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Wednesday, March 31, 2010

Transnational Litigation and Extraterritorial Regulation

I promised to follow-up on my earlier post about the Morrison case and the extraterritorial application of U.S. securities laws.  Here it is....

In recent years, two trends have appeared in the area of transnational litigation.  First, U.S. courts are perceived to be hostile to foreign plaintiffs suing U.S. corporations for harm caused abroad. Using doctrines of forum nonconveniens and prudential standing, these kinds of transnational cases often risk early dismissal (see a nice article by Cassandra Burke Robertson on the topic here, while an excellent article by Christopher Whytock can be found here that provides an empirical analysis). Second, in contrast, U.S. laws -- in a wide variety of areas -- are more often the ever applied extraterritorially to regulate the overseas conduct of foreigners that have effects in the United States. From the Morrison case, to the well-known Pakootas v. Teck Cominco case (described in detail here), to the recent cert petition filed in the British American Tobacco v. United States RICO litigation, to controversial uses of the Alien Tort Statute in the human rights context -- extraterritorial transnational litigation has gripped the headlines and been a point of heated controversy (see a good discussion here).
Both trends have sparked debate and created tension in international relations.  The first situation is sometimes seen, rightly or wrongly, as an attempt to insulate U.S. corporate wrongdoers from liability. The second situation is viewed by other countries as American legal imperialism and an attempt to impermissibly interfere with the sovereign right of those countries to regulate conduct occurring within their borders.

The conventional wisdom as to the reason for this disparate treatment focuses on U.S. interests.  The claim is that American interests are strong when foreign conduct has an effect in the United States (see Bill Dodge's leading article on this topic).  While the U.S. interest of providing a forum for foreign plaintiffs for alleged U.S. corporate wrongdoing is viewed as relatively low.  As a result, the arguments against the extraterritorial application of U.S. law usually focus on the harm to foreign relations and on concepts of international comity. It's often assumed that the U.S. has a strong interest in projecting its domestic laws globally, particularly when the political costs of doing so is often small (those affected are outside the political system, with little formal ability to change the extraterritorial laws).

My sense is the conventional wisdom is largely mistaken. The concern over the extraterritorial application of U.S. domestic law is not, or need not be, primarily motivated for concern over foreign interests (as valid as those interests may be).  Rather it is U.S. interests that are undermined in the long-term by projecting domestic laws extraterritoriality.  Doing so not only interferes with the ability of the United States to develop meaningful international law that promotes U.S. values, but also threatens to subject Americans to reciprocal suits brought in foreign countries.

Over the last 50-100 years the United States has been adept at projecting American legal norms world-wide.  American-style litigation -- once considered unique to the United States and part of what many viewed as American exceptionalism -- has caught on and has migrated abroad. One trend, that we've projected is that the extraterritorial application of domestic laws is an acceptable (perhaps even preferred) method of resolving international challenges.  Instead of using bilateral and multilateral agreements to resolve transboundary challenges, increasingly extraterritorial regulation is encouraged. For example, while the United States once was isolated in its broad interpretation of the effects test, now most countries embrace the effects test as an acceptable basis for exercising jurisdiction.  In recent years, other countries have begun applying their laws extraterritorially too.  From European antitrust laws (consider the Microsoft litigation), to extraterritorial Korean antitrust laws, to foreign human rights litigation (consider the human rights claims brought against Bush, Rumsfeld, Franks, Yoo and others in Belgium and Germany), to regulation of internet activity (consider the Yahoo! case in France), other countries are starting to apply their laws extraterritorially too. While we may like some of these foreign laws, other may be disconcerting, inconsistent with American values, and a threat to U.S. sovereignty.

The problem with creating an international system where extraterritorial domestic laws dominate over other forms of international regulation (such as harmonized laws or international agreement) is that extraterritorial laws lack legitimacy and by their nature are inherently undemocratic.  More importantly, they are more difficult for the U.S. to monitor globally. In short, it may be that we are moving towards a system where the United States will be protesting other nations' use of extraterritorial laws, just as the UK, Australia, France, and various other European countries, often futilely, currently protest our use now.

Posted by Austen Parrish on March 31, 2010 at 12:42 AM | Permalink

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