U.S. v. Nippon Paper Industries Co., Ltd.

• Decision Date: 17 March 1997
• Docket Number: No. 96-2001,96-2001
• Parties: , 1997-1 Trade Cases P 71,750 UNITED STATES of America, Appellant, v. NIPPON PAPER INDUSTRIES CO., LTD., et al., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 1

109 F.3d 1

65 USLW 2617, 1997-1 Trade Cases P 71,750

UNITED STATES of America, Appellant, v. NIPPON PAPER INDUSTRIES CO., LTD., et al., Defendants, Appellees.

No. 96-2001.

United States Court of Appeals First Circuit.

Argued Jan. 6, 1997.

Decided March 17, 1997.

Mark S. Popofsky, Attorney, Antitrust Division, U.S. Dep't of Justice, Washington, DC, with whom Anne K. Bingaman, Assistant Attorney General, Joel I. Klein, Deputy Assistant Attorney General, John J. Powers, III, Robert B. Nicholson, David A. Blotner, Lisa M. Phelan, and Reginald K. Tom, Attorneys, Antitrust Division, were on brief, for the United States.

Richard G. Parker, Washington, DC, with whom Geoffrey D. Oliver, Alan M. Cohen, O'Melveny & Myers LLP, William H. Kettlewell, and Dwyer & Collora were on brief, for Nippon Paper Industries Co., Ltd.

John G. Roberts, Jr., David G. Leitch, H. Christopher Bartolomucci, and Hogan & Hartson L.L.P., Washington, DC, on brief for Government of Japan, amicus curiae.

Before SELYA, Circuit Judge, COFFIN, Senior Circuit Judge, and LYNCH, Circuit Judge.

SELYA, Circuit Judge.

This case raises an important, hitherto unanswered question. In it, the United States attempts to convict a foreign corporation under the Sherman Act, a federal antitrust statute, alleging that price-fixing activities which took place entirely in Japan are prosecutable because they were intended to have, and did in fact have, substantial effects in this country. The district court, declaring that a criminal antitrust prosecution could not be based on wholly extraterritorial conduct, dismissed the indictment. See United States v. Nippon Paper Indus. Co., 944 F.Supp. 55 (D.Mass.1996). We reverse.

I. JUST THE FAX

Since the district court granted the defendant's motion to dismiss for failure to state a prosecutable offense, we draw our account of the pertinent events from the well-pleaded facts in the indictment itself. See United States v. National Dairy Prods. Corp., 372 U.S. 29, 33 n. 2, 83 S.Ct. 594, 598 n. 2, 9 L.Ed.2d 561 (1963).

In 1995, a federal grand jury handed up an indictment naming as a defendant Nippon Paper Industries Co., Ltd. (NPI), a Japanese manufacturer of facsimile paper. ¹ The indictment alleges that in 1990 NPI and certain unnamed coconspirators held a number of meetings in Japan which culminated in an agreement to fix the price of thermal fax paper throughout North America. NPI and other manufacturers who were privy to the scheme purportedly accomplished their objective by selling the paper in Japan to unaffiliated trading houses on condition that the latter charge specified (inflated) prices for the paper when they resold it in North America. The trading houses then shipped and sold the paper to their subsidiaries in the United States who in turn sold it to American consumers at swollen prices. The indictment further relates that, in 1990 alone, NPI sold thermal fax paper worth approximately $6,100,000 for eventual import into the United States; and that in order to ensure the success of the venture, NPI monitored the paper trail and confirmed that the prices charged to end users were those that it had arranged. These activities, the indictment posits, had a substantial adverse effect on commerce in the United States and unreasonably restrained trade in violation of Section One of the Sherman Act, 15 U.S.C. § 1 (1994).

NPI moved to dismiss because, inter alia, if the conduct attributed to NPI occurred at all, it took place entirely in Japan, and, thus, the indictment failed to limn an offense under Section One of the Sherman Act. The government opposed this initiative on two grounds. First, it claimed that the law deserved a less grudging reading and that, properly read, Section One of the Sherman Act applied criminally to wholly foreign conduct as long as that conduct produced substantial and intended effects within the United States. Second, it claimed that the indictment, too, deserved a less grudging reading and that, properly read, the bill alleged a vertical conspiracy in restraint of trade that involved overt acts by certain coconspirators within the United States. Accepting a restrictive reading of both the statute and the indictment, the district court dismissed the case. See United States v. NPI, 944 F.Supp. at 64-66. This appeal followed.

II. ANALYSIS

We begin--and end--with the overriding legal question. ² Because this question is one of statutory construction, we review de novo the holding that Section One of the Sherman Act does not cover wholly extraterritorial conduct in the criminal context. See United States v. Gifford, 17 F.3d 462, 471-72 (1st Cir.1994).

Our analysis proceeds in moieties. We first present the historical context in which this important question arises. We move next to the specifics of the case.

A. An Historical Perspective.

Our law has long presumed that "legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States." EEOC v. Arabian American Oil Co., 499 U.S. 244, 248, 111 S.Ct. 1227, 1230, 113 L.Ed.2d 274 (1991) (citation omitted). In this context, the Supreme Court has charged inquiring courts with determining whether Congress has clearly expressed an affirmative desire to apply particular laws to conduct that occurs beyond the borders of the United States. See id.

The earliest Supreme Court case which undertook a comparable task in respect to Section One of the Sherman Act determined that the presumption against extraterritoriality had not been overcome. In American Banana Co. v. United Fruit Co., 213 U.S. 347, 29 S.Ct. 511, 53 L.Ed. 826 (1909), the Court considered the application of the Sherman Act in a civil action concerning conduct which occurred entirely in Central America and which had no discernible effect on imports to the United States. Starting with what Justice Holmes termed "the general and almost universal rule" holding "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," id. at 356, 29 S.Ct. at 512, and the ancillary proposition that, in cases of doubt, a statute should be "confined in its operation and effect to the territorial limits over which the lawmaker has general and legitimate power," id. at 357, 29 S.Ct. at 513, the Court held that the defendant's actions abroad were not proscribed by the Sherman Act.

Our jurisprudence is precedent-based, but it is not static. By 1945, a different court saw a very similar problem in a somewhat softer light. In United States v. Aluminum Co. of Am., 148 F.2d 416 (2d Cir.1945) (Alcoa ), the Second Circuit, sitting as a court of last resort, see 15 U.S.C. § 29 (authorizing designation of a court of appeals as a court of last resort for certain antitrust cases), mulled a civil action brought under Section One against a Canadian corporation for acts committed entirely abroad which, the government averred, had produced substantial anticompetitive effects within the United States. The Alcoa court read American Banana narrowly; that case, Judge Learned Hand wrote, stood only for the principle that "[w]e should not impute to Congress an intent to punish all whom its courts can catch, for conduct which has no consequences within the United States." Id. at 443. But a sovereign ordinarily can impose liability for conduct outside its borders that produces consequences within them, and while considerations of comity argue against applying Section One to situations in which no effect within the United States has been shown--the American Banana scenario--the statute, properly interpreted, does proscribe extraterritorial acts which were "intended to affect imports [to the United States] and did affect them." Id. at 444. On the facts of Alcoa, therefore, the presumption against extraterritoriality had been overcome, and the Sherman Act had been violated. See id. at 444-45.

Any perceived tension between American Banana and Alcoa was eased by the Supreme Court's most recent exploration of the Sherman Act's extraterritorial reach. In Hartford Fire Ins. Co. v. California, 509 U.S. 764, 113 S.Ct. 2891, 125 L.Ed.2d 612 (1993), the Justices endorsed Alcoa 's core holding, permitting civil antitrust claims under Section One to go forward despite the fact that the actions which allegedly violated Section One occurred entirely on British soil. While noting American Banana 's initial disagreement with this proposition, the Hartford Fire Court deemed it "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." Id. at 796. The conduct alleged, a London-based conspiracy to alter the American insurance market, met that benchmark. ³ See id.

To sum up, the case law now conclusively establishes that civil antitrust actions predicated on wholly foreign conduct which has an intended and substantial effect in the United States come within Section One's jurisdictional reach. In arriving at this conclusion, we take no view of the government's asseveration that the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA), 15 U.S.C. § 6a (1994), makes manifest Congress' intent to apply the Sherman Act extraterritorially. The FTAIA is inelegantly phrased and the court in Hartford Fire declined to place any weight on it. See Hartford Fire, 509 U.S. at 796 n. 23, 113 S.Ct. at 2909 n. 23. We emulate this example and do not rest our ultimate conclusion about Section One's scope upon the FTAIA.

B. The Merits.

Were this a civil case, our journey would be complete. But here the United States essays a criminal prosecution for solely extraterritorial conduct rather than a civil action. This is largely uncharted terrain; we are aware of no authority directly on point, and the parties have cited none.

Be that as it may, one datum sticks out like a sore thumb: in both criminal and civil...