Extraterritorial jurisdiction - European responses.

• Author: Layton, Alexander
• Position: Transatlantic Business Transactions: Choice of Law, Jurisdiction, and Judgments

1. INTRODUCTION

   In Europe, the United States is commonly seen as the key proponent of legislation having an extraterritorial effect, while Europeans regard themselves as eschewing this practice. This article will seek to examine whether this perception is right or whether the approaches of the United States and Europe are closer than may be commonly supposed. It will first examine European (and particularly British) responses to assertions of extraterritoriality by the United States and will then consider the European way of dealing with extraterritoriality. In both cases, the focus will be on antitrust or competition law.

2. EUROPEAN RESPONSES TO U.S. ASSERTIONS OF EXTRATERRITORIAL LEGISLATIVE JURISDICTION

   1. U.S. Antitrust Laws and the U.K. Response

      Antitrust or competition law is a particularly interesting hybrid from a legal point of view, comporting elements of public and private law and involving specific public institutions. Moreover, although trade is global, there is no single global regulator. Further, different nations and regions will have different economic and political perspectives and requirements. (1) To protect perceived national interests, states have asserted extraterritorial jurisdiction. This has been reconciled with international law on the basis of a broad reading of the so-called "effects doctrine." It is well established that jurisdiction can be asserted on the basis of conduct occurring within a territory that has effects outside of the territory's borders. (2) This is relatively uncontroversial when the effect is direct and obvious--teachers of law favour the example of a gun being fired across a border--but the situation is much more problematic where the effects are indirect and economic.

      The classic example of a piece of legislation asserting extraterritorial jurisdiction based on the "effects doctrine" is the U.S. Sherman Antitrust Act. (3) This was given a broad interpretation in United States v. Aluminum Co. of America, (4) where the U.S. Second Circuit Court of Appeals stated that "it is settled law ... that any state may impose liabilities, even upon persons not within its allegiance, for conduct outside its borders that has consequences within its borders which the state reprehends...." (5) Later, other U.S. courts attempted to adopt a more moderate approach, importing factors such as reasonableness and balancing of interests, (6) but this softening of approach did little to mollify most foreign states.

      In many cases their response, by the late 1980s, was to adopt so-called "blocking" legislation. Although these measures did not necessarily refer to the United States by name, it was clear that the U.S. extraterritorial legislation was their focus. (7) One example of such blocking legislation was the U.K. Protection of Trading Interests Act of 1980. (8) This Act used two methods to target the potentially detrimental effect of the U.S. antitrust law on U.K. businesses. Sections 1-3 of the Act focused on trade measures and gave powers to the Secretary of State to take various steps to protect U.K. interests. The Secretary of State was allowed to prohibit compliance with measures taken under foreign legal systems (the United States was not specified by name) which were damaging or threatening to damage the trading interests of the United Kingdom. These steps could be prohibited "in so far as they apply or would apply to things done or to be done outside the territorial jurisdiction of (the relevant foreign) country by persons carrying on business in the United Kingdom." (9) The Secretary of State was also endowed with powers to require information or to prohibit the production of information and documents. (10) Failure to comply with requirements imposed under the Act was made subject to an unlimited fine. (11)

      The latter half of the statute particularly stigmatized the U.S. antitrust law, though again without making specific reference to it. Section 5 prohibited the enforcement in the United Kingdom of any judgment for multiple damages (a feature of the Sherman Act), and section 6 created a right of action for the recovery of a multiple damages award paid by a defendant, insofar as the award exceeded the amount attributable to compensation. During the passage of the Bill which eventually became the 1980 Act, an exchange of diplomatic notes took place between the United Kingdom and the United States. (12) The United States expressed concern that the U.K. stance would encourage a confrontational, as opposed to a cooperative, approach to the problem. The United Kingdom responded that this was not its intention and that, where possible, differences of opinion in legal and economic issues should be resolved by inter-governmental discussion and agreement. The U.K. governmental stance, however, was that the triple damages provision in U.S. antitrust law undermined inter-governmental cooperation by allowing private individuals to enforce what were effectively public law issues. (13) There was an obvious danger that businesses would seek enforcement of antitrust laws for less than public-spirited motives. Moreover, in the eyes of the United Kingdom, the United States was exposing international businesses to double jeopardy.

      Most fundamentally, the United Kingdom objected to the U.S. attempt to establish an extraterritorial regime. The U.K. Diplomatic Note stated:

      Finally, and most important, the U.S. courts claim subject matter jurisdiction over activities of non-U.S. persons outside the U.S.A. to an extent which is quite unacceptable to the U.K. and many other nations. Although in recognition of international objections to the wide reach of antitrust law enforcement in civil cases, the U.S. courts have begun to devise tests which may limit the circumstances in which the remedy may be available, these tests remain within these wider claims to jurisdiction to which Her Majesty's Government object. (14) Extraterritorial prescriptive jurisdiction was being rejected by the United Kingdom. However, it is unclear at this juncture whether it was the concept in the abstract which was unacceptable, or whether the problem was its detrimental impact on U.K. trading interests.

      In either event, the Secretary of State did not take any action under the 1980 Act until the mid 1990s. (15) However, by this stage a number of factors had contributed to a change in the atmosphere--notably, a shifting American approach and the involvement of the European Union (as it is now called).

   2. The Shifting U.S. Stance on Extraterritoriality

      In the early 1980s, the United States seemed to be at pains to appease its trading partners who objected so strongly to the antitrust legislation. The Foreign Trade Antitrust Improvements Act of 1982 established that the Sherman Act should only be applicable where the effects were "direct, substantial and reasonably foreseeable." (16) This reinforced the approach being taken by U.S. courts after the Timberlane case, (17) which encouraged a balancing exercise in relation to conflicting interests. These refinements may have been influential in keeping critical foreign states at bay.

      However, by the mid 1990s, the United States had changed tack once again. Two separate strands of influence came into play. First, there was a Supreme Court decision in 1993, Hartford Fire Insurance v. California. (18) In Hartford, the Court, divided narrowly at 5-4, held that a balancing of interests was only relevant (if at all), where there was a "true conflict" between U.S. and foreign jurisdiction. The majority took a very narrow view of what constituted such conflict--only where a defendant would have to violate the laws of a foreign state was there really a conflict. (19) Such a conflict was rarely going to occur. (20) Although there was a strong minority in Hartford, led by Justice Scalia, and significant academic criticism of the case, (21) it nevertheless stood as the leading American authority on the interpretation of antitrust law.

      The second aspect of the more hard-line U.S. approach to extraterritoriality was the unilateral sanctions introduced by the United States against "rogue" states. The two most famous of these are the Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996, the...