Co-authored by Joseph E. Gallo

The US District Court for the Southern District of New York recently held that alleged anticompetitive conduct by Chinese technology manufacturers taking place entirely within China did not create sufficient direct effects on US commerce in order for a federal court to exercise jurisdiction under the US antitrust laws.

Plaintiff, a Chinese manufacturer of Universal Serial Bus (USB) connectors, sued rival Chinese USB manufacturers under the Sherman Act. Plaintiff alleged that Defendants (i) made misrepresentations to a USB standards board; (ii) wrongfully refused to agree to licensing terms with Plaintiff; and (iii) brought patent infringement claims against Plaintiff in bad faith. Plaintiff further alleged that Defendants had engaged in this conduct in order to force Plaintiff out of business, so that Defendants could monopolize the USB market.

These monopolization efforts would allegedly reduce competition and result in increased prices for products that used USB connectors and were sold in the United States. Under this theory, Plaintiff sued Defendants under US antitrust laws that forbid monopolization efforts affecting US commerce.

The District Court held that it lacked subject matter jurisdiction because the Sherman Act, as amended by the Foreign Trade Antitrust Improvements Act of 1982, prohibits attempted monopolization efforts taking place in foreign jurisdictions only where the foreign activity has a “direct, substantial, and reasonably foreseeable effect” on US commerce.

The Court found that Plaintiff’s USB connectors, as components of more complex technological products, would have to go through several manufacturing steps before they reached American markets. Accordingly, the Court held that Defendants’ alleged conduct, even if it would reduce the competition to create USB connectors in China, did not have the required direct effect on US commerce to create a violation of US antitrust laws.  

Lotes Co, Ltd. V. Hon Hai Precision Industry Co, Ltd., et. al, No. 12 Civ. 7465(SAS), 2013 WL 2099227 (S.D.N.Y. May 14, 2013