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The Sherman Act and its International Reach

by Jacklyn Fetbroyt, Esq. and Michael Chiumento, Clerk

The Sherman Antitrust Act of 1890 has long stood as a benchmark in antitrust law, aimed at the prevention and dismantling of business enterprises which have knowingly set out to gain monopolistic power over a given market.  While the Sherman Act…

The Sherman Act

The Sherman Antitrust Act of 1890 has long stood as a benchmark in antitrust law, aimed at the prevention and dismantling of business enterprises which have knowingly set out to gain monopolistic power over a given market.  While the Sherman Act has been used throughout history in many landmark instances such as against Standard Oil, Kodak, and AT&T, its potential judicial reach still begs some question.  Specifically, the Foreign Trade Antitrust Improvements Act (“FTAIA”) minimizes the reach of the Sherman Act as it seeks to limit the reach of the law by excluding most foreign conduct.  Exceptions to these exclusions are stated as those “involving import commerce and commerce with a direct, substantial, and reasonably foreseeable effect on domestic commerce, import commerce, or certain export commerce.”  The FTAIA has led many legal experts to question what does and does not fall under the Sherman Act when dealing with foreign businesses.

TI Investment Services v. Microsoft Corp. Background

While some litigation nationwide stalls as judicial experts wrestle with questions regarding the reach of the Sherman Act, one recent case in New Jersey highlights the very issue of the Sherman Act’s reach in connection with the FTAIA.  In TI Investment Services v. Microsoft Corp., 13 cv-4823, pending in the United States District Court for the District of New Jersey, World Phone Services PVT Ltd. Of New Delhi, India (a company owned by TI Investment Services, operating out of Colt’s Neck) filed its claim against Microsoft Corp. on August 12, 2013, alleging numerous claims, including that Microsoft’s Skype in India is currently operating without proper licensing required under Indian law, which has allowed them to gain an advantage over competition, including World Phone Internet Services PVT Ltd.  Since 2002, all Voice over the Internet Protocol (VoIP) companies in India were required to file for a license which requires a fee of 6% of gross revenues.  According to the suit, Microsoft has no such license, while World Phone got its license in 2002 as was required under the law.

TI Investment Services makes further allegations of the Sherman Act, such as Microsoft intends to extend Skype in its Xbox gaming consoles in the future, continuing its reach over the VoIP market.  The suit alleges this inclusion serves as another manner in which Microsoft is intentionally attempting to establish a monopoly in the realm of VoIPs.  To complicate issues further, the suit alleges that all clients of Microsoft are subject to potential fines by the Indian government due to Microsoft’s lack of a license, subjecting Microsoft to penalties under New Jersey’s deceptive business practices law.  Auditors hired by TI Investment Services pointed to Skype’s “illegal activity” as a reason for TI’s decline in revenue from 2008 to 2012.

The Case in the Context of the Sherman Act

This case highlights the conflict between the Sherman Antitrust Act and the FTAIA, as the alleged illegal activity without a license falls under Indian law.  The business done by Microsoft exists as international business transactions, thus, some would argue, barring it from penalty under the Sherman Act.  The plaintiff claims, however, that Microsoft’s illegal activity affected domestic commerce in New Jersey through the company’s marketing of its services to over 300,000 in New Jersey.  If the court agrees with the plaintiff, then Microsoft’s activity could subject it Microsoft to over $9 million in compensatory damages, along with punitive damages, legal fees, and other relief based upon that claims that Microsoft had violated the Sherman Act.

Conclusion

All in all, the conflict between the Sherman Act and the FTAIA leaves some confusion as to the international reach of the Sherman Act moving forward.  Some experts worry that the FTAIA created loopholes that allow for monopolistic companies to avoid being held accountable for their unlawful activities.  The case above stands as an example in which allegations seem to pin a very serious offense against Microsoft for which a competitor may not obtain relief it such conduct is excluded from Sherman Act liability based on the FTAIA.    This lawsuit against Microsoft could be one that many legal experts, legal practitioners, and companies operating internationally will look to in interpreting the impact of the Foreign Trade Antitrust Improvements Act and providing business guidance and solutions.

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