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
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
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 (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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