Naked price-fixing agreements among competitors traditionally have been subject to the per se rule, which declares such conduct to be illegal without analysis of its effect on competition.
The rule is rooted in the Judiciary's long-standing experience in analyzing such agreements, and courts have remained steadfast in its application. Recently, there were two challenges to the applicability of the per se rule in the context of foreign price-fixing, both arising in district courts in the Ninth Circuit.
In each case, criminal antitrust defendants relied on language in Metro Industries, Inc. v. Sammi Corp. to support their argument that because the alleged price-fixing conduct occurred abroad, it should be governed by the less stringent rule of reason, which requires proof of anticompetitive effects in order to prove liability.
This argument was rejected in both cases, which distinguished Metro Industries and held that naked price-fixing agreements are per se illegal under the Sherman Act regardless of whether the price-fixing conduct occurs domestically or abroad.
In Metro Industries, the Ninth Circuit held that per se treatment was inappropriate in an alleged horizontal market division agreement involving a Korean registration system that gave Korean producers of stainless steel steamers an exclusive right to export a registered product design into the U.S. for three years.
The Ninth Circuit found the rule of reason applicable due to the novelty of the business practice, and that it had never previously undergone judicial scrutiny in the antitrust context.
However, the court further stated that even if the registration system would constitute a per se market division agreement in the domestic context, "application of the per se rule is not appropriate where the conduct in question occurred in another country." It is on this statement that the defendants in two recent cases based their motions.
A different circumstance
In U.S. v. Hsuan Bin Chen, defendants moved to dismiss their indictments which charged them with fixing the prices of thin-film transistor liquid crystal display panels (TFT-LCDs) in Taiwan. The indictments alleged that the co-conspirators held secret meetings and discussions in Taiwan, where they reached an agreement to fix prices of TFT-LCDs that were sold in the U.S.
Defendants contended that Metro Industries held that Sherman Act violations based entirely on foreign conduct are subject to a rule of reason analysis, and as such the indictment failed because it did not allege anticompetitive effects.
The court rejected this argument and found defendants' reliance on Metro Industries misplaced. The court distinguished Metro Industries on the ground that the conduct there was novel and there was no precedent as to whether the conduct was inherently anticompetitive, whereas in Bin Chen the conduct constituted a naked price-fixing agreement that has long been subject to the per se rule.
Similarly, in U.S. v. Eagle Eyes Traffic Industrial Co., Ltd., defendants moved to dismiss their indictments or, in the alternative, requested a ruling that as a matter of law the rule of reason, rather than the per se rule, applied to their case because, based on Metro Industries, some of the challenged conduct occurred overseas.
Citing Bin Chen, the Eagle Eyes court rejected this argument on the same ground that Metro Industries was distinguishable because it involved a novel business arrangement, whereas the conduct in Eagle Eyes involved naked price-fixing (albeit overseas) of aftermarket auto lights sold in the U.S. The court, citing the holding in eMag Solutions LLC v. Toda Kogyo Corp., affirmed that Metro Industries did not hold that a case alleging a per se violation of the Sherman Act requires a rule of reason analysis because it involves foreign conduct. Both Bin Chen and Eagle Eyes have read the Ninth Circuit's decision in Metro Industries to have left intact the traditional per se rule of illegality to naked price-fixing conduct that occurs overseas and causes injury to U.S. consumers.
Reprinted with permission-New York State Bar Association/State Bar News