Class Action Defense Cases-In re Intel: Delaware Federal Court Holds Sherman Act Class Action Claims Premised On Foreign Conduct Barred By Foreign Trade Antitrust Improvements Act (FTAIA)

May 28, 2007 | By: Michael J. Hassen

Defense Motion to Dismiss Class Action Allegations Based on Foreign Conduct Granted because no Evidence of “Direct, Substantial and Foreseeable Effect on U.S. Commerce” as Required by Foreign Trade Antitrust Improvements Act of 1982 (FTAIA) Delaware District Court Holds

After Advanced Micro Devices (AMD) filed suit Intel alleging Sherman Act antitrust claims and violations of California’s unfair competition laws, several class action lawsuits were filed and ultimately consolidated with the AMD lawsuit. In re Intel Corp. Microprocessor Antitrust Litig., 476 F.Supp.2d 452, 453 (D. Del. 2007). The first amended class action complaint alleged that Intel “engaged in anticompetitive conduct in the United States which has resulted in Intel obtaining an unlawful world-wide monopoly over the x86 microprocessor market” thereby increasing the cost of the x86 to consumers. Id., at 453-54. In addition to Sherman Act claims, the class action complaint included claims under the laws of 20 states for antitrust/restraint of trade, and 23 states for unfair competition/consumer protection, and prayed for injunctive relief, monetary damages (including punitive and treble damages), disgorgement of profits, and establishment of a constructive trust. Id., at 454. Defense attorneys moved to dismiss plaintiffs’ “foreign conduct claims” under Rule 12(b)(1) for lack of subject matter jurisdiction, id.; the district court granted the defense motion.

By way of background, AMD’s complaint against Intel included foreign conduct allegations that on Intel’s motion the district court dismissed for lack of jurisdiction. In re Intel, at 455. The class action complaint similarly included allegations of foreign conduct: the class plaintiffs “allege that the weakening of AMD in the market resulted in Intel charging higher prices overseas to third parties for microprocessors who then installed these higher priced Intel chips into computers that were eventually sold in the United States Market, which in turn led to higher retail prices for those computers in the United States.” Id. Intel argued that the foreign conduct theory in the class action complaint is even more attenuated than the claim the Court struck from AMD’s Complaint and, accordingly, the foreign conduct claims should be dismissed for lack of jurisdiction under the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA). Id. Specifically, FTAIA requires evidence of a “direct, substantial and foreseeable effect on U.S. commerce” and Intel argued that the class action complaint failed to include any such evidence. Id.

Plaintiffs countered that Intel’s conduct abroad was “relevant to proving the unlawfulness of Intel’s domestic conduct … even if Intel cannot ultimately be held liable for that foreign misconduct.” In re Intel, at 455. Additionally plaintiffs argued that Intel’s foreign conduct fell within the “domestic commerce” exception to the FTAIA: “Specifically, Class Plaintiffs contend that Intel’s foreign conduct has a direct, substantial and reasonably foreseeable effect on domestic commerce and gives rise to Plaintiffs’ antitrust claims.” Id., at 455-56. The district court disagreed.

Congress amended the Sherman Act in 1982 by enacting the FTAIA, which “carves out activity involving foreign commerce from the reach of the Sherman Act unless the conduct has a ‘direct, substantial and reasonably foreseeable effect’ on United States commerce, and the effect gives rise to a claim under the Sherman Act.” In re Intel, at 456 (quoting F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155 (2004)) The district court noted that it had previously analyzed the issues before it in connection with granting a defense motion to dismiss AMD’s foreign conduct allegations, which the court found to be virtually identical to the allegations in the class action complaint. Id. The court granted the motion to dismiss AMD’s foreign conduct claims because it found the “chain of events” underlying the claims to be wholly speculative, and stated that the class action allegations suffered from the same defect. Id. Put simply, the court found “allegations that Intel engaged in overseas conduct which resulted in higher PC prices and loss of consumer choice in the United States ‘are not direct domestic effects of any alleged foreign conduct of Intel, but secondary and indirect effects that are also the by-product of numerous factors relevant to market conditions and the like.’” Id., at 456 n.3 (citation omitted).

Additionally, the district court held that the class action complaint’s state law claims premised on Intel’s foreign conduct must also be dismissed, explaining at page 457:

The Court has already concluded that Class Plaintiffs have not satisfied the jurisdictional prerequisites of the FTAIA with respect to their foreign conduct allegations. Class Plaintiffs have also not demonstrated that their state law claims should be applied beyond the boundaries set by the FTAIA and the FTCA. As the Supreme Court has recognized, “[f]oreign commerce is pre-eminently a matter of national concern,” and therefore, it is important for the Federal Government to speak with a single, unified voice. [Citation.] Here, Congress has spoken under the FTAIA with the “direct, substantial and reasonably foreseeable effects” test, and the Court is persuaded that Congress’ intent would be subverted if state antitrust laws were interpreted to reach conduct which the federal law could not.

NOTE: The district court noted that “Once the Court’s subject matter jurisdiction over a complaint is challenged, the plaintiff bears the burden of persuasion to establish that subject matter jurisdiction exists.” In re Intel, at 455 (citing Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406 (3d Cir. 1991)).

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