencies, complications and confusion in applying their laws. Even when the provisions of these domestic antitrust laws are in pari materia all over the world, the legislative intent, aims and objectives differ from one country to another. The final interpretation of the same provision by one country is likely to be the product of the national policy, ideological and economic foundations of that country.
Closely following is the question of diversity of legal systems. While British common law claims pride of place, many developing countries have adopted the French legal system. The Islamic Sharia has its own code for economic transactions and procedures for resolution of disputes; we should not turn a blind eye to the fact that the lives of Muslims all over the world are intricately woven into the practice of their religion. And since ignorance of the law is never an excuse, the day has passed in which a company need be concerned with only the antitrust laws of its own country. 3
The current playing field is also a very fertile ground for nations with leadership problems to practice judicial terrorism and vendetta under the guise of antitrust administration. It is a known fact that leaders of many developing nations find it convenient to blame the economic woes of their countries on Western imperialism or neo-colonialism instead of recognizing their own ineptitude, corruption, and unaccountability to their people. Such leaders will be quick to pass domestic anti-trust law giving them powers to seize or "nationalize" the assets of foreign corporations within their territorial boundaries after a "judicial" hearing.
Another area of concern is the registration of patents. Developing countries insist that patents are anti-competitive. Governments of developing economies devise means through their laws to deal with situations where licensing agreements of monopoly patents contain restrictions which may be uncompetitive. For example, Section 80(1) of Kenya's Industrial Property Act grants the (responsible) Minister powers to exploit patented inventions by himself or through third parties "in the public interest, in particular, national security, nutrition, health, environmental conservation, or the development of other vital sectors of the national economy".
The wide divide between developed and developing economies in terms of education, standards of living, volume of trade, availability of resources, and infrastructures make the playing field uneven. Recently, the United States Trade Commission won a huge antitrust case against the "vitamin cartel". The scope of investigations and subsequent convictions covered U.S., Swiss, Japanese, German and Canadian corporations and citizens. The Commission imposed over $850 million in fines.4 In 2001, the European Union imposed record fines of over 855.2m euros (£529.5m) against the same eight drug companies for colluding to fix the price of vitamins. Though the activities of these cartels must have affected many developing countries, these countries are uninformed as to their legal rights and also lack the resources to redress their wrong.
Finally, the judicial system of any nation is tied to that nation's political system; the latter enables or disables the former. It is the judicial system that oils the wheels of the market system and an effective legal system is the basic infrastructure on which the free market system operates. The fact that many nations have very crude judicial systems in the twenty-first century is stark evidence of an uneven playing field.
3. IMPEDIMENTS TO EXTRATERRITORIAL APPLICATION OF DOMESTIC LAWS:
When antitrust actions occur in a particular jurisdiction but the effects are felt beyond the borders of that jurisdiction, some countries assume jurisdiction pursuant to their domestic laws. Some other countries use diplomacy to address the problem, cognizant of the fact that the country where the infraction originates is better positioned to investigate and take action under its national law. One threshold issue for resolution is that the restrictive practice must be prohibited in the country where it originates.
Since Federal antitrust regulations began with the passage of the Sherman Act courts in the United States approach the issue of extraterritorial application of America's antitrust laws with dignified restraint.
The Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade. It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment
conducive to the preservation of our democratic political and social systems.5
In theory, foreign corporations that violate United States antitrust laws should not be treated differently from domestic violators. An examination of decisions where courts were urged to apply American antitrust laws to either a foreign sovereign or a foreign corporation shows the chasm between theory and practice prior to 1999.6
America Banana Co. v. United Fruit Co 7 was the first case where the issue of extraterritorial application of the Sherman Act was addressed. The Supreme Court determined in that case that the laws do not extend outside the borders of the United States because Congress failed to express a clear intention to apply the Act extraterritorially. The court went further to hold that the lawfulness of an activity is usually based upon the laws of the country in which the activity took place.
United States v. Aluminum Company of America (Alcoa) 8 overruled American Banana and became the first case to uphold the extraterritorial application of U.S. antitrust law. In the Alcoa case, the Court of Appeals for the Second Circuit, sitting in lieu of the Supreme Court, applied the Sherman Act extraterritorially as the foreign conduct manifested negative effects in the United States, and such effects were intended.
The bold Alcoa decision, though widely accepted in the United States, was harshly criticized by the international community. The criticism alleged that the Alcoa case did not defer to notions of international comity and did not take into account the possible legitimate interests of other nations that could be affected by the exercise of extraterritorial jurisdiction.9
Many foreign governments also alleged that to apply domestic antitrust law extraterritorially violated public international laws and therefore opposed the United States jurisdictional assertion. A number of the United States major trading partners responded by enacting blocking statutes and other laws designed to prevent the extraterritorial application of U.S. antitrust laws. The response to Alcoa made it clear that a more responsive standard is needed to meet the requirements of international comity.10
In Timberlane Lumber Co. v. Bank of America11, U.S. Court of Appeals for the 9th Circuit tried to avoid the unfavorable response generated by Alcoa. The court had to balance the interest of the United States in regulating anticompetitive activities against the legitimate sovereignty interests of other nations. The court expanded the "effects" test used in Alcoa to include the requirement that courts consider international comity, and listed the interest-balancing test designed to determine whether comity should deter the exercise of jurisdiction.
International Association of Machinist and Aerospace Workers v. OPEC12 presents another dimension to extraterritorial application of U.S. antitrust laws to foreign sovereigns. The Court of Appeals for the 9th Circuit, while recognizing the commercial nature of the acts committed by a foreign state, accepted the Act of State defense and dismissed the claim. The court noted that its holding was motivated by an unwillingness to rule on delicate matters of foreign policy, especially where the executive and legislative branches have chosen to approach a given case with restraint.13
In 1993, the U.S. Supreme Court dealt a near-fatal blow to the "comity" requirement. While not expressly overruling Timberlane, the Supreme Court held in Hartford Fire Insurance v. State of California15 that the pertinent question was, "whether there is in fact a 'true conflict' between domestic and foreign law" and that no true conflict exists "where a person subject to regulation by both states can comply with the laws of both." Hartford clearly laid another land mine for the ignorant by impliedly removing any jurisprudential obstruction to the extraterritorial application of U. S. antitrust laws.
Recently, a World Trade Organization appeal panel ruled that the United States has broken international rules with a law that gives U.S. companies fines collected from foreign firms they accused of unfair pricing. Australia, Brazil, Canada, Chile, Indonesia, India, Japan, Mexico, South Korea and Thailand and the 15-nation European Union brought the case before the world trade body.16
It is appropriate to ask at this point: if the United States of America with its domestic judicial activism and clout in international commerce and diplomacy faces these problems, how would developing economies fair? The need for a common international regulatory agency therefore becomes imperative.
4. ADVANTAGES OF A COMMON REGULATORY AGENCY:
The fact that there have been many points of convergence in domestic antitrust laws shows that nations, under the pressure of globalization may be favorably disposed toward a common front and a common agency to deal with antitrust administration. The successes of the World Trade Organization and regional antitrust commissions like the EU also support this conclusion.
The first step toward realizing this lofty idea is to elevate antitrust to the status of Laws of Nations, recognized under Article 53 of the Vienna Convention of the Law of Treaties (1969) that cannot be modified or revoked by treaty or national law. The article provides that " a preemptory norm of general international law is a norm generally accepted and recognized by the international community of states as a whole as a norm from which no derogation is permitted and which can be modified only by a subsequent norm of general international law having the same character." By elevating antitrust to this status, the international agency could exercise its powers without fear that such exercise may result in hostile confrontation between states, especially where some state monopolies are involved.
The agency could have regional offices and a central office under the auspices of the United Nations.17 The regional offices should have jurisdiction over a region of contiguous nations, while the central office would hear only appeals from the decisions of the regional offices. Existing regional co-operations such as the European Union, the African Union, the Organization of American States, and the Asia-Pacific Economic Cooperation should be used as foundations for the regional offices.
Membership of regional offices would be drawn from the nominees of the nations of that region and hold office on a rotational basis. The same method used for appointment of Justices of the World Court should be used for appointing members of the central office.
The jurisdiction of the regional offices should cover all matters relating to antitrust affecting the interest of nations within the region. The regional office would have the power to receive representations from other nations not within that region and to transfer a matter to another region if the ends of justice would be better served.18 The regional agency should, in making any decision take into account the needs of governmental or non-governmental institutions, the interest of developed and developing economies and of stakeholders in the business world and consumers.
The agency would also provide the basis for effective collaboration in investigating international antitrust violations as they affect any group of nations, and ensure respect for the principles of non-discrimination, transparency in the examination of the facts, and procedural equity in the application of measures pertaining thereto.
Another major advantage of a common agency is that nations and corporations would have access to a database of experts with multi-jurisdictional experience to provide technical assistance and education on antitrust matters. These experts could assist in evaluating any antitrust claim as it affects a particular country or stakeholder and present such claims to the agency. This would lead to procedural and analytical consistency in the interpretation of antitrust laws, making it easier for attorneys to advise their clients in any part of the world and prevent or at least minimize conflicting interpretations and overlapping jurisdiction.
5. CONCLUSION:
Nations naturally favor their domestic antitrust laws but the question of extraterritorial jurisdiction will continue to impede thorough application of such laws. To maintain a sound worldwide competition policy, there should be increased international cooperation geared towards establishing a common international agency. Such an agency would give more bite to the development and enforcement of antitrust laws and prevent potential conflicts. Consumers worldwide, especially those residing in developing countries, stand to reap immeasurable benefits.
Emeka Maduewesi, Esq. is admitted to practice law in Nigeria and California.
Footnotes:1.
1. The Sherman Antitrust Act was passed in 1890 in the United States. India presented a model Competition Bill to its Parliament in 2001. Nigeria, a developing country, presented its Federal Competition Bill to the country's National Assembly in 2002.
2. Section 15(1) of Nigeria's proposed Anti-Competition Law states, "This Bill shall apply to all conduct within and outside the territories of the Federal Republic of Nigeria by any person resident or carrying on business in Nigeria, to the extent that such conduct substantially affects a market in Nigeria." Section 15(2) states, "Section 29 of this Bill applies to the acquisition outside Nigeria by a person (whether or not the person is resident or carries on business in Nigeria) of the assets or shares of a business to the extent that such acquisition substantially affects a market in Nigeria."
2a. Canada and the United States have the Treaty on Mutual Legal Assistance in Criminal Matters to deal with competition on cross-border markets. There is no treaty for non-criminal matters.
3. See WORLD ANTITRUST LAW AND PRACTICE: A COMPREHENSIVE MANUAL FOR LAWYERS AND BUSINESSES 7:50 (James J. Garrett ed., 1997).
4. Antitrust Enforcement and the Consumer (U. S. Department of Justice Publications, 2001) p. 2.
5. Northern Pacific Railway v. United States, 356 U.S. 1, 4 (1958).
6. The Vitamin Cartel case laid to rest the question of extraterritorial application of the Sherman Act.
7. See 213 U.S. 347 (1909). The plaintiff alleged that the defendant monopolized the Central American banana trade by acquiring several Costa Rican and Panamanian fruit distributors in violation of the Sherman Act.
8. 148 F.2d 416 (2d Cir. 1945). The appeal went to the 2nd Circuit because the Supreme Court was unable to achieve a quorum of six justices.
9. See James R. Atwood & Kingman Brewster, ANTITRUST AND THE AMERICAN BUSINESS ABROAD, S. 6.09 (1981)
10. See Gary B, Born, A Reappraisal of the Extraterritorial Reach of the U.S. Law, 24 LAW & POL'Y INT'L BUS. 1, 32-33 (1992)
11. See 549 F.2d 597 (9th Cir. 1976), noting that when a case presents a conflict of international laws, comity interests should be evaluated.
12. See 649 F.2d 1354 (9th Cir. 1981). The court concluded that given the importance of oil in international relations and the far-reaching attention given to the issue by the executive and legislative branches, it would be imprudent for the court to accept jurisdiction over the case.
13. See id. at 1361-62
15. 509 U.S. 764 (1993)
16. London Free Press report of 1/17/03. Pursuant to the Continued Dumping and Subsidy Offset Act of 2000 (the Bryd Amendment), tens of millions of dollars in fines collected by Washington are handed over to U.S. companies that lodged complaints against foreign exporters judged to be selling products at artificially low prices.
17. The United Nations Conference on Trade and Development developed a set of principles to govern the conduct of governments and businesses with regard to the international control of restrictive trade practices, consultation and cooperation.
18. The vitamin cartel cases show the disparity between the nations. While the European Union and United States protected their consumers, millions of vitamin consumers in other parts of the world are without representations or remedies.
