On Jan. 23, 2014, Judge Joan B. Gottschall of the U.S. District Court for the Northern District of Illinois, ruled that Motorola's price-fixing claims based on purchases that its non-U.S. affiliates made from non-U.S. defendants were barred under the Foreign Trade Antitrust Improvement Act. Motorola Mobility, Inc. v. AU Optronics Corp. et al., No. 09-c-6610 (N.D. Ill. Jan. 23, 2014).
Motorola, based in Illinois, manufactures electronic devices, including mobile phones that contain liquid crystal display (LCD) panels. Motorola's non-U.S. affiliates purchased LCD panels that it alleged were the subject of an international price-fixing conspiracy. The purchases of LCD panels fell into three categories: (1) purchases of LCD panels by Motorola that were delivered directly to Motorola facilities in the United States (Category I); (2) purchases of LCD panels by Motorola's foreign affiliates that were delivered to the foreign affiliates' manufacturing facilities abroad, where they were incorporated into mobile phones that later were sold in the United States (Category II); and (3) purchases of LCD panels by Motorola's foreign affiliates that were delivered to the foreign affiliates' manufacturing facilities abroad and later were incorporated into mobile phones sold outside the United States (Category III). Motorola had negotiated prices for the LCD panels in part in the United States, and its foreign affiliates assigned their claims to Motorola.
Motorola filed its complaint in the Northern District of Illinois, but the complaint was transferred to the Northern District of California as part of the multi-district litigation (MDL) involving allegations of price fixing for LCD panels. Judge Susan Illston, presiding over the MDL, ruled that the FTAIA does not bar any of the three categories of purchases. After pretrial proceedings concluded, Motorola's case was transferred back to the Northern District of Illinois and the defendants asked Judge Gottschall to reconsider Judge Illston's rulings with respect to Categories II and III, which she agreed to do applying a "clear error" standard of review.
Judge Gottschall ruled that the FTAIA bars the purchases that fall in Categories II and III. The court explained that the FTAIA removes from the scope of the Sherman Act non-import anticompetitive arrangements that affect only foreign markets, but then brings back within the Sherman Act's reach conduct that directly and proximately affects U.S. commerce, where the conduct gives rise to the plaintiff's claim. This test is known as the "domestic effects" requirement. Judge Gottschall disagreed with Judge Illston's conclusion that Motorola's Category II and III claims were not barred by the FTAIA because of (i) Motorola's U.S. roots; (ii) the U.S. location of the transactions at issue; (iii) the fact that defendants targeted Motorola in the United States; and (iv) defendants' anticompetitive conduct in the United States. Judge Gottschall concluded that none of these facts mattered for the proximate cause analysis, insofar as the inflated prices were paid by Motorola's foreign affiliates—that is, none of these facts establish that a domestic effect gave rise to Motorola's Sherman Act claims. In sum, Judge Gottschall concluded that the injury arose when Motorola's non-U.S. affiliates purchased the LCD panels at inflated prices.
Judge Gottschall's decision effectively eliminates Sherman Act liability for a non-U.S. company that engages in price fixing but sells the price-fixed good to an unrelated non-U.S. company before the good enters the United States. If it is upheld on appeal or adopted by other courts, it will provide defendants with a powerful defense against some Sherman Act claims and, potentially, some indirect purchaser claims in states that allow such claims.
A copy of the decision is available here.
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