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A New Look at the Jurisdiction in ALCOA

Published online by Cambridge University Press:  28 March 2017

John M. Raymond
John M. Raymond*
Affiliation:
Lecturer in International Law, School of Law, University of Santa Clara; formerly Deputy Legal Adviser, Department of State
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Extract

One of the best-known antitrust decisions in the last quarter of a century is United States v. Aluminum Company of America et al., now usually referred to as the ALCOA case. Although the Sherman Act had for some time been given an extraterritorial application when American corporations were involved, the novelty of ALCOA was that the decision, written by that eminent jurist, Judge Learned Hand, for the first time interpreted our antitrust laws as rendering illegal contracts of a foreign corporation which were made abroad with other foreign corporations and which related to business carried on and to acts to be performed abroad. No American party was involved, and no act took place in the United States, in the part of the case that is here to be considered. Jurisdiction was claimed merely on the basis of an adverse “effect” on our foreign and domestic commerce.

Type
Research Article
Information
American Journal of International Law , Volume 61 , Issue 2 , April 1967 , pp. 558 - 570
Copyright
Copyright © American Society of International Law 1967

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References

1 l48 F.2d 416, 439-445 (2d dr., 1945) (on certification from the United States Supreme Court for failure of quorum of qualified Justices).

2 26 Stat. 209, 15 U.S.C. sec. 1.

3 For the best treatment see Brewster, Antitrust and American Business Abroad (1958). See also Dean, “Extraterritorial Application of Antitrust Laws,” A.B.A. Section of Int. and Comp. Law, 1957 Proceedings 43; Haight, “International Law and Extraterritorial Application of the Antitrust Laws,” 63 Yale Law J. 639 (1954); Jennings, ‘’ Extraterritorial Jurisdiction and the United States Antitrust Laws,'’ 33 Br. Tr. Bk. Int. Law 146 (1957); Kahn-Freund, “Extraterritorial Application of Antitrust Laws,” A.B.A. Section of Int. and Comp. Law, 1957 Proceedings 33; Snyder, “Foreign Investment and Trade: Extraterritorial Impact of United States Antitrust Law,” 6 Virginia Journal of Int. Law 1 (1965); Tolley, “Application of Antitrust Laws to Foreign Commerce,” 14 N.T.U. Intra. Law Rev. 105 (1959); Whitney, “Sources of Conflict between International Law and the Antitrust Laws,” 63 Tale Law J. 655 (1954); note: “Extraterritorial Application of the Antitrust Laws—a Conflict of Laws Approach,” 70 ibid. 259 (1961); note: “Extraterritorial Application of the Antitrust Laws,” 69 Harvard Law Rev. 1452 (1956). For the government's position, by people now or formerly with the Antitrust Division of the Department of Justice, see an excellent book by Fugate, Foreign Commerce and the Antitrust Laws (1958); also see idem, “ Enforcement of the United States Antitrust Laws in Foreign Trade,” A.B.A. Section of Int. and Comp. Law Bulletin, December, 1960, p. 20; Hanson, “The Enforcement of the United States Antitrust Laws by the Department of Justice to Protect Freedom of United States Foreign Trade,” A.B.A. Section of Antitrust Law, 1957 Proceedings of Annual Meeting 75; Timberg, “Conflictand Growth in the International and Comparative Law of Antitrust,” A.B.A. Section of Int. and Comp. Law Bulletin, July, 1960, p. 20; Timberg, Remarks, A.B.A. Section of Antitrust Law, 1957 Proceedings of Annual Meeting 105; idem, “ Extraterritorial Enforcement of the Sherman Act,” A.B.A. Section of Int. and Comp. Law, 1957 Proceedings 51. See also Report of the Attorney General's National Committee to Study the Antitrust Laws, section on “Trade or Commerce with Foreign Nations,” at 65-114 (1955), reproduced in 2 Metzger, Law of International Trade, Documents and Readings 1391 (1966). For a discussion of whether, and if so, how, conflicting jurisdiction should be exercised, assuming for the sake of argument that both states have a legitimate basis of jurisdiction, see an article by the present author which is scheduled to appear in Vol. 8, No. 4, of the Boston College Industrial and Commercial Law Review. Cases from several fields of law are discussed, including ALCOA. For an extensive and scholarly discussion of the general subject of the extent of a state's jurisdiction by a distinguished British authority, see Mann, “The Doctrine of Jurisdiction in International Law,” 111 Hague Academy Receuil des Cours 1 (1964). At pp. 95-108 he discusses legislative jurisdiction over trade practices, criticizing as exceeding our legislative jurisdiction Alcoa and cases following it; and at pp. 145- 158 he in like manner criticizes the way the United States courts have attempted to enforce our antitrust policy in foreign countries. For a more complete bibliography of works dealing with the extraterritorial application of our antitrust laws see International Law Association, Report of Fifty-First Conference 492 (Tokyo, 1964).

4 The nearest approach to following it was a case under the Lanham Act. Steele v. Bulova Watch Company, 344 U. S. 280 (1952), applied the Act to an American defendant for action in Mexico which had adverse effects on the business of the plaintiff in the United States. But as that case was interpreted and applied in Vanity Fair Mills, Inc. v. T. Eaton Co., Ltd., 234 F.2d 633 (2d dr., 1956), cert, denied, 352 U. S. 871 (1956), it becomes clear that “the rationale of the Court [in Steele] was so thoroughly based on the power of the United States to govern ‘the conduct of its own citizens … in foreign countries when the rights of other nations or their nationals are not infringed,’ that the absence of one of the above factors might well be determinative and that the absence of both is certainly fatal.” (Ibid, at 642-643.) Although the plaintiff in Vanity Fair Mills urged, on the basis of the ALCOA doctrine, that the Lanham Act should apply to the use by the Canadian defendant in Canada of its Canadian trademark, since it had a substantial adverse effect in the United States on the business of the plaintiff—“commerce which may lawfully be regulated by Congress” in the language of the statute—the court did not accept this line of reasoning (ibid, at 641-642). Thus we see that while Steele could have relied upon the ALCOA doctrine had it felt it appropriate to do so, instead it relied upon the nationality of the defendant for jurisdiction to apply the Lanham Act; but in Vanity Fair Mills, lacking the nationality basis, the court refused to rely on the ALCOA doctrine and held the Act could not be invoked.

5 148 F.2d at 443.

6 Sec. 7 (2) of the Restatement, Second, Foreign Relations Law of the United States (1965) (herein referred to as Restatement) states: “A state does not have jurisdiction to enforce a rule of law prescribed by it unless it had jurisdiction to prescribe the rule.''

7 P.C.I.J., Ser. A, No. 10 (1927) at 23.

8 The court in ALCOA pointed out that not only was there an effect on our foreign and domestic commerce but the effect was intended; and it took the position that since both these elements were present the statute was certainly applicable (148 F.2d at 444). The court must have been talking at this point about what was necessary to establish a case under the statute, not about what kind of effect would be necessary under international law to give the United States jurisdiction to apply the statute to the situation. Intent is appropriately an essential element of certain crimes, and even of certain civil actions, but surely jurisdiction—the legitimate power of the state to act—cannot depend upon the subjective intent of the party to whose act it is desired to apply that power. See Restatement, sec. 18, Comment /, second paragraph.

9 Note the position taken by the Japanese Branch of the International Law Association, quoted in Report, cited at end of note 3 above, at 306; also note the statements by persons of various nationalities in the following pages of the Report which criticize the claimed jurisdiction in certain American antitrust cases as being based on an economic effect on our foreign commerce.

10 See, for example, Ford v. United States, 273 U. S. 593 (1927).

11 240 U. S. 60 (1916).

12 For example, United States v. Watchmakers of Switzerland Information Center, Inc., 1963 Trade Cas. par. 70,600 at pp. 77,457 (S.D.N.Y., 1962).

13 Metzger, “The Restatement of the Foreign Relations Law of the United States: Bases and Conflicts of Jurisdiction,” 41 N.Y.U. Law Bev. 7 (1966) at 15, also criticizes Sec. 18 as being too vague; and further takes the position that its qualifications of the “effects” doctrine lack support in the cases and should be deleted. However, Metzger does not consider the issues being raised herein.

14 Distinguish, for example, a case of emission of noxious fumes in one state which cross the border into a second state, thus creating a health hazard there, which that state had a right as the territorial sovereign to require not to he thus created. Georgia v. Tennessee Copper Co., 206 IT. S. 230 (1907); cf. Trail Smelter Arbitration (United States-Canada), 35 A.J.I.L. 684 (1941). Distinguish also a statute imposing a condition of importing or exporting goods in the first place. See text accompanying note 19 below. It is unnecessary to consider a situation where there was a pre-existing independent legal obligation on foreigners to cause, or not to interfere with, the occurrence of an event within the state's territory, e.g., diversion of water from a river in an up-stream state, thus reducing the flow to which the down-stream state was legally entitled. Cf. Wyoming v. Colorado, 259 U. S. 419 (1922). None of the cases discussed in the text are of that character.

15 Apart from the armed forces, merchant vessels, and a few other special situations not here applicable, there are only four jurisdictional bases on which the United States could rely. See Restatement, Sec. 10. Since the actor is a foreigner, there can be no reliance on nationality. The act falls neither within the protective principle (see note 21 below) nor the universality principle, which is confined to piracy, war crimes, and a few other exceptional situations (see Restatement, Sec. 34 and Reporters’ Note 2 thereunder). Since the act takes place abroad, no reliance can be had on territory as a jurisdictional basis unless there is an effect within the United States appropriate to give it jurisdiction under the “effects” doctrine, which is essentially part of the territorial basis.

16 See text accompanying notes 5 and 7 above.

17 The rule stated in Comment i under See. 18 of the Restatement deals with an order forbidding action that would produce a proscribed effect. There is jurisdiction based on territory to prescribe a rule rendering illegal certain action causing certain effects to occur within the territory of a state, whether the action occurs there or not. It is immaterial whether the legislature prescribes the rule by statute penalizing the act and its effect or whether a court prescribes the rule by an order to a party over whom it has acquired personal jurisdiction enjoining the act in order to prevent the effect within the state's territory. This is the rule of Comment i. This is a very different thing from prescribing a rule directing a foreigner to take action abroad in order to cause certain desired effects within the territory of the state. The state has no jurisdictional basis to prescribe such a rule, either by its legislature or by one of its courts, for the reasons set forth in the text. However, although Comment i seems sound, illustration 12 under Comment i is based on illustration 9 and is subject to all the infirmities of the latter, which have been mentioned in the text above, and furthermore its conclusion is thought to be unsound for the reasons advanced in the text accompanying this note.

18 See Restatement, See. 18, illustration 2; and see text accompanying notes 10 and 11 above.

19 248 U. S. 185, 195 (1918). This language was quoted with approval in the more recent ease of Benz v. Compania Naviera Hidalgo, 353 TJ. S. 138, 147 (1957)

20 As Dr. F. A. Mann points out, the “effect” -within the territory of the United States “ is an indirect and remote repercussion of a restraint carried out, completed and, in the legally relevant sense, exhausted in the foreign country.” loc. cit. note 3 above, at 104. He asserts the ALCOA case “would clearly involve an excess of jurisdiction” under Sec. 18 of the Restatement. Ibid, at 103.

21 Timberg suggests that jurisdiction in ALCOA is based on the “protective jurisdiction … [which covers acts] which, though taking place outside the territorial boundaries of that country, have effects within those boundaries which are forbidden by the laws of that country.” A.B.A. Section of Int. and Comp. Law, 1957 Proceedings 51; A.B.A. Section of Antitrust Law, 1957 Proceedings at Annual Meeting 105; 11 Record of N.Y.C. Bar Ass'n. 101, 108-111 (1956). But that is not the ‘protective principle. The kind of an act of which a state may take jurisdiction by virtue of the protective principle is one which “threatens its security as a state or the operation of its governmental functions,” such as “counterfeiting of the state's seals and currency, and the falsification of its official documents.” Restatement, Sec. 33. The only American case to rely solely and squarely on this principle referred to it as applying to acts abroad which produced ‘ ‘ a detrimental effect on the sovereignty of the United States.'’ Rocha v. United States, 288 F. 2d 545, 549 (9th Cir., 1961); cert, denied, 366 U. S. 948 (1961). Timberg also states that if the “jurisdiction of the United States courts were not exercised to prohibit some of the practices involved in international cartel agreements, the factual consequences would be to permit private parties located outside of the United States to exercise an extraterritorial jurisdiction over citizens and residents of the United States, in contravention of the laws of the United States.” A.B.A. Section of Antitrust Law, 1957 Proceedings at Annual Meeting 105. Metzger comes close to this line of argument, saying: “ I f these national statutes cannot be used in an attempt to minimize conduct abroad that restrains the foreign trade of a country, the result would be that private trade-restrainers would have a free field, to the detriment of increased international trade and commerce.” oc. cit. note 13 above, at 17, note 20. If these statements mean, as they seem to, that we are exercising our jurisdiction in order to protect our citizens from acts taken abroad by foreign nationals, they smack of the so-called “passive personality” doctrine which the United States vehemently repudiated in the Cutting case over three quarters of a century ago, and which is discredited in Anglo-American jurisprudence and in much of the Western world. Restatement, Sec. 30 (2) and illustration 5 thereunder; Harvard Research in International Law, “Jurisdiction with Respect to Crime,” 29 A.J.I.L. Supp. 435, comment on Art. 10 at 579 (1935).

22 Brewster, op. cit. note 3 above, at 73.

23 See, for example, the case cited in note 12 above, where the Swiss Government protested the application of our laws to contracts made and to be performed abroad between Swiss corporations and corporations of other foreign countries. After diplomatic pressures had been brought to bear, the Department of Justice agreed to a final settlement of the matter, including a consent decree which modified somewhat the terms of an earlier decree which had been based on this decision. But nothing in the consent decree or in any pronouncement of the court at the time it was entered modified the ALCOA view of the application of the “effects” doctrine, which had been followed in the original opinion of the court. 1965 Trade Cas. par. 71,352 (S.D.N.Y., 1965). See also In the Matter of Grand Jury Investigation of the Shipping Industry, 186 ¥. Supp. 298 (D.D.C., 1960), where the Grand Jury was investigating shipping by vessels of foreign corporations and registry which were plying between Mexico and Japan, and where diplomatic protests were received from ten foreign nations claiming that such an investigation was improper and illegal. In both cases we were claiming jurisdiction solely because of the “effect” on our foreign commerce. For the world-wide concern, see Report, cited at end of note 3 above, at 304-592, where the cases just mentioned, ALCOA, and others are discussed. Pertinent extracts from the protests in the Watchmakers and Shipping cases are reproduced therein at 403-405 and 575-578, protests in other cases at 562-592.

24 The Charming Betsy, 2 Cranch 64, 118 (1804); re-affirmed in McCulloch et al. v. Sociedad Nacional de Marineros de Honduras, 372 U. S. 10, 21 (1963), 57 A.J.I.L. 659 (1963).