The Prescriptive Jurisdictional Reach of U.S. Antitrust Law: Judge Learned Hand's Requirement of a "Substantive Anticompetitive Effect"

University of Miami Law School Institutional Repository University of Miami Inter-American Law Review 10-1-1991 The Prescriptive Jurisdictional Reach of U.S. Antitrust Law: Judge Learned Hand's Requirement of a "Substantive Anticompetitive Effect" Michael F. Kelley Follow this and additional works at: http://repository.law.miami.edu/umialr Part of the Antitrust and Trade Regulation Commons, and the Jurisdiction Commons Recommended Citation Michael F. Kelley, The Prescriptive Jurisdictional Reach of U.S. Antitrust Law: Judge Learned Hand's Requirement of a "Substantive Anticompetitive Effect", 23 U. Miami Inter-Am. L. Rev. 195 (1991) Available at: http://repository.law.miami.edu/umialr/vol23/iss1/8 This Special Feature is brought to you for free and open access by Institutional Repository. It has been accepted for inclusion in University of Miami Inter-American Law Review by an authorized administrator of Institutional Repository. For more information, please contact . SPECIAL FEATURE THE PRESCRIPTIVE JURISDICTIONAL REACH OF U.S. ANTITRUST LAW: JUDGE LEARNED HAND'S REQUIREMENT OF A "SUBSTANTIVE ANTICOMPETITIVE EFFECT" MICHAEL F. KELLEY I. INTRODUCTION ... ....................................................... 195 II. UNITED STATES ANTITRUST LAW: THE SHERMAN ACT ...................... 196 III. JURISDICTION OVER TRANSNATIONAL ACTIVITY BY ALIENS ................... 197 A. Constitutional Lim itations ....................................... 197 B. Limitations Under InternationalLaw ............................. 199 205 IV. THE TRANSNATIONAL SCOPE OF U.S. JURISDICTION IN ANTITRUST CASES V. THE EFFECTS DOCTRINE IN THE UNITED STATES .......................... 209 A. A lcoa: The Opinion ............................................. 210 B. The "Substantive Anticompetitive Effect" Requirement ............ 215 VI. THE DEPARTMENT OF JUSTICE MERGER GUIDELINES ....................... 227 VII. POST-ALCOA DEVELOPMENTS IN THE UNITED STATES COURTS ............... 235 VIII. C ONCLUSION ......................................................... 248 I. ..... INTRODUCTION The jurisdictional reach of U.S. antitrust law has frequently been criticized, especially abroad, as being an institutional exercise INTER-AMERICAN LAW REVIEW [Vol. 23:1 of "legal imperialism." Few would argue that jurisdiction is restricted to cover events which occur within the territory of a sovereign state. In the realm of U.S. antitrust law, however, both U.S. courts and commentators lack a consensus as to the extent of jurisdiction, especially with regard to the Sherman Antitrust Act. Central to the problem is a friction between the prescriptive jurisdictional restraints of international law and the broad language of the antitrust statutes which seemingly encompass any commercial activity related to the United States. Defining the jurisdictional reach of United States antitrust law involves three essential issues: (1) whether the United States, as sovereign, has the power under international law to exercise prescriptive jurisdiction over certain acts of foreigners abroad; (2) whether Congress has the power, under the Constitution, to enact laws dealing with such foreign acts; and, (3) whether the Sherman Act's prohibitions intend to cover the allegedly illegal foreign activity in question. These inquiries involve the interpretation of Judge Learned Hand's controversial and widely misunderstood "effects" test for the exercise of "transnational" jurisdiction as espoused in United States v. Aluminum Co. of America ("Alcoa").1 This Comment defends Judge Hand's opinion in Alcoa and maintains that it is consistent with the objective territorial principle of international law, as long as the test is read to require a "substantive anticompetitive effect" on U.S. foreign commerce. The proper exercise of prescriptive jurisdiction under the Sherman Act requires actual proof of a "substantive anticompetitive effect" caused by foreigners abroad. Thus, a constituent element of the offense charged must occur in the United States, as was the case in Alcoa. Read otherwise, the Act takes on the character of an overextended body of commercial tort law. II. UNITED STATES ANTITRUST LAW: THE SHERMAN ACT The Department of Justice (DOJ or Department) characterizes U.S. antitrust law as being the legal embodiment of the nation's commitment to a free market economy.2 The two basic philosophical tenets underlying the antitrust laws are: (1) that the 1. United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir. 1945). 2. See, e.g., U.S. DEP'T OF JUSTICE, ANTITRUST ENFORCEMENT GUIDELINES FOR INTERNATIONAL OPERATIONS (Nov. 10, 1988), reprinted in 55 ANTITRUST & TRADE REG. REP. 899 S-3 (1988). 1991] U.S. ANTITRUST LAW: EFFECTS TEST competitive process in the marketplace must be preserved to ensure the most efficient allocation of the world's finite resources, and (2) that the protection of the full and vigorous operation of competitive market forces will maximize consumer welfare.3 Thus, preservation of the market's competitive structure, rather that the protection of each individual competitor, is the goal of antitrust law.4 Sections 1 and 2 of the Sherman Act ("Act")3 are the United States antitrust laws of principal concern in this study. Section 1 declares it a felony to contract or conspire to restrain trade or commerce among states or with a foreign nation. Section 2 states that it is also a felony to monopolize any part of such trade. III. A. JURISDICTION OVER TRANSNATIONAL ACTIVITY BY ALIENS ConstitutionalLimitations The power of Congress to enact any statute, such as the Sherman Act, must be enumerated under the United States Constitution.6 Such congressional power is derived from the Commerce Clause which provides Congress with the power to regulate commerce between the States and with foreign nations.7 The only limit imposed upon Congress's regulatory power in this context is that a nexus exists between the regulated activity and United States commerce. Apart from this requirement, the United States Supreme Court has described congressional power to regulate foreign and interstate commerce as complete in itself, plenary, and limited only by the Constitution.8 In Gibbons v. Ogden, Chief Justice Marshall asserted that the broad scope of the Commerce Clause and the corresponding congressional power to regulate trade covered every kind of commer3. While other antitrust philosophies and goals have been advanced, the maximization of consumer welfare is, or should be, the most enduring objective for this legal discipline. For an in-depth analysis of the proposition that the only legitimate goal of American antitrust law is the maximization of consumer welfare, see ROBERT BORK, THE ANTITRUST PARADOX: A POLICY AT WAR WITH ITSELF (1978). 4. See Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962) (antitrust laws are designed to protect competition, not competitors). 5. 15 U.S.C (...truncated)