Democracy Dies in Silicon Valley: Platform Antitrust and the Journalism Industry

Newspapers are classic examples of platforms. They are intermediaries between, and typically require participation from, two distinct groups: on the one hand, there are patrons eager to read the latest scoop; on the other hand, there are advertisers offering their goods and services on the outer edges of the paper in hopes of soliciting sales. More than mere examples of platform economics, however, newspapers and the media industry play an irreplaceable role in the functioning of our democracy by keeping us informed. From behemoths such as the Jeff Bezos–owned Washington Post to outlets like the Hungry Horse News in the small town of Columbia Falls, Montana, the press lets us know what is happening on both the national and local levels. However, the age of the Internet and the corresponding emergence of new two-sided platforms is decimating the media industry.[1] In a world where more users get their news on social media platforms like Facebook than in print,[2] the survival of quality journalism depends in large part on whether the media industry can tap into the flow of digital advertising revenue, the majority of which goes to just two corporations founded around the start of the new millennium.

Facebook and Google, formed respectively in 2004 and 1998, are new types of platforms aiming to accomplish what newspapers have done for centuries: attract a large consumer base and solicit revenue from advertisers. However, unlike the fungible papers newsies once distributed hot off the presses, Facebook and Google connect advertisers and consumers in a more sophisticated, yet opaque manner. Facebook and Google are free to consumers insofar as users do not pay with money to surf the web or connect virtually with their friends. Instead, the companies collect information about users based on their online activity, and complex algorithms connect those users with targeted advertisements.[3] This new method of connecting Internet users and advertisers has been wildly successful, creating a tech duopoly profiting from nearly sixty percent of all digital advertising spending in the United States.[4]

          [1].      Throughout this Note, I refer to the journalism industry also as the “media” industry and the “news media” industry. Although there are undoubtedly nuanced differences between journalism and news media, for the purposes of this Note, I draw no distinction between them.

          [2].      Elisa Shearer, Social Media Outpaces Print Newspapers in the U.S. as a News Source, Pew Rsch. Ctr. (Dec. 10, 2018), [].

          [3].      Although I may not be interested in an upcoming Black Friday deal for chainsaws posted in a physical publication of the Hungry Horse News, Facebook and Google are—based on my history and activity on the platforms—aware of my affinity for things like antitrust law and coffee, and so their algorithms are likely to present advertisements to me for items such as books written by Herbert Hovenkamp and expensive burr coffee grinders.

          [4].      Felix Richter, Amazon Challenges Ad Duopoly, Statista (Feb. 21, 2019), https:// [].

* Executive Senior Editor, Southern California Law Review, Volume 95; J.D. Candidate, 2022 University of Southern California, Gould School of Law. I would like to thank Professor Erik Hovenkamp for serving as my advisor. All mistakes are my own.

Due Process in Antitrust Enforcement: Normative and Comparative Perspectives

Article | Anti-trust Law
Due Process in Antitrust Enforcement: Normative and Comparative Perspectives 
by Christopher S. Yoo*, Thomas Fetzer†, Shan Jiang‡, and Yong Huang§

94 S. Cal. L. Rev. 843 (2021)

Keywords: Anti-trust Law, Due Process, Competition Law

A global consensus has emerged recognizing the central role that competition law plays in promoting a nation’s prosperity. As the briefing notes on trade and competition policy for the 2003 Cancún World Trade

Organization (“WTO”) Ministerial acknowledged, there is a “growing realization that mutually supportive trade and competition policies can contribute to sound economic development, and that effective competition policies help to ensure that the benefits of liberalization and market-based reforms flow through to all citizens.”1 Although competition law was eventually deleted from the agenda of the Doha Round of General Agreement on Tariffs and Trade (“GATT”) negotiations, having an effective competition law regime has become a de facto prerequisite for joining the WTO.2 The number of competition law enforcement agencies has continued to grow, with the membership of the global group of competition law authorities known as the International Competition Network (“ICN”) now including more than 130 countries.3

Adherence to basic principles of due process has long been recognized as an essential aspect of proper competition law enforcement. The rule of law is generally understood to include several critical procedural components, such as “due process, judicial review (by an independent judiciary), equal application of the law, and transparency” in decision- making processes.4 The WTO recognized that clarifying “core principles including transparency, non-discrimination and procedural fairness” represented one of the key mandates for its Working Group on the Interaction between Trade and Competition Policy.5

China has also increasingly embraced the importance of due process in the wake of its accession to the WTO.6 For example, in 2018, the Chinese Securities Regulatory Commission has also instituted a system of independent administrative adjudicators to bring Chinese practice in line with international norms.7

Recent judicial decisions have further underscored the importance of fair procedures and adequate judicial review. The Chinese Hainan District Court, for instance, recently reversed an Anti-Monopoly Law (“AML”) decision by the local Development and Reform Commission (“DRC”). Although the Hainan High Court later reversed the district court’s decision,8 it further resulted in a retrial by the Supreme People’s Court. It was an important sign that decisions by enforcement agencies cannot avoid judicial review. Likewise, on September 6, 2017, the European Court of Justice (“ECJ”) sent a competition law case against Intel Corp. back to the General Court with instructions to examine all the arguments put forward by Intel.9 Additionally, the ECJ agreed with the ombudsman’s conclusion that enforcement authorities must maintain full records of both formal and informal meetings with competitors and held that the European Commission had erred in merely providing a nonconfidential summary of an interview to Intel, although the court concluded error did not influence the decision.10 This rare rebuke pushed the Commission to adhere more carefully to the procedural rules protecting due process. Both judicial decisions underscore the importance of reasoned decisionmaking, internal controls, and transparency associated with fair enforcement procedures.

The past year has borne witness to an upsurge of interest in due process in the competition law community. For example, at its most recent annual meeting, the ICN adopted its Recommended Practices on Investigative Process, which represents the most authoritative type of document the ICN typically adopts,11 and sixty-two agencies became inaugural signatories of the ICN’s new Framework for Competition Agency Procedures (“CAP”).12

In addition, the Organization for Economic Co-operation and Development (“OECD”) extended its prior work on procedural fairness and transparency13 by conducting additional roundtables on the topic.14 It also began consideration of a Draft Recommendation of the Council on Transparency and Procedural Fairness in Competition Law, which lays out principles that could serve as benchmark for due process in antitrust enforcement.15 As a follow up to its best practices issued in 2015,16 the American Bar Association (“ABA”) Antitrust Section’s International Task Force conducted an assessment of the extent to which different agencies were complying with them.17 The Association of Southeast Asian Nations (“ASEAN”)18 and the International Chamber of Commerce (“ICC”)19 have offered similar guidance.

While the existing guidelines and best practices are helpful, they are pitched at a high level of generality and stop short of detailed application to national law. This Article strives to fill that void by engaging in a detailed comparison of procedures employed by competition law officials in China, the European Union (“EU”), and the United States and making nine recommendations that would improve due process.

It is now a fitting moment to assess the state of enforcement processes. China’s AML celebrated its tenth anniversary of implementation in 2018, and China is currently considering possible revisions. The National People’s Congress Standing Committee recently revised China’s Administrative Litigation Law to make it more conducive to economic growth.20 At the same time, President Xi Jinping led a major anti-corruption campaign designed to stop government decisions that are motivated by personal or parochial interests and other abuses of power.21 All are part of broader efforts to balance the government-market relationship and make enterprises operating in China more market responsive and efficient.


*. John H. Chestnut Professor of Law, Communication, and Computer & Information Science and Founding Director of the Center for Technology, Innovation and Competition (CTIC), University of Pennsylvania.

†. Chair of Public Law, Regulation Law, and Tax Law, School of Law and Economics, University of Mannheim, and Academic Director of the Mannheim Centre for Competition and Innovation (MaCCI). ‡. Associate Professor and Researcher of the Competition Law Center, University of

International Business and Economics (UIBE) School of Law.
§. Professor of Law and Director of the Competition Law Center, UIBE School of Law. The authors would like to thank Professor Lixia (Nell) Zhou of UIBE, Professors Guobin Cui and Yuan Hao of the Tsinghua University School of Law, Professor Shen Kui of Peking University Law School, Roger Alford, Maria Coppola, Kris Dekeyser, Ian Forrester, Douglas Ginsburg, Andrew Heimert, Elizabeth Kraus, John Temple Lang, Valeria Losco, Philip Lowe, Paul O’Brien, Giovanni Pitruzzella, Ronald Stern, Randolph Tritell, Marc van der Woude, and the participants in the conferences conducted at the Penn Wharton China Center, Seoul National University’s Center for Competition Law, Chung Yuan Christian University, University of Southern California Gould School of Law’s Center for Transnational Law and Business, and Luxembourg for the comments on earlier drafts of this paper. Thanks to Louis Capozzi, Allie Gottlieb, Jennifer Mao-Jones, and Hendrik Wendland for their expert research assistance.

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What’s in a Claim? Challenging Criminal Prosecutions Under the FTAIA’s Domestic Effects Exception – Note by Jay Kemper Simmons

From Volume 92, Number 1 (November 2018)

What’s in a Claim? Challenging Criminal Prosecutions Under the FTAIA’s Domestic Effects Exception

Jay Kemper Simmons[*]



I. Legal Background

A. Historical Foundations of Extraterritoriality
in U.S. Competition Law

1. Extraterritorial Criminal Liability Under the
Sherman Act: Exploring the Shift from
Territoriality to Effects

2. Principles of International Comity and Fairness

B. The FTAIA’s Domestic Effects Exception

C. Hui Hsiung, Motorola Mobility, and Beyond

II. The FTAIA Does Not Authorize Extraterritorial Criminal Prosecutions

A. Textualism Foundationally Supports a Narrow Construction of the Domestic Effects Exception’s
“Claim” Language

B. Narrow Interpretation of the FTAIA Comports with International Comity Principles and Applicable
Canons of Construction

C. Distinct Remedies Reflect Distinct Treatment
of Civil and Criminal Actions Under the FTAIA

III. Implications for an Interconnected Global Political Economy




O be some other name!

What’s in a name? That which we call a rose

By any other word would smell as sweet . . . .

                            William Shakespeare, Romeo and Juliet act 2, sc. 2

Americans recently awoke to a startling revelation: “Our country is getting ripped off.”[1] Indeed, the purportedly deleterious effects of international trade on the United States domestic economy have claimed top billing in President Donald Trump’s nascent “America First” agenda.[2] As the White House publicly excoriates international free trade for the first time in recent memory, global trade deals and domestic tariffs are cast in stark relief.[3] China and Mexico, along these lines, are cast as chief culprits in a system of international exchange allegedly designed to subjugate American workers to nefarious foreign interests.[4] Overall, recent politics underscore the practical importance of, and interdependence between, competition and cooperation in international economic regulation.[5]

In the arena of hard-nosed international competition, it’s all fun and games––until somebody starts a trade war.[6] But beyond the scope of trade deals and tariffs, sovereign states’ domestic antitrust laws are also critical regulatory levers. Americans at the Antitrust Division of the Department of Justice and the Federal Trade Commission have the power to influence incentives in markets across the globe. For example, although domestic by nature, U.S. antitrust laws do not exclusively apply to conduct in domestic markets—the Sherman Act may extend far beyond American shores to activities conceived and executed abroad.[7]

Although it is understood that extraterritorial antitrust liability may exist with respect to certain foreign conduct, courts, businesses, and practitioners have struggled to concretely define the contours of this liability in practice.[8] Judicial construction of the Sherman Act’s “charter of freedom”[9] currently permits civil actions and criminal prosecutions against foreign anticompetitive conduct based solely on American domestic law. In the United States, liability may attach to foreign conduct even if the allegedly anticompetitive acts occur entirely beyond the territory over which the United States exerts sovereign control.[10]

Moreover, given its impact on the interests of market participants and sovereign states, extraterritorial application of the Sherman Act remains highly controversial in academic and professional legal circles.[11] In part due to the emergence of modern global supply chains, which often span several sovereign jurisdictions,[12] debate about extraterritoriality in U.S. competition policy has reached a fever pitch.[13]

Enter the Foreign Trade Antitrust Improvements Act of 1982 (“FTAIA” or “the Act”).[14] In 1982, Congress passed the FTAIA, putatively in order to clarify the limits of the Sherman Act in reaching certain foreign and export activities.[15] In early 2015, however, the United States Court of Appeals for the Ninth Circuit upheld the convictions of a Taiwanese electronics-manufacturing firm, AU Optronics, and its executives for criminal price fixing, in part based on the FTAIA’s so-called “domestic effects” exception.[16] In a decision assessing several independent challenges to the defendants’ extraterritorial criminal convictions, the panel ruled that an “effects” theory was independently sufficient to support criminal price-fixing charges under the FTAIA, absent an allegation that any acts in furtherance of the conspiracy occurred in the United States:

The defendants . . . urge that . . . the nexus to United States commerce was insufficient under the Sherman Act as amended by the Foreign Trade Antitrust Improvements Act of 1982 . . . . The defendants’ efforts to place their conduct beyond the reach of United States law and to escape culpability under the rubric of extraterritoriality are unavailing. . . . The verdict may . . . be sustained under the FTAIA’s domestic effects provision because the conduct had a “direct, substantial, and reasonably foreseeable effect on United States commerce.”[17]

From one perspective, the defendants’ foreign collusive activities were fairly traceable to U.S. markets, and thus fully within the purview of American antitrust laws, based on its direct connection to some qualifying “effect” on nonimport domestic commerce.[18] This rationale rendered the defendants in United States v. Hui Hsiung subject to the weight of criminal antitrust penalties under the Sherman Act, although the entirety of the defendants’ underlying conduct occurred overseas. The court suggested that this criminal punishment was only fair, as the defendants’ wholly foreign anticompetitive activities entailed some “direct, substantial, and reasonably foreseeable effect on United States commerce,”[19] which was legally cognizable through overcharges paid by Americans for electronic goods that had incorporated the defendants’ price-fixed LCD-panel component parts.[20]

Regrettably, however, the final panel decision affirmed the defendants’ criminal convictions without substantively evaluating a critical merits inquiry[21]: whether the FTAIA’s “domestic effects” exception even authorizes the underlying extraterritorial criminal prosecution as a “claimunder the Sherman Act.[22] This Note posits, contrary to the Ninth Circuit’s amended decision in Hui Hsiung, that the FTAIA’s domestic effects exception does not authorize American regulators to prosecute wholly foreign conduct under the Sherman Act. In the three years since Hui Hsuing, both the Supreme Court and Congress have failed to meaningfully address how to properly read the FTAIA.[23]

This Note builds on published legal decisions, practitioner resources, and academic commentaries to paint a fuller picture of the FTAIA’s domestic effects exception and, in particular, its proper scope in the context of extraterritorial criminal prosecutions.[24] Part I explores the historical development of extraterritorial antitrust jurisprudence in the United States, the FTAIA’s substantive requirements, and recent cases evaluating extraterritorial enforcement under the Act. Part II evaluates the prevailing approach under Hui Hsiung and makes the case that the FTAIA does not independently authorize extraterritorial criminal antitrust prosecutions. Part III discusses criminal liability implications under Hui Hsiung and related antitrust jurisprudence for international businesses and their agents. In sum, through discussion of the FTAIA’s history, text, and teleological aspects, this Note aims to clarify the proper scope of extraterritorial criminal antitrust actions under the Sherman Act, as amended by the Foreign Trade Antitrust Improvements Act of 1982.[25]

I.  Legal Background

A.  Historical Foundations of Extraterritoriality in U.S. Competition Law

Before diving into the current state of criminal prosecutions under the FTAIA’s domestic effects exception, it is first critical to trace the development of American criminal antitrust prosecutions beyond the territorial borders of the United States. Prior to passage of the FTAIA (and arguably even after its codification),[26] courts—rather than legislators—primarily defined the extraterritorial contours of the Sherman Act. The following sections trace a series of seminal decisions regarding the proper scope of the Sherman Act in international commerce prior to and following the passage of the FTAIA. This historical foundation informs a narrow interpretation of the FTAIA’s domestic effects exception in criminal prosecutions.[27]

1.  Extraterritorial Criminal Liability Under the Sherman Act: Exploring the Shift from Territoriality to Effects[28]

The Sherman Act prohibits monopolization and unlawful restraints on “commerce . . . with foreign nations.”[29] Thus, the statute unambiguously applies to conduct with foreign actors and opens the possibility of government prosecutions for “bad apples” in the high-stakes game of global competition. Historically, however, federal courts hesitated to apply the Sherman Act’s provisions—along with related laws, such as the Clayton Act and the Federal Trade Commission Act—to conduct that occurred beyond the territorial boundaries of the United States.

Traditional notions of sovereignty largely informed the dominant, territorial conception of American courts’ narrow jurisdiction over foreign anticompetitive conduct. The territorial location of the underlying conduct, rather than the site of its fairly traceable effects, served as the relevant standard for determining jurisdiction over foreign anticompetitive conduct. Justice Holmes’ decision in American Banana Co. v. United Fruit Co., for example, reflects the historic presumption against extraterritorial application of the Sherman Act:

Words having universal scope, such as every contract in restraint of trade, every person who shall monopolize, etc., will be taken, as a matter of course, to mean only everyone subject to such legislation, not all that the legislator subsequently may be able to catch. In the case of the present statute, the improbability of the United States attempting to make acts done in Panama or Costa Rica criminal is obvious, yet the law begins by making criminal the acts for which it gives a right to sue. We think it entirely plain that what the defendant did in Panama or Costa Rica is not within the scope of the statute so far as the present suit is concerned.[30]

Although this prima facie territorial presumption applied seemingly to “all legislation” passed by Congress under Justice Holmes’ view, the jurisprudential tide steadily shifted to embrace the imposition of antitrust liability for conduct conceived or executed beyond U.S. borders.[31] Over time, the Supreme Court came to stray from a strict territoriality standard and adopted a much broader standard that granted courts antitrust jurisdiction over activities with certain “effects on competition in the United States.”[32]

Judge Learned Hand’s approach in United States v. Aluminum Co. of America (“Alcoa”) definitively established that foreign anticompetitive acts involving import commerce could be criminally prosecuted in American courts.[33] A unanimous panel of the United States Court of Appeals for the Second Circuit found a Canadian corporation to be in violation of Sherman Act section based on its agreement with European aluminum producers not to compete in the American market for virgin ingot.[34] The decision marked a notable shift in extraterritorial interpretation of the Sherman Act; Hand’s majority opinion not only served as the final decision in lieu of Supreme Court review,[35] but also significantly expanded the global reach of American antitrust laws to include activities with effects on import commerce.[36]

Rather than territoriality, the touchstone of extraterritorial antitrust liability shifted decidedly toward the tangible effects of foreign anticompetitive conduct on domestic markets. With respect to such effects, Judge Hand candidly noted, “[a]lmost any limitation of the supply of goods in Europe, . . . or in South America, may have repercussions in the United States if there is trade between the two.”[37] Shifting to an effects standard required reasonable limits; otherwise, American courts would adjudicate seemingly every global competition dispute.[38] Although the court in Alcoa embraced an effects test for extraterritorial Sherman Act violations, it also warned, “[w]e should not impute to Congress an intent to punish all whom its courts can catch, for conduct which has no consequences within the United States.”[39] Despite concerning only conduct directly involving import commerce, Alcoa’s non-territorial, effects-centered rationale has been generally incorporated into criminal antitrust precedents after passage of the FTAIA.[40]

Thus, courts historically hesitated to apply domestic law to activity beyond U.S. territorial borders, which traditionally delineated the outer bounds of American sovereignty. After Alcoa, however, courts’ antitrust jurisdiction would expand considerably to encompass criminal penalties for anticompetitive conduct involving direct import trade and commerce.[41]

2.  Principles of International Comity and Fairness

Another judicial innovation concerns the doctrine of international comity.[42] Despite finding sufficient anticompetitive effects targeting domestic commerce to support domestic jurisdiction, courts may nevertheless decline to apply U.S. law to foreign conduct under the judicial constructs of “international comity and fairness.”[43] To determine the propriety of invoking comity to bar an antitrust action, courts widely consider several factors, including: (1) the parties’ nationality, allegiance, or principal locations; (2) the relative importance of domestic and foreign conduct in the allegations; (3) the relative effects on all countries involved; (4) the clarity of foreseeability of a purpose to affect or harm domestic commerce; (5) foreign law or policy and degree of conflict with American policy or law; and (6) compliance issues.[44]

For example, in Timberlane Lumber Co. v. Bank of America, international comity factors suggested that the court “should refuse to exercise jurisdiction,” in part because “[t]he potential for conflict with Honduran economic policy and commercial law [was] great,” and “[t]he effect on the foreign commerce of the United States [was] minimal.”[45] The “jurisdictional rule of reason” embodied in the Timberlane opinion attempted to balance domestic concerns with the interests of foreign states in adjudicating legal disputes. Thus, in American antitrust law, the comity doctrine adds greater nuance to courts’ treatment of the domestic effects that stem from foreign anticompetitive conduct.[46]

The comity doctrine reinforces a norm of reasonableness when applying domestic laws to foreign actors—agents who, in many cases, may not be fair targets for enforcement actions under the Sherman Act. In that vein, the third Restatement on Foreign Relations Law of the United States characterizes comity as a “principle of reasonableness” that applies to a court’s authority to adjudicate disputes and enforce remedies.[47] The comity doctrine has historically empowered federal courts with a measure of discretionary authority over how far domestic authorities can reach abroad to target foreign defendants, as well as how far private plaintiffs can project domestic claims across national borders. These considerations remain critical even after passage of the FTAIA.[48] Without considering fairness and foreign sovereignty in applying domestic laws, U.S. courts would risk dangerously overreaching into the affairs of international partners, as well as upsetting the constitutionally ingrained separation of powers between judicial, legislative, and executive branches of government.[49]

The Timberlane test has been widely embraced by courts in extraterritorial antitrust actions.[50] The Ninth Circuit’s analysis built a compelling case for declining to extend domestic antitrust laws to a foreign transaction in which an American corporation, Bank of America, allegedly manipulated the Honduran national government to prevent its competitor, Timberlane, from exporting lumber into the United States.[51] Beyond the facts of Timberlane, however, Hartford Fire Insurance Co. v. California suggests an alternative approach.[52]

In Hartford Fire, the Supreme Court—without deciding whether federal courts may ever decline to exercise subject matter jurisdiction over Sherman Act claims concerning foreign conduct—determined that principles of international comity are not relevant in the absence of a “true conflict” between domestic and foreign law.[53] The petitioners in Hartford Fire claimed error based on the district court’s failure to decline to exercise antitrust jurisdiction under the principle of international comity.[54] As the petitioners did not allege that British law mandated that they act in violation of the Sherman Act, however, the Court found no direct conflict of law and therefore quickly concluded that there was “no need . . . to address other considerations that might inform a decision to refrain from the exercise of jurisdiction on grounds of international comity.”[55]

The Court further ruled that the plaintiffs’ civil antitrust action could proceed, despite concerns regarding the application of domestic laws to the defendants’ foreign acts, so long as such foreign acts “[were] meant to produce and did in fact produce some substantial effect in the United States.”[56] It remains unclear to what degree the rule in Hartford Fire governs comity decisions in extraterritorial criminal prosecutions under the Sherman Act. In the absence of clear guidance on this aspect of international comity in federal courts, principles of comity and fairness continue to play integral roles in extraterritorial antitrust analysis under either the Hartford Fire or Timberlane standards.

B.  The FTAIA’s Domestic Effects Exception

Although it remains unclear whether the FTAIA “amend[ed] existing law or merely codifie[d] it,”[57] courts have construed the statute to comport with the Sherman Act’s historical scope. The statute operates along with case law concerning how far plaintiffs may extend federal courts’ extraterritorial antitrust jurisdiction.[58] Prior to assessing the efficacy of the prevailing construction of the FTAIA’s “claim” language, however, it is helpful to discuss the language of the domestic effects exception, the intended purposes of the provision, and the early cases that largely ignored the statute in extraterritorial antitrust analysis.

The FTAIA facially excludes most foreign conduct from the scope of the Sherman Act. Two narrow exceptions bring wholly foreign activity back within the scope of domestic antitrust law.[59] Under the FTAIA’s “domestic effects” exception, the Sherman Act “shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations,” unless: (1) “such conduct has a direct, substantial, and reasonably foreseeable effect” on domestic trade or commerce, and that effect (2) “gives rise to a claim” under the Sherman Act.[60] Courts have clarified that conduct involving direct “import trade or import commerce” unambiguously falls within the scope of the Sherman Act under the FTAIA.[61]

In practice, the FTAIA applies when anticompetitive conduct is foreign in nature.[62] Courts have consistently noted since its passage, however, that lawmakers passed the Act primarily to “facilitat[e] the export of domestic goods by exempting export transactions that did not injure the United States economy from the Sherman Act and thereby reliev[e] exporters from a competitive disadvantage in foreign trade.”[63] Ironically, then, the FTAIA aimed to clarify when foreign anticompetitive conduct gives rise to domestic antitrust liability primarily in order to clarify that American firms can behave anticompetitively—so long as they only target foreign markets.[64] The notion that the FTAIA enables criminal prosecutions to remedy competitive harms in U.S. markets is notably absent in congressional findings related to the Act’s purpose, although the legislative history does broadly mention “Department of Justice enforcement.”[65]

The Act was further designed to provide appropriate “legislative clarification” of the antitrust laws, which presented “an unnecessarily complicating factor in a fluid environment” of international exchange, and allegedly caused many “possible transaction[s] [to] die on the drawing board.”[66] Despite endorsing the “situs of effects standard authoritatively articulated in Alcoa, the legislative history uncovers debate concerning the “precise legal standard to be employed” for assessing the requisite “effects” on domestic or import trade or commerce.[67] Lawmakers generally acknowledged, “it has been relatively clear that it is the situs of the effects as opposed to the conduct, that determines whether United States antitrust law applies.”[68] In line with judicial precedents, Congress intended to “enact[] . . . a single, objective test—the ‘direct, substantial, and reasonably foreseeable effect’ test” to clarify precisely which effects trigger extraterritorial antitrust liability for “businessmen, attorneys and judges as well as foreign trading partners.”[69]

The legislative history suggests primary consideration of domestic commercial interests in export markets—interests that were increasingly complicated by the extraterritorial application of the Sherman Act.[70] Yet the statute has by no means proven simple and straightforward for antitrust practitioners. In that vein, prevailing academic commentary strongly suggests that the Act, falling just short of an outright failure worthy of repeal,[71] has demanded more from the federal courts—tribunals that must now apply the complicated statute in tandem with an expansive terrain of Sherman Act precedents.[72]

The Supreme Court first tackled the FTAIA in Hartford Fire. The majority declined to apply the statute in an analysis of civil claims under the Sherman Act.[73] The Court declined to rest its section 1 ruling on the FTAIA’s effects language, and instead relied entirely on Sherman Act precedents.[74] Nevertheless, the effects-centered rationale imbued in the FTAIA’s legislative history and prior precedents carried into decisions rendered after passage of the Act, as in United States v. Nippon Paper Industries and F. Hoffman-La Roche, Limited v. Empagran S.A. Although Hartford Fire only addressed the limited role of the FTAIA in civil antitrust proceedings, these later decisions grappled with the thornier issue of how to interpret the FTAIA and Sherman Act in the context of criminal prosecutions.

The district court in Nippon Paper (Nippon I) reviewed the defendants’ motions to dismiss a criminal antitrust indictment.[75] The indictment targeted a Japanese fax paper manufacturer for participating in meetings, agreements, and monitoring activities that took place entirely in Japan.[76] Notably, the court “disagree[d] with [the U.S. government’s] suggested equating of the Sherman Act’s civil and criminal application” with respect to wholly foreign conduct.[77] Given a “strong presumption against extraterritorial application of federal statutes” in criminal matters, the district court reasoned that “the line of cases permitting extraterritorial reach in civil actions is not controlling” in determining whether the Sherman Act’s criminal provisions can reach wholly foreign conduct.[78]

Citing prior judicial treatment of the language of the Sherman Act, academic commentary on its extraterritorial reach, policies underlying antitrust and criminal law, and relevant legislative history, the court concluded that the “criminal provisions of the Sherman Act do not apply to conspiratorial conduct in which none of the overt acts . . . take place in the United States.”[79] Thus, on first impression, the court in Nippon I differentiated between the requirements of an extraterritorial civil claim and an extraterritorial criminal prosecution under the FTAIA.

The district court’s holding remained intact for 165 days. The United States Court of Appeals for the First Circuit swiftly reversed the judgment, holding in Nippon II that, under Hartford Fire, the defendants could be criminally liable for agreeing to employ retail price maintenance strategies with various firms that distributed paper in the United States (notwithstanding the FTAIA’s terms).[80] The court sidestepped Hartford Fire’s civil posture by emphasizing that “in both criminal and civil cases, the claim that Section One applies extraterritorially is based on the same language in the same section of the same statute.”[81]

Despite pausing to note the “inelegantly phrased” FTAIA, the panel’s decision nevertheless declined to “place any weight on it,” following Hartford Fire.[82] The majority also reasoned that, without meaningful distinction in the Sherman Act’s treatment of civil and criminal liability, “it would be disingenuous . . . to pretend that the words had lost their clarity simply because this is a criminal proceeding.”[83] The decision explained how

Hartford Fire definitively establishe[d] that Section One of the Sherman Act applies to wholly foreign conduct which has an intended and substantial effect in the United States. We are bound to accept that holding. Under settled principles of statutory construction, we also are bound to apply it by interpreting Section One the same way in a criminal case. The combined force of these commitments requires that we accept the government’s . . . argument, reverse the order of the district court, reinstate the indictment, and remand for further proceedings.[84]

In addition, despite ultimately arriving at the same conclusion regarding the applicability of the Sherman Act’s criminal provisions to wholly foreign conduct, the detailed concurrence in Nippon II provided greater historical context for courts’ broad “interpretive responsibility” in adjudicating Sherman Act claims:

The task of construing [the Sherman Act in a criminal context] is not the usual one of determining congressional intent by parsing the language or legislative history of the statute. The broad, general language of the federal antitrust laws and their unilluminating legislative history place a special interpretive responsibility upon the judiciary. The Supreme Court has called the Sherman Act a charter of freedom for the courts, with a generality and adaptability comparable to that found . . . in constitutional provisions.[85]

Thus, by the turn of the century, the FTAIA’s substantive provisions were manifested as mere legislative gloss on prevailing judicial principles. Both the district court and the appellate court in Nippon Paper declined to find the FTAIA dispositive of extraterritorial criminal antitrust prosecutions, instead falling back to traditional conceptions of liability under the Sherman Act.

Nevertheless, the notable contrast in the district court’s and the appellate courts treatments of the Sherman Act’s extraterritorial criminal provisions underscores a key development in extraterritorial antitrust jurisprudence. Although Nippon II stands for the proposition that wholly foreign conduct may give rise to criminal liability under the Sherman Act based on the plain language of the statute and its “common sense” application,[86] reasonable minds differ with respect to the proper extraterritorial limits on the antitrust jurisdiction of federal courts. For example, the district court’s reasoning in Nippon I stands against the dominant, casual assumption that indictments are interchangeable with civil “claims” when anticompetitive conduct occurs beyond U.S. borders, based on reasonable application of similar tools of statutory interpretation as the court in Nippon II. The fact that the appellate panel declined to endorse the district court’s handiwork, and instead crafted its own interpretive edifice with its preferred tools, is by no means dispositive of the merits of the district court’s reasoning.[87]

In 2004, the Supreme Court finally weighed in on the FTAIA’s domestic effects exception in F. Hoffman-La Roch, Ltd. v. Empagran. Two decades after the passage of the Act, the Court reasoned that its “claim” language refers directly to the “plaintiff’s claim, or the claim at issue.”[88] In Empagran, the Court held that foreign purchasers of vitamins could not recover under the FTAIA based merely on allegations that their own foreign harms from international price-fixing activity coincided with some domestic injury.[89] Thus, foreign purchaser plaintiffs in a civil antitrust action must now prove that the alleged anticompetitive effect on domestic trade or commerce itself gives rise directly and proximately to their own foreign injuries.[90] Foreign plaintiffs cannot “piggyback” on an indirect domestic effect to get into American courts on antitrust claims under the FTAIA. Following Empagran, the requisite domestic effect must proximately cause an antitrust plaintiff’s claimed injuries[91]—and it is the plaintiff’s burden of proof and persuasion to demonstrate proximate causation with respect to a domestic effect and his or her “claim.”

C.  Hui Hsiung, Motorola Mobility, and Beyond

Recent circuit court judgments in United States v. Hui Hsiung[92] and Motorola Mobility, LLC v. AU Optronics Corp.[93] endorse criminal prosecution of foreign anticompetitive conduct based on the FTAIA’s domestic effects prong. Further, in denying certiorari for these conspiracy cases,[94] the Supreme Court let the final circuit decisions lie undisturbed, even in light of potential analytical deficiencies.[95] Careful consideration of both decisions sets the stage for analysis of the FTAIA’s “claim” language.[96]

Hui Hsiung and Motorola Mobility stem from the same conspiracy to fix prices for liquid crystal display (“LCD”) panels,[97] component parts incorporated into electronics products sold in the United States and elsewhere.[98] Specifically, between 2001 and 2006, “representatives from six leading [LCD] manufacturers,” including defendant AU Optronics, met in Taiwan for a “series of meetings” that “came to be known as the ‘Crystal Meetings.’”[99] The Ninth Circuit explained that after these meetings,

participating companies produced Crystal Meeting Reports. These reports provided pricing targets for TFTLCD sales, which, in turn, were used by retail branches of the companies as price benchmarks for selling panels to wholesale customers. More specifically, [AU Optronics Corporation of America] used the Crystal Meeting Reports that [AU Optronics] provided to negotiate prices for the sale of TFTLCDs to United States customers including HP, Compaq, ViewSonic, Dell, and Apple.[100]

The government alleged that the foreign conspiracy constituted a textbook example of a concerted agreement among direct competitors to restrain trade: “[s]pecifically, the indictment charged that ‘the substantial terms’ of the conspiracy were an agreement ‘to fix the prices of TFTLCDs for use in notebook computers, desktop monitors, and televisions in the United States and elsewhere.’”[101] From 2001 to 2006, the United States constituted “one-third of the global market for personal computers incorporating [LCD panels],” and sales by conspirators into the U.S. market generated “over $600 million in revenue.”[102]

After being indicted in the Northern District of California for price fixing under section 1 of the Sherman Act, the defendants twice unsuccessfully attempted to dismiss the charges before proceeding to trial.[103] The panel suggests that “the reach of the Sherman Act to conduct occurring outside of the United States” marked “a contentious subject” in pretrial proceedings.[104] The district court instructed the jury that it may uphold the charges upon finding that the government proved “beyond a reasonable doubt . . . that the conspiracy had a substantial and intended effect in the United States,” even without a single action taken by a single member of the conspiracy in furtherance of the conspiracy within the United States.[105] The district court also instructed that the jury could uphold the charge separately upon finding that the government proved beyond a reasonable doubt that at least one member of the conspiracy took at least one action in furtherance of the conspiracy within the United States.”[106] Ultimately, the jury convicted the defendants and determined that combined gains derived from the conspiracy were in excess of $500 million.[107] Individual and corporate defendants appealed their convictions, and AU Optronics appealed imposition of a $500 million fine.[108]

On appeal, the Ninth Circuit initially declined to determine whether the government had satisfied its burden to convict based on the domestic effects prong, instead concluding narrowly that “the FTAIA did not bar the prosecution because the government sufficiently proved that the defendants engaged in import trade.”[109] The panel subsequently amended their initial opinion (“amended opinion”) and noted that whenever a case involves nonimport trade with foreign nations, the Sherman Act presumptively does not apply—unless the FTAIA’s domestic effects prong applies.[110]

But the panel’s amended analysis did not stop there. The decision independently sustained the defendants’ convictions based on “domestic effects.”[111] Despite a dearth of meaningful discourse regarding the FTAIA’s “claim” language,[112] the panel independently authorized criminal penalties amounting to $500 million against AU Optronics (matching “the largest fine imposed against a company for violating U.S. antitrust laws”), individual fines totaling $400,000, and a total of six years in federal prison.[113] In this sense, the amended opinion reasoned to the same conclusion as the initial opinion, but with considerably broader precedential scope.

The Ninth Circuit aimed to include within the scope of the Sherman Act only those acts that actually have a direct and proximate “effect” on domestic markets. The panel explains in great length that an effect must be “direct, substantial, and reasonably foreseeable” to trigger Sherman Act jurisdiction on the basis of alleged “domestic effects.”[114] Yet despite noting that the FTAIA presents additional substantive elements for a Sherman Act prosecution involving international commerce with domestic effects,[115] the panel declined to warrant its conclusion that the government proved an essential element of its case beyond a reasonable doubt––that AU Optronics’ conduct “[gave] rise” to the government’s so-called “claim” under the antitrust laws.[116]

A subtle aspect of the Ninth Circuit’s amended opinion underscores an important development in post-FTAIA extraterritorial antitrust jurisprudence: “[t]o allege a nonimport trade claim under the Sherman Act, the claim must encompass the domestic effects elements.”[117] Under the domestic effects exception, the government must now prove the existence of (1) a domestic effect that (2) “gives rise to” a “claim” as substantive elements of a criminal charge. Hui Hsiung reinforces the dominant interpretation of the FTAIA as providing additional substantive requirements of antitrust claims in the extraterritorial context, concomitantly placing additional burdens on all plaintiffs in such actions.[118] Viewing the FTAIA’s elements as substantive, rather than jurisdictional, requires that government plaintiffs’ allegations and, ultimately, direct proof must satisfy each of the “domestic effects” elements in cases not involving direct import commerce.[119]

In Motorola Mobility, the Seventh Circuit reviewed a judgment entered in a suit brought by Motorola, along with “its ten foreign subsidiaries,” which purchased liquid-crystal display panels and incorporated them into cellphones.[120] The panel first briefly explained the nature of the disputed panel sales in the civil action:

[a]bout 1 percent of the panels sold by the defendants to Motorola and its subsidiaries were bought by, and delivered to, Motorola in the United States for assembly here into cellphones; to the extent that the prices of the panels sold to Motorola had been elevated by collusive pricing by the manufacturers, Motorola has a solid claim under section 1 of the Sherman Act. The other 99 percent of the cartelized components, however, were bought and paid for by, and delivered to, foreign subsidiaries (mainly Chinese and Singaporean) of Motorola. Forty-two percent of the panels were bought by the subsidiaries and incorporated by them into cellphones that the subsidiaries then sold to and shipped to Motorola for resale in the United States. Motorola did none of the manufacturing or assembly of these phones. The sale of the panels to these subsidiaries is the focus of this appeal.[121]

Ultimately, the court concluded that Motorola’s “derivative” competitive claims were barred under the indirect-purchaser doctrine.[122] AU Optronics and related conspirators were therefore immunized from civil antitrust liability to indirect customers, like Motorola and its customers, although its subsidiaries could still pursue independent civil claims overseas.

The court stated that under the FTAIA’s “domestic effects” exception “[t]he first requirement, if proved, establishes that there is an antitrust violation; the second determines who may bring a suit based on it.”[123] Implicitly, the panel reasoned that Motorola—a party directly affected on its balance sheet by overcharges from the panel sales, despite integrating these technologies into final consumer products through foreign subsidiaries—was, unlike the United States government, not among the select few “who may bring a suit” involving foreign commerce under the Sherman Act.

The decision concluded by suggesting, “[i]f price fixing by the component manufacturers had the requisite statutory effect on cellphone prices in the United States, the Act would not block the Department of Justice from seeking criminal . . . remedies.”[124] Although this statement stands as non-binding dicta with respect to the FTAIA’s domestic effects prong, its implications are straightforward: federal criminal prosecutions are “claims” under the domestic effects exception and may support a conviction under the antitrust laws if the government can satisfy proof beyond a reasonable doubt. Obtusely, however, the court barred civil recovery for an American corporation harmed directly by the conspiracy, reasoning that Motorola could better pursue such claims through its subsidiaries “direct” claims in foreign jurisdictions.[125]

The final circuit opinions include analytical deficiencies, particularly with respect to the threshold requirements for invoking “domestic effects.”[126] Neither decision identifies a clear reason for concluding that the “domestic effects” test supports criminal prosecutions under the Sherman Act, as both leave untouched the question of whether a criminal action may ever “give rise to” a “claim” under the antitrust laws. In that vein, Part II posits that the FTAIA’s “claim” language should be narrowly interpreted in line with its original meaning, which did not authorize international criminal prosecutions.

II.  The FTAIA Does Not Authorize Extraterritorial Criminal Prosecutions

Congress passed the FTAIA to limit the criminal justice authority of American antitrust authorities over nonimport foreign commerce—not to expand it. Part II argues the case for narrow construction of the FTAIA’s “claim” language with respect to extraterritorial criminal prosecutions. After presenting a case for departure from the approach laid out in Hui Hsiung, Part III considers various implications of the current state of the law on international businesses, multinational corporate executives, and their agents.

A.  Textualism Foundationally Supports a Narrow Construction of the Domestic Effects Exception’s “Claim” Language

Courts frequently begin an assessment of apparent ambiguities in statutory meaning based on “pure textual reliance.”[127] In some cases, American courts divine the “meaning of a statute . . . entirely from the words used in the law under consideration.”[128] The plain statutory language, authoritative definitions of terms in secondary source materials, and the ordinary or common usage of terms or phrases in the statute, as well as related sections of the law, may illuminate statutory meaning in the absence of clear legislative intent.[129] These engrained methods suggest that the FTAIA’s domestic effects prong does not support criminal prosecutions.

The Act ought to be interpreted in line with its unambiguous terms. Fortunately, the words “claim” and “prosecution” are terms with distinct meanings in the legal lexicon. At the outset, it is useful to note that the more general term “action” may encompass civil and criminal redress under the Sherman Act. By contrast, at least in the American legal system, plaintiffs asserting a “claim” under a given statute ordinarily would do so only with respect to the civil aspects of the statute––as where a civil plaintiff alleges “claims” against a civil defendant in adversary legal proceeding. This textual distinction is not accidental; it is reflective of fundamental underlying differences between civil and criminal actions under the FTAIA. The courts should treat it as such.

The Act does not expressly define the term “claim,” however. Thus, legal practitioners and jurists should typically import the plain or ordinary meaning of the term, as defined in secondary source materials. One source commonly relied upon is an authoritative definition in a legal dictionary. According to Black’s Law Dictionary, a claim may entail the “assertion of an existing right,” a “right to payment or to an equitable remedy,” or a “demand for money, property, or a legal remedy to which one asserts a right, esp[ecially] the part of a complaint in a civil action specifying what relief the plaintiff asks for.”[130] By contrast, criminal “prosecutions” ordinarily entail “criminal proceeding[s] in which an accused person is tried.”[131] From a textual standpoint, then, these terms entail distinct proceedings in statutory parlance. This observation strongly suggests that it would be erroneous to casually equate the term “claim” with any “criminal proceeding.”

Moreover, the sharp contrast between authoritative legal definitions of the terms “claim” and “prosecution” is accentuated by ingrained uses for the terms in distinct legal proceedings. In ordinary use, surely, the word “claim” would not be used to describe highly specialized terms in criminal procedure, such as “prosecution,” and “indictment,” and “plea.” Broad usage of “claim” would, in fact, more likely lead to greater confusion than clarity in the course of criminal proceedings. In other words, loosely speaking, the government may allege “claims” against alleged perpetrators in criminal proceedings. However, stretching the term “claim” so far as to encompass the government’s entire “prosecution” against the defendant would appear facially obtuse in most contexts—in large part based on the ordinary usage of the terms in distinct legal settings.

Such judgments about “plain meaning” and “ordinary usage” are naturally disputed. Yet the foregoing discussion rapidly approaches an alternative conclusion from that rendered by the panel in Hui Hsiung: the plain terms of the FTAIA’s domestic effects exception are unambiguous, but they authorize only civil “claims” under the Sherman Act. And, turning beyond the black letter of the statute, ordinary usage of the words “claim” and “prosecution” lends further credence to this view. Thus, claims and prosecutions can and should be understood to entail distinct legal meanings; criminal “prosecutions” do not fall within “claims” based on a textualist analysis of the FTAIA’s domestic effects prong.

To the extent that the Act’s terms are subject to multiple reasonable meanings, however, other interpretive canons suggest that its domestic effects prong does not extend to criminal actions under the Sherman Act where wholly foreign acts are concerned. The remainder of this Part evaluates arguments for and against extending the FTAIA to authorize extraterritorial criminal prosecutions based in non-textual interpretive canons, including: (1) extraterritoriality principles of comity and fairness; (2) applicable canons of statutory construction; and (3) consideration of the varied remedy schemes for criminal and civil Sherman Act violations.

B.  Narrow Interpretation of the FTAIA Comports with International Comity Principles and Applicable Canons of Construction

Extraterritoriality principles further counsel departure from the prevailing interpretation of the FTAIA’s domestic effects prong. Notions of comity and fairness undergird extraterritorial antitrust jurisprudence. These adjudicatory principles also clarify U.S. competition policy for foreign governments and firms, as courts share legal authority with the executive and legislative branches where extraterritorial liability is involved. This discussion reflects that adherence to these principles would be best advanced by interpreting the FTAIA to presumptively prohibit domestic criminal prosecutions of wholly foreign conduct under the domestic effects prong.

The international comity doctrine historically served a central role in limiting the extraterritorial jurisdiction of federal courts. And today, even under the far narrower “direct conflict” standard set forth in Hartford Fire,[132] American courts regularly invoke “reasons of international comity” while describing the FTAIA as limiting “the extraterritorial application of U.S. antitrust law.”[133] Judge Posner’s statement is characteristic:

[A]re we to presume the inadequacy of the antitrust laws of our foreign allies? Would such a presumption be consistent with international comity, or more concretely with good relations with allied nations in a world in turmoil? . . . Why should American law supplant, for example, Canada’s or Great Britain’s or Japan’s own determination about how best to protect Canadian or British or Japanese customers from anticompetitive conduct engaged in significant part by Canadian or British or Japanese or other foreign companies?[134]

Comity similarly counsels courts in criminal matters under the FTAIA. American laws should not presumptively supplant foreign governments’ judgments concerning criminal liability, particularly in an interconnected global marketplace. Application of criminal punishment thus warrants hesitation upon consideration of “good relations with allied nations in a world in turmoil.”[135] The principles of fairness and reasonableness help to outline a doctrinally consistent conception of the FTAIA’s domestic effects prong, as these principles have historically aided federal courts in crafting remedies and resolving international conflicts.[136]

Alternatively, however, comity may counsel in favor of enabling criminal remedies for extraterritorial antitrust violations. For example, leading antitrust commentator Robert Connolly notes, “there is a difference between actions brought by the DOJ and private class action damages,” particularly with respect to the extent to which government and private plaintiffs consider “comity considerations.”[137] Arguing that[n]o nation has objected to the DOJ’s successful prosecution of foreign companies and even citizens of that country in the LCD panel investigation,” and that “the DOJ seriously considers the views of foreign nations before bringing cases,” Connolly, an experienced practitioner with decades of experience at the Antitrust Division of the Department of Justice, projects confidence that past practice makes perfect.[138] This conception of the comity doctrine clearly influenced the court’s decision in Motorola Mobility:

[T]he . . . court should reach a decision that preserves the ability of the DOJ to protect American consumers and continue to lead the way in prosecuting international cartels—including appropriate component cartels. The court could also acknowledge the comity concerns of foreign nations and find application of [the indirect purchaser doctrine] a bar to foreign component civil damage cases.[139]

This view of comity appears highly limited, however, when cast against the principles underlying the doctrine and the weighty penalties associated with criminal antitrust actions under the Sherman Act. Neither the opinion in Motorola Mobility nor Connolly’s commentary acknowledge the limited nature of justifying the extension of American criminal penalties abroad based upon foreign states’ as-of-yet unstated approval of a single case arising from a single foreign conspiracy involving only several nations.

Under this view, to defend extraterritorial prosecutions beyond the Crystal Meetings conspiracy, something affirmative or principled is needed—something more than silence from foreign governments in the face of American action. Although coordination with foreign governments provides prima facie evidence that prosecutors can avoid chafing foreign sovereigns while applying the Sherman Act to wholly foreign conduct, the mere acquiescence of foreign states to such conduct should not temper characterization of American prosecutions as potential overreaching.[140] A more reasonable standard would presumptively limit the criminal domain of American prosecutors to domestic markets. This would encourage enhanced criminal enforcement activity by foreign governments, whose interests and authority are often more directly implicated in cases involving disputed extraterritorial conduct.

Fortunately, this is not a new concept. International comity already reflects an ingrained presumption against extraterritorial prosecutions under the Sherman Act. Generally, criminal law reflects social judgments regarding the proper magnitude of punishment acceptable for given violations in market competition and to consumer welfare. Different sovereign jurisdictions may make different judgments regarding whether to criminalize the same putatively anticompetitive conduct.[141] Moreover, different states punish offenders in different ways for the same crimes.[142] Variation in criminal punishment among developed nations reflects concomitant variation in social judgments regarding individual moral culpability and foundational precepts to systems of criminal justice. In this vein, from one dominant theoretical perspective, criminal liability confers a judgment of community condemnation of moral culpability.[143]

Amidst political uncertainty regarding norms of free trade and global economic cooperation,[144] American competition law should privilege the principles of reason and fairness imbued in the comity doctrine. Fairness lies at the heart of American criminal law––particularly when applied in the extraterritorial and criminal contexts.[145] Historical weighing of domestic and foreign sovereignty, which generally informs courts’ extraterritorial jurisdiction, should be imported into analysis of the FTAIA’s “claim” language in the context of criminal penalties. Certainly, the antitrust laws should not apply extraterritorially in criminal contexts when: (1) the parties are wholly foreign and foreign conduct constitutes the basis for the allegations; (2) direct effects are principally centered abroad; (3) there is a lack of foreseeable purpose to affect or harm domestic commerce; (4) foreign laws and policies conflict with American laws and policies to a high degree; and (5) simultaneous compliance with U.S. and foreign law is impossible.[146] The FTAIA’s “claim” language therefore naturally compliments the historically entrenched comity doctrine by barring criminal enforcement of the Sherman Act against foreign acts with effects on nonimport domestic commerce.[147]

Moreover, the strong presumption against extraterritorial application of federal law clearly applies in the case of criminal actions under the FTAIA. Courts presume that federal statutes do not apply extraterritorially in the absence of express legislative intent to the contrary.[148] To avoid this presumption against extraterritorial application of U.S. law, a plaintiff typically must bring a significant showing before the court of some “clear” expression of legislative intent to invoke the law beyond U.S. sovereign control.[149]

Relatedly, Morrison v. National Australia Bank Ltd. provides that the test of territoriality must look to the “focus” of a federal statute in determining the scope of a law.[150] In Morrison, for example, the Court held the territorial connections related to a statute’s “focus” may overcome the statutory presumption against territoriality.[151] Here, similarly, the focus of the FTAIA should guide federal courts in divining the extraterritorial scope of the statute’s criminal dimensions. Moreover, United States v. Bowman held that ambiguous criminal statutes generally should not apply extraterritorially, at least absent an extraterritorial intent clearly inferred from the nature of the offense itself.[152] Overall, these canons of construction reinforce comity considerations and counsel against interpreting the FTAIA to independently authorize criminal actions.

C.  Distinct Remedies Reflect Distinct Treatment of Civil and Criminal Actions Under the FTAIA

A final consideration concerns the distinct remedies that the overall statutory scheme envisions for civil and criminal antitrust violations. According to regulators’ conception of the Sherman Act and its penalties, violations “may be prosecuted as civil or criminal offenses,” and punishments for civil and criminal offenses vary.[153] For example, available relief under the law encompasses penalties and custodial sentences for criminal offenses, whereas civil plaintiffs may “obtain injunctive and treble damage relief for violations of the Sherman Act.”[154] Regulators also recognize that the law envisions distinct means of enforcing criminal and civil offenses under the Sherman Act. For example, the DOJ retains the “sole responsibility for the criminal enforcement” of criminal offenses and “criminally prosecutes traditional per se offenses of the law.[155] In civil proceedings, private plaintiffs and the federal government may seek equitable relief and treble damage relief for Sherman Act violations.[156]

These recognized remedial distinctions matter when assessing the FTAIA’s meaning. Along with the interpretive argument that the Sherman Act’s various provisions ought to be enforced in a way that is internally consistent, practical assessment of the varied remedies and parties that may pursue such remedies reinforces a narrow conception of the FTAIA’s language. The weighty power to seek imprisonment of offenders critically distinguishes criminal and civil remedies under the Sherman Act. The federal government alone retains such authority, predicated on principles of legality and sovereignty. For many reasons, it remains reasonable to permit civil redress—encompassing the full range of injunctive and damage relief—in extraterritorial proceedings under the Sherman Act. Aggrieved consumers and competitors targeted in American markets by foreign activities can sue for injunctive and treble damage relief under the Sherman Act’s civil provisions. Notably, the FTAIA permits as much by its own terms, at least where substantive elements under the Act are satisfied with respect to the requisite effect on domestic or direct import commerce.

In this sense, American law maintains a strong deterrent to foreign actors through a robust system of civil, as opposed to criminal, redress. Extraterritorial competitive injuries are left to the civil sphere under the FTAIA. Such civil remedies are more than sufficient to advance the objectives of the American competition regime abroad—namely, to prevent through legal means artificial distortions on the price and output of goods and services. American courts play a major role in the adjudication of disputes spanning distinct sovereign jurisdictions; that role is best maintained through established civil remedies. But criminal remedies—being reserved to the sovereign aloneshould not extend extraterritorially. The remedial distinctions under the Sherman Act reflect the aims of criminal and civil competition law—criminally, to vindicate public wrongs, and civilly, to remedy private injuries.

Criminal antitrust remedies are logically limited in the context of foreign sovereign jurisdiction. By contrast, the Sherman Act’s civil remedies provide injunctive and damage relief that may compensate victims despite traditional notions of foreign sovereign authority. Far from one sovereign intervening in the backyard of another, a civil action enables individually aggrieved parties to receive compensation from an antitrust offender. This is an intuitive remedial extension of basic principles of legality and sovereignty. Thus, far from the government’s current position—that the FTAIA’s claim prong empowers prosecutors to independently seek criminal remedies for extraterritorial antitrust offenses—the overall remedy scheme for antitrust offenses reinforces a limited conception of criminal redress, particularly where the FTAIA provides the basis for government action.

The preceding discussion substantiates a narrow interpretation of the FTAIA as cabining the extraterritorial criminal antitrust jurisdiction of federal courts. Based on the factors cited––along with substantial historical evaluation of the Sherman Act and FTAIA––this interpretation is consistent with the plain letter of the Act, engrained legal norms, and applicable canons of construction. The current state of U.S. antitrust law tacitly endorses potential executive overreach into criminal judgments of co-equal sovereigns, which is questionable even under consensual arrangements with such governments.[157] Such sovereigns’ domestic political and legal processes properly decide criminal judgments, absent American influence or legal process. In light of growing economic globalization, Part III briefly considers various implications of the prevailing construction of the FTAIA as independently supporting criminal prosecutions of foreign anticompetitive conduct.

III.  Implications for an Interconnected Global Political Economy

The foregoing analysis makes clear that the FTAIA was never intended to apply to criminal activity. Its drafters did not design the Act to reinforce American hegemony in the political economy of global competition policy. Rather, the statute provides express legislative guidance regarding the extraterritorial limits on criminal liability under the Sherman Act.

To date, the Supreme Court remains notably silent on the issue. In the meantime, Hui Hsiung and Motorola Mobility suggest that international businesses that participate in certain anticompetitive acts anywhere in the world should beware potential criminal redress in American courts. The chief implication of the “Crystal Meetings” cases is that anticompetitive conduct presents a massive criminal liability risk that may attach to commercial transactions that in many ways appear removed from American sovereignty. In particular, firms with foreign headquarters that deal significantly in American domestic commerce while operating abroad should consider the wide range of criminal remedies available to American prosecutors under the FTAIA.

In that vein, contractual agreements among segments of global supply chain networks should be drafted to avoid traditional areas of American criminal antitrust enforcement, such as price-fixing and bid rigging, territorial allocation mechanisms, and other naked collusive activities. Given thatat least in recent timesU.S. criminal enforcement actions are far more likely to stem from agreements between firms, rather than agreements enacted within a single entity, international businesses should factor antitrust enforcement concerns into assessing the relative risk of commercial dealings with partners. Owning subsidiaries, rather than dealing with others, may be a preferable alternative.[158]

Although vertical integration may shield firms from horizontal liabilities under section 1 of the Sherman Act, section 2 proscribes certain single-firm activities. Section 2 prohibitions include bans on attempted monopolization and the illegal maintenance or acquisition of monopoly power.[159] There are tensions inherent between self-dealing and dealing with others under U.S. antitrust law. Ironically, foreign firms may feel paralyzed by the vast scope of American antitrust law under courts’ expansive reading of the FTAIA in the criminal context—thus the Act may in fact fuel the type of commercial chilling effect bemoaned by legislators before its passage.[160]

Whereas the petitioners in Hui Hsiung failed to raise challenges to the criminal application of the domestic effects prong based on the FTAIA’s plain language and related arguments, future businesses and individuals targeted by criminal indictments should put the government to the test.[161] Multinational businesses play a major role in addressing the current conception of the FTAIA’s criminal dimensionsmost notably by challenging the U.S. government to prove the Act should apply to extraterritorial criminal acts. The plain text of the statute should give new life to extraterritoriality jurisprudence by reasonably limiting the domain of American authorities. This development is only possible, however, if foreign defendants raise facial challenges to the Act’s extraterritorial criminal application.

In the meantime, beyond reflecting the risk of criminal antitrust liability in international business transactions, multinational businesses should consider the panoply of behavioral and structural remedies available to federal prosecutors. In particular, behavioral remedies encompass fines, penalties, and potential prison time, as well as long-term monitoring and compliance regimes.[162] Foreign firms like AU Optronics, if caught in the crosshairs of a criminal prosecution, could lose control of certain areas of corporate governance altogether, in order to ensure such firms continuing compliance with American law.[163]

The range of behavioral remedies available to American competition authorities underscores the importance of avoiding criminal liability altogether by embracing a culture of prospective caution regarding potentially collusive conduct.[164] Foreign executives intending to maintain full control of corporate affairs and eschew long-term compliance monitors should craft deals as though American competition law operates globally, or otherwise entirely avoid collusive activities that could reasonably wash up on American shores.[165] Given the depth of consumer demand in American markets, caution appears to be the best policy at present for the vast majority of major global businesses.


The foregoing discussion indicates that domestic antitrust laws play a major role in modern global trade regulation. Arguably more than any time since the passage of the FTAIA, today the international dimensions of competition policy warrant careful consideration by lawmakers, businesses, and legal practitioners. Markets are increasingly global, and the application of domestic competition law to international business has necessarily become more complex.

Although global trade can unlock market efficiencies and enhance consumer welfare, it must be managed diligently among co-equal sovereign collaborators.[166] The FTAIA clarifies that U.S. antitrust law plays a limited role in managing foreign anticompetitive activities. Moving forward, the FTAIA’s effects exception should therefore not be permitted to independently support extraterritorial criminal prosecutions under the Sherman Act. The plain language of the FTAIA, in tandem with other traditional tools of statutory interpretation, suggests a limited range of legal redress for competitive harms stemming from wholly foreign acts. Such activities are cabined to the domain of civil redress and should not be subject to criminal prosecution under the FTAIA.

An interpretation of the FTAIA that would reduce reliance on American criminal law enforcement in favor of civil redress and enhanced criminal action by foreign governments in the competition sphere would be preferable, as this approach would reduce the risk of impolitic prosecutorial overreach. Spirited arguments can be made for rigorous domestic criminal enforcement where Americans face competitive injuries, but these arguments become less clearcut in the global marketplace. Yet one thing is clear: The FTAIA—a pronouncement designed by Congress to clarify the limited range of extraterritorial claims under the Sherman Act—did not speak clearly enough for federal courts. Absent judicial action, Congress should enunciate that criminal penalties are in fact authorized by the FTAIA’s plain terms.

In the meantime, American competition authorities are prepared to exercise every ounce of extraterritorial authority meted out by the federal judiciary.[167] This portends potential conflict where rigorous international competition is involved. Although the litigants in Hui Hsiung failed to fully raise arguments challenging a Sherman Act criminal prosecution under the FTAIA, the decision remains instructive. Criminal penalties under the Sherman Act are currently available to American prosecutors under a domestic effects theory.[168] Sherman Act remedies are structural and behavioral. Thus, international businesses and their agents may face U.S. competition remedies that directly interfere with corporate governance structures, including, but not limited to, compliance monitors, deferred-prosecution agreements, and non-prosecution agreements.[169]

This portends trouble in a world already plagued by political uncertainty surrounding global trade.[170] Businesses and individuals facing the current legal regime should challenge criminal enforcement of the Sherman Act under the FTAIA’s domestic effects exception. Given a lack of a clear controlling precedent, a domestic effects theory should not permit U.S. authorities to pursue criminal sanctions against wholly foreign activities, which fall more reasonably within the domain of foreign governments’ competition authorities.[171] By challenging the law in this way, businesses might topple the edifice of judicial inference that has resulted in uniform treatment of civil claims and criminal actions under the Sherman Act’s extraterritorial dimensions.

Given the proliferation of domestic competition laws worldwide in recent decades,[172] in particular, the Sherman Act should not be elevated to the status of global doctrine.[173] Nor should American jurists desire it to be treated as such.[174] The application of domestic criminal law to foreign activities demands propriety, which, in the immediate context, is best achieved by presumptively tempering domestic executive authority. To the extent short-term underdeterrence follows from respecting foreign governments’ criminal antitrust regimes, American law offers a robust range of civil redress.[175]

Trade talk has shifted from an overall cooperative tenor to a chorus of conflict.[176] The amended panel decisions will stand as good law for the time being. However, presumptive equivocal treatment of the civil and criminal provisions of the Sherman Act after the FTAIA demands meaningful justification from U.S. courts in the immediate future. For although American antitrust laws play a significant role in the contemporaneous global political economy, words matter: A rose by any other name may smell as sweet,[177] but an indictment does not a claim make.

[*] *.. Executive Senior Editor, Southern California Law Review, Volume 92; J.D. Candidate 2019, University of Southern California Gould School of Law; B.S., summa cum laude, Political Science and Economics 2016, Bradley University. I thank my mother, Barbara J. Simmons, for her steadfast support and dedication to the memory of my father, Brian S. Simmons. I also thank USC Professors Brian Peck and Jonathan Barnett for sparking my interest in transnational competition law. Lastly, I thank the Law Review staff and editors for their thoughtful work. All errors are my own.

 [1]. See Jason Margolis, Trump’s Trade Policies Worry Economists, USA Today (July 25, 2016, 10:57 AM),
mexico/87521852. In one of many regrettable juxtapositions in American history since June 16, 2015—the day Donald Trump announced his presidential candidacy—Mr. Margolis’s article portended calamitous results relatively well. See also David J. Lynch et al., U.S. Levies Tariffs on $34 Billion Worth of Chinese Imports, Wash. Post (July 6, 2018), (“The conflict over U.S.-China trade has been brewing for years but has intensified rapidly in 2018. On April 3, the United States released a list of targets for proposed tariffs on $50 billion worth of Chinese imports, taking aim at high-tech and industrial goods. On April 4, China fired back.”). Entering October 2018, the United States and China, two leading jurisdictions in terms of the international sale of goods, have engaged in a disturbing series of retributory tariffs. Anna Fifield, China Thinks the Trade War Isn’t Really About Trade, Wash. Post (Sept. 24, 2018), (reporting, in wake of announcement that China will “retaliate with tariffs on $60 billion of U.S. goods” in response to U.S. decision to “slap tariffs on an additional $200 billion worth of Chinese goods,” that Chinese officials view combative trade policy as part of a larger geopolitical threat from the United States); see also Robyn Dixon, China Accuses the U.S. of Holding a Knife to Its Neck and Rules Out New Talks to Resolve the Trade War, L.A. Times (Sept. 25, 2018), (reporting Chinese officials considered “U.S. tariffs on $200 billion in Chinese goods . . . so massive that it made trade talks impossible”); Donald J. Trump (@realDonaldTrump), Twitter (Jul. 24, 2018, 8:29 AM), (“Tariffs are the greatest! Either a country which has treated the United States unfairly on Trade negotiates a fair deal, or it gets hit with Tariffs. It’s as simple as that – and everybody’s talking! Remember, [the United States is] the ‘piggy bank’ that’s being robbed. All will be Great!”).

 [2]. Margolis, supra note 1; see also Dixon, supra note 1. See generally Issues: Foreign Policy,, (last visited Nov. 28, 2018) (“The promise of a better future will come in part from reasserting American sovereignty and the right of all nations to determine their own futures.”).

 [3]. Remarks by President Trump to the World Economic Forum, (Jan. 26, 2018), (“We cannot have free and open trade if some countries exploit the system at the expense of others. We support free trade, but it needs to be fair and it needs to be reciprocal. Because, in the end, unfair trade undermines us all.”); see also Donald J. Trump (@realDonaldTrump), Twitter (Mar. 4, 2018, 4:10 PM), (“We are on the losing side of almost all trade deals. Our friends and enemies have taken advantage of the U.S. for many years. Our . . . industries are dead. Sorry, it’s time for a change!”); Donald J. Trump (@realDonaldTrump), Twitter (Mar. 2, 2018, 2:50 AM),
/status/969525362580484098 (suggesting, in light of U.S. trade deficit of billions of dollars, “trade wars are good, and easy to win” (emphasis added)).

 [4]. See Margolis, supra note 1 (“Trump’s major policy positions [on trade] are primarily focused on two countries: China and Mexico.”); see also Phil Levy, Dumping, Cheating and Illegality: Trump Misleads the Public on Steel Tariffs, Forbes (Mar. 12, 2018, 2:59 PM),
/sites/phillevy/2018/03/12/dumping-cheating-and-illegality-trump-misleads-the-public-on-steel-tariffs; accord Donald J. Trump (@realDonaldTrump), Twitter (Jun. 10, 2018, 6:17 PM),
/realDonaldTrump/status/1005982266496094209 (“Why should [the United States] allow countries to continue to make Massive Trade Surpluses, as they have for decades, while our Farmers, Workers & Taxpayers have such a big and unfair price to pay? Not fair to the PEOPLE of America!”); Donald J. Trump (@realDonaldTrump), Twitter (Jun. 2, 2018, 2:23 PM),
/status/1003024268756733952 (“The U.S. has been ripped off by other countries for years on Trade, time to get smart!”); Donald J. Trump (@realDonaldTrump), Twitter (Mar. 5, 2018, 7:47 AM), (“We have large trade deficits with Mexico and Canada.”).

 [5]. Pankaj Ghemawat, Globalization in the Age of Trump, Harv. Bus. Rev., July–Aug. 2017, (“The myth of a borderless world has come crashing down. Traditional pillars of open markets—the United States and the UK—are wobbling, and China is positioning itself as globalization’s staunchest defender.”); see also Josh Zumbrun & Bob Davis, Trade Tensions Intensify as Allies Rebuke U.S., Testing Trump Ahead of G-7, Wall St. J. (June 3, 2018, 8:02 PM),; cf. Gao Shangquan, U.N. Comm. for Dev. Policy, U.N. Doc. ST/ESA/2000/CDP/1, Economic Globalization: Trends, Risks, and Risk Prevention 1–4 (2000),
/development/desa/policy/cdp/cdp_background_papers/bp2000_1.pdf (asserting economic globalization trends are “irreversible,” and forecasting developmental risks posed by economic globalization).

 [6]. Lynch et al., supra note 1; cf. Donald J. Trump (@realDonaldTrump), Twitter (June 2, 2018, 2:23 PM), (“When you’re almost 800 Billion Dollars a year down on Trade, you can’t lose a Trade War!”).

 [7]. See Sherman Antitrust Act, 15 U.S.C. §§ 1–7 (2018); see also Ian Simmons et al., Where to Draw the Line: Should the FTAIA’s Domestic Effects Test Apply in Criminal Prosecutions?, 29 Antitrust 42, 42–46 (2015) (evaluating debate over extraterritorial contours of Sherman Act in criminal context).

 [8]. See, e.g., Melinda F. Levitt & Howard W. Fogt, International Trade and Antitrust: Clarity Put on Hold as FTAIA Conflict/Confusion Continues, Foley (July 30, 2015),
/international-trade-and-antitrust–clarity-put-on-hold-as-ftaiaconflictconfusion-continues (“Maybe the ball is back in Congress’s court. . . . However, given the present level of functionality with the United States Congress, I don’t think we are going to see that in the near future, unfortunately. And so, anybody who treads in these waters needs to continue to be very careful and monitor the situation as we go forward.”) (Melinda F. Levitt, at 1:01:12–1:01:48). But see Simmons et al., supra note 7, at 46 (suggesting plain language and clear legislative intent permit only civil liability for foreign actors under the FTAIA’s “domestic effects” exception).

 [9]. Appalachian Coals, Inc. v. United States, 288 U.S. 344, 359–60 (1933) (“As a charter of freedom, the act has a generality and adaptability comparable to that found to be desirable in constitutional provisions.”); see also Directorate for Fin. & Enter. Affairs Competition Com., Roundtable on the Extraterritorial Reach of Competition Remedies – Note by the United States 3–4 (Dec. 4–5, 2017), (“[The Antitrust Division and DOJ] require relief sufficient to eliminate identified anticompetitive harm that has the requisite connection to U.S. commerce and consumers, even if this means reaching assets or conduct in a foreign jurisdiction.” (footnote omitted)).

 [10]. See, e.g., United States v. Hui Hsiung, 778 F.3d 738, 758–59 (9th Cir. 2015), cert. denied, 135 S. Ct. 2837 (2015) (upholding criminal sentence under FTAIA for foreign price-fixing conspiracy with “effect” on United States).

 [11]. Cf. Levitt & Fogt, supra note 8 (detailing ongoing debate over extraterritoriality in American antitrust jurisprudence after FTAIA).

 [12]. Concerns surrounding extraterritoriality in U.S. competition policy are heightened in light of businesses’ widespread embrace of lean methodology and global supply-chain management strategies, which increasingly distribute goods and services throughout a single firm’s transnational network to maximize profit and minimize waste. See generally Michael H. Hugos, Essentials of Supply Chain Management (3d ed. 2011). Specifically, the emergence of global supply chain networks has unleashed a variety of associated complications with respect to commercial regulations. Cf. U.S. Dep’t of Justice & Fed. Trade Comm’n, Antitrust Guidelines for International Enforcement and Cooperation 16–25 (2017), [hereinafter International Guidelines] (describing agencies’ extraterritorial prerogatives under the FTAIA); Joseph P. Bauer, The Foreign Trade Antitrust Improvements Act: Do We Really Want to Return to American Banana?, 65 Me. L. Rev. 3, 5 (2012).

While there is extensive disagreement about the specifics with respect to what behavior and structure the antitrust laws should seek to prohibit or permit, there is broad, general consensus on the goals of the antitrust laws. . . . [E]nhancement of consumer welfare, the promotion of competition, and compensation of the victims of antitrust violations. . . . [T]he FTAIA has significantly undermined the achievement of these goals.

Bauer, supra, at 5.

 [13]. Phillip Areeda et al., Antitrust Analysis: Problems, Text, and Cases ¶¶ 168–69 (7th ed. 2013) (“With ever-expanding globalization, instances of conflicting—as well of complementary—interests among jurisdictions involving multinational business activity will become increasingly frequent. . . . [I]n many individual cases an anticompetitive practice may well benefit some jurisdictions . . . [however,] the reciprocal nature of foreign trade suggests the existence of opportunities for mutual gain.”); see also Jennifer B. Patterson & Terri A. Mazur, Kaye Scholer, Recent Developments in the Extraterritorial Reach of the U.S. Antitrust Laws (2014),
_pattersonmazurinsidecounselarticleaugust132014pdf; Levitt & Fogt, supra note 8.

 [14]. Foreign Trade Antitrust Improvements Act, 15 U.S.C. § 6a (2018). The statute’s language is overly formalistic and consequently complicated. Accord United States v. Nippon Paper Indus. (Nippon II), 109 F.3d 1, 4 (1st Cir. 1997) (describing the FTAIA as “inelegantly phrased”). In effect, its terms cabin the Sherman Act’s scope to activity beyond U.S. borders, providing that such conduct gives rise to domestic antitrust liability only if it: (1) involves “import commerce;” or (2) has a “direct, substantial, and reasonably foreseeable effect” on domestic trade or commerce, which “gives rise to a claim” under the Sherman Act. See 15 U.S.C. § 6a (emphasis added).

 [15]. F. Hoffman-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 169 (2004) (“[T]he FTAIA’s language and history suggest that Congress designed the FTAIA to clarify, perhaps to limit, but not to expand in any significant way, the Sherman Act’s scope as applied to foreign commerce.”).

 [16]. See United States v. Hui Hsiung, 778 F.3d 738, 738, 756–60 (9th Cir. 2015).

 [17]. Id. at 743 (quoting 15 U.S.C. § 6a).

 [18]. See id.

 [19]. Id. at 743, 748, 750–53, 756–60 (providing the required test under the first prong of the “domestic effects” exception, as articulated under the FTAIA).

 [20]. See, e.g., id. at 743 (“Crystal Meeting participants stood to make enormous profits from TFT–LCD sales to United States technology retailers. . . . [T]he United States comprised approximately one-third of the global market for personal computers incorporating TFT–LCDs, and sales . . . generated over $600 million in revenue.”). For example, the conspiracy targeted commercial electronics retailers, like Motorola and Apple, which incorporated the price-fixed panel technologies in overseas production processes earlier in the supply chain. See id.

 [21]. See id. at 751–53 (“The FTAIA . . . provides substantive elements under the Sherman Act in cases involving nonimport trade with foreign nations.” (emphasis added)). See generally 15 U.S.C. § 6a(2) (“[S]uch effect gives rise to a claim under the provisions of [the Sherman Act] . . . .” (emphasis added)).

 [22]. The court’s final analysis lacks any substantive discussion of whether a criminal indictment may give rise to a domestic antitrust “claim” within the meaning of the FTAIA’s domestic effects prong, while concluding that the question of “what conduct [the FTAIA] prohibits is a merits question, not a jurisdictional one.” Hui Hsiung, 778 F.3d at 752 (internal quotation marks omitted). Colorable arguments exist to support a broad interpretation of the FTAIA as authorizing both civil and criminal “claims” if wholly foreign conduct has a “direct, substantial, and reasonably foreseeable” effect on nonimport domestic commerce, see, for example, infra text accompanying notes 6772, but the panel decision offers none. See, e.g., Simmons et al., supra note 7, at 42 (“[T]he amended opinion upheld the convictions . . . without any significant discussion of whether [the “domestic effects” prong] can independently support a criminal prosecution [under the Sherman Act].”). At the very least, the panel owed the public a legal justification for its implicit ruling that a criminal indictment constitutes a “claim” under the “domestic effects” exception. In reality, a more efficacious reading of the FTAIA’s exception would limit the reach of the Sherman Act to only civil claims, at least where nonimport “domestic effects” form the basis of an extraterritorial competition “claim.” See, e.g., infra Part II (arguing that the FTAIA facially prohibits extraterritorial criminal prosecutions on the independent “domestic effects” theory, in part because neither prosecutions nor indictments actually amount to “claims” within the plain meaning of the “domestic effects” exception).

 [23]. Accord Levitt & Fogt, supra note 8.

 [24]. See generally supra notes 723 (reviewing FTAIA’s “domestic effects” exception and Hui Hsiung).

 [25]. Moreover, in light of the proliferation of highly integrated global supply chain networks, see generally Hugos, supra note 12, as well as the emergence of a tense global political economy surrounding free trade and international competition, see supra notes 15, this subject appears increasingly relevant to federal courts, legal practitioners, and the tens of thousands of firms doing business in America.

 [26]. See, e.g., Hartford Fire Ins. Co. v. California, 509 U.S. 764, 796 n.23 (1993) (noting disagreement regarding whether the FTAIA’s “direct, substantial, and reasonably foreseeable effect” standard amends existing law or merely codifies it, but declining to take up the issue).

 [27]. See infra Part II.

 [28]. For rich academic discussion of foreign commerce and the complex relationships forged between foreign commerce and domestic antitrust laws, see generally Wilbur L. Fugate & Lee H. Simowitz, Foreign Commerce and the Antitrust Laws (5th ed. 1996 & Supp. 2018). Sections I.A.1–2 are designed to provide useful historical context for the FTAIA’s substantive provisions and recent judicial decisions; they are not intended to provide exhaustive review of the Sherman Act in international commerce.

 [29]. 15 U.S.C. §§ 1–2 (2018) (criminal antitrust violations). See also Areeda et al., supra note 13, ¶ 168 n.101 (discussing definitions of “commerce” and the extraterritorial reach of various antitrust provisions, including sections 1, 2, and 7 of the Sherman Act, as well as the Clayton Act, and the Federal Trade Commission Act).

 [30]. Am. Banana Co. v. United Fruit Co., 213 U.S. 347, 357 (1909) (Holmes, J.) (holding the Sherman Act does not apply to acts taken in Panama and Costa Rica, which fall beyond territorial borders of United States); see also Edward D. Cavanagh, The FTAIA and Claims by Foreign Plaintiffs Under State Law, 26 Antitrust L.J. 43, 43–44 (2011) [hereinafter Cavanagh, The FTAIA]; Edward D. Cavanagh, The FTAIA and Subject Matter Jurisdiction over Foreign Transactions Under the Antitrust Laws: The New Frontier in Antitrust Litigation, 56 SMU L. Rev. 2151, 2153–56 (2003) [hereinafter Cavanagh, The New Frontier].

 [31]. See United States v. Aluminum Co. of Am. (Alcoa), 148 F.2d 416, 440–45 (2d Cir. 1945) (Hand, J.) (“[A]ny 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.”); Cont’l Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 705 (1962) (approving of the Second Circuit decision in Alcoa and finding jurisdiction where foreign defendants’ conduct abroad had an “impact within the United States and upon its foreign trade”).

 [32]. Bauer, supra note 12, at 8.

 [33]. Alcoa, 148 F.2d at 443–44. The panel noted, “[b]oth agreements would clearly have been unlawful, had they been made within the United States; and it follows from what we have just said that both were unlawful, though made abroad, if they were intended to affect imports and did affect them.” Id. at 444. Although the case is famous for its domestic implications and market share analysis, the decision also marks a key moment in extraterritorial antitrust jurisprudence. Under the panel’s view, criminal liability under the antitrust laws historically attached to wholly foreign conduct involving imports; foreign conduct that affected nonimport domestic commerce was historically only subject to civil liability, not criminal prosecution. Alcoa therefore provides only limited authority for extraterritorial criminal liability in nonimport contexts, as when foreign actors are prosecuted on the basis of downstream effects on domestic commerce.

 [34]. Id. at 443–44.

 [35]. An interesting aspect of the Alcoa case was simply its procedural posture. In 1944, the Supreme Court announced that it would not have a quorum to hear the case. Congress subsequently designated the case to the Second Circuit through a special act that stands to this day. See generally Act of June 9, 1944, 28 U.S.C. § 2109 (2018).

 [36]. See, e.g., Areeda et al., supra note 13, ¶ 168.

 [37]. Alcoa, 148 F.2d at 443.

 [38]. Cf. id. This inference appears reasonable given federal courts’ position as legal custodians in the United States, one of the foremost consumer markets in the developed world. Cf. United States v. Hui Hsiung, 778 F.3d 738, 743 (9th Cir. 2015) (noting “Crystal Meetings” conspiracy targeted leading firms in American consumer electronics market); Shangquan, supra note 5.

 [39]. Alcoa, 148 F.2d at 443 (emphasis added).

 [40]. See, e.g., United States v. Nippon Paper Indus., 109 F.3d 1, 2, 4–5 (1st Cir. 1997). Indeed, this widely-adopted standard for extraterritorial antitrust analysis has been referred to as the “effects doctrine” or “effects test” in civil and criminal actions. See John W. Head, Global Business Law: Principles and Practice of International Commerce and Investment 643 (3d ed. 2012); Developments in the Law: Extraterritoriality, 124 Harv. L. Rev. 1226, 1269–74 (2011).

 [41]. See, e.g., Hartford Fire Ins. Co. v. California, 509 U.S. 764, 796 (1993) (adopting Alcoa effects test following passage of FTAIA where it could be shown that conduct “was meant to produce and did in fact produce some substantial effect in the United States”); accord Filetech S.A. v. Fr. Telecom, S.A., 157 F.3d 922, 931 (2d Cir. 1998) (following Hartford Fire’s construction of the prevailing Alcoa effects test).

 [42]. See generally Harold G. Maier, Extraterritorial Jurisdiction at a Crossroads: An Intersection Between Public and Private International Law, 76 Am. J. Int’l L. 280 (1982) (describing role of the comity doctrine in extraterritorial application of domestic laws). The Supreme Court recently clarified the doctrine of “international comity” with respect to a foreign government’s official statement concerning the meaning of its own domestic law. See generally Animal Sci. Prods., Inc. v. Hebei Welcome Pharm. Co., 138 S. Ct. 1865 (2018), vacating and remanding In re Vitamin C Antitrust Litig., 837 F.3d 175 (2d Cir. 2016). The Court suggested American courts are “not bound to accord conclusive effect to the foreign government’s statements,” in such instances, but declined to undertake the analysis itself and instead remanded the case for further consideration consistent with its opinion. Animal Science, 138 S. Ct. at 1869, 1875 (“The correct interpretation of Chinese law is not before this Court, and we take no position on it.”).

 [43]. See, e.g., Timberlane Lumber Co. v. Bank of Am. N.T. & S.A., 549 F.2d 597, 613 (9th Cir. 1977) (court may refrain from asserting “extraterritorial authority,” despite finding of some actual or intended effect, upon presence of factors implicating international comity concerns in rendering judgment), superseded by statute, 15 U.S.C. § 6a (2018), as recognized in McGlinchy v. Shell Chem. Co., 845 F. 2d 802, 813 n.8 (9th Cir. 1988).

 [44]. Areeda et al., supra note 13, ¶ 168(b) (citing Timberlane Lumber Co. v. Bank of Am. N.T. & S.A., 749 F.2d 1378 (9th Cir. 1984), cert. denied, 472 U.S. 1032 (1985)). The Timberlane court ultimately dismissed the plaintiff’s claim based on the legitimacy of the defendant’s foreign acts under Honduran law, as well as the meager effects on competition within the United States. Timberlane, 749 F.2d at 1384–86.

 [45]. Timberlane, 749 F.2d at 1386.

 [46]. Cavanagh, The New Frontier, supra note 30, at 2154. But see id. (“While one cannot fault these courts for attempting to develop comprehensive jurisdictional standards, it is undeniable that infusing the issue of comity into the jurisdictional analysis has generated more confusion than certainty and has created significant unpredictability in the law.” (emphasis added)).

 [47]. Restatement (Third) on Foreign Relations Law of the United States §§ 402–03, § 403 cmt. a (Am. Law Inst. 1987) [hereinafter Restatement].

 [48]. See, e.g., F. Hoffman-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 165–69 (2004) (discussing prescriptive comity considerations in connection with FTAIA’s domestic effects exception and concluding that the Act did not apply given Congress’s adherence to principles of comity in international commercial relations).

 [49]. See Joel R. Paul, The Transformation of International Comity, 71 Law & Contemp. Probs. 19, 36, 38 (2008) (noting that courts’ application of comity doctrine reflects concerns for separation of powers, historical experience, and respect for foreign sovereignty in context of extraterritorial antitrust disputes).

 [50]. See McGlinchy v. Shell Chem. Co., 845 F.2d 802, 813 n.8 (9th Cir. 1988) (adopting Timberlane standard and noting that the FTAIA “did not change the ability of courts to exercise principles of international comity” in antitrust actions); see also Mannington Mills v. Congoleum Corp., 595 F.2d 1287, 1297–98 (3d Cir. 1979) (affirming Timberlane and listing ten comity factors relevant to “balancing process”); Pillar Corp. v. Enercon Indus. Corp., 694 F. Supp. 1353, 1360–61 (E.D. Wis. 1988) (discussing “concerns raised” by Mannington Mills and Timberlane courts); Dominicus Americana Bohio v. Gulf & W. Indus., 473 F. Supp. 680, 687 (S.D.N.Y. 1979) (following Mannington Mills analysis of ten factors relevant to comity analysis). But see Hartford Fire, Ins. Co. v. California, 509 U.S. 764, 796–99 (1993) (principles of international comity are only raised upon a “true conflict” between U.S. and foreign law).

 [51]. Timberlane v. Bank of Am. N.T.& S.A., 749 F.2d 1378, 1384–86 (9th Cir. 1984).

 [52]. Hartford Fire, 509 U.S. at 796–99.

 [53]. Id. at 798–99.

 [54]. Id. at 797.

 [55]. Id. at 799.

 [56]. Id. at 796.

 [57]. See id. at 796 n.23.

 [58]. However, it is essential to note at the onset of this discussion that, despite judicial treatment of the Act’s thornier components, compelling commentary has called for repeal of the FTAIA altogether. See generally Robert E. Connolly, Repeal the FTAIA! (Or at Least Consider It as Coextensive with Hartford Fire), CPI Antitrust Chron. (Sept. 2014), [hereinafter Connolly, Repeal the FTAIA!] (noting “[a] primary motivation behind the FTAIA was to give immunity to American exporters to engage in anticompetitive conduct—as long as it negatively affected only foreign consumers,” and arguing the FTAIA should not govern the extraterritorial reach of the Sherman Act). Connolly reiterates and extends portions of his argument in a companion article. Robert E. Connolly, Motorola Mobility and the FTAIA, CartelCapers (Sept. 30, 2014),

 [59]. See 15 U.S.C. § 6a (2018).

 [60]. Id. (emphasis added).

 [61]. See id.; accord United States v. Hui Hsiung, 778 F.3d 738, 750–51 (9th Cir. 2015); Carpet Grp. Int’l v. Oriental Rug Imps. Ass’n, 227 F.3d 62, 71 (3d Cir. 2000) (citing Eskofot A/S v. E.I. Du Pont Nemours & Co., 872 F. Supp. 81, 85 (S.D.N.Y. 1995)) (noting the implication that the Sherman Act applies to “import trade and import commerce is unmistakable”). The import commerce prong likely applies where a defendant sells a finished product directly to American consumers in the United States. See Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845, 855 (7th Cir. 2012) (en banc), cert. denied, 570 U.S. 935 (2013).

 [62]. F. Hoffman-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 163 (2004).

 [63]. See Carpet Grp. Int’l, 227 F.3d at 71.

 [64]. See Connolly, Repeal the FTAIA!, supra note 58.

 [65]. H.R. Rep. No. 97–686, at 2–3 (1982), as reprinted in 1982 U.S.C.C.A.N. 2487, 2491; see also 15 U.S.C. § 4001 (2018) (“It is the purpose of this chapter to increase United States exports of products and services by encouraging more efficient provision of export trade services to United States producers and suppliers, in particular by . . . modifying the application of antitrust laws to certain export trade.”).

 [66]. H.R. Rep. No. 97–686, at 6 (1982).

 [67]. Id. at 5.

 [68]. Id. (emphasis added) (citing Cont’l Ore Co. v. Union Carbide, 370 U.S. 690, 704–05 (1962) and Steele v. Bulova Watch Co., 344 U.S. 280, 286 (1952)).

 [69]. H.R. Rep. No. 97–686, at 2–3 (1982).

 [70]. Of critical importance to subsequent analysis in this Note—an unstated desire to protect U.S. commercial interests also pervades modern judicial interpretations of the FTAIA, at least with respect to civil actions. See, e.g., Bauer, supra note 12, at 24 (“Arguably, the courts are seeking to protect the interests of American companies doing business abroad and of foreign companies doing business in the United States, with the unstated assumption that somehow this will result in a net benefit to the American economy.”).

 [71]. See, e.g., Connolly, Repeal the FTAIA!, supra note 58 (proposing outright repeal of the Act).

 [72]. See, e.g., Cavanagh, The New Frontier, supra note 30, at 2159 (“It has therefore fallen to the courts to determine the precise meaning and scope of the FTAIA.”). Indeed, given prolonged legislative inaction on the subject, federal courts arguably must define the scope of the FTAIA to yield some measure of clarity for litigants. See Levitt & Fogt, supra note 8 (suggesting legislative revision of FTAIA is unlikely but may be necessary).

 [73]. Hartford Fire Ins. Co. v. California, 509 U.S. 764, 796–97, 796 n.23 (1993); see also supra Section I.A.2 (discussing comity concerns in Hartford Fire).

 [74]. Hartford Fire, 509 U.S. at 796–97.

 [75]. United States v. Nippon Paper Indus. (Nippon I), 944 F. Supp. 55, 57–58 (D. Mass. 1996) (dismissing criminal antitrust indictment for lack of jurisdiction under Sherman Act).

 [76]. See id. at 58. The thrilling basis for the government’s prosecution stemmed from Nippon Paper Industries’ corporate predecessor, “Jujo Paper,” allegedly agreeing with unnamed Japanese firms to “fix prices of jumbo roll thermal facsimile paper (‘fax paper’) sold in the United States,” in violation of section 1 of the Sherman Act. Id.

 [77]. Id. at 64.

 [78]. Id. at 65 (emphasis added) (construing United States v. Bowman, 260 U.S. 94, 97–98 (1922) as holding the presumption against extraterritorial application of federal law “carries even more weight when applied to criminal statutes”).

 [79]. See id. at 64–66.

 [80]. United States v. Nippon Paper Indus. (Nippon II), 109 F.3d 1, 2–3 (1st Cir. 1997) (detailing the essential “Fax” underlying the panel’s decision); Raymond Krauze & John Mulcahy, Antitrust Violations, 40 Am. Crim. L. Rev. 241, 278–79 (2003) (“[T]he First Circuit reinstated the indictment of a foreign-based defendant for conduct occurring wholly outside of the United States, and the case looks to be a harbinger of the Antitrust Division’s growing ability to combat international price-fixing.”); see also 15 U.S.C. §§ 1–2 (2018) (criminal antitrust violations for horizontal restraints of trade and monopolization practices).

 [81]. Nippon II, 109 F.3d at 5 (emphasis added).

 [82]. Id. at 4.

 [83]. Id. at 6. The panel further noted that although Nippon and its expert witnesses argued that this was “the first criminal case in which the United States endeavor[ed] to extend Section One to wholly foreign conduct,” an “absence of earlier criminal actions is probably more a demonstration of the increasingly global nature of our economy than proof that Section One cannot cover wholly foreign conduct in the criminal milieu.” Id. In the court’s view, the mere lack of precedent imposing criminal liability to wholly foreign conduct did not bar prosecutors from bringing charges under section 1. Id. Critically, in the view of the court, the language of the FTAIA itself also did not impact the ability of U.S. authorities to bring criminal prosecutions against solely extraterritorial conduct. See id. at 4–6.

 [84]. Id. at 9 (emphasis added).

 [85]. Id. at 9 (Lynch, J., concurring) (emphasis added) (quoting Appalachian Coals, Inc. v. United States, 288 U.S. 344, 359–60 (1933)).

 [86]. Id. at 4–6.

 [87]. Rather, along with the language and history of the FTAIA, Nippon I provides a helpful interpretive model for understanding the boundaries of U.S. law in the extraterritorial criminal context. In many ways, Nippon I challenges convention, as many courts have inferred substantially similar treatment of the Sherman Act’s criminal and civil provisions after Hartford Fire—a case in which only civil antitrust claims were at issue.

 [88]. F. Hoffman-La Roche, Ltd. v. Empagran S.A., 542 U.S. 155, 174–75 (2004) (internal quotation marks omitted) (quoting 15 U.S.C. § 6a(2) (2018)).

 [89]. Id.

 [90]. Id. at 173–75 (“Respondents concede that this claim is not their own claim; it is someone else’s claim. . . . “[T]hat is, the conduct’s domestic effects did not help to bring about that foreign injury.”); see also Empagran S.A. v. F. Hoffman-La Roche, Ltd., 417 F.3d 1267, 1270–71 (D.C. Cir. 2005) (noting on remand that the FTAIA codifies a proximate cause standard for Sherman Act claims involving foreign trade or commerce).

 [91]. See Empagran, 417 F.3d at 1270–71.

 [92]. United States v. Hui Hsiung, 778 F.3d 738, 750–51 (9th Cir. 2015).

 [93]. Motorola Mobility, LLC v. AU Optronics Corp., 775 F.3d 816, 824 (7th Cir. 2014), cert. denied, 135 S. Ct. 2837 (2015).

 [94]. Motorola Mobility, 135 S. Ct. at 2837 (denying petitions for certiorari in Motorola Mobility and Hui Hsiung). However, independent state-law actions have proceeded parallel to federal litigation surrounding the “Crystal Meeting” conspiracy. For example, consumer plaintiffs in the State of Washington will receive a total of $41.1 million in “overcharge” damages stemming from the conspiracy’s agreement to manipulate the supply of LCD panels to artificially increase prices. See Press Release, Wash. State Office of the Attorney Gen., More Than $41M Headed to Consumers in AG Ferguson’s LCD Price-Fixing Case (Sept. 14, 2017),

 [95]. But see Robert E. Connolly, Why the Supreme Court Refused to Hear the FTAIA Appeals, Law360 (June 16, 2015, 10:22 AM), (arguing that Hui Hsiung and Motorola Mobility were correctly decided and that the cases were sufficiently factually dissimilar to avoid facial contradiction between the final Circuit opinions).

 [96]. See infra Part II.

 [97]. LCD panels sold above competitive prices were incorporated in laptops, desktops, and television screens purchased by American consumers. See Brandon Garrett, Too Big to Jail: How Prosecutors Compromise with Corporations 235–36 (2014) (describing “Crystal Meetings” conspiracy, harms to American consumers, and federal prosecution). One definition of “LCD” describes the technology as “an electronic display (as of the time in a digital watch) that consists of segments of a liquid crystal whose reflectivity varies according to the voltage applied to them.” LCD, Merriam-Webster’s Collegiate Dictionary (11th ed. 2017). LCD panels are increasingly incorporated into handheld technologies, such as smartphones, watches, telephonic displays, as well as computer screens and televisions, among many other products. See generally Joseph A. Castellano, Liquid Gold: The Story of Liquid Crystal Displays and the Creation of an Industry (2005) (tracing history of LCD panel technology and modern applications of technology).

 [98]. See Hui Hsiung, 778 F.3d at 743 (outlining “Crystal Meetings” conspiracy). The final judgment notes that affected panels were purchased by market leaders, including “Dell, Hewlett Packard (‘HP’), Compaq, Apple, and Motorola for use in consumer electronics.” Id.

 [99]. Id.

 [100]. Id.; accord Brent Snyder, U.S. Dep’t of Justice, Antitrust Div. Individual Accountability for Antitrust Crimes 6 (2016),
/download (“High-level executives were also prosecuted in the . . . LCD investigations, including two chairmen/CEOs, four presidents, more than 20 vice presidents, and a number of managers and directors. Among these were the president and executive vice president of the third largest LCD maker in the world. . . . [A] jury convicted these two, and they are currently serving 36-month jail terms—the longest sentences ever imposed on foreign-national defendants for antitrust offenses.”); Dep’t of Justice, Antitrust Div., Antitrust Primer for Federal Law Enforcement Personnel 4 (2018) [hereinafter Antitrust Primer], (discussing LCD-panel price-fixing conspiracy proceedings in U.S. federal courts).

 [101]. Hui Hsiung, 778 F.3d at 757.

 [102]. Id. at 743.

 [103]. Id. at 744.

 [104]. Id.

 [105]. Id.

 [106]. Id.

 [107]. Id. at 745; accord Snyder, supra note 100, at 6; Antitrust Primer, supra note 100, at 4 (noting final fines in the LCD antitrust investigation and prosecutions “led to criminal fines totaling more than $1.39 billion and charges against 22 executives,” the majority of whom pleaded guilty or were convicted at trial before U.S. tribunals).

 [108]. H              ui Hsiung, 778 F.3d at 745.

 [109]. United States v. Hui Hsiung, 758 F.3d 1074, 1095 (9th Cir. 2014), amended by United States v. Hui Hsiung, 778 F.3d 738 (2015).

 [110]. Hui Hsiung, 778 F.3d at 743, 751, 756.

 [111]. Id. at 743, 751, 760.

 [112]. See, e.g., supra notes 2122.

 [113]. Press Release No. 12-1140, Dep’t of Justice Office of Pub. Affairs, Antitrust Div., Taiwan-Based AU Optronics Corp. Sentenced to Pay $500 Million Criminal Fine for Role in LCD Price-Fixing Conspiracy (Sept. 20, 2012), In total, the Department of Justice (“DOJ”) reported that “eight companies have been convicted of charges arising out of the . . . ongoing investigation” into the LCD-panel price-fixing conspiracy, which “have been sentenced to pay criminal fines totaling $1.39 billion.” Id. (emphasis added). As of September 2012, the DOJ boasted that twenty-two executives had been charged in the foreign conspiracy; twelve had been convicted and “sentenced to serve a combined total of 4,871 days in prison” in the United States. Id. (emphasis added). These weighty penalties associated with criminal antitrust prosecutions particularly warrant heightened judicial scrutiny of the FTAIA’s language, purpose, and scope in the criminal context. Accord Antitrust Primer, supra note 100, at 3–4 (summarizing total fines and penalties in LCD-panel cases).

 [114]. Hui Hsiung, 778 F.3d at 758–60 (evaluating defendants’ sufficiency of evidence challenges to government’s alleged “direct, substantial, and reasonably foreseeable” effect on U.S. nonimport trade or commerce).

 [115]. Id. at 752–53.

 [116]. See id. at 756–60. The court notes that “even disregarding the domestic effects exception, the evidence that the defendants engaged in import trade was overwhelming” and demonstrated that the defendants participated in direct import commerce under 15 U.S.C. § 6a, and that this “import trade theory alone was sufficient to convict the defendants of price-fixing.” Id. at 760. However, the court’s discussion notably lacks any analysis of the second substantive element of the FTAIA’s domestic effects prong. See id. at 756–60.

 [117]. Id. at 757.

 [118]. See Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845, 851–52 (7th Cir. 2012); see also Animal Sci. Prods., Inc. v. China Minmetals Corp., 654 F.3d 462, 466–69 (3d Cir. 2011). The dilemma of whether the FTAIA presents additional merits or jurisdictional elements for extraterritorial Sherman Act claims is contentious, with different lower courts adopting different rules since the 1990s. See Hui Hsiung, 778 F.3d at 751–52, 752 n.7, 753 (holding that the FTAIA is “not a subject-matter jurisdiction limitation on the power of the federal courts but a component of the merits of a Sherman Act claim involving nonimport trade or commerce with foreign nations,” and reviewing cases adopting and rejecting this rule); see also Edward Valdespino, Note, Shifting Viewpoints: The Foreign Trade Antitrust Improvements Act, a Substantive or Jurisdictional Approach, 45 Tex. Int’l L.J. 457, 457 (2009) (noting a shift from jurisdictional to substantive view). The source of contention is the burden-shifting effect of viewing the FTAIA’s terms as substantive elements: the “[e]xpense and shifting burdens of proof greatly increases settlement pressure.” Levitt & Fogt, supra note 8. Rather than being challengeable on the pleadings through a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction, see Fed. R. Civ. P. 12(b)(1), a merits question requires courts to evaluate evidence and legal arguments, see Levitt & Fogt, supra note 8. Thus, viewing the FTAIA as a matter of “substantive liability” requires “resolution through motion[s] for summary judgment after . . . discovery or trial,” which may be extremely expensive in the context of extraterritorial antitrust actions. Levitt & Fogt, supra note 8. With that in mind, the trend in recent years is decidedly in favor of viewing the FTAIA as additional substantive elements. See id.

 [119]. See Hui Hsiung, 778 F.3d at 752.

 [120]. Motorola Mobility, LLC v. AU Optronics Corp., 775 F.3d 816, 817–18 (7th Cir. 2014) (describing procedural posture and factual basis of case). The panel decision, penned by economist and now-retired Judge Richard Posner, noted the criminal convictions entered in Hui Hsiung at the onset of its analysis. Id. (“We’ll drop ‘allegedly’ and ‘alleged,’ for simplicity, and assume that the panels were indeed price-fixed—a plausible assumption since defendant AU Optronics has been convicted of participating in a criminal conspiracy to fix the price of panel components of the cellphones manufactured by Motorola’s foreign subsidiaries.”).

 [121]. Id. (emphasis added).

 [122]. Id. at 821–25. Under the indirect-purchaser doctrine, only direct purchasers harmed by overcharging have cognizable antitrust claims under federal law. See Ill. Brick Co. v. Illinois, 431 U.S. 720, 723–26 (1977). Thus, the panel noted, “Motorola’s subsidiaries were the direct purchasers of the price-fixed LCD panels” whereas “Motorola and its customers [were the] indirect purchasers of the panels.” Motorola Mobility, 775 F.3d at 821 (emphasis added).

 [123]. Id. at 818 (emphasis added).

 [124]. Id. at 825 (emphasis added). Interestingly, the Seventh Circuit’s final opinion noted that the FTAIA has historically been interpreted to limit the extraterritorial application of domestic antitrust laws, in line with considerations of international comity, id. at 818, yet impliedly concluded that the Act’s “claim” language should be broadly construed to encompass civil claims and criminal indictments, see id. at 825.

 [125]. Id. at 824–25 (“The foreign subsidiaries can sue under foreign law—are we to presume the inadequacy of the antitrust laws of our foreign allies? Would such a presumption be consistent with international comity, or more concretely with good relations with allied nations in a world in turmoil?”). In response to Judge Posner—it seems readily discernible that American antitrust law does in fact presume the inadequacy of the competition laws of foreign collaborators, at least insofar as American prosecutors increasingly pursue criminal enforcement prosecutions involving foreign commerce. Moreover, in the wider array of international transactional regulation, the United States frequently dispatches with consideration of “good relations with allied nations” in pursuit of national economic objectives. See generally Head, supra note 40 (broadly surveying the role of U.S. law in regulation of international trade and investment).

 [126]. Notably, here, no petitioner raised this “claim” of error in Hui Hsiung or Motorola Mobility. Nevertheless, particularly if the FTAIA is to be construed as a series of additional substantive, non-jurisdictional requirements for Sherman Act claims, a full analysis of both parts of the two-part conjunctive domestic effects test is certainly warranted.

 [127]. Frank B. Cross, The Significance of Statutory Interpretive Methodologies, 82 Notre Dame L. Rev. 1971, 1971 (2013) (citing Jonathan R. Siegel, The Polymorphic Principle and the Judicial Role in Statutory Interpretation, 84 Tex. L. Rev. 339, 339 (2005)). For authoritative discussions of the interaction between textualism and other recognized statutory interpretive methodologies in American judicial opinions, see generally Cross, supra and Stephen Breyer, On the Uses of Legislative History in Interpreting Statutes, 65 S. Cal. L. Rev. 845 (1992). Part II begins from a textualist foundation and in subsequent sections, see infra Sections II.B–D, also considers alternative rationales for strictly interpreting the domestic effects exception to not authorize extraterritorial criminal prosecutions. Cross briefly notes that “[d]escriptive statistics reveal that textualism and legislative intent are [the] most common [interpretive methodologies], but all the approaches find material use in Court opinions.” See Cross, supra, at 1972; cf. id. at 1973–74 (“Textualism is broadly accepted as an interpretive methodology, the controversy is over its exclusivism. . . . Critics argue that there are many cases in which the plain meaning of the text does not offer a clear resolution and these difficult cases are . . . most likely to be taken by the . . . Supreme Court.” (citing Breyer, supra, at 862)).

 [128]. Cross, supra note 127, at 1972 (citing John F. Manning, Textualism and Legislative Intent, 91 Va. L. Rev. 419, 434 (2005)).

 [129]. See id. at 1972–74.

 [130]. Claim, Black’s Law Dictionary (10th ed. 2014).

 [131]. Prosecution, Black’s Law Dictionary (10th ed. 2014).

 [132]. Hartford Fire Ins. Co. v. California, 509 U.S. 764, 799 (1993).

 [133]. See, e.g., Motorola Mobility, LLC v. AU Optronics Corp., 775 F.3d 816, 818 (7th Cir. 2014) (citing Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application 273(c)(2) (3d ed. 2006)).

 [134]. Id. at 825 (quoting F. Hoffman-La Roche, Ltd. v. Empagran, S.A., 542 U.S. 155, 165 (2004)). Of course, the court in Motorola Mobility dealt with civil claims. Comity holds the same, if not greater, weight in criminal prosecutions, where judgments of community condemnation and moral culpability are implicated to far greater degrees than in civil actions. Accord International Guidelines, supra note 12, at 49–51 (highlighting “Special Considerations” in connection with criminal investigations and prosecutions undertaken against international price-fixing cartels).

 [135]. Motorola Mobility, 775 F.3d at 825 (emphasis added).

 [136]. See Restatement, supra note 47 §§ 402–03, § 403 cmt. a.

 [137]. Connolly, Repeal the FTAIA!, supra note 58, at 3. Connolly seems to suggest that American federal prosecutors will always have a greater concern for international relations, foreign sovereignty concerns, and other attendant comity considerations, than will civil plaintiffs. See id.

 [138]. See id. at 4.

 [139]. Id. at 7. Notably, Judge Posner cited Connolly’s article at length in the final opinion, including the relevant portion cited herein. See Motorola Mobility, 775 F.3d at 826–27 (citing Connolly, Repeal the FTAIA!, supra note 58). This suggests that Connolly’s colorable conception of comity had at least a persuasive impact on the panel’s reasoning with respect to the domestic effects prong.

 [140]. Connolly relies in part on the fact that, as DOJ prosecutors noted in their Motorola Mobility briefs, before commencing with a case, the DOJ contemplates the views of foreign nations, whereas, in his view, “the comity considerations with private plaintiffs are quite different.” Connolly, Repeal the FTAIA!, supra note 58, at 4. For example, Connolly contends that private individuals seeking civil damage remedies may fail to exercise the “degree of self-restraint and consideration of foreign governmental sensibilities generally exercised by the U.S. Government.” Id. at 4–5 (emphasis added) (citing F. Hoffman-La Roche, Ltd. v. Empagran S.A., 542 U.S. 155, 171 (2004)). In defense of Connolly and the Court in Empagran, this praise of “self-restraint” and “consideration of foreign government sensibilities” in the American executive branch came prior to January 2017.

 [141]. In fact, “substantial differences . . . exist among various countries in respect of competition laws.” Head, supra note 40, at 643–45; see also id. at 634–54 (outlining American, Japanese, and EU competition regimes, multilateral competition policy efforts, and bilateral and regional competition policy efforts). In sharp contrast to imposition of criminal penalties for violations of competition policy, most countries of the world do agree on near-universal condemnation of “core international crimes,” such as “war crimes, crimes against the peace or aggression, crimes against humanity, and genocide.” Beth Van Schaack & Ronald C. Slye, International Criminal Law and Its Enforcement 205 (3rd ed. 2015). See id. at 205–581 (describing internationally recognized mechanisms for condemnation of war crimes, crimes against the peace, crimes against humanity, genocide).

 [142]. For instance, recent research suggests that criminal punishment in the United States is increasingly “harsh,” relative to peer nations. See generally James Q. Whitman, Harsh Justice: Criminal Punishment and the Widening Divide Between America and Europe (2003).

 [143]. See Paul H. Robinson, The Criminal-Civil Distinction and Dangerous Blameless Offenders, 83 J. Crim. L. & Criminology 693, 693–95, 698–710 (1993) (discussing interdependence between civil and criminal law, contrasting reasons for civil and criminal commitment, and arguing that “the distinctiveness of criminal law is its focus on moral blameworthiness”); Robert Cooter & Thomas Ulen, An Economic Theory of Crime and Punishment, in Law and Economics 454–84 (6th ed. 2016) (contrasting “traditional,” retributivist justifications for criminal punishment with utility-based “economic” approaches). Robinson traces first principles surrounding civil and criminal commitment to provide a robust take on the association between community values and the type of culpability associated with criminal condemnation. See Robinson, supra, at 693–95. Ultimately Robinson arrives at the conclusion that “it would be better to expand civil commitment to include seriously dangerous offenders who are excluded from criminal liability as blameless for any reason,” in part because American laws frequently set high standards for criminal commitment based upon offenders’ mental states and associated blameworthiness, as opposed to dangerousness. Id. at 716–17.

 [144]. See supra notes 16 and accompanying text (discussing the currently fractious political economy of international trade and international economic cooperation).

 [145]. See, e.g., EEOC v. Arabian Am. Oil Co., 499 U.S. 244, 248 (1991).

 [146]. Cf. Timberlane Lumber Co. v. Bank of Am. N.T. & S.A., 749 F.2d 1378, 1384–86 (9th Cir. 1984) (noting international comity factors traditionally applied by federal courts to assess propriety of exercising jurisdiction). But see Hartford Fire Ins. Co. v. California, 509 U.S. 764, 798–99 (1993) (suggesting comity factors only relevant in assessing jurisdiction upon finding of “direct” conflict between American law and foreign law).

 [147]. See Hilton v. Guyot, 159 U.S. 113, 164 (1895) (noting comity reflects “the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation”).

 [148]. See Arabian Am. Oil Co., 499 U.S. at 248, 252 (“We assume that Congress legislates against the backdrop of the presumption against extraterritoriality. . . . [U]nless there is ‘the affirmative intention of the Congress clearly expressed,’ we must presume it ‘is primarily concerned with domestic conditions.’” (citations omitted)); see also Morrison v. Nat’l Austl. Bank, Ltd., 561 U.S. 247, 255 (2010) (quoting Arabian Am. Oil Co., 499 U.S. at 248) (“It is a ‘longstanding principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States.’” (citations omitted)); Small v. United States, 544 U.S. 385, 388–89 (2005) (noting the “legal presumption that Congress ordinarily intends its statutes to have domestic, not extraterritorial, application” (emphasis added)); Sale v. Haitian Ctrs. Council, Inc., 509 U.S. 155, 173 (1993); Smith v. United States, 507 U.S. 197, 203 (1993); cf. The Antelope, 23 U.S. 66, 123 (1825) (“The Courts of no country execute the penal laws of another.”); United States v. Ballestas, 795 F.3d 138, 143–44 (D.C. Cir. 2015) (quoting Morrison, 561 U.S. at 255).

 [149]. See Labor Union of Pico Korea, Ltd. v. Pico Prods., Inc., 968 F.2d 191, 194 (2d Cir. 1992), cert. denied, 506 U.S. 985 (1992) (suggesting burden of overcoming presumption against extraterritorial application of U.S. law lies with the party asserting application of U.S. law to events that occurred abroad); United States v. Gatlin, 216 F.3d 207, 211–12 (2d Cir. 2000) (discussing burden on party seeking extraterritorial application vis-à-vis legislative intent). But see United States v. Bowman, 260 U.S. 94, 101–03 (1922) (suggesting there is no presumption against extraterritoriality when dealing with statutes prohibiting crimes against the U.S. government); Kollias v. D & G Marine Maint., 29 F.3d 67, 71 (2d Cir. 1994), cert. denied, 513 U.S. 1146 (1995) (holding Bowman should be read narrowly to only apply to “criminal statutes . . . and . . . only those relating to the government’s power to prosecute wrongs committed against it” and exempt such actions “from the presumption [against extraterritoriality]”).

 [150]. See Morrison, 561 U.S. at 266–67 (citing Arabian Am. Oil Co., 499 U.S. at 255 and Foley Bros. v. Filardo, 336 U.S. 281, 283, 285–86 (1949)) (suggesting the mode of analysis the Court applied concerned the “‘focus’ of congressional concern”).

 [151]. Id. at 266–67 (holding that the “focus of the Exchange Act is not upon the place where the deception originated, but upon purchases and sales of securities in the United States,” so section 10(b) of the Exchange Act only regulates “domestic transactions in other securities”); cf. Zachary D. Clopton, Bowman Lives: The Extraterritorial Application of U.S. Criminal Law After Morrison v. National Australia Bank, 67 N.Y.U. Ann. Surv. of Am. L. 137, 159–60 (2011) (noting, in the civil context, “cases like [Arabian Am. Oil Co.] have made it harder to overcome the presumption,” and “Morrison seems to have made it harder to avoid the presumption with claims of territoriality”).

 [152]. Bowman, 260 U.S. at 97–98; see also Clopton, supra note 151, at 161 (“Bowman and its progeny do not question the power of Congress to enact extraterritorial criminal laws. Instead, these cases ask whether a court should apply an ambiguous criminal statute extraterritorially. For centuries, the answer . . . was flatly ‘no.’” (emphasis added)). But see Clopton, supra note 151, at 166 (suggesting lower courts have interpreted Bowman as “merely restat[ing] the American Banana rule that statutes are presumed to apply territorially unless Congress has indicated otherwise,” while other courts have “suggested that Bowman created a limited exception to the presumption” (footnotes omitted)).

 [153]. International Guidelines, supra note 12, at 5.

 [154]. Id.

 [155]. Id.

 [156]. Id.

 [157]. There is a wide divergence in the “substance and enforcement” of competition law among leading jurisdictions—including the United States, Japan, and the European Union (“EU”). See Head, supra note 40, at 648–49. Leading commentary suggests that the values undergirding competition policy in the EU and United States “differ significantly,” in that the EU does not follow the United States’ unilateral “focus on ensuring competitive markets through limitations on abusive business practices.” Jerold A. Friedland, Understanding International Business and Financial Transactions 295–96 (4th ed. 2014). Moreover, Japanese law “does not begin with the premise of U.S. law that private agreements to regulate trade are injurious,” and, for many decades “cartels of the largest Japanese businesses were encouraged to stabilize the economy through practices that prevented unemployment and focused private economic activity on public goals.” Id. at 296.

 [158]. Nevertheless, the DOJ may maintain a focus on “individual accountability” in criminal antitrust enforcement, even in extraterritorial cases. Snyder, supra note 100, at 3–5.

 [159]. See 15 U.S.C. § 2 (2018).

 [160]. See, e.g., H.R. Rep. No. 97–686, at 6 (1982) (noting how extraterritorial application of the Sherman Act prior to the FTAIA caused many international business transactions to “die on the drawing board”).

 [161]. The government’s emphasis on “individual accountability” is underscored in the LCD investigation and eventual prosecutions. See Snyder, supra note 100, at 3–5; Antitrust Primer, supra note 100, at 4.

 [162]. Snyder, supra note 100, at 6 (“AU Optronics . . . pa[id] a then-record fine of $500 million and accept[ed] a compliance monitor, after the same jury convicted it.”). The former Deputy Assistant Attorney General’s remarks reinforce the importance of compliance monitors to maintain a long-term culture of antitrust enforcement—even cases involving foreign companies and extraterritorial application of criminal antitrust law. Id.

Corporate accountability is important as well because it incentivizes compliance with our laws. The Antitrust Division emphasizes that compliance with antitrust laws must be ingrained in a corporation’s culture—one that is established from the top down. And we insist on probation and corporate monitors in criminal resolutions, where corporate offenders fail to demonstrate serious compliance efforts.

Id. at 1–2.

 [163]. Id. at 6.

 [164]. See generally id. The fact that leaders among the DOJ antitrust enforcement community view compliance monitors and cultures of corporate compliance as essential to the U.S. criminal antitrust regime generally reinforces this point.

 [165]. Regrettably, this response arguably both reflects and reinforces American hegemony in competition policy.

 [166]. At least at present, the prospects for a truly global competition regime appear scant. See Head, supra note 40, at 641­–54 (discussing regimes regulating anticompetitive conduct beyond domestic laws). Since the 1990s, nearly 150 sovereign states have enacted competition regimes; these are predominately molded from American common law principles. See Levitt & Fogt, supra note 8. States, rather than intergovernmental organizations or non-governmental actors, simply retain principal authority over this aspect of international trade policy. Thus, efforts toward effective transnational regulatory frameworks should proceed from principles of collaborative management between coequal sovereigns. Accord id.

 [167]. See, e.g., International Guidelines, supra note 12, at 16–19 (broadly interpreting domestic effects standard based on cited precedents).

 [168]. Although in both cases the courts applied the direct import commerce prong as an independent basis for their respective decisions, each also noted that the domestic effects prong—if independently relied upon—would support the same outcome. These results are just as analytically problematic, albeit in a more attenuated sense, as a decision rendered solely upon application of the domestic effects prong.

 [169]. For example, in the case of AU Optronics, a criminal remedy included a long-term compliance monitor, on site at the company, to tackle a perceived culture of criminal corruption at the firm. See Antitrust Sanctions 2.0 – Evolving Views on Behavioral Remedies, Allen & Overy LLP, (last visited Dec. 4, 2018). Behavioral obligations for foreign individuals may be the next phase of the Antitrust Division’s shift toward behavioral remedies, as at least one major international law firm currently advises. Id. Given remedies available to prosecutors, foreign individual defendants may be more inclined to settle with U.S. authorities directly, in order to craft personally tailored monitoring remedies in lieu of more punitive mechanisms, such as a custodial sentence in the federal prison system. Id.

 [170]. See, e.g., supra notes 18, 12.

 [171]. Notably, Judge Posner substantively agreed with this observation in Motorola Mobility, drawing upon the seminal Empagran decision to suggest that it would be highly improper for courts to “presume the inadequacy of the antitrust laws of our foreign allies” and that doing so may constitute “unjustified interference with the right of foreign nations to regulate their own economies.” Motorola Mobility, LLC v. AU Optronics Corp., 775 F.3d 816, 824–25 (7th Cir. 2014) (citing F. Hoffmann-La Roche, Ltd. v. Empagran, S.A., 542 U.S. 155, 165 (2004)). Certainly, this logic should be imported into the criminal antitrust analysis to prevent interference with the rights of foreign sovereigns.

 [172]. International Guidelines, supra note 12, at 28 (“[M]ore jurisdictions have adopted and enforce antitrust laws that are compatible with those of the United States . . . .”).

 [173]. But see Developments in the Law: Extraterritoriality, supra note 40, at 1279. In the alternative, extensive criminal enforcement under the Sherman Act may be viewed as a positive, given

[t]he decrease in civil jurisdiction and the increase in criminal prosecution do more than cancel out each other’s downsides: the beneficial synergies between them can further the purposes of antitrust law. When viewed as a single trend instead of two, this shift involves the courts’ deferring to institutional competence and disengaging from foreign relations, more optimal deterrence attained by encouraging the preferred types of enforcement, and more international cooperation achieved without damaging reciprocity-based trade and foreign relations interests. . . . [I]t may represent a more coherent development in the law.

Id. Yet this proposed interpretation ignores the facial incongruence in “cutting back on protections afforded by the antitrust laws” in the civil context, see, for example, Bauer, supra note 12, at 26, while casually endorsing enhanced extraterritorial criminal enforcement under the FTAIA, see Developments in the Law: Extraterritoriality, supra note 40, at 1274–78 (describing increased criminal prosecutions of extraterritorial conduct under the Sherman Act in recent years).

 [174]. International Guidelines, supra note 12, at 16–19 (broadly interpreting domestic effects standard based on cited precedents) (citations omitted).

 [175]. As previously outlined, criminal laws and remedies canonically apply to delinquency that, within a given community, is adjudged morally deserving of condemnation. Cf. Robinson, supra note 143 (discussing justifications for punishment). This is not the case with respect to competition violations, at least in most instances.

 [176]. See, e.g., supra notes 17.

 [177]. William Shakespeare, Romeo and Juliet act 2, sc. 2.

Friendly Skies or Turbulent Skies: An Evaluation of the U.S. Airline Industry and Antitrust Concerns – Note by Kevin Kinder

From Volume 91, Number 5 (July 2018)

Friendly Skies or Turbulent Skies: An Evaluation of the U.S. Airline Industry and Antitrust Concerns

Kevin Kinder[*]



I. United States Commercial Aviation Background

A. Deregulation: Pushback and Taxi to Today’s U.S. Airline Industry

B. Cleared for Takeoff: A Twenty-First Century Merger Mania

C. Resulting Composition and Financial Picture of the Industry

D. Capacity Discipline: Corporate Catch-22

II. Legal Framework

A. Theoretical Basis for Consolidation and Existing Literature

B. Antitrust Statutes and Regulatory Regime

C. Foreign Airline Collaboration Models and Their Significance

1. Foreign Ownership Restrictions

2. Interline Agreements

3. Alliances

4. Joint Ventures

5. Antitrust Immunity

D. ATI Regulatory Scheme

1. Competitive Analysis

2. Public Interest Considerations


A. Constrain the “Public Interest” and Emphasize Predictability in Determining ATI

B. Periodic Reviews of Immunized Alliances that Minimize the Burden on Airlines

C. Increase DOJ Involvement in ATI Competitive Analysis

D. Knock Down Barriers to Entry, While Respecting the
Tenets of Deregulation and Free Competition




Chances are any evening news coverage lately about the commercial airline industry in the United States was not positive. Indeed, 2017 was not a banner year for U.S. airlines on the public perception front, with numerous videos showcasing conflicts between airlines and passengers. No incident garnered the attention and ubiquitous condemnation from the public better than the violent removal of Dr. David Dao from United Express Flight 3411.[1] Videos of a bloodied Dr. Dao being dragged down the aisle like a rag doll as he cried for help and fellow passengers gasped in horror saturated news networks for weeks.

While United Airlines takes the cake for most viral incident of 2017, it was certainly not the only airline to face negative publicity. The NAACP warned African Americans that flying on American Airlines could subject them to disrespectful, discriminatory or unsafe conditions” after a pattern of disturbing incidents.[2] Delta Airlines faced a spring break fiasco after severe weather hit Atlanta and forced more than 3,500 flight cancellations over five days; the incident highlighted systemic flaws in Delta’s operations and ability to recover.[3] An electrical fire at the Atlanta airport in December again tested Delta’s preparedness in flight operations, luggage handling, passenger accommodations, and so forth as it was forced to cancel 1,400 flights.[4]

Notable incidents were not confined to legacy airlines. Shortly after the Dr. Dao incident, low-cost carrier (“LCC”) Southwest Airlines had police forcibly remove a passenger after she complained of allergies to dogs in the cabin.[5] JetBlue Airways’ “cakegate” incident drew headlines after a family was removed from a flight after a dispute over where to store their child’s birthday cake.[6] Alaska Airlines suffered a slew of cancellations after falling behind on hiring and training for a new aircraft in its fleet.[7] A Spirit Airlines pilot union dispute led to more than 300 flight cancellations and a violent brawl at the Fort Lauderdale Airport between customers and employees.[8] Ultra-low cost carriers (“ULCC”) Spirit, Frontier, and Allegiant occupied three of the four worst rankings in the American Customer Satisfaction Index.[9]

A common theme—one that is likely here to stay—in the above incidents is the presence of social media, with its ability to amplify incidents by transmitting news and images in real time. On any flight with the faintest whiff of an issue brewing there might suddenly be 200 aspiring Steven Spielbergs armed with camera phones ready to catch the next viral incident. News media outlets often compound the issues by running passenger-submitted content that only captures a snippet of the incident and failing to confirm facts. Facts, unfortunately, often take a back seat to the race to be first. For instance, the Dr. Dao incident did not actually involve any United Airlines employees as it occurred on a contracted United Express carrier, Republic Airline, and the forceful escalation was initiated by Chicago Department of Aviation officers.[10] Yet United Airlines was the focus of the pervasive news coverage and became the public villain. United did not help itself by borrowing from the “WhatNottoDoinaCorporateCrisis” playbook and issued a defensive, non-apologetic statement that effectively blamed “re-accommodat[ing]” Dr. Dao because of his “disruptive” and “belligerent” behavior.[11] After the public firestorm, congressional inquiries, and sinking share prices, United’s CEO, Oscar Munoz, put out a revised statement[12] and began a TV apology circuit. But, by the time Mr. Munoz sat down on Good Morning America,[13] it was too late. United was the clear public villain, representing everything wrong with air travel.

The public discord is understandable. To many, Dr. Dao’s treatment struck a nerve and perfectly epitomized the shortcomings of all U.S. passenger airlines.[14] Flying has become increasingly unpleasant for those unable or unwilling to fly in premium cabins. Passengers feel more like cattle in a metal tube squeezed into shrinking seats on crowded flights where airlines nickel and dime every conceivable charge. An oft-cited statistic is that, following a slew of mergers, the four largest airlines now control over 80% of the U.S. domestic air transportation market.[15] This consolidation is viewed as the engine behind the industry’s newfound ability to turn profits at passengers’ expense.[16] While including a catchy number without context or deeper analysis is effective in producing a mechanical reaction, it leaves open crucial questions that lead to better answers about the level of actual competition by airlines for passenger share in existing and new markets.

This Note attempts to answer some of these questions. It is clear that the failures listed above demonstrate operating flaws and areas for improvement. But with the number of passengers and flights already at an all-time high—U.S. airlines carry more than 928 million passengers annually on over 9.7 million regularly scheduled flights,[17] and the number of people flying is increasing faster than the overall population[18]—it is also clear that unfortunate passenger incidents are the exception, not the norm.

Recent antitrust decisions and policy initiatives by both the Department of Justice (“DOJ”) and Department of Transportation (“DOT”) have shaped the current U.S. airline landscape. The consolidation trend is not unique to the U.S. domestic air transportation market. The emergence of three global airline alliancestogether accounting for around 80% of air traffic across the transatlantic, transpacific, and Europe–Asia marketshas transformed the international air transportation market as well.[19] This Note evaluates the results of the DOJ’s antitrust approach to U.S. airline mergers and reconciles these results with the DOT’s “public interest” emphasis in determining airline applications for antitrust immunity (“ATI”). Given the current domestic market, it is likely that the remaining legacy carriers will leverage their respective global alliances and seek ATI with foreign airlines for continued network growth.

Part I of this Note tracks the tumultuous history of the U.S. airline industry from deregulation to its current health. Part II presents the legal framework, including U.S. antitrust laws, that govern domestic airline mergers and international ATI. Part III proposes practical solutions for the DOT to improve the ATI regulatory process and incubate open market competition, thereby better serving passengers and airlines by edging closer to deregulation.

I.  United States Commercial Aviation Background

A.  Deregulation: Pushback and Taxi to Today’s U.S. Airline Industry

At the outset of commercial aviation in the early twentieth century, there was little to no regulation by the U.S. government. Accidents were frequent, and aviation leaders viewed federal regulation as a key to bolstering public confidence by establishing safety standards.[20] To this end, President Coolidge signed the Air Commerce Act into law in 1926, which formed an Aeronautics Branch under the Department of Commerce and vested it with authority to promulgate regulations to ensure civil air safety.[21] The Aeronautics Branch set about making and enforcing flight safety rules, licensing pilots, ensuring airworthiness of aircraft, and establishing airways.[22] In 1926, the first regulations arrived in a forty-five page document titled “Air Commerce Regulations;” by stark contrast, today’s federal aviation regulations span over 3,600 pages in four volumes of the Code of Federal Regulations.[23]

The commercial aviation industry’s next major transformation came in 1938, when the United States government began regulating domestic interstate and foreign passenger air transportation.[24] The Civil Aeronautics Board (“CAB”) regulated air transportation as a public utility, exerting control over airline hubs, routes, schedules, and fares.[25] These economic regulations were crucial in managing the rapidly growing commercial airline industry; following World War II, the industrial complex and transition to the jet age revolutionized air travel and spiked demand. Airlines found solid footing and shed existing government support such as subsidies for carrying mail.[26] However, by the 1970s, bureaucratic inefficiencies,[27] hyperinflation, and oil supply shocks sparked concern over the continued viability of the U.S. airline industry.[28]

President Carter, therefore, signed the Airline Deregulation Act of 1978 (“ADA”) into law in October 1978.[29] It was intended “to encourage, develop, and attain an air transportation system which relies on competitive market forces to determine the quality, variety, and price of air services”[30] by relaxing and eventually terminating economic controls by the government.[31] Thus the modern U.S. airline industry was born—one that “relie[s] on competition among airlines to promote affordability, innovation, and service and quality improvements.”[32]

The initial foray into economic deregulation was mixed, at best. While it benefited passengers by reducing fares and expanding service and routes, many airlines struggled to adapt and survive under evolving industry dynamics.[33] A driving theory behind deregulation is that it lowers barriers to entry, which creates a more economically efficient market when coupled with competitive market forces. There were two periods when new airlines entered the market: immediately after deregulation (19781984) and the early 1990s.[34] But these sporadic bouts of entry were dwarfed by exits and consolidation.[35]

Years of sustained operating losses, job cuts, and periodic bankruptcies forced an intense consolidation that grounded many historical carriers.[36] In 1978, fifteen legacy airlines provided interstate and/or foreign air transportation; by 1988, just ten legacies remained and 168 airlines had failed or were absorbed.[37] The Reagan Administration’s laissez-faire approach was crucial in setting the industry down a path of consolidation—seventeen of eighteen proposed airline mergers between 1985 and 1988 were approved, increasing the market share of eight major airlines from 74.1% in 1983 to 91.7% in 1988.[38] From 1978 to 2005, twenty mergers involving a legacy airline had transpired.[39] However, industry mergers pale in comparison to bankruptcies. Over 190 airline bankruptcies/reorganizations were filed between 1979 and 2012.[40] Upstart airlines were not the only casualties—legacy airlines Delta, Northwest, United, American, US Airways, and Continental all filed for Chapter 11 bankruptcy.[41] Every remaining legacy airline has declared bankruptcy since 2000.[42]

While deregulation can be judged a success in expanding networks and departure frequency, increasing airline efficiency, and improving safety, financial instability at individual airlines has triggered industry volatility, employment losses, and service quality deteriorations.[43] A common response to these issues was increased consolidation, a trend that continues today.

B.  Cleared for Takeoff: A Twenty-First Century Merger Mania

Seven legacy carriers entered the new Millennium, down from fifteen at the deregulation mark.[44] By 2014, that number was reduced to three.[45] The first to fall was TWA in 2001, with American Airlines acquiring the remaining assets of the faltering carrier that had become a shell of its former iconic self.[46] This was a small foreshadowing of what was to come.

Entering 2005, six legacy carriers and nine total major carriers remained; the four largest carriers, in terms of passengers carried, accounted for 56% of domestic traffic.[47] A series of mergers quickly altered that composition. First, America West Airlines acquired US Airways in 2005, then Delta Airlines and Northwest Airlines merged in 2008, followed by the merger of United Airlines and Continental Airlines in 2010, the acquisition of AirTran Airways by Southwest Airlines in 2011, and lastly the American Airlines and US Airways merger in 2013,[48] which created the world’s largest airline.[49] The American-US Airways merger was initially hotly contested, but the eventual settlement caught many by surprise and caused many industry observers to express stern disagreement.[50] There was a strong sense that because the DOJ had approved a “super-Delta and a super-United,” it had no choice but to permit a “super-American” to act as a counterweight and restraint on the two.[51]

The result of these mergers is a highly concentrated U.S. airline industry, in both the aggregate and certain city-pair routes. The four largest U.S. airlines account for more than 80% of domestic passenger traffic.[52] A common criticism of consolidation is that it harms passengers as airlines, in tandem, match fare increases, impose new fees, reduce or eliminate service on certain routes, and downgrade amenities.[53] Stakeholders of the airlines, however, have cheered consolidation amidst steadily improving financial health. One airline executive referred to industry consolidation as the “New Holy Grail” given that “fewer and larger competitors” allow airlines to “reap the benefits,” such as reduced capacity and increased ancillary revenue.[54]

Most recently, Alaska Airlines merged with Virgin America, receiving DOJ approval in December 2016.[55] The resulting Alaska Airlines will hold just roughly 5% of the domestic passenger market.[56] Given the current market share of the legacies and Southwest, any future mergers will likely be similar mergers of smaller airlines positioning themselves to compete with the big four.

C.  Resulting Composition and Financial Picture of the Industry

Wall Street has viewed the airline industry mergers favorably. A 2014 Goldman Sachs report cheered the American-US Airways merger as a furtherance toward “dreams of oligopoly.”[57] The report envisioned that consolidation would continue to push the industry toward “lower competitive intensity” and greater “pricing power with customers due to reduced choice.”[58] The recent wave of mergers has helped airlines exercise better capacity control and set prices significantly above marginal cost relative to prior years.[59] Stock performance of the airlines reflect this newfound pricing power: American Airline’s stock increased more than 300% after its 2013 merger compared to a roughly 90% gain in the S&P 500 index across the same time.[60] American Airlines is not the only airline stock to take off. The recent industry-wide performance caught the eye of Warren Buffet and his Berkshire Hathaway invested more than $1.4 billion into the four largest U.S. airlines in 2016.[61]

What used to be an unattractive investment (industries in which every leading company has undergone bankruptcy usually do not inspire confidence) is no longer so amidst surging profits. U.S. airlines collectively hauled in profits of approximately $15.5 billion in 2017, marking the fifth consecutive year an after-tax net profit was produced as a group.[62] Strong profitability should continue in 2018; North American airlines are projected to record net profits of close to $16.4 billion.[63]

The price of jet fuel is a major factor in the recent profitability of U.S. airlines. However, many pundits question why record low fuel prices have not had a more direct impact on airfare. Senator Chuck Schumer (D-NY) called for an investigation, writing to the DOJ, “[i]t’s hard to understand, with jet fuel prices dropping by 40 percent since last year, why ticket prices haven’t followed.”[64] Indeed, after a sustained period of high fuel costs, jet fuel prices dipped nearly 70% between 2014 and 2016, while average airfares dropped 8.6%.[65] Airlines captured gains from cheaper fuelDelta projected $2 billion in savings on fuel costs alone in 2015, while Southwest was able to nearly cut its average price per gallon of fuel in half from the fourth quarter of 2014 to the first quarter of 2015.[66]

But expecting a direct relationship between fuel costs, albeit a major marginal cost, and airfares is naïve. So too is comparing U.S. airlines’ reaction to cheaper fuel with the reaction of European airlines. While fuel is a global commodity, U.S. airlines and European airlines make business decisions in distinctly different markets.[67] European airlines “[d]runk on the profit boost served up by cheap fuel” added capacity at a greater rate than passenger demand, causing fares to dip.[68] The European airline industry’s collective financial health lately pales in comparison to the United States—two European airlines, Monarch Airlines and AirBerlin, ceased operations in 2017, and a third, Alitalia, entered bankruptcy.[69] Granted, recent terrorist attacks and Brexit have not helped matters, but the remaining European airlines have had little choice but to scale back earnings expectations and slash ticket prices in an attempt to fill seats in a high capacity environment.[70]

As jet fuel prices continue to creep upwards, the responsiveness of U.S. airlines will be tested. Every cent that fuel per gallon increases equates to roughly $200 million in U.S. airline industry fuel expenses.[71] U.S. airlines are often hit harder by rising fuel costs compared to international airlines that are more aggressive in fuel hedging.[72] The recent consolidation has allowed the U.S. airline industry to mature to a level of sustainable adaptability while Europe lags behind. While European airlines flooded the market with seats in the wake of cheaper fuel, U.S. airlines were better disciplined in capacity; this difference was no doubt due in large part to consolidation and fewer U.S. airlines with sizeable market shares when compared to Europe.

D.  Capacity Discipline: Corporate Catch-22

A common feeling is that consolidation has allowed U.S. airlines to better exercise “capacity discipline,” a key term that became the crux of a DOJ investigation and class action lawsuits. Capacity discipline refers to “restraining growth or reducing established service.”[73] A large share of customer dissatisfaction with flying can reasonably be attributed to it. Load factor, the percentage of available seats filled with revenue passengers, has increased from around 70% in the early 2000s to nearly 85% in 2015.[74] When you mix in shrinking seats—average legroom has decreased two inches in the last decade[75]—with fuller flights and an increased chance of a middle seat neighbor, it is easy to understand the perception that flying is not what it used to be.

The U.S. airlines’ affinity for capacity control caught the eyes of federal lawmakers, regulators, and passengers alike. In June 2015, Senator Richard Blumenthal (D-CT) requested that the DOJ investigate capacity control as a form of collusion and anticompetitive behavior.[76] He referenced numerous public comments by airline executives committing their respective airline to continued “capacity discipline.”[77] For example, at the 2015 annual International Air Transport Association (“IATA”) conference, chief executives from Delta, Air Canada, and American Airlines all stressed the need for capacity discipline in their public remarks.[78] Similar comments were regularly made by executives on earnings calls and other communications with securities analysts.[79]

The DOJ opened an investigation in July 2015 into possible collusion between Delta, American, United, and Southwest to limit seats and artificially inflate fares.[80] The DOJ’s investigation posed an interesting question—“whether the airline executives have talked so much publicly about discipline to appease Wall Street’s profit demands, or whether there is any smoking gun showing that airline executives have colluded privately.”[81] Effectively, the DOJ inquired whether the level and persistence of stressing discipline could be interpreted “as thinly veiled invitations to restrict capacity increases to keep ticket prices high.”[82] In rare cases, explicit communication and collaboration are easy to prove. When collusion need[s] to be inferred from statements by executives to analysts, and other signaling,” it is exponentially more difficult because something beyond circumstantial evidence must be proven.[83] The DOJ investigation shifted toward a possible nexus between airline executives and Wall Street via dominant shareholders; DOJ investigators questioned whether airlines signaled or communicated strategy with competitors through mutual large shareholders as a proxy.[84] However, by January 2017, the DOJ effectively shuttered its investigation as it concluded that the airlines’ conduct did not cross the line of an antitrust violation.[85]

Shortly after the DOJ opened its investigation in 2015, numerous class action lawsuits were filed in federal district courts based on the same capacity and price fixing concerns of the DOJ investigation.[86] The multi-district litigation (“MDL”) survived a major hurdle in November 2016 when D.C. District Judge Colleen Kollar-Kotelly denied the airlines’ motion to dismiss, finding “that plaintiffs sufficiently set forth circumstantial evidence to demonstrate a plausible claim.”[87] The MDL is currently ongoing. Southwest Airlines reached a $15 million settlement in January 2018 followed by American Airlines in June 2018 for $45 million; Delta and United remain in litigation and have pushed discovery to January 2019—more than three years after the suits were originally filed.[88]

When airlines embrace capacity discipline, they find themselves at the center of a DOJ investigation and multiple class action suits. But airlines that resist capacity discipline do so at their own peril. For years, “Wall Street analysts have browbeat airline executives to either have discipline, or they will bust their recommendations on their stock.”[89] In 2015, Southwest CEO Gary Kelly announced capacity growth plans, but was forced to roll back these plans less than two months later after facing intense Wall Street backlash and coming under fire at the abovementioned IATA conference—this conference spurred the DOJ investigation.[90] More recently, United Airlines announced plans in January 2018 to raise capacity by 4% to 6% annually over three years.[91] Investors immediately swatted the plan, and United’s shares dipped 16% over the following three days.[92] The impact of United’s capacity growth plans was felt industry wide: Delta, American, and Southwest each saw share prices decline more than 7%, and collectively the combined market of the largest four airlines fell by 9.7% from $133 billion to $120.1 billion in the immediate aftermath of the announcement.[93]

Officers and directors of corporations owe a fiduciary duty only to the corporation itself and its shareholders.[94] Thus, officers at the largest U.S. airlines have found themselves in a corporate catch-22 between DOJ investigations and multi-district class action lawsuits on the one hand, and tumbling share prices and shareholder pressures on the other hand.

II.  Legal Framework

A.  Theoretical Basis for Consolidation and Existing Literature

Mergers and acquisitions (“M&A”) are external integration strategies in which legally and financially independent companies combine to form a larger entity.[95] Consolidation motives “include increasing revenues, improving management efficiency and capital investment performance, and eliminating a competitor from the market.[96]

Two main views exist for what drives airline M&A: (1) efficiency gains in the resulting airline or (2) market power gains. The first view involves the potential to reduce costs by enhancing the “hub-and-spoke” networks of legacy airlines, while the second view perceives an improved ability to raise passenger fares.[97] Some see financial and competitive pressures as the primary driver, i.e., a solution to increase profitability and financial stability. Another view is that airline consolidation is “necessary to minimize asset devaluation to prevent a domino effect, as most major US airlines are ‘too big to fail.’”[98]

At a basic level, the goal of M&A is to increase shareholder value.[99] A number of benefits are typically touted by airlines to gain regulatory approval and justify the merger to shareholders, including, but not limited to, “increase[d] . . . revenues by extending the airlines’ network, increase[ed] market share . . . higher fares on some routes, improv[ed] network connectivity, increas[ed] frequent flyer loyalty, [and] better aircraft utilization.”[100] In reality, however, receiving unanimous approval from all stakeholders is virtually impossible as shareholders, management, employees, customers, and governments harbor competing interests. M&A failure often results from a combination of factors, among them clashing company cultures, union resistance, or other operational difficulties.[101] Three major obstacles to airline mergers include: (1) workforce integration; (2) fleet integration; and (3) information technology integration.[102]

To regulators, the airline industry is, theoretically, inherently susceptible to coordinated behavior—a few large airlines dominate the industry, each transaction is small, and most pricing by competitors is transparent and readily accessible.[103] In evaluating mergers, much of the focus has been on existing network overlap, particularly non-stop routes. “The larger the degree of overlap between the networks of the two merging carriers, the larger is the potentially anti-competitive effect of the transaction. This ‘enforcement principle’ still guides the decisions of antitrust authorities on both sides of the Atlantic.”[104] Thus, market concentration is a key factor in the regulatory authorities’ antitrust analysis.

A measure of market concentration is the Herfindahl-Hirschman Index (“HHI”), calculated as the sum of the squared market shares of all firms in a market.[105] The DOJ considers markets “highly concentrated” when HHI exceeds 2,500.[106] A 2014 study found that [n]early 97 percent of city pair markets are highly concentrated and well over half have HHIs in excess of 4,000. Some of those city pairs involve small cities.[107] Yet nearly 90% of all passengers traveled on city-pairs with HHIs above 2,500, and about 40% of city pairs have HHIs in excess of 4,000 . . . [t]he average passenger flew on a city pair with HHI of 4,202.[108]

On the surface, these HHI figures support the argument that the U.S. airline industry has become too concentrated following the recent mergers. However, as with any single statistic, the HHI has its limitations and does not account for every variable of competition.

Academic literature examining airline mergers is mixed, at best. Maruna and Morrell’s investigation of eighteen mergers involving U.S. airlines between 1978 and 2005 found that only one merger could be judged a success.[109] Their review of existing literature suggested that between 50% to 80% of mergers failed to meet their stated goals.[110] A 2016 study judged the 2005 US Airways-America West merger “a success” as the emerging US Airways improved operations and cost controls, increased shareholder value, and developed long-term synergies.[111]

Post-merger studies often focus on routes in which both merging airlines previously competed, expecting any anti-competitive effects to occur most strongly on such routes.[112] Multiple studies of airline mergers prior to the recent wave beginning in 2005 generally found that the mergers resulted in loss of competition and higher fares.[113] Such effects were, surprisingly, not confined to overlap routes, but also routes in which one merged airline was only a potential competitor.[114] However, studies evaluating the recent legacy airline mergers are generally inconclusive as to the competitive impacts.[115] The 2008 Delta-Northwest merger received a healthy amount of academic attention, with most studies unable to discern any large effects other than small fare increases ranging from 1% to 4% on overlapping routes.[116] Research into the 2010 United-Continental merger is limited, but it has generally found the merger produced competitive results with reduced fares of 3% to 4% on some routes.[117] A study of the three recent legacy carrier mergers found them to be, as a whole, pro-competitive.[118] Across the three mergers, “overlap routes . . . experienced statistically significant output increases and statistically insignificant nominal fare decreases relative to non-overlap routes.”[119]

Thus, there is analytical support that the recent airline mergers and industry consolidation were not anticompetitive or bad for passengers. This Note does not seek to add to the voluminous record evaluating mergers (particularly in the domestic market) or question regulators for past decisions; rather, it seeks to explore the current regulatory approach and propose solutions for greater transparency and competition promotion moving forward.

B.  Antitrust Statutes and Regulatory Regime

The principal architect of deregulating the U.S. airline industry, Alfred E. Kahn, recognized that a deregulated industry would require vivid antitrust law enforcement to realize the potential benefits of competition it was intended to promote.[120] Two chief antitrust laws exist in the United States to protect consumers from lack of competition: the Sherman Act (1890)[121] and the Clayton Act (1914).[122] Section 1 of the Sherman Act declares “[e]very contract, combination . . . or conspiracy, in restraint of trade or commerce . . . to be illegal.[123] The Clayton Act focuses on specific types of conduct or transactions believed to threaten competition, such as mergers.[124] For example, § 7 prohibits mergers when “the effect of the acquisition may substantially lessen competition or tend to create a monopoly.”[125] The DOJ Antitrust Division and the Federal Trade Commission (“FTC”) are the primary enforcers; however, any state attorney general or individual alleging economic harm by a violation of the antitrust laws may also file suit.[126]

The Clayton Act lacks explicit definitions of prohibited activities; therefore, historical enforcement is determinative. The legislative history shows the drafters’ intent was to protect ‘competition, not competitors, and [Congress’s] desire to restrain mergers only to the extent that such combinations may tend to lessen competition.’”[127] This does not invite regulators “to thwart business efficiencies that may be achieved through the combination of two firms’ resources.”[128] Congress’ intent was to “cope with monopolistic tendencies in their incipiency and well before they have attained such effects as would justify a Sherman Act proceeding” by authorizing the review of activities that might “create, enhance, or facilitate the exercise of market power.”[129]

The Supreme Court’s approach in Brown Shoe Co. v. United States[130] set out the pattern used in modern antitrust jurisprudence:

There, the Court (1) defined the relevant product and geographic markets; (2) analyzed the probable effects of the merger by examining the market shares of the firms, the current concentration of the industry, the trend toward continued consolidation in the industry, and the statements and behavior of the individual firms; and (3) found a lack of mitigating factors that would provide procompetitive benefits from the merger.[131]

Effectively, any merger that increases market share or market concentration enough to “raise an inference” of illegality is presumed to be anticompetitive, and the merging entities carry the burden to “rebut the inherently anticompetitive tendency manifested by these percentages.”[132]

Judicial decisions concerning section 7 of the Clayton Act historically drove antitrust enforcement until the Hart-Scott-Rodino Antitrust Improvements Act of 1976[133] imposed new pre-merger notification requirements and signaled a shift of authority to enforcement agencies.[134] Prior to its passage, Merger Guidelines were drafted to assist in the movement from judicial interpretation toward agency law.[135] The Antitrust Division of the DOJ published the first Merger Guidelines in 1968 “to acquaint the business community, the legal profession, and other interested groups and individuals with the standards currently being applied.”[136] The Merger Guidelines have undergone multiple revisions as the rules guiding merger enforcement have developed;[137] The DOJ and FTC released their current version in 2010.[138] While the Merger Guidelines are not binding legal authority, their influence on the business community cannot be overstated, particularly in improving DOJ and FTC transparency.[139]

Turning to the U.S. airline industry, the DOJ Antitrust Division is responsible for reviewing airline mergers and acquisitions and enforcing controlling antitrust laws as a result of the ADA.[140] The ADA stipulated that approval of airline M&A would continue, but that jurisdiction would be transferred from the CAB (set to expire in 1984) to the DOJ.[141] However, the DOT filled this role from 1984 until the end of 1988 due to the Sunset Act of 1984,[142] modifying the deregulation transition.[143] The DOT’s authority expired, and since 1989, the DOJ has retained jurisdiction over applying the antitrust laws to airline M&A and other control relationships.[144] The DOT assists the DOJ by utilizing its expertise to advise and exert authority over slot controls and routes to remedy competitive concerns.[145]

Paradoxically, the authority to immunize foreign air services agreements between U.S. and foreign airlines from U.S. antitrust laws rests with the DOT.[146] This authority stems from the 1979 International Air Transportation Competition Act.[147] While the DOJ may submit comments during public comment periods, the DOT retains sole statutory authority to approve and immunize foreign air services agreements[148] from the same antitrust laws that the DOJ applies when evaluating domestic airline mergers and acquisitions. The DOJ, or DOT, has “no corresponding authority” to immunize domestic alliances between U.S. airlines.[149]

C.  Foreign Airline Collaboration Models and Their Significance

1.  Foreign Ownership Restrictions

Passengers today, particularly loyal and lucrative business travelers, demand seamless service from everywhere to anywhere in the world. Both U.S. and European legacy airlines have pursued business models reflecting such demands. However, few city-pairs generate enough daily demand to warrant non-stop service, and no airline could efficiently provide service with its own fleet to every destination their customers require.[150] Most businesses meet such global customer demands through cross-border mergers or the establishment of facilities abroad.[151]

Such a solution is not available for airlines; full cross-border airline mergers are restricted by long-standing government restrictions on foreign ownership and control of airlines by non-nationals.[152] Faced with these restrictions, airlines seek foreign airline partners and develop vast alliances to provide customers expanded network coverage and greater service options.[153] Global airline alliances, leveraging the “fundamentals of network economics and [the] global economy,” have prevailed as a next-best substitute[154] for airlines to realize the economic benefits of mergers and have become a dominant feature of the airline industry.[155]

Cooperation between foreign airlines first requires that “freedoms” be granted for airlines to serve foreign nations.[156] These freedoms, or rights to board and deplane passengers in a foreign country, are established in international commercial aviation agreements (bilateral or multilateral treaties between governments).[157] The terms vary as some “agreements may restrict the number of carriers that provide air service between the countries, the number of flights that they offer, and sometimes the fares that they charge for travel between the countries.”[158] The 1993 “Open Skies” agreement between the United States and Netherlands was crucial in spurring a liberalization of foreign air transportation access.[159] U.S. and Dutch airlines “no longer needed permission from either government to provide service, carry passengers, and offer particular fares between the [countries].”[160] This was just the beginning. In April 2008, the U.S.-E.U. Open Skies Agreement signaled a major culmination of the U.S. government’s push toward expanded foreign airline access.[161]

Despite providing for marked improvements in expanding access, the U.S.-E.U. agreement does not permit cabotage (the eighth and ninth “freedoms” of the air),[162] which is the right to transport passengers within the boundaries of another country, or relax foreign ownership restrictions on airlines.[163] Even the most liberal international aviation agreement in existence restricts airline operations and consolidation.[164] There are no indications these restrictions will be relaxed in the foreseeable future,[165] so cooperation among foreign airlines will continue to play a large role shaping the international air transportation market, particularly while foreign ownership and control restriction preclude higher levels of integration.

A broad spectrum of cooperation between airlines exists, ranging from arms-length interline agreements to full-fledged, highly-integrated joint ventures (“JVs”).[166] Within JVs, airlines participate on a revenue or profit-sharing basis and seek grants of ATI, the highest form of cooperation. The next section is a basic introduction to various levels of cooperation between foreign airlines. However, note that these levels are not absolute, so airlines are generally free to pursue unique and specific levels of cooperation.

2.  Interline Agreements

Simple interline agreements are at the lowest spectrum of the airline cooperation scale. When two or more airlines agree to a multilateral or bilateral agreement to accept other airlines’ passengers, travelers can then buy a single ticket itinerary with flights on two or more independent airlines.[167] An interline fare is typically less than the sum of available fares on the individual legs, resulting in a small pricing benefit and booking convenience for consumers.[168] But this arms-length level of cooperation does not approach the efficiencies and integration possible through consolidation, and the quality of the interline product may differ widely on different airlines or airports.[169] For example, travelers may face multiple check-ins, long distances between gates or terminal transfers, greater likelihood of lost luggage, and uncertainty over customer service responsibility for missed connections or related travel disruptions.[170]

3.  Alliances

Alliances depend upon agreements between airlines and can take a variety of forms. Alliance agreements typically begin as code share arrangements, with additional perks getting added over time.[171] Code share agreements are essentially enhanced marketing jointventures, whereby one airline sells and markets seats under its own designation on a flight operated independently by an alliance airline.[172] Alliances thus open new destinations and expand route networks for airlines without requiring additional aircraft.[173] Faced with foreign ownership rules and entry restrictions, airlines have increasingly joined one of three major global alliances—Star Alliance, SkyTeam, and OneWorld—to expand their route network in foreign nations.[174]

Alliance participants determine which international routes to include in the agreement. If the alliance partners are not competitors on a route, they can communicate about fares and other competitive matters without ATI.[175] If the allies are competitors on the same route, then the alliance agreement remains arms-length and the operating airline determines seat availability for the marketing partner, but each airline sets prices independently.[176] Further, alliances allow a flexibility that improves services and offers passengers a more seamless experience. Partner airlines may adjust flight schedules to coordinate connection schedules, benefit from better gate or terminal proximity, open lounge and club access with partners, and link frequent-flyer programs.[177] Airline alliances, in the absence of ATI, provide benefits to consumers relative to interline agreements by both improving networks and lowering fares through the economies of denser passenger flows.[178]

4.  Joint Ventures

A closer form of cooperation and integration between airlines is the joint venture (“JV”). Airlines agree to share revenue from JVs on specific international routes independent of which airline operates the flight.[179] JVs create an agreement that is “metal neutral” in the sense that the physical metal, or aircraft, involved in producing passenger revenue is irrelevant in determining the respective airline’s share of revenue, thereby erasing any incentive for opportunistic advantages in cooperating.[180] Metal neutrality is significant in capturing the possible pro-competitive efficiency gains from increased economies of scale.[181] Thus, under a metalneutral JV, the profits (or losses) are split equally amongst the carriers regardless even when Airline A’s flights are at capacity, but Airline B’s flights are empty. JVs are, in effect, mergers that apply to defined international routes.

5.  Antitrust Immunity

Airlines operating a revenue or profitsharing JV combined with a grant of ATI achieve the highest degree of cooperation.[182] As noted earlier, the DOT holds the statutory authority to immunize international air transportation agreements from U.S. antitrust laws.[183] However, the government of the foreign carrier’s country retains sole authority to immunize the agreement from its own antitrust laws; thus, JVs are often conditioned on receiving ATI approval from both governments. ATI effectively allows two airlines to operate as one on certain routes and jointly coordinate pricing, revenue sharing, flight schedules, marketing (such as aligning frequent flyer programs), sales, and any other competitively sensitive matters without concern that they violate antitrust laws.[184]

Some support ATI by pointing to benefits consistent with closer integration, while others criticize it as anti-competitive. Regulators are particularly concerned about consumer welfare on non-stop travel between partners’ hub cities, where overlapping services allow the trip to be taken on either airline.[185] Thus, the DOT has a longstanding policy precluding consideration of ATI until all elements of an Open Skies agreement are in place to ensure that un-aligned airlines may freely enter and compete.[186]

D.  ATI Regulatory Scheme

While jurisdiction over airline mergers was vested in the DOJ in 1988, the DOT retains exclusive authority to immunize international air transportation agreements from U.S. antitrust laws.[187] ATI applications are filed in a public docket and decided on by the Secretary of Transportation after a detailed competitive analysis.[188] Once an application is complete, the DOT allows a period of public comment and issues a written decision within six months.[189]

Applicant airlines have a high bar to meet. The DOT publicly recognizes that “the antitrust laws represent a fundamental national economic policy . . . that serves . . . travelers well” and that “immunity from [them] should be the exception, not the rule.”[190] Airlines’ applications for ATI are “strictly construed and strongly disfavored . . . to ensure that alliance partners maintain the ability and incentive to pass on the potential benefits . . . to consumers.”[191]

The DOT engages in a two-step review of air transportation agreements submitted for ATI involving both a competitive analysis and a public interest analysis.[192] First, the DOT evaluates whether approving ATI would be adverse to the public interest by “substantially [reducing] or [eliminating] competition.”[193] If the DOT makes that determination, it then decides whether ATI is nonetheless “necessary to meet a serious transportation need or to achieve important public benefits.”[194] If it makes that finding and the public benefits cannot be achieved by other “reasonably available” and “materially less anticompetitive” means, then the DOT must approve ATI pursuant to § 41309(b).[195]

Second, if the DOT concludes after its initial review that the application is not adverse to the public interest, § 41309(b) directs it to grant ATI.[196] The DOT next determines whether sufficient public benefits justify ATI under § 41308.[197] The DOT is authorized to exempt agreements from the antitrust laws “to the extent necessary to allow the [airlines] to proceed with the transaction specifically approved by the order,” provided that the public interest requires it.[198] In sum, the DOT must find that ATI would reduce or substantially eliminate competition and such harm would not be offset by consumer benefits generated by ATI to deny an application.

1.  Competitive Analysis

Because ATI results in similar commercial effects as a merger, the DOT conducts a full Clayton Act test just as when evaluating domestic airline mergers.[199] The Clayton Act test evaluates competitive implications and whether approval is likely to substantially reduce competition and “facilitate the exercise of market power.”[200] Applied to ATI applications, the DOT must determine whether approval would allow the immunized airlines “to profitably charge supra-competitive prices or reduce service or product quality below competitive levels.”[201] In determining this, the DOT evaluates: “(1) whether [ATI] would significantly increase market concentration; (2) whether [ATI] would cause potential competitive harm; and (3) whether new entry into the market would be timely, likely, and sufficient either to deter or to discipline the potential competitive harm.”[202]

The importance of defining relevant markets is not lost on enforcement agencies. The DOJ has stated that properly defining markets “could be ‘a central focus’ of the analysis and be outcome determinative.”[203] In the context of ATI requests, the DOT evaluates competitive effects at three market levels: (1) a broad network level; (2) a country-pair level; and (3) a city-pair level.[204] Because ATI diminishes competition on routes on which the airlines compete, ATI reviews have largely focused on the potential loss of competition in non-stop overlaps.[205]

Market power is “the ability to profitably raise prices above competitive levels (or reduce competition on dimensions such as [capacity]), for a significant period of time.”[206] Just as in DOJ domestic airline merger reviews, the HHI of impacted city-pairs is calculated to define the market concentration and quantify increased concentration attributable to ATI; any HHI increase of 200 points or more is presumed market power enhancing.[207] This presumption is rebuttable by airlines; Supreme Court doctrine allows parties to present evidence specific to itself or its industry to rebut statistical indicators of anticompetitive effects.[208] But rebutting statistical evidence with non-statistical defenses is difficult, often being rejected by courts.[209] While market concentration alone may not be determinative—as evidenced by the rebuttable presumptionit is influential in the analysis of other potential anticompetitive effects of ATI, such as unilateral and coordinated effects.[210]

The DOT must determine any unilateral effects of granting ATI. Unilateral effects stem from the “internalization of . . . competition” between the airlines.[211] Therefore, this determination is highly dependent on the level of competition between the airlines at the time of application and whether the respective airlines’ services can be considered close substitutes.[212]

Coordinated effects, on the other hand, consider potential impacts of ATI on how firms compete in the relevant market(s).[213] A reduction in competitors may diminish competition by encouraging coordinated interaction among fewer competing airlines. Evaluating coordinated effects is largely an offshoot of game theory, as it involves decisions by multiple airlines in which certain conduct is profitable for each of them, but only as a result of cooperative reactions by the others.[214] The DOT may also consider external factors such as infrastructure or slot constraints that act as barriers to open entry or potentially exacerbate competitive harm.

2.  Public Interest Considerations

The consideration of public benefits and mitigating factors in determining ATI is largely where the DOT’s approach diverges from the DOJ’s approach in reviewing mergers. Congress has enumerated numerous factors that the DOT may consider in its public interest evaluation, including “the availability of a variety of air service, maximum reliance on market forces, the avoidance of unreasonable industry concentration, and opportunities for the expansion of international services.”[215] While § 41308 imposes a more stringent test that ATI be “required by” the public interest, the DOT has proffered several forms of public benefits to justify approval, including reductions in double marginalization, cost and operational efficiencies, expanded networks, improved coordination and services, increased capacity, and aligned frequent flyer benefits.[216]

The expansion of international air services has undoubtedly emerged as the dominant public interest factor permitting ATI despite a competitive analysis indicating rejection, and the DOT recognizes U.S. foreign policy goals as a key public benefit.[217] Since the early 1990s, the DOT and the State Department have used ATI as an incentive and bargaining chip to induce foreign nations to enter into Open Skies agreements with the United States.[218] For instance, the first ATI grant in 1993 was a result of the U.S.-Netherlands Open Skies agreement. Recently, the DOT approved ATI proposals by both United-All Nippon Airways and American-Japan Airlines, conditioning approval on the U.S.Japan Open Skies Aviation Agreement being signed.[219] The State Department and DOT effort has succeeded as the United States currently has more than 120 open-skies partners.[220]

Occasionally, public interest considerations beyond Open Skies prove instrumental. The 2005 SkyTeam ATI application was denied because the DOT determined it was not required by the public interest given that “the carriers had not shown they could effectively reconcile” differing business practices to achieve commonality within the alliance.[221] In 2009, in the midst of a global recession and struggling airlines, the DOT approved a Star Alliance ATI request because it “[would] help Continental and the other participants manage cyclical changes in the industry to preserve existing services, with a view toward increasing capacity and enhancing competition between carriers and alliances.”[222] The DOT has justified airlines’ insistence of not proceeding with an agreement without ATI as a public benefit.[223] Lastly, OneWorld’s 2010 ATI application was approved because a OneWorld immunized JV was needed to “provide a third global network [to] better discipline the fares and services offered by the Star and SkyTeam alliances,” reasoning that “this too is a public benefit.”[224] Recall that this “competitive counterweight” line of reasoning was instrumental in the DOJ’s approval of the American-U.S. Air merger. [225]


The 1993 Open Skies Agreement between the United States and Netherlands opened a new industry order of cooperation among foreign airlines. Northwest Airlines and KLM immediately created an alliance and eventually expanded it into a JV.[226] United Airlines seized on the newfound expansion opportunities and launched the Star Alliance in 1996; American Airlines followed suit in 1999, creating the OneWorld Alliance, and Delta finished the alliance trifecta with its SkyTeam Alliance in 2000.[227] The DOT’s willingness to approve ATI is a significant development; more than twenty-eight international alliance agreements were granted ATI by the DOT after 1993, contributing to the formation of four vast, transatlantic JVs.[228]

The proliferation of foreign air services agreements is not confined to the lucrative transatlantic market. The United States and Japan completed an Open Skies agreement in 2010, signaling a countervailing shift toward greater liberalization in the transpacific air market.[229] Since then, American Airlines-Japan Airlines, Delta-Virgin Australia, United-Air New Zealand, and United-ANA created transpacific JVs with ATI.[230] As airlines across the globe increase cooperation with foreign counterparts, international travel demand has steadily increased. Each year, over 80 million U.S. residents travel abroad.[231] Global air passenger demand increased 7.6% in 2017 compared to 2016, above the ten year average annual growth rate of 5.5%.[232] International passenger traffic increased 7.9% in 2017, slightly edging domestic traffic which increased 7%; in sum, more than 4 billion passengers took to the skies in 2017, with the Asia-Pacific and Latin America regions capturing the highest year-to-year demand gains.[233]

While U.S. airlines were undergoing a merger-fueled movement toward greater concentration that left four airlines accounting for nearly 85% of the domestic market (up from 65% in 2010),[234] a similar battle opened on the international front. Nearly every major airline worldwide has joined one of the three global alliances: (1) Star Alliance consists of twenty-eight carriers;[235] (2) SkyTeam consists of twenty carriers;[236] and (3) OneWorld consists of thirteen carriers.[237] Immunized alliances operated 41% of transatlantic capacity in 2000; by 2015, that share increased to 86%.[238] During that time, HHI increased 1,592 points, a 155% increase.[239] Since 2015, the number of independent, non-aligned transatlantic airlines has decreased, leaving four transatlantic JVs in control of more than 90% of U.S.-E.U. traffic.[240] Similarly, the three global alliances provide over 80% of capacity in both the U.S.-Asia Pacific and E.U.-Asia Pacific markets,[241] and both shares are set to rise given the relative novelty of Open Skies agreements with Asian nations. Given this backdrop, it is no surprise that ATI applications are controversial and frequently spur regulatory disputes.[242] Two recent DOT decisions fueled the flames and left interested parties pondering whether they signal a DOT policy shift or are simply anomalies.

In November 2016, the DOT tentatively blocked American Airlines and Qantas Airwayss JV application for ATI finding that the JV, which would control around 60% of the U.S.-Australia market if approved, would “substantially reduce competition and consumer choice, without producing sufficient countervailing public benefits.”[243] The DOT did not believe that there would be greater capacity growth under the JV than what it expected would happen without it; thus, it found that many of the public benefits presented by an AmericanQantas JV could be achieved through materially less anticompetitive cooperation such as codesharing.[244] American and Qantas’ application invited challenges from LCC competitors over certain “exclusivity” provisions in the joint business agreement.[245] Lastly, JetBlue Airways highlighted that American Airlines was seeking ATI, a prerequisite of which is an active Open Skies agreement, while embroiled in a nasty industry dispute concerning Open Skies and the big three Middle Eastern carriers (ME3),[246] which could have impacted the DOT’s decision.

Less than a month later, the DOT approved Delta and Aeromexico’s application for an immunized JV; however, it imposed multiple conditions to address competition concerns. The DOT found that “the non-transparent slot allocation regime and infrastructure constraints at Mexico City’s Benito Juarez International Airport (MEX),” coupled with Delta and Aeromexico’s control of nearly 50% of the MEX slots, were unique constraints on the public realizing the benefits of the JV.[247] To remedy the airlines’ entrenched share at MEX and John. F. Kennedy International Airport (“JFK”) and to address the difficulty of new entrant airlines to acquire slots, the DOT conditioned approval on Delta and Aeromexico divesting twenty-four MEX slots and six JFK slots.[248] In a surprising development, the DOT also limited its ATI grant to five years.[249] After JetBlue and Hawaiian Airlines called for a three-year limit, the DOT determined a five-year limit and a de novo application to extend ATI was required by the public interest so interested parties could evaluate the effects of the slot divestures and proposals by the Mexican government to improve MEX slot allocation procedures.[250] Lastly, the DOT required Delta and Aeromexico to remove “certain anticompetitive,” or exclusivity, provisions from their JV agreement.[251]

Moving forward, the need for a clear and transparent approach to ATI by the DOT on international air travel cannot be overstated. With mergers involving U.S. legacy airlines likely off the table for the foreseeable future, these legacy airlines will continue to expand their respective alliances and favor ATI (the closest substitute to a merger facing foreign ownership restrictions) to expand their global network and capture maximum integration efficiencies. United Airlines is exploring an immunized JV with Air Canada following a shift in Canadian laws.[252] American Airlines and Qantas have reapplied for ATI with an improved application,[253] hoping for a better result under the Trump administration. The following subsections will explore practical regulatory and systematic reforms available to ensure “friendly skies” for both airlines and passengers alike. The key is a transparent and consistent approach by the DOT that allows robust free market forces (for which deregulation paved the way) to better regulate and ensure continued competition.

A.  Constrain the “Public Interest” and Emphasize Predictability in Determining ATI

The DOT justified its initial ATI approvals in the 1990s largely on the public interest factor that Congress provided it, finding that passengers would benefit from network efficiencies and increased competition “by allowing airlines with small market shares to combine their networks and become more effective in competing against larger airlines.”[254] In doing so, the DOT seemingly disregarded a fundamental principle of antitrust law—it exists to protect competition, not competitors—in its ATI approach. Indeed somewhere along the line, the public interest consideration has merged with an omnipresent “industry interest” review. And the DOT continues to tout “the benefits of creating alliances that could compete against one another, rather than against individual airlines” in granting ATI.[255]

Even after the DOT established a “heightened public benefits standard[],” which effectively required applicants to propose a metal-neutral JV for ATI approval,[256] its emphasis on competitors remained. But the recent American-Qantas and Delta-Aeromexico proceedings illustrate that how the DOT considers competitor-to-competitor effects as a public interest is anything but consistent. The DOT rejected American and Qantas’ ATI bid after it previously granted Delta-Virgin Australia and United-Air New Zealand immunity in the same U.S.-Australia market. Yet shortly after this rejection, the DOT approved ATI for Delta and Aeromexico finding it to be “required by the public interest because the proposed JV would provide . . . a third network competitor [to] the current first and second largest competitors.”[257] Interested parties, particularly airlines eying future immunized JVs, are left squinting to find the DOT’s rationale or distinction between these applications. When one compares the novelty of the U.S.-Mexico Open Skies agreement and the infrastructure/slot issues at MEX[258] to the established U.S.-Australia Open Skies agreement that led to two transpacific immunized JVs without similar concerns of barriers to entry, American Airlines and Qantas have to be left wondering how a third network in the U.S.-Australia market differs from a third network in the U.S.-Mexico network.

At the heart of its public benefits analysis, the DOT must consider “international comity and foreign policy considerations.”[259] A determinative factor in virtually every ATI approval has either been expanding the DOT and State Department’s Open Skies push or threats by airlines that they would not finalize a proposed deal without ATI.[260] Assertions of public benefits and threats of withholding agreements without immunity have accompanied airlines’ applications since the beginning.[261] It is precisely the DOT’s job to independently evaluate the anticompetitive effects and public benefits of an application and ferret out false claims or threats made by applicants from truth. Instead, the DOT’s public interest methodology has been critiqued as “nothing more than ‘copy and paste’” in accepting applicants’ claims as its justification for approval.[262] The consistent acceptance by the DOT of applicants’ claims, despite objections by the DOJ and other affected parties, has raised suggestions that the DOT is a “captured agency.”[263]

The DOT’s emphasis on expanding Open Skies should be a textbook example of foreign policy considerations. Open Skies agreements carry enormous potential to promote competition and liberalize air travel by removing barriers to entry in foreign airspace. However, when large legacy airlines hold prominent seats at the table consummating such agreements,[264] or the DOT links Open Skies to ATI with signatories’ national airlines,[265] Open Skies agreements can quickly turn to be protectionist and anticompetitive in their implementation.

The public interest is not served by entrenching incumbent national airlines’ positions and insulating them from robust competition. The three U.S. legacy carriers neither desire nor require government protection; instead, they have routinely demonstrated a willingness to compete with other legacies and LCC/ULCCs in the domestic U.S. market. There is no reason to expect anything different in the international market. Ample room exists for the DOT to reign in its public interest approach and emphasize that ATI applicants present verifiable benefits to passengers while still fulfilling its “foremost international aviation goal . . . [of] opening international markets to the forces of competition.”[266] In construing the public interest narrowly and, by default, placing greater emphasis on the competitive analysis, industry participants should experience a more transparent and uniform approach toward ATI applications. The DOT’s ability to clean up its public interest approach and improve the predictability of its evaluations would reduce the likelihood of a repeat of the two above-referenced ATI decisions—in which American and Delta highlighted the exact same public benefits of ATI as virtually every application, but American was denied while Delta was approved despite more troubling competition concerns in its applicable market. Such an approach by the DOT would provide airlines efficiency and cost improvements when evaluating whether a potential application might receive immunity. Lastly, a narrower public interest approach improves the chances that the DOT, crucially, keeps passenger welfare at the forefront of its evaluations and adheres to the fundamental principle of antitrust to protect competition, not competitors.

B.  Periodic Reviews of Immunized Alliances that Minimize the Burden on Airlines

Independent, non-aligned U.S. airlines have played an increasingly active role in recent DOT public dockets evaluating ATI applications. A consistent and vehement belief of such airlines is that approvals of immunity not be in perpetuity, but instead come with time constraints. Particularly, Southwest, JetBlue, and Hawaiian have argued for three to five-year time limitations on any new grants of ATI[267] and called for de novo reviews of existing immunized alliances.[268] Calls for periodic reviews of ATI is not a novel argument; multiple advocates have pushed for some form of mandatory review mechanism. In 2009, a House Bill by Rep. James L. Oberstar proposed to sunset ATI approvals after three years.[269] While his exact proposal may not have left the ground, it is past due for the DOT to implement a revised policy of periodic ATI reviews that reflects the present competitive dynamics of both the domestic and international markets, which have seen an unprecedented move toward greater consolidation.

The DOT’s recent five-year time limit imposed on Delta and Aeromexico was the first of its kind, yet the DOT recognizes its authority “to alter or amend its grant of ATI at any time if [it] believes a change in competitive circumstances has occurred.”[270] But the DOT’s regulations covering reviews of ATI were codified in 1985,[271] eight years before the DOT approved a single ATI application or realized the foreign policy implications of ATI in expanding Open Skies. Under § 303.06 of the DOT’s regulations, the DOT “may initiate a proceeding to review any [ATI] previously conferred . . . [and] may terminate or modify such immunity if the [DOT] finds . . . that the previously conferred immunity is not consistent with the provisions of section 414.”[272] Thus, while the DOT explicitly acknowledges its authority to amend or revoke ATI at any time, its actions reflect otherwise. In rejecting a request by JetBlue and Hawaiian to institute a de novo review of Delta and Korean Air’s ATI grant after they sought to implement a JV (fifteen years after initial ATI approval), the DOT again recognized its authority to undertake reviews at any time, but held that for it to do so “JetBlue and Hawaiian must show that a new proceeding is necessary . . . either because the existing process for reviewing the agreements is flawed or because there is a substantial basis to revisit the grant of [ATI].” [273] While the DOT may occasionally give lip service to the notion that immunity from antitrust laws is an exception, not the rule,[274] its actions fly in the face of that notion when it rejects calls for periodic review of ATI and shifts the burden of proof from those enjoying ATI to those challenging it.

At a basic level, it is difficult to accept that on the one hand the DOT categorizes ATI as an exception to the norm and only appropriate when the public interest requires it, but on the other hand approves ATI in perpetuity without an adequate regime of ex post review in place. Critics of the DOT’s current approach claim that after the initial public benefits review, ATI approval “is virtually permanent and the [airlines] are left unchecked to stifle innovation and competition in the market through coordinated pricing, scheduling, and operation functionalities, to the detriment of the travelling public.”[275] They argue that periodic reviews of five years or less in a public docket “will increase public transparency and ensure that immunized alliances remain beneficial and in the public interest, as defined not only by the immunized [airlines], but also by the public to whom they purport to bring benefits.”[276] Additionally, some studies have claimed that the pricing efficiencies and passenger benefits generated by alliances relative to interlining has not required ATI to capture such benefits.[277]

Opponents of instituting duration limits on ATI are primarily legacy airlines with portfolios of active immunized agreements. This is predictable given that any policy changes will have the largest impact on their global network strategies. They argue that a policy of ATI term limits would have a chilling effect on investment in joint operations and expanding route networks as airlines would be hesitant to make long-term investments, reducing the likelihood of reaching the level of cooperation that offers the greatest level of passenger benefits.[278] The effects of such a policy reduces the incentive to cooperate fully and creates uncertainty that diminishes consumer benefits and runs counter to the purpose of Open Skies agreements.[279] Additionally, factoring in the time constraints involved with the public docket and application process, a 3-5 year limit “would place the [DOT] and [airlines] in a state of perpetual re-application and re-review.”[280]

An optimal and practical policy that the DOT could adopt is to conduct a de novo review in a public docket of every active immunized agreement once every ten years (in the absence of unique competitive concern such as the slot/infrastructure issues at MEX). Such a policy would permit the DOT to regularly assess market conditions and verify that airlines are meeting the proposed public benefits that drove the DOT to approve their applications, while granting immunized airlines a longer horizon to entice full cooperation and investment with aligned foreign airlines and avoiding a perpetual administrative counterweight to international expansion. Current DOT regulations permit adopting such a policy via an informal, but clearly defined, case-by-case approach, thereby avoiding the difficulties of formal rulemaking or Congressional reengineering.[281] Additionally, this approach would allow the DOT to evaluate its projected docket volumes and work directly with airlines to set application and review timelines that minimize administrative burdens and facilitate quick reviews. For example, an airline may voluntarily agree to do its review after nine years if it would lead to quicker turnaround times and the DOT agrees to permit it eleven years of ATI, if approved.

It is clear that effective international JVs require significant long-term investment and advance work to facilitate optimal division of resources between airlines and maximum public benefits. The proposed policy attempts to weigh this against the reality that the DOT’s past and current approach does not grant verified and actual passenger benefits a seat at the ATI table. While it would impose a new burden on U.S. legacy airlines operating with numerous grants of ATI, it should not be considered an undue burden. These airlines already comply with numerous recurring DOT obligations such as continuing fitness reviews and renewal of certificates.[282] Further, “the vast majority of the United States’ aviation partners authorize alliances for limited periods including . . . Australia, the European Union, New Zealand and South Korea.”[283] Thus, network airlines are experienced in structuring alliances or JVs with ATI with advanced knowledge of an eventual requirement to re-apply. Lastly, airlines’ claims that ATI time limits will temper investments may carry an element of application gamesmanship with them. For example, despite teeing off on the DOT in accepting the DOT’s slot divestitures and five-year ATI limit, Delta invested more than $620 million to acquire a 49% equity stake in Aeromexico and consummated their U.S.-Mexico transborder JV.[284]

A tangential issue to ATI limits is the public release of annual ATI reports prepared by immunized airlines for DOT review. DOT has required ATI recipients to prepare annual reports on the implementation of alliance agreements and benefits resulting from ATI.[285] JetBlue has called for the public release of these reports, arguing that it “will increase transparency and promote a more robust understanding of the public benefits, if any, that are produced by . . . ATI.”[286] It claimed that both the procedural process and the substantive components are a mystery and that it was denied access to redacted versions of such annual reports.[287]

Delta responded to JetBlue’s request by highlighting that there are multiple types of reports prepared by airlines and sent to the DOT that are kept confidential that would seemingly fall under JetBlue’s push to increase transparency.[288] The DOT has sided with the airlines that prepare these annual ATI reports largely over concerns that requiring public disclosure could potentially inhibit competition and diminish airlines’ “candor with the [DOT].”[289]

The DOT’s hesitation to publicize immunized airlines’ annual reports is reasonably related to concerns with the free flow of information required to determine whether alliances are providing public benefits on a continual basis. Therefore, this Note does not suggest any changes to the DOT’s current annual review policy. Instead, the proposed periodic review and time limitations on ATI grants should adequately remedy the transparency concerns that JetBlue raises while respecting an airline’s right to confidential trade secrets and candor with the DOT.

There is no disputing the incredible difficulty antitrust regulators face in evaluating potential mergers and ATI requests. Using current and past information to project future competitive implications of corporate activities (in a constantly evolving competitive landscape) is certainly an art rather than science. To expect clairvoyance or perfection from regulatory agencies would indicate a complete lack of reality. The DOJ is tasked with the unenviable job of having to get it right on the first try in evaluating domestic airline mergers. A merged airline cannot simply be unwound ten years later if it is not delivering the expected consumer benefits. This is not the case with the DOT and its ATI role. Rather, the flexibility of ATI to account for evolving competitive landscapes of international markets is a tremendous safeguard and positive byproduct of the restrictions on foreign mergers. While there are valid concerns against imposing a firm time limit and periodic public reviews of immunized alliances, these concerns do not outweigh the DOT’s primary responsibility to promote competition to its primary constituent, the flying public, in fulfilling its antitrust responsibilities given to it by Congress. A reasonable and practical solution to balancing these interests is to establish a periodic ten-year ATI review.

C.  Increase DOJ Involvement in ATI Competitive Analysis

As previously detailed, following deregulation, the DOJ was given authority to evaluate U.S. domestic airline M&A while the DOT retained ATI authority.[290] During the short span in which the DOT held authority for both functions, it faced criticism over its performance with aviation-related antitrust issues and itself favored the transfer of M&A authority to the DOJ.[291] Since the division of antitrust roles in 1989, there have been periodic spats between the agencies and continued questions over the DOT’s fitness to perform its antitrust functions.

Given this backdrop, it is rather surprising that the DOT has often exhibited a proclivity to ignore the DOJ’s antitrust expertise. Although the DOT states that it “initially confer[s] with [the DOJ], given its experience [with] the antitrust laws,”[292] rhetoric between the two, at times, reasonably suggests otherwise. Concerns have been raised that the DOT does not give “sufficient consideration” to the impacts of ATI “on the competitive structure of the domestic airline industry.”[293] The DOT and DOJ publicly disputed the evidentiary standards used by the DOT in approving the Star Alliance-Continental (2009) and OneWorld-British Airways (2010) ATI applications. The DOJ charged that DOT’s review process was a complete abandonment of evidentiary standards because it rubber stamped the applicants’ unsubstantiated public benefits claims; some agreed with the DOJ and characterized the DOT’s “public benefits methodology [as] literally nothing more than ‘copy and paste.’”[294] The DOT claimed the DOJ attacks were “an inappropriate interference with [its] aviation policy and bilateral negotiation prerogatives.”[295]

Calls for increased DOJ involvement or even complete transfer of authority are not new. In 1998, the Transportation Research Board (“TRB”), under the Congressional direction to study government actions promoting airline industry competition, recommended that Congress shift ATI review to the DOJ; the TRB had concerns over the DOT’s policy linking consummation of Open Skies to ATI with signatories’ national airlines.[296] Others argue that the DOT is a “captured agency” as it frequently underestimates the potential anticompetitive effects of ATI because it favors the concerns of the largest shareholders of the industry it regulates.[297] Proposed solutions to the captured agency issue include retaining the initial ATI review with DOT given “its role in crafting U.S. global aviation policy,” but transferring authority to the DOJ for subsequent reviews and reapplications.[298]

This Note does not advocate for either approach. While there may be valid agency capture concerns over comingling regulatory and industry policy roles, the DOT’s authority over tangential matters such as airport slots and route certificates, expertise in the airline industry, and past successes working with the State Department to expand Open Skies make it the best agency to regulate ATI moving forward. That said, there is ample room for improvement in the ATI regulatory process. An increased role by the DOJ would facilitate many improvements. DOJ has demonstrated a tremendous ability to work with the Securities & Exchange Commission (“SEC”) and international regulators to effectively enforce the Foreign Corrupt Practices Act.[299] There is no reason that the DOT cannot similarly leverage the DOJ’s antitrust expertise in its quantitative competitive analysis of ATI applications and continuous monitoring obligations. Finally, given the interplay between the competitive situation in domestic and international markets, increased coordination will ensure that sufficient consideration is given to ATI impacts on both markets.

D.  Knock Down Barriers to Entry, While Respecting the Tenets of Deregulation and Free Competition

With most industries, high market concentration indicates an industry ripe for new entrants. The airline industry, however, contains numerous industry-specific barriers, including takeoff and landing slots (particularly at commercially-coveted airports), airport terminal/gate access, and the tremendous capital required to acquire aircraft and initiate services.[300] Additionally, the hub-and-spoke networks of legacy airlines effectively serve as operational barriers.[301] Collectively, these barriers inhibit the formation of new airlines and often create enormous difficulties for existing airlines to enter specific markets. The U.S. government should prioritize efforts to minimize barriers to entry and promote robust industry competition. However, in trying to spur competition, the government often finds itself potentially crossing a line of government intervention that deregulation was intended to leave behind in lieu of free market competition. This section steps beyond antitrust law and explores potential systematic and philosophical reforms to spur further innovation and competition in the U.S. airline industry.

Overhauling U.S. aviation infrastructure has tremendous potential to generate real economic benefits and fresh competition. The United States’ antiquated aviation infrastructure and policies carry costly effects. U.S. airports are increasingly congested as growing travel demands strain airports’ ability to keep up—72% of U.S. air passenger traffic flows through the thirty busiest airports and delays cost passengers and airlines billions annually.[302] President Trump touted improving U.S. transportation infrastructure, including U.S. airports which he referred to as “bottom of the rung” internationally, as a key policy agenda; he pushed for an investment of over $1 trillion in U.S. infrastructure improvements through public-private financing and tax incentives shortly after being elected.[303] Improving airport infrastructure is arguably just as important as easing air traffic congestion. For example, airlines without historical control of terminal space or gates at Los Angeles International (“LAX”) find lack of real estate is a huge barrier to entering or expanding service at LAX;[304] while LAX may not have the slot constraints or air space issues that the New York City airports do, the lagging infrastructure has the same practical effect in limiting the number of airlines and flights that can serve LAX. Expanding and improving U.S. airports will provide opportunities for those airlines without historical real estate holdings to enter or expand at airports that are currently space constrained.

Lastly, moving forward, the DOT should be cautious of pushing policies that position it to pick “winner and loser” airlines or overstep its regulatory authority abroad and disrupt international comity. Its approach toward “exclusivity clauses” in alliance or JV agreements applying for ATI presents a powder keg of issues moving forward. Hawaiian Airlines recently requested that the DOT require Qantas to codeshare on routes in Australia with other U.S. airlines on the same terms and availability that American Airlines would receive via their JV (thereby requiring ongoing price regulation and monitoring by the DOT).[305] While the request became moot after the DOT denied American and Qantas’ ATI bid, it offers an interesting case study. The DOT and State Department’s Open Skies objective has been to open and liberalize air travel between the U.S. and other countries; to entertain forcing foreign airlines to codeshare with U.S. airlines on flights entirely within a foreign country would seemingly undermine the entire notion of Open Skies and international comity. The DOT should be extremely hesitant to intervene in the contractual relations of private airlines, especially when foreign airlines are involved, and any DOT action may invite a reciprocal response by foreign regulators.

The DOT’s MEX slot divesture approach in granting Delta and Aeromexico ATI is also troubling and should not set a precedent moving forward. The DOT limited eligibility for the divested MEX slots to LCCs only and deemed Interjet, a Mexican LCC, ineligible because it was the second largest airline at MEX.[306] It reasoned that LCCs have the largest competitive impact in disciplining fares and that restricting slots to just LCCs would limit the total number divested.[307] The rationale behind the DOT’s decision is arguably sound; there is continued support for a “Southwest Effect”lower airfares on routes with a Southwest or other LCC/ULCC presence.[308] But its decision produced negative outcomes. The DOT should not be in the business of picking winners and losers by completely shutting out a segment of airlineslegaciesfrom even stepping to the plate and making their case. While the 80% market share of the four largest U.S. airlines is often tossed around, it fails to capture competitive realities. Legacy airlines have demonstrated a willingness to compete against both fellow legacies, by encroaching into entrenched hubs and growing nonstop service to more destinations,[309] and LCCs, by expanding product offerings such as the introduction of “basic economy” fares to reach even the most price-conscious of passengers.[310]

The MEX slot divesture also concerns matters of international comity. Interjet has challenged the DOT’s slot divestiture process in the D.C. Circuit as “arbitrary and capricious” and questioned whether the DOT “exceeded its statutory authority” in allocating slots at an airport outside the United States.[311] Moving forward, the DOT should refrain from taking similar actions that can be construed, at a minimum, as regulatory fiat, or, worse, as encroaching on the sovereignty of Open Skies agreement partners. JetBlue’s experience in trying to receive slots at MEX illustrates the “opaque [and] confusing” process: JetBlue was awarded only commercially undesirable slots before 5:00 a.m. and after 10:00 p.m.[312] Rather than unilaterally engineer a solution that arbitrarily excluded U.S. and Mexican airlines from the process, the DOT should have shared its slot concerns with the Mexican aviation authority and the MEX airport authority in order to come to a consensus for slot divestitures together that would permit ATI approval. Offering assistance in bringing the MEX slot allocation system in line with the IATA World Slot Guidelines, while touting the benefits that JetBlue and other U.S. airlines bring to communities would also be more effective than a divestiture power grab. Going forward, a DOT mentality that respects international comity and robust market competition will incentivize all airlines and generate the greatest public benefit.


Under many metrics, U.S. airlines are serving passengers at record levels. Foremost, U.S. commercial aviation has never been safer; 2017 marked the eighth straight year of zero U.S. airline passenger fatalities.[313] Average ticket prices are at historic lows, and increases in fares are considerably behind increases in disposable income, CPI, and jet fuel prices this century.[314] Airlines are aggressively competing and expanding into competitor hubs, while improving flight operations; in 2017, fewer flights were cancelled, on-time arrival rate increased, and airlines lost fewer bags and bumped fewer passengers.[315] However, viral incidents such as United’s removal of Dr. Dao and the large domestic market share of the four biggest U.S. airlines contribute to the public’s negative perception of air travel. The data paint a different picture. Ugly on-board incidents are the exception, and all U.S. airlines have demonstrated an impressive flexibility to quickly adopt policies that reduce the likelihood of repeating such incidents. United adopted ten policy changes in response to the Dr. Dao incident, including reducing overbooking and increasing gate agent flexibility to reach voluntary seat denials, which other U.S. airlines also adopted.[316]

There will always be room for improvement, but high market concentration in the U.S. domestic airline market has not caused disastrous anticompetitive results. That said, there is no guarantee that similar results will occur as international markets become more concentrated. International air travel involves unique barriersas the slot situation at MEX exemplifiesand significant costs to acquire aircraft and establish operations abroad. Open Skies and ATI have enormous potential to open international markets and improve travel for U.S. passengers. However, ATI is also an extraordinary tool of regulatory relief that requires adequate safeguards. The DOT can better serve airlines and passengers alike by clarifying public interest considerations, periodically reviewing ATI approvals, and increasing DOJ involvement.


[*] *. Senior Submissions Editor, Southern California Law Review, Volume 91; J.D. 2018, University of Southern California Gould School of Law; B.A. Political Science and Economics 2015, Emory University. I am forever thankful to my dad for his twenty-eight years of service as an Air Force pilot and for instilling in me a passion for aviation from a young age. A special thank you to Rob Land for sparking my interest in airline antitrust immunity and encouraging this Note. Lastly, I am extremely grateful to Katie Schmidt, Karen Blevins, and Christopher Phillips for their outstanding feedback and editing efforts.

 [1]. Michael Goldstein, Biggest Travel Story of 2017: The Bumping and Beating of Dr. David Dao, Forbes (Dec. 20, 2017, 9:13 PM),

 [2]. Hugo Martin & Joseph Serna, Passenger Mix-Up on Flight to Japan Caps a Year of Airline Foul-Ups, L.A. Times (Dec. 27, 2017, 4:50 PM),

 [3]. Jon Ostrower, Delta’s Meltdown: What Went Wrong, CNN (Apr. 10, 2017, 5:51 PM), See also Scott McCartney, The Best and Worst U.S. Airlines of 2017, Wall St. J. (Jan. 10, 2018, 9:33 AM), (reporting overloaded telephone lines prevented Delta pilots and flight attendants from calling in for new assignments).

 [4]. Bart Jansen, Delta: Atlanta Airport Power Outage Cost $25M to $50M in Income, USA Today (Jan. 3, 2018, 11:49 AM),

 [5]. David Koenig, Police Drag Woman Off Southwest Airlines Flight, Chi. Trib. (Sept. 28, 2017, 3:00 AM),

 [6]. Amy B. Wang, Passenger Says JetBlue Booted His Family from Flight Over a Birthday Cake, Wash. Post (May 14, 2017),

 [7]. McCartney, supra note 3 (noting that most of the operational shorthandedness was with Alaska’s subsidiary, Horizon Air).

 [8]. Amy B. Wang & Luz Lazo, Federal Court Orders Spirit Pilots Back to Work After Chaos at Fort Lauderdale Airport, Wash. Post (May 9, 2017),

 [9]. Kathryn Vasel, America’s Least Favorite Airline (Hint: It’s Not United), CNN (Apr. 25, 2017, 12:13 PM),

 [10]. Benjamin Zhang, ‘Infuriated’ United Pilots Union Slams Cops for Forcibly Dragging Passenger from Plane, Bus. Insider (Apr. 13, 2017, 6:22 PM), The four Chicago Department of Aviation officers involved in the incident were suspended immediately, and two were subsequently fired. Maya Salam, Security Officers Fired for United Airlines Dragging Episode, N.Y. Times (Oct. 17, 2017) A Chicago directive later stripped Chicago Airport Security Officers of their “police” label. Id.

 [11]. Tracey Lien, Before Apologizing on Tuesday, United Tried Two Unsuccessful Tactics to Quell Its Public Relations Crisis, L.A. Times (Apr. 11, 2017, 11:20 AM), See also Erin McCann, United’s Apologies: A Timeline, N.Y. Times (Apr. 14, 2017),

 [12]. Lien, supra note 11.

 [13]. Michael Edison Hayden & Erin Dooley, United CEO Feels ‘Shame,’ Passenger Will Be Compensated, ABC News (Apr. 12, 2017),

 [14]. Goldstein, supra note 1.

 [15]. Trefis Team, How M&A Has Driven the Consolidation of the US Airline Industry Over the Last Decade?, Forbes: Great Speculations (May 4, 2016, 8:34 AM),

 [16]. See Christopher Drew, Airlines Under Justice Dept. Investigation Over Possible Collusion, N.Y. Times (July 1, 2015),

 [17]. Airlines Carried Record Number of Passengers in 2016, CBS News (Mar. 27, 2017), See also Air Traffic by the Numbers, Fed. Aviation Admin. (Nov. 14, 2017),

 [18]. Karl Russell, Why We Feel So Squeezed When We Fly, N.Y. Times (May 2, 2017),

 [19]. Brian Pearce & Gary Doernhoefer, The Economic Benefits of Airline Alliances and Joint Ventures, Int’l Air Transp. Ass’n (Nov. 28, 2011),

 [20]. A Brief History of the FAA, Fed. Aviation Admin. (Jan. 4, 2017),

 [21]. Air Commerce Act, Pub. L. No. 69-254, 44 Stat. 568 (1926).

 [22]. Id.

 [23]. Dennis Parks, The First Regulations, Gen. Aviation News (Oct. 23, 2011),

 [24]. Civil Aeronautics Authority Act of 1938, Pub. L. No. 75-706, 52 Stat. 973.

 [25]. See id.

 [26]. Post-War Revival and Regulation, Smithsonian Nat’l Air & Space Museum, (last visited July 30, 2018).

 [27]. See Con’l Air Lines, Inc. v. Civil Aeronautics Bd., 519 F.2d 944, 959–60 (D.C. Cir. 1975) (ordering the Civil Aeronautics Board to approve Continental Airline’s outstanding application of eight years to begin service between Denver and San Diego).

 [28]. See Justin Elliott, The American Way, ProPublica (Oct. 11, 2016), See also John F. Stover, American Railroads 234 (2d ed. 1997) (examining the Penn Central Railroad collapse and its domino effect causing concern that air transport could follow the nation’s troubled railroads).

 [29]. Airline Deregulation Act of 1978, Pub. L. No. 95-504, 92 Stat. 1705.

 [30]. Id.

 [31]. Jagdish N. Sheth et al., Deregulation and Competition: Lessons from the Airline Industry 31 (2007) (“CAB’s authority over routes that an airline could serve was to terminate by December 31, 1981, and regulation of fares that airlines could charge was to cease by January 1, 1983.”).

 [32]. Amended Complaint ¶ 1, United States v. US Airways Group., Inc., 38 F. Supp. 3d 69 (D.D.C. 2014) (No. 13-cv-1236-CKK) [hereinafter Amended Complaint].

 [33]. See Wilfred S. Manuela Jr. et al., The U.S. Airways Group: A Post-Merger Analysis, 56 J. Air Transp. Mgmt. 138, 139 (2016).

 [34]. Dennis W. Carlton et al., Are Legacy Airline Mergers Pro- or Anti-Competitive? Evidence from Recent U.S. Airline Mergers, Int’l J. Indus. Org. 1, 4 (2018),

 [35]. Id. at 4–5.

 [36]. Drew, supra note 16.

 [37]. Sheth et al., supra note 31, at 57–60.

 [38]. Id. at 57–58, 65.

 [39]. Manuela Jr. et al., supra note 33, at 139 (finding that only one merger could be judged successful in improving financial and operating performance).

 [40]. Id.

 [41]. Id. at 138–39, 141. See also Carlton et al., supra note 34, at 4–5.

 [42]. American Airlines filed most recently in 2011. Jiajun Liang, What Are the Effects of Mergers in the U.S. Airline Industry? An Econometric Analysis on Delta-Northwest Merger, 3 Macalester Rev. no. 1, art. 2, 2013, at 1.

 [43]. Manuela Jr. et al., supra note 33, at 139.

 [44]. See U.S. Airline Mergers and Acquisitions, Airlines for Am., (last visited July 30, 2018).

 [45]. Fiona Scott Morton et al., Benefits of Preserving Consumers’ Ability to Compare Airline Fares 34 (2015),

 [46]. Elaine X. Grant, TWA—Death of a Legend, St. Louis Mag. (July 28, 2006, 12:00 AM),

 [47]. See Morton et al., supra note 45, at 35.

 [48]. Id.

 [49]. Chris Dimarco, US Airways Defends American Airlines Merger, Inside Counsel (Sept. 12, 2013),

 [50]. A.W., Why Did the Obama Administration Change Its Mind on the American Airlines-US Airways Merger?, Economist: Gulliver (Oct. 15, 2016),
/2016/10/connected; James B. Stewart, Baffling About-Face in American-US Airways Merger, N.Y. Times (Nov. 15, 2013),

 [51]. Jad Mouawad & Christopher Drew, Justice Dept. Clears Merger of 2 Airlines, N.Y. Times, (Nov. 12, 2013),

 [52]. Trefis Team, supra note 15.

 [53]. See Amended Complaint, supra note 32, ¶¶ 1–10.

 [54]. Id. at ¶¶ 34–35.

 [55]. Ben Mutzabaugh, Justice Dept. OKs Alaska Airlines-Virgin America Merger, USA Today (Dec. 6, 2016, 2:14 PM),

 [56]. Winnie Sun, What the Virgin-Alaska Air Merger Means for Millennials and Investors Alike, Forbes (Apr. 5, 2016, 4:14 PM),

 [57]. Elliott, supra note 28.

 [58]. Id.

 [59]. James B. Stewart, ‘Discipline’ for Airlines, Pain for Fliers, N.Y. Times (June 11, 2015),

 [60]. See id.

 [61]. Doug Cameron & Nicole Friedman, Warren Buffett’s Berkshire Hathaway Discloses New Investments in Airlines, Wall St. J. (Nov. 14, 2016, 9:57 PM),

 [62]. 2017 Annual and 4th Quarter U.S. Airline Financial Data, Bureau Transp. Stat. (last visited July 30, 2018).

 [63]. IATA Reveals 2018 Financial Forecast, Int’l Air Transp. Ass’n (Dec. 5, 2017),

 [64]. Drew, supra note 16.

 [65]. A.W., supra note 50.

 [66]. Drew, supra note 16.

 [67]. This Note cannot go into detail on Europe, but it is plain to see that the European airline industry has felt a large impact from the growth of ULCCs Ryanair and EasyJet. EBIT margins for European airlines were just 5.3% and 5.6% in 2015 and 2016, while North American carriers were 14.7% and 15.4% in 2015 and 2016, respectively. Chris Bryant, Europe’s Airlines are Drunk on Cheap Fuel, Bloomberg (Oct. 6, 2016, 4:45 AM), But see Airlines for Am., U.S. Airline Industry Review: Allocating Capital to Benefit Customers, Employees and Investors 16 (2018) [hereinafter Airlines for America] (finding that U.S. airlines’ average pre-tax profit margin between 2010 and 2017 was 6.5%, while the average U.S. corporation margin was 16.7%).

 [68]. Bryant, supra note 67.

 [69]. Annabel Fenwick Elliott, Thousands to Be Refused Refunds as Europe’s 10th Biggest Airline Ceases Trading, Telegraph (Oct. 10, 2017, 2:57 PM),

 [70]. Robert Wall, European Airlines Fly into Trouble, Wall St. J. (July 21, 2016),

 [71]. Airlines for America, supra note 67, at 17.

 [72]. See, e.g., David Reid, U.S. Airlines to Scoop Almost Half of Global Profit in 2018, CNBC (Dec. 5, 2017),

 [73]. Amended Complaint, supra note 32, ¶ 59.

 [74]. Karl Russell, Why We Feel So Squeezed When We Fly, N.Y. Times (May 2, 2017),

 [75]. Id.

 [76]. E.g., Jad Mouawad, Senator Urges Inquiry into Airline Behavior, N.Y. Times (June 17, 2015),

 [77]. Id.

 [78]. Stewart, supra note 59.

 [79]. See, e.g., Drew, supra note 16.

 [80]. Brent Kendall & Susan Carey, Obama Antitrust Enforcers Won’t Bring Action in Airline Probe, Wall St. J. (Jan. 11, 2017, 5:33 AM),; Ryan Strong, DOJ Antitrust Investigation: Is It Time For Airline Discipline?, Colum. Bus. L. Rev. Online (Oct. 8, 2015)

 [81]. Drew, supra note 16.

 [82]. Stewart, supra note 59.

 [83]. Scott Mayerowitz et al., Government Seeks Evidence that Airlines Illegally Worked Together, but Will the Case Fly?, U.S. News (July 3, 2015, 9:28 AM), Perhaps no investigation was more open and shut than the DOJ investigation of Robert Crandall.

In 1982, Robert Crandall . . . who would become CEO of American Airlines, expressed his anger about . . . fare wars in a phone call with Howard Putnam, CEO of Braniff Airways. Putnam . . . asked Crandall if he had a suggestion to deal with the problem. Crandall told him to raise his fares and he’d follow suit. Specifically, Crandall replied: “Yes. I have a               suggestion for you. Raise your goddamn fares 20 percent. I’ll raise mine the next morning.”               He said: “You’ll make more money and I will too.” The Justice Department sued and the case               was settled for little more than an agreement by Crandall to keep a written record of all of his               contact with other airline executives for two years.


 [84]. Steven Davidoff Solomon, Rise of Institutional Investors Raises Questions of Collusion, N.Y. Times (Apr. 12, 2016), See also José Azar, Martin C. Schmalz & Isabel Tecu, Anti-Competitive Effects of Common Ownership, 73 J. Fin. 4. at 5, 12, 18 (2018) (finding that when common ownership is taken into account, HHI figures are ten times larger than what the DOJ considers “presumed likely to enhance market power,” and that airfares are 3% to 7% percent higher for airlines that are commonly owned by the same major stockholders).

 [85]. Kendall & Carey, supra note 80.

 [86]. Id.

 [87]. In re Domestic Airline Travel Antitrust Litig., 221 F. Supp. 3d 46, 60 (D.D.C. 2016).

 [88]. Andrew M. Harris & Mary Schlangenstein, American Airlines Agrees to Pay $45 Million to Settle Fare Collusion Lawsuit, Bloomberg (June 15, 2018),
/2018-06-15/american-agrees-to-pay-45-million-to-settle-fare-collusion-suit; Chuck Stanley, Airline Antitrust MDL Discovery Deadline Pushed to 2019, Law360 (Feb. 12, 2018),

 [89]. Drew, supra note 16.

 [90]. Id.

       [91].     Shawn Tully, Why United’s Big Expansion Plans Made Investors Freak Out, Fortune (Jan. 26, 2018),

       [92].     Id.

 [93]. Id.

 [94]. See, e.g., Arnold v. Soc’y for Sav. Bancorp, Inc., 678 A.2d 533, 539 (Del. 1996).

 [95]. Manuela Jr. et al., supra note 33, at 139.

 [96]. Id.

 [97]. Id.

 [98]. Id.

 [99]. Id. at 140.

Despite anticipated gains at the time of the announcement, market returns to the acquiring firm after the acquisition including return on assets (ROA), return on equity (ROE), and return on sales, are generally a zero-sum game and the expected synergies from the merger . . . are not realized by acquiring firms, indicating that acquisitions have no significant effect or even have a slightly negative effect on an acquiring firm’s financial performance in the post-announcement period.

 [100]. Id.

 [101]. Id.

 [102]. Id. at 140–41.

 [103]. Amended Complaint, supra note 32, ¶ 41.

 [104]. Kai Hüschelrath & Kathrin Müller, Airline Networks, Mergers, and Consumer Welfare, 48 J. Transp. Econ. & Pol’y 385, 386 (2014).

 [105]. Morton et al., supra note 45, at 33–35.

 [106]. U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines 19 (2010) [hereinafter Horizontal Merger Guidelines],

     [107].     Morton et al., supra note 45, § 36 (referring to domestic U.S. city pairs).

 [108]. Id.

 [109]. Max Maruna & Peter Morrell, Mergers: After the Honeymoon, FlightGlobal (July 29, 2010),

 [110]. Id.

 [111]. Manuela Jr. et al., supra note 33, at 148–49.

 [112]. See, e.g., Carlton et al., supra note 34, at 2–4, 29.

 [113]. Id. at 3–4.

 [114]. See John Kwoka & Evgenia Shumilkina, The Price Effect of Eliminating Potential Competition: Evidence from an Airline Merger, 58 J. Indus. Econ. 767, 782 (2010) (finding that the US Airways and Piedmont merger resulted in higher fares on routes in which Piedmont was only a potential entrant).

 [115]. Carlton et al., supra note 34, at 3–4.

 [116]. Id. at 4.

 [117]. Id.

 [118]. See id. at 2.

 [119]. Id. at 3.

 [120]. See Nancy L. Rose, After Airline Deregulation and Alfred E. Kahn, 102 Am. Econ. Rev.: Papers & Proc. 376, 379 (2012) (finding that Kahn did not intend nor advocate for deregulation to mean “laissez-faire” and that he attributed the industry’s early struggles and industry concentration to “a ‘lamentable failure of the administration to enforce the policies of the antitrust laws—to disallow a single merger or to press for divestiture of the computerized reservation systems or attack a single case of predation.’”) (citation omitted).

 [121]. Sherman Act, 26 Stat. 209 (1890).

 [122]. Clayton Act, 38 Stat. 730 (1914).

 [123]. Sherman Act, ch. 647, § 1, 26 Stat. 209 (codified as amended at 15 U.S.C. § 1 (2018)).

 [124]. Volodymyr Bilotkach & Kai Hüschelrath, Antitrust Immunity for Airline Alliances, 7 J. Competition L. & Econ. 335, 358 (2011).

 [125]. Clayton Act, ch. 323, § 7, 38 Stat. 731 (codified as amended at 15 U.S.C. § 18 (2018)).

 [126]. Bilotkach & Hüschelrath, supra note 124, at 358.

 [127]. Catherine A. Peterman, The Future of Airline Mergers After the US Airways and American Airlines Merger, 79 J. Air L. & Com. 781, 783–84 (2014) (emphasis added).

 [128]. Am. Bar Ass’n Section of Antitrust Law, Mergers and Acquisitions: Understanding the Antitrust Issues 1 (3d ed. 2008).

 [129]. Peterman, supra note 127, at 784.

 [130]. See Brown Shoe Co. v. United States, 370 U.S. 294, 325–32, 336, 343–46 (1962).

 [131]. Peterman, supra note 127, at 785.