United States: FTAIA And Foreign Sales: Seventh Circuit Limits Extraterritorial Reach Of U.S. Antitrust Law In Motorola Mobility v. AU Optronics

On March 27, 2014, in Motorola Mobility LLC v. AU Optronics Corp., the Seventh Circuit set precedent in the growing body of law interpreting the Foreign Trade Antitrust Improvements Act (FTAIA).  Judge Posner held that the FTAIA bars antitrust suits over restraints in foreign markets for parts (inputs) used abroad to manufacture products later imported into the United States.  The court held that such price fixing fails the FTAIA's "direct effects" test, as well as the FTAIA requirement that the effect of the defendant's conduct "gives rise to" an antitrust claim in the United States. 

In Motorola Mobility LLC v. AU Optronics Corp., -- F.3d --, No. 14-8003, 2014 WL 1243797 (7th Cir. Mar. 27, 2014), the U.S. Court of Appeals for the Seventh Circuit set precedent in the growing body of law interpreting the Foreign Trade Antitrust Improvements Act (FTAIA), 15 U.S.C. § 6a, a statute that limits the extraterritorial application of U.S. antitrust law.  Judge Posner, writing for the court in this opt-out LCD flat panel antitrust litigation, held that the FTAIA bars suits alleging the price fixing of component parts (LCD displays) sold and integrated abroad into final products (cellphones) eventually imported to and sold within the United States because such price fixing fails the FTAIA's "direct effects" test.  See Motorola Mobility LLC, 2014 WL 1243797 at *2-4.  The court also held that such price fixing failed another independent FTAIA requirement that the effect of the defendant's practice must "give[] rise to" an antitrust claim in the United States.  Id. at *3-4.

Judge Posner's decision is critically important in today's global economy; "[n]othing is more common nowadays than for products imported to the United States to include components that the producers had bought from foreign manufacturers."  Id. at *4.  Despite a circuit split as to the precise meaning of "direct" in the FTAIA (a split relevant in other contexts), Motorola Mobility provides much-needed clarity: the extraterritorial reach of U.S. antitrust law does not extend to claims based on the anticompetitive conduct of foreign actors in non-U.S. sales of component parts, even if the defendant(s) know those components will be integrated into products eventually sold in the United States, and even if a U.S. entity determined the components' purchase price on behalf of its foreign subsidiary.

The FTAIA and "Direct" Effects

The FTAIA first sets a general rule that the Sherman Act does not apply to conduct "involving" non-import trade or commerce with foreign nations, but then creates a "domestic injury" exception, under which foreign anticompetitive conduct is subject to U.S. antitrust law if it (1) "has a direct, substantial, and reasonably foreseeable effect" on U.S. commerce, and (2) "such effect gives rise" to the plaintiff's claim.  See 15 U.S.C. § 6a (emphasis added).

The Seventh and Ninth Circuits have employed different standards to determine whether an effect of foreign anticompetitive conduct was "direct" under the FTAIA.  In LSL Biotechnologies, the Ninth Circuit established a strict test for directness: "an effect is 'direct' if it follows as an immediate consequence of the defendant's activity" i.e., it proceeds "without deviation or interruption."  United States v. LSL Biotechnologies, 379 F.3d 672, 680 (9th Cir. 2004) (emphasis added) (citing Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 618 (1992)).  The Seventh Circuit's Minn-Chem opinion, on the other hand, held that an effect is direct if it bears a "reasonably proximate causal nexus" with the foreign anticompetitive conduct, i.e., the effect is not "too remote."  Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845, 856-57 (7th Cir. 2012) (en banc).

In Motorola Mobility, the Seventh Circuit sidestepped the split, instead taking a pragmatic approach to the FTAIA's "direct effect" requirement. 

Motorola Mobility 

Motorola sued several foreign manufacturers of liquid-crystal display (LCD) panels, alleging that they fixed the prices of panels Motorola and its foreign subsidiaries purchased and incorporated into cellphones.  On interlocutory appeal from a district court order dismissing 99 percent of Motorola's claims, the Seventh Circuit considered three distinct categories of purchases: (1) LCD panels bought by and delivered to Motorola in the United States (about 1 percent of purchases); LCD panels bought by, paid for and delivered to Motorola's foreign subsidiaries, which incorporated the panels into cellphones that were either (2) never shipped to the United States (about 57 percent of purchases) or (3) subsequently shipped to the United States (about 42 percent of purchases).  Motorola Mobility LLC, 2014 WL 1243797 at *1. 

The court summarily addressed the first two categories: (1) Claims concerning the 1 percent of panels sold and delivered in the United States to Motorola (as opposed to its foreign subsidiaries) are subject to U.S. antitrust law, because these sales are "import" commerce unaffected by the FTAIA's bar.  Id. at *2.  Conversely, (2) the 57 percent of panels sold and incorporated abroad into cellphones "never entered the United States, so never became domestic commerce," and therefore represented "a frivolous element of Motorola's claim" that is "clearly barred by the [FTAIA] from challenge under the Sherman Act."  Id. at *1-2.

The court's analysis of (3) the remaining 42 percent of LCD panel purchases focused on whether the foreign price fixing "has a direct, substantial, and reasonably foreseeable effect" on U.S. commerce in light of the fact that those component parts were incorporated into cellphones later sold in the United States.  See id. at *2.  The court acknowledged that "[t]here was ... doubtless some effect [on U.S. commerce]; and it was [presumably] foreseen by the defendants," but held that Motorola could not establish a "direct effect."  Id.  Rather, the effect here was indirect or "remote."  Id.  The court reasoned:

The 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.  The effect of component price fixing on the price of the product of which it is a component is indirect ... [and this] is closer to the situation in which we said the [FTAIA] would block liability under the Sherman Act: the "situation in which action in a foreign country filters through many layers and finally causes a few ripples in the United States." 

Id. (emphasis added) (citing Minn-Chem, 683 F.3d at 856-57).

Motorola argued that the effect was "direct" because it, as a U.S. company, determined the prices its foreign subsidiaries paid for the panels.  The court dismissed this argument, reasoning that whether the U.S. company directly purchased the panels and resold them to foreign subsidiaries for use in manufacturing products later sold in the United States, or the foreign subsidiaries negotiated the price charged by the cartel to Motorola, "the effect on prices in the United States would be the same ... it would be the cartel price.  And so the (indirect) effect on U.S. domestic commerce (the sale of the cellphones in the United States) would be the same."  Id. at *3.

The court gave two additional reasons for dismissing Motorola's claims concerning the 42 percent of panels.  First, those claims were independently barred by the FTAIA requirement that the domestic effect "gives rise to" an antitrust claim.  Finding a lack of causation, Judge Posner reasoned that "[t]he 'effect' of the alleged price fixing on [U.S.] commerce in this case 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."  Id.  At bottom, Judge Posner viewed the claims here as a U.S. parent company's backdoor attempt to assert claims actually belonging to its non-U.S. subsidiaries, where those subsidiaries' claims would be barred by the FTAIA:

Motorola's claim against the defendants is based not on any illegality in the prices Motorola charges (in which event Motorola would be suing itself ...), but rather on the effect of the alleged price fixing on Motorola's foreign subsidiaries. ... [But] "U.S. antitrust laws are not to be used for injury to foreign customers." The subsidiaries are "foreign customers," being fully subject to the laws of the countries in which they are incorporated and operate—and "a corporation is not entitled to establish and use its affiliates' separate legal existence for some purposes, yet have their separate corporate existence disregarded for its own benefit against third parties."

Id. (internal citations omitted).

Finally, the court considered "the practical stakes in the expansive interpretation" of the FTAIA urged by Motorola in a global economy where "products imported to the United States [commonly] include components that the producers had bought from foreign manufacturers."  Id. at *4.  The court reasoned that Motorola's interpretation "would enormously increase the global reach of the Sherman Act, creating friction with many foreign countries [who "do not have or, more commonly, do not enforce antitrust laws, or whose antitrust laws are far more lenient than ours"] and [would create] 'resentment at the apparent effort of the United States to act as the world's competition police officer,' a primary concern motivating the [FTAIA]."  Id. (citations and brackets omitted).  Judge Posner concluded by recognizing the Supreme Court's warning "that rampant extraterritorial application of U.S. law 'creates a serious risk of interference with a foreign nation's ability independently to regulate its own commercial affairs,'" and that the FTAIA "was intended to prevent such 'unreasonable interference with the sovereign authority of other nations.'"  Id. (citing F. Hoffmann–La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 164-65 (2004)).

Implications

In recent years, the United States has experienced a substantial increase in the number of criminal investigations and civil complaints concerning alleged cartel activity involving components sold in foreign markets that reach U.S. markets only after being incorporated into finished products.  Authored by Judge Posner—one of the federal bench's most prominent judges and antitrust scholars—the Seventh Circuit's Motorola Mobility decision could have immediate and far-reaching consequences for many pending and future civil and criminal cases, particularly where the price fixing of component parts in foreign markets is at issue.  See, e.g., Lotes Co. Ltd. v. Hon Hai Precision Industry Co., Case No. 13-2280 (2nd Cir.); United States. v. AU Optronics Corp., Case No. 12-10550 (9th Cir.). 

Regardless of whether future courts adopt the Ninth Circuit's "immediate consequences" test or the Seventh Circuit's "proximate causation" test for the FTAIA's "direct effects" requirement, one thing is clear: the FTAIA bars antitrust suits over restraints in foreign markets for inputs used abroad to manufacture downstream products subsequently imported into the United States.  At least in the Seventh Circuit, such restraints neither "immediately" nor "proximately" cause domestic effects because the effect of those restraints first "filters through many layers [before] finally caus[ing] a few ripples in the United States."  Id. at *2.  As a result, antitrust plaintiffs challenging foreign conduct will face even greater difficulty avoiding the FTAIA's bar.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions