Yesterday, the United States Court of Appeals for the Seventh
Circuit issued an important opinion in Motorola Mobility LLC v. AU
Optronics Corp., No. 14-8003, No. 14-8003, 2014 WL 1243797 (7th
Cir. Mar. 28, 2014), part of the LCD flat panel antitrust
litigation that has been ongoing since December 2006. The court
held that the Sherman Act, 15 U.S.C. § 1, does not reach price
fixing of inputs sold outside the United States that are later
incorporated into finished products subsequently imported into the
United States. This decision may have immediate implications for,
among other cases, antitrust actions seeking damages under U.S.
antitrust laws for alleged price fixing of component parts in
foreign markets.
Decision
Writing for the court, Judge Posner affirmed the district
court's entry of summary judgment against Motorola's
price-fixing claims based on overseas purchases of LCD panels by
Motorola's foreign affiliates. In so doing, the decision
eliminated all but about 1% of Motorola's $5.4 billion in
claimed damages. The only remaining claims are those involving LCD
panels sold directly into the United States—that is, in U.S.
import commerce.
The Seventh Circuit held that Motorola's claims were barred by
the Foreign Trade Antitrust Improvements Act ("FTAIA"),
which limits the application of U.S. antitrust laws to foreign
conduct. The FTAIA provides that U.S. antitrust laws do not apply
to anticompetitive conduct in foreign, non-import commerce unless
(1) the foreign conduct has a "direct, substantial, and
reasonably foreseeable effect" on U.S. commerce, and (2) this
effect "gives rise to" the plaintiff's claim.
Motorola's complaint against major LCD manufacturers asserted
antitrust claims for allegedly fixing the prices of LCD panels used
as a component in Motorola's mobile phones. Motorola sought to
recover (1) for LCD panels imported into the United States, (2) for
LCD panels purchased outside the United States that were used as
inputs in finished products that Motorola later imported into the
United States, and (3) for LCD panels purchased outside the United
States that were used as components in finished products that
Motorola's affiliates sold outside the United States.
The case was originally filed in the Northern District of
Illinois, but was transferred to Judge Illston of the Northern
District of California for coordinated pretrial proceedings as part
of the LCD multi-district litigation. The defendants moved for
summary judgment under the FTAIA as to claims based on sales made
outside the United States. Arguing against the motion, Motorola
relied heavily on the role of its U.S. parent in approving
purchasing decisions and the activities of the defendants'
sales personnel in the United States. Judge Illston denied the
defendants' motion, ruling that although the sales took place
outside the United States between the defendants and Motorola's
foreign subsidiaries (including the issuance of purchase orders,
issuance of invoices, payments, and delivery of the products) there
was evidence that could allow a jury to find that final decisions
regarding pricing of LCD panels took place in the United States,
thus satisfying the FTAIA's "domestic effect"
exception. See In re TFT–LCD (Flat Panel) Antitrust Litig.,
No. M 07-1827, 2012 WL 3276932, at *2 (N.D. Cal. Aug. 9, 2012). The
case was then remanded to Judge Gottschall of the Northern District
of Illinois for a trial set to begin this month. After defendants
moved for reconsideration of Judge Illston's ruling, the court
granted summary judgment and certified the decision for immediate
interlocutory appeal. See Motorola Mobility, Inc., v. AU Optronics,
No. 09-C-6610, 2014 WL 258154, at *5–10 (N.D. IL Jan. 23,
2014).
The Seventh Circuit affirmed Judge Gottschall without further
briefing or oral argument. The court first held that Motorola's
claims based on its foreign subsidiaries' purchases could not
satisfy the FTAIA's "direct ... effect" on U.S.
commerce exception because the negotiation or approval of prices in
the United States is not itself an anticompetitive effect on U.S.
commerce when the prices that were actually paid to any of the
defendants occurred in a foreign country. Instead, the effect on
U.S. commerce from the sales to the foreign subsidiaries was
"indirect— or 'remote' . . . the kind of effect
that the statutory requirement of directness excludes."
Motorola Mobility LLC v. AU Optronics Corp., No. 14-8003, 2014 WL
1243797, at *2 (7th Cir. Mar. 28, 2014) (citation omitted). In
particular, "[t]he alleged price fixers are not selling the
panels in the United States. They are selling them abroad to
foreign companies (the Motorola subsidiaries) that incorporate them
into products that are then exported to the United States for
resale by the parent." Id.
Judge Posner distinguished the Seventh Circuit's en banc
decision in Minn-Chem, Inc. v. Agrium, Inc., 638 F.3d 845 (7th Cir.
2012) (en banc), where the court held that the Sherman Act applies
to foreign conduct that has a "reasonably proximate causal
nexus" to effects in the United States. Id. at 857. He
emphasized that although Minn-Chem involved foreign sellers who
"took steps outside the United States" to raise prices,
once successful they sold the allegedly price-fixed product to U.S.
customers. Motorola, 2014 WL 1243797 at *2 (citing Minn-Chem, 638
F.3d at 860). By contrast, Motorola's claims were similar to
Minn-Chem's description of a "situation in which action in
a foreign country filters through many layers and finally causes a
few ripples in the United States." Minn-Chem, 638 F.3d at 860.
In Motorola, those layers were Motorola's foreign subsidiaries
and their foreign purchases of the LCD panels.
Judge Posner then turned to the FTAIA's separate requirement
that effects on U.S. domestic commerce must "give[] rise"
to the plaintiff's antitrust claim. Id. at *3–4. He first
observed that "Motorola's claim against the defendants is
based ... on the effect of the alleged price fixing on
Motorola's foreign subsidiaries." Id. at *3. And any
effect on U.S. commerce "is mediated by Motorola's
decision on what price to charge U.S. consumers for the cellphones
manufactured abroad that are alleged to have contained a
price-fixed component." Therefore, "the effect in the
United States of the price fixing could not give rise to an
antitrust claim" because that effect—potentially higher
prices for Motorola's mobile phones in the United
States—did not stem from a violation of U.S. antitrust laws.
Id. Judge Posner emphasized that "[i]f Motorola's foreign
subsidiaries have been injured by violations of the antitrust laws
in countries in which they do business; if the remedies are
inadequate, of if the countries don't have or don't enforce
antitrust laws, th[o]se were risks ... [Motorola] assumed by
deciding to do business in [foreign] countries." Id.
Finally, in a concluding portion of the opinion that may have
particularly far-reaching implications, Judge Posner wrote that
"we don't want to rest our decision on the statutory
language . . . without considering the practical stakes in the
expansive interpretation urged by Motorola." Id. at *4.
"[T]he stakes are large and cut strongly against
[Motorola's] position. Nothing is more common nowadays than for
products imported into the United States to include components that
the producers had bought from foreign manufacturers." Id.
After emphasizing that the Supreme Court has warned against
"rampant extraterritorial application of U.S. law," Judge
Posner observed that Motorola's position would "enormously
increase the global reach of the Sherman Act, creating friction
with many foreign countries and 'resent[ment at] the apparent
effort of the United States to act as the world's competition
police officer.'" Id. at *8 (citation omitted).
Implications
The Motorola decision could have immediate and far-reaching
consequences. In recent years, there have been an increasing number
of criminal investigations and civil complaints directed at alleged
cartels involving components sold overseas and reaching the United
States only after being incorporated into finished goods. In a
decision authored by Judge Posner, one of the federal bench's
most prominent judges and antitrust scholars, the Seventh Circuit
has now issued an opinion holding that the Sherman Act does not
reach such claims. The decision, moreover, may have implications
going far beyond private litigation by direct purchasers under the
Sherman Act. It may be used to challenge claims by indirect
purchasers of the imported finished products suing under state
antitrust and consumer protection laws. It may also be used to
challenge the Department of Justice's authority to prosecute
cartel conduct involving price fixing of components in foreign
markets that are later incorporated into finished goods imported
into the United States, or to limit the fines that the Department
may obtain.
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