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UNITED PHOSPHORUS, LTD. v. ANGUS CHEMICAL CO.
February 16, 2001
UNITED PHOSPHORUS, LTD., AN INDIAN CORPORATION; SHROFF'S UNITED CHEMICALS, LTD., AN INDIAN CORPORATION; AND J.C. MILLER & ASSOCIATES, INC., AN ILLINOIS CORPORATION, PLAINTIFFS,
ANGUS CHEMICAL COMPANY, A DELAWARE CORPORATION; ANGUS CHEMIE GMBH, A GERMAN CORPORATION; THE ESTATE OF FREEMAN HUGHES THROUGH ITS REPRESENTATIVE YVONNE HUGHES; OLLIE W. CHANDLER; LOWELL PALS; GARY W. GRANZOW; D.B. GUPTA; AND LUPIN LABORATORIES, LTD., AN INDIAN CORPORATION, DEFENDANTS.
The opinion of the court was delivered by: Levin, United States Magistrate Judge.
MEMORANDUM OPINION AND ORDER
Before the court are Defendants' motion(s) to dismiss for lack
of subject matter jurisdiction (pursuant to
Fed.R.Civ.P.12(b)(1)) as to Counts I and II of the second
Plaintiffs are (a) an Indian chemical manufacturer called
United Phosphorus, Ltd. ("UPL"), (b) an Indian company entitled
Shroffs United Chemicals Ltd. ("SUCL") (Shroff Dep. 25), ("the
Indian Plaintiffs") and (c) an American firm, J.C. Miller &
Associates ("JCM"), which once had an interest in a joint
venture that wanted to sell technology to the Indian Plaintiffs.
Defendants are (a) Angus Chemical Corporation and its corporate
officers, Freeman Hughes, Ollie Chandler, Lowell Pals, Gary W.
Granzow (collectively "Angus"), (b) Angus Chemie GmbH
("Chemie"), and (c) Lupin Laboratories, Ltd. and its officer and
owner D.B. Gupta (collectively "Lupin"). Counts I and II of the
second amended complaint, essentially, allege that Defendants
attempted to monopolize, monopolized and conspired to monopolize
the market for certain chemicals in violation of § 2 of the
Sherman Antitrust Act. 15 U.S.C. § 2.
Defendants threshold argument is that the court lacks subject
matter jurisdiction under the Foreign Trade Antitrust
Improvements Act ("FTAIA"), which limits application of the
Sherman Act to conduct with a "direct, substantial, and
reasonably foreseeable effect" on domestic commerce.
15 U.S.C. § 6a.
The following was expressed by the District Court in ruling on
a motion under the original complaint herein:
India currently has the greatest incidence of
tuberculosis in the world. The primary pharmaceutical
drug used in India to cure this potentially fatal
illness is Ethambutol. Two chemicals, 2-Amino-1
Butanol ("AB"), the key ingredient of Ethambutol, and
1-Nitro-Propane ("1-NP"), the raw material used to
make AB, are the subjects of this litigation. To make
Ethambutol, Indian chemical laboratories, including
Defendant Lupin, use AB, which they buy from
Defendant Chemie, currently the world's only
manufacturer of AB. Chemie, a German subsidiary
wholly owned by Defendant Angus, uses 1-NP as raw
material to manufacture AB at its plant in Germany.
Angus, a Delaware Corporation in the business of
manufacturing and selling chemical products, makes
1-NP at a plant in Sterlington, Louisiana, and is
presently the world's only manufacturer of 1-NP. Mem.
Op. & Order, 1994 WL 577246, *1 (N.D.Ill. Oct. 18,
The lawsuit in this case stems from prior trade secret
litigation between several of the parties. In the early 1990's,
the Indian Plaintiffs began to consider manufacturing AB. The
Indian Plaintiffs planned to acquire the technology for making
AB, and its raw material 1-NP, from Dr. John Miller (owner of
JCM) who also was the former Vice President of Research and
Development for Angus (makers of AB and 1-NP). While at Angus,
Miller supervised Angus's propriety efforts to improve its AB
processes and had ongoing access to the manufacturing process
details for Angus's products.
Defendants position was as follows: While Rajju Shroff (the
principal of Indian Plaintiffs) worked to acquire AB technology
from Dr. Miller, he concealed Miller's identity and background
from his own government by filing an official application to the
Indian government falsely declaring that the technology for the
AB process would be acquired from a different scientist, Dr.
Phillip Adams. Adams Dep. 99101, 133. Shroff, assertedly,
withheld Miller's involvement in the project stating that Angus
didn't "know that we [Shroff and Miller] are in touch." They
still think it is Dr. Phil Adams. Letter from Shroff to Miller
(July 30, 1991) (DX 41).
Avowedly, as soon as Angus learned that Shroff would be
obtaining AB technology from Miller, Angus filed suit in the
Circuit Court of Cook County ("the Cook County Action") to
enjoin Miller from misappropriating its trade secrets. Two years
later, when Angus was faced with a discovery ruling that would
have required it to disclose the very details of the technology
it sued to protect, Angus voluntarily dismissed its own suit.
The following year, in 1994, Plaintiffs initiated this action
challenging Angus's pursuit of the Cook County Action. The
Indian Plaintiffs allege that, but for Angus's initiation of the
Cook County Action, Plaintiffs would have sold AB as well as
other chemicals for profit. Moreover, JCM claims that it would
have sold technology to the Indian Plaintiffs and others. Thus,
in the second amended complaint, the Indian Plaintiffs alleged,
inter alia, that they intended to manufacture AB, 1-NP and
certain other specified chemicals and that Defendants used
various anticompetitive means to thwart Plaintiffs' plans.
Sections 1 to 7 of this title (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 —
(A) on trade or commerce which is not trade or
commerce with foreign nations, or on import
trade or import commerce with foreign nations;
(B) on export trade or export commerce with
foreign nations, of a person engaged in such
trade or commerce in the United States; and
(2) such effect gives rise to a claim under the
provisions of sections 1 to 7 of this title, other
than this section.
If sections 1 to 7 of this title apply to such conduct only
because of the operation of paragraph (1)(B), then sections 1 to
7 of this title shall apply to such conduct only for injury to
export business in the United States. 15 U.S.C. § 6a (1982).
Defendants move to dismiss Plaintiffs' second amended
complaint for lack of subject matter jurisdiction.*fn1
I. SUBJECT MATTER JURISDICTION
A. DIRECT, SUBSTANTIAL, AND REASONABLY FORESEEABLE EFFECT
ON DOMESTIC COMMERCE.
Defendants threshold argument is that the court lacks subject
matter jurisdiction because Plaintiffs have failed to
demonstrate that Defendants' alleged antitrust conduct has a
"direct, substantial, and reasonably foreseeable effect" on
United States commerce as required by the FTAIA.
Section 1 of the Sherman Act prohibits conspiracy "in
restraint of trade or commerce among the several States, or with
foreign nations." 15 U.S.C. § 1. Section 2 of the Sherman Act
prohibits monopolization and attempted monopolization "of the
trade or commerce among the several States, or with foreign
nations." 15 U.S.C. § 2. Section 6a, supra, which was added to
the Sherman Act in 1982, sets forth the criteria for determining
United States antitrust jurisdiction over international business
transactions. 15 U.S.C. § 6a.
In 1982, Congress enacted the FTAIA as an amendment to the
Sherman Act to clarify the extraterritorial reach of the federal
antitrust laws. O.N.E. Shipping, Ltd. v. Flota Mercante
Grancolombiana, S.A., 830 F.2d 449, 451 (2d Cir. 1987); Roger
P. Alford, "The Extraterritorial Application of Antitrust Laws:
A Postscript on Hartford Fire Insurance Co. v. California," 34
Va.J.Int'l L. 213, 216 (1993). The purposes of the FTAIA, as set
forth in its legislative history, are to "encourage the business
community to engage in efficiency producing joint conduct in the
export of American goods and services" and to amend the Sherman
Act to create a unitary statutory test to determine whether
American antitrust jurisdiction exists over certain
international transactions. H.R.Rep. No. 686, 97th Cong., 2d
Sess., reprinted in 1982 U.S.Code Cong. & Ad. News 2487.
Congress enacted the FTAIA because it believed that American
jurisdiction over international commerce should be limited to
transactions that affect the American economy. Hartford Fire
Ins. v. California, 509 U.S. 764, 796, n. 23, 113 S.Ct. 2891,
125 L.Ed.2d 612 (citing H.R.Rep. No. 686, 97th Cong., 2d
Sess., reprinted in 1982 U.S.Code Cong. & Ad. News 2487);
Phillip Areeda & Herbert Hovenkamp, Antitrust Law, ¶ 236'a
(Supp. 1992). Congress believed that "the concern of the
antitrust laws is protection of American consumers and
American exporters, not
foreign consumers or producers." Phillip Areeda & Herbert
Hovenkamp, Antitrust Law, ¶ 272h2 (1997) (emphasis in
original). With this in mind, Congress amended the Sherman Act
by passing the FTAIA so that jurisdiction over foreign
commercial conduct would not be exercised unless such conduct
had a "direct, substantial, and reasonably foreseeable effect"
on United States commerce. Moreover, Congress intended that the
antitrust laws would not be "triggered . . . by any minor
impact," but only by "direct, substantial, and reasonably
foreseeable" effects on United States commerce. Phillip Areeda &
Herbert Hovenkamp, Antitrust Law ¶ 272h2 (1997).
Under the FTAIA, the proscriptions of the Sherman Act apply to
trade or commerce with foreign nations, other than import
transactions, only when the conduct providing the basis for the
claim has a direct, substantial and reasonably foreseeable
anticompetitive effect on United States domestic commerce. The
amendment was clearly intended to exempt from United States
antitrust law conduct that lacks the requisite domestic effect,
"even where the anti-trust conduct originates in the United
States or involves American-owned entities operating abroad."
Optimum, S.A. v. Legent Corp., 926 F. Supp. 530, 532 (W.D.Pa.
The FTAIA does not, however, preclude all persons or entities
injured abroad from recovering under United States antitrust
laws. When the activity complained of has a demonstrable effect
on United States domestic commerce, foreign corporations injured
abroad may seek recovery under the Sherman Act. As the House
Report states, the FTAIA "preserves antitrust protections in the
domestic marketplace for all purchasers, regardless of
nationality or the situs of the business . . ." H.R.Rep. No.
686, 97th Cong., 2d Sess., reprinted in 1982 U.S.Code Cong. &
Ad. News 2487.
The effect on domestic commerce required by the FTAIA must be
sufficient to "give rise to a claim" under the Sherman Act.
15 U.S.C. § 6a(2). A plaintiffs showing of domestic effects must
include a demonstration of "antitrust injury to the market or to
competition in general, not merely injury to individuals or
individual firms." McGlinchy v. Shell Chem. Co., 845 F.2d 802,
815 (9th Cir. 1988); see, e.g., Blackburn v. Sweeney,
53 F.3d 825, 830 (7th Cir. 1995) (antitrust claim requires injury due to
"effects . . . on competition"); Dial A Car, Inc. v.
Transportation, Inc., 82 F.3d 484, 486 (D.C.Cir. 1996)
(antitrust claim requires "anticompetitive impact on the market
as a whole"). Moreover, conduct on American soil is not always
sufficient to prove effect on domestic commerce because it is
the situs of the effect, not the conduct, which is crucial.
Liamuiga Tours, Div. Of Caribbean Tourism Consultants, Ltd. v.
Travel Impressions, Ltd., 617 F. Supp. 920, 924 (E.D.N.Y. 1985).
As discussed hereinafter, the court finds that the alleged
conduct underlying Plaintiffs' claims can have had no effect on
any United States commerce in the chemicals that Plaintiffs
state they would have manufactured. Discovery has revealed that
there is only one chemical as to which Plaintiffs took even
preliminary steps — AB, which Plaintiffs did not intend to sell
in the United States. Plaintiffs may have considered making
1-NP, but only for their own use in manufacturing AB. As for the
other chemicals named in the second amended complaint, the
record shows, at most, that Plaintiffs had a conclusory intent
to think about making them at some point in the future.
Respectfully, conjecture alone, however, cannot establish the
necessary domestic effect under the FTAIA, as a matter of law.
McElderry v. Cathay Pacific Airways, Ltd., 678 F. Supp. 1071,
1078 (S.D.N.Y. 1988) (FTAIA requires more than "speculative"
domestic effects). Plaintiffs' "failure to establish any
anticompetitive domestic effect [is] jurisdictional," implicitly
fails to meet the requisite "direct, substantial, and reasonably
foreseeable effect" test and requires dismissal of their
antitrust claims. Gushi
Bros. Co. v. Bank of Guam, 28 F.3d 1535, 1544 (9th Cir. 1994).
B. A SHOWING OF THE REQUISITE EFFECT ON DOMESTIC AB SALES
HAS NOT BEEN MADE.
In late 1990 and early 1991 Plaintiffs decided to manufacture
AB in Vapi, India.2d Am. Cmplt. ¶ 55. Plaintiffs planned to
manufacture AB by using technology developed through a joint
venture called Miller-Deltachem, in which JCM was one of the
principals. Id. — 57, 59.
Plaintiffs first allege that Defendants used various
anticompetitive means to interfere with Plaintiffs' AB plans,
including making threats against Plaintiffs' potential AB
customers and initiating a "sham" state court lawsuit (the Cook
County action) in 1991 to prevent JCM's principal, Miller,
(Angus's former Vice President for Research and Development)
from divulging Angus's trade secrets. 2d Am. Cmplt. ¶¶ 85-89,
97(b)-(e). Defendants maintain, however, that even if
Plaintiffs' allegations of misconduct have merit, the evidence
demonstrates that there could have been no effect on domestic
1. Plaintiffs Would Not Have Sold AB In The United States.
Plaintiffs threshold argument is that they would have sold AB
in the United States if the Defendants had not intentionally
interfered with their efforts to manufacture AB. Defendants,
however, argue that Plaintiffs never intended to sell AB in the
United States and that Plaintiffs, even if they had wanted to,
could not have made any AB sales in the United States.
Defendants further assert that even if their alleged scheme to
prevent the Plaintiffs from manufacturing AB had been
successful, it could have had no effect on domestic commerce,
must less the required "direct, substantial, and reasonably
foreseeable effect" sufficient to give rise to a cause of action
under the Sherman Act. They assert that the FTAIA requires
dismissal of Plaintiffs' claims.
a. Plaintiffs Did Not Have An Intent (Or Ability) To Sell
AB In The United States.
The evidence in this case indicates that Shroff began to
develop plans to manufacture AB after Phillip Adams (Shroff's
consultant) told him that it was a "good project for India."
Shroff Dep. 35-36. Moreover, Anant Thakore, a past president of
the Indian Drug Manufacturer Association, who has been involved
in the Indian AB business since the early 1970s and who is
considered to be "the best authority in India" on the subject,
testified that Indian buyers purchase 90-95% of the world's AB