United States: District Court Follows Motorola Mobility To Apply FTAIA And Indirect Purchaser Doctrine To Dismiss U.S. Parent's Price-Fixing Claims Based On Its Foreign Subsidiary's Purchases

David M. Goldstein, Richard Goldstein, Robert Reznick and Elena Kamenir

The Seventh Circuit's decision in Motorola Mobility v. AU Optronics1–which blocked a U.S. parent's Sherman Act claim based on its foreign subsidiary's purchases of a price-fixed product–continues to reverberate throughout federal district courts. A district court in the Sixth Circuit recently followed Motorola Mobility to dismiss a U.S. company's price-fixing claims based on its foreign subsidiary's purchases of allegedly price-fixed components that were incorporated abroad into finished goods that the subsidiary then shipped to the United States. In re Refrigerant Compressors Antitrust Litigation, No. 2:09-md-02042, 2016 WL 6138600 (E.D. Mich. Oct. 21, 2016). The district court's decision demonstrates that, post-Motorola Mobility, defendants have strong arguments in some circuits under the Foreign Trade Antitrust Improvements Act ("FTAIA")2 and Illinois Brick3 to defeat a U.S. parent's price-fixing claims based on purchases by its overseas subsidiary, especially where that subsidiary is not wholly-owned.

The FTAIA

The FTAIA is a complicated statute that limits the extraterritorial reach of the Sherman Act. The U.S. Supreme Court has attempted to simplify the analysis by explaining that the FTAIA places all non-import activity involving foreign commerce outside the Sherman Act's reach, unless two conditions are met: (1) the foreign conduct sufficiently affects U.S. commerce, i.e., it has a "direct, substantial, and reasonably foreseeable effect" on U.S. domestic, import, or (certain) export commerce, and (2) the "effect" on U.S. commerce independently "giv[es] rise to" a claim by the plaintiff that is cognizable under the Sherman Act. F. Hoffman-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 159 (2004). Import commerce (importing goods directly from foreign nations) is not subject to the FTAIA, i.e., such commerce is within the reach of the Sherman Act. Courts have struggled over the past several years to determine how the FTAIA applies in the context of a non-U.S.-based price-fixing conspiracy.

Motorola Mobility

The Seventh Circuit wrestled with the FTAIA in Motorola Mobility. Motorola, which is based in the United States, asserted a Sherman Act claim based on its wholly-owned foreign subsidiaries' purchases of price-fixed LCD screens that were incorporated into mobile phones that were manufactured abroad and then shipped to the United States. Motorola maintained that it could bring a Sherman Act claim because it negotiated prices for the LCD screens in the United States and its foreign subsidiaries had assigned their claims to Motorola.4 Nonetheless, the Seventh Circuit held that Motorola could not bring a Sherman Act claim based on its foreign subsidiaries' purchases.5 The court found that even if Motorola could satisfy the FTAIA's "direct, substantial, and reasonably foreseeable effect" test based on the eventual shipment of the mobile phones into the United States, it could not satisfy the "gives rise to a claim" test because its foreign subsidiaries–not Motorola itself–were the direct purchasers of the LCD panels and, under Illinois Brick, were the only parties with a viable Sherman Act claim.6

Refrigerant Compressors

The fact pattern in Refrigerant Compressors is similar to that in Motorola Mobility. General Electric ("GE") opted out of a direct purchaser class and brought a Sherman Act claim against Danfoss, an alleged member of a cartel that fixed prices for refrigerant compressors.7 GE based some of its claims on purchases of refrigerant compressors by its 48%-owned Mexican manufacturing subsidiary, MABE.8 Although GE had minority representation on MABE's board of directors and a veto right over some categories of board decisions, GE did not control MABE's operations.9 GE did, however, participate in negotiations with Danfoss "on behalf of itself and MABE" concerning the price of refrigerant compressors.10 Those purchase negotiations routinely took place at GE's appliance division headquarters in the United States.11 GE also argued that the MABE's purchases fell within the Illinois Brick "control exception," which under some circumstances may allow an indirect purchaser to assert a Sherman Act claim if "the direct purchaser is owned or controlled by its customer."12

When Danfoss moved to dismiss the complaint, the court requested additional briefing on whether the FTAIA barred GE's claims based on MABE's purchases of compressors, including whether GE had standing to sue for damages that MABE allegedly suffered from its purchases of the price-fixed compressors.13

The district court held that the FTAIA barred GE's claims based on MABE's purchases.14 It noted the many factual similarities to Motorola Mobility: a foreign subsidiary, foreign conspirators, foreign sellers, foreign points of sale, foreign delivery locations, foreign manufacturers, and similar transactions (purchase and sale of products).15 The court first found that the refrigerant compressors were purchased outside the United States and therefore did not qualify as import commerce (and were therefore subject to the FTAIA).16 Next, the court, like the Seventh Circuit in Motorola Mobility, concluded that even if GE could show a "direct, substantial, and reasonably foreseeable effect" on U.S. commerce, GE could not show that this effect gave rise to a Sherman Act claim for GE in the United States because MABE was the foreign direct purchaser of the compressors.17

As did the Seventh Circuit in Motorola Mobility, the district court also held that GE's claims based on MABE's purchases were barred by Illinois Brick and did not satisfy the control exception.18 Under Sixth Circuit precedent, the control exception is satisfied only when the relationship exhibits "such functional economic or other unity between the direct purchaser and either the defendant or the indirect purchaser that there effectively has been only one sale."19 Although GE was involved in negotiating MABE's purchases, the court found that GE's relationship with MABE did not meet the "functional economic or other unity" requirement.20

Takeaways

The Seventh Circuit's decision in Motorola Mobility remains one of the leading recent appellate decisions interpreting and applying the FTAIA in the context of overseas price-fixing conspiracies.21 Under Motorola Mobility, the FTAIA and Illinois Brick provide a substantial defense against a U.S. parent's Sherman Act price-fixing claims based on its foreign subsidiary's purchases of the allegedly price-fixed goods. The court's decision in Refrigerant Compressor suggests the following takeaways to supplement Motorola Mobility:

  • Minority ownership of the subsidiary, representation on the subsidiary's board of directors, and participating in purchase negotiations on behalf of the subsidiary are likely not enough to thread the FTAIA and Illinois Brick needles.
  • It is unlikely that a U.S. parent can solve this problem by obtaining an assignment of its foreign subsidiary's direct purchaser claims. The Third Circuit recently held that a subsidiary can assign its direct purchaser claim to an indirect purchaser as long as it is written and express, even without obtaining consideration for the claim.22 But a subsidiary trying to assign a Sherman Act claim must have one to begin with. In the context of a foreign price-fixing conspiracy, the foreign subsidiary of a U.S. parent is subject to its local laws and, therefore, may not provide a basis for the parent to assert a Sherman Act claim.
  • The analysis is more complicated in states that have enacted Illinois Brick-repealer statutes. In those states, a U.S. parent might be able to circumvent Illinois Brick by suing under state antitrust law. However, defendants still may be able to use the FTAIA to block a state law indirect purchaser claim.23
  • Finally, an investor in a company that is harmed by an antitrust violation cannot bring a Sherman Act claim stemming from its stock ownership because its harm is considered derivative, rather than direct.24 Thus, a U.S. parent that is a partial owner of a foreign subsidiary that suffers antitrust injury does not have antitrust standing to bring an antitrust claim on that ground.

Footnotes

1 746 F.3d 842 (7th Cir. 2014) ("Motorola Mobility II"), amended by, 775 F.3d 816 (7th Cir. 2015) ("Motorola Mobility III").

2 15 USC § 6a.

3 Illinois Brick v. Illinois, 431 U.S 720 (1977).

4 Motorola Mobility I, No. 09 C 6610, 2014 WL 258154, at *1, *3 (N.D. Ill. Jan. 23, 2014).

5 Motorola Mobility III, 775 F.3d at 827.

6 The Seventh Circuit also rejected Motorola's argument that the FTAIA's exception for "import commerce" applied, reasoning that the exception saves a Sherman Act claim only where an importer-plaintiff is purchasing from the defendant directly rather than through intermediate purchasers. Motorola Mobility III, 775 F.3d 818-19. A more in-depth discussion of Motorola Mobility is available here on our blog AntitrustWatch.com.

7 In re Refrigerant Compressors Antitrust Litig., 2016 WL 6138600, at *1-2.

8 Id. at *2-3, *8.

9 Id. at *9.

10 In re: Refrigerant Compressors Antitrust Litig., No. 2:09-md-02042 (E.D. Mich. Feb. 15, 2013), Dkt. 1, Complaint at 16.

11 Id. at 17.

12 See Illinois Brick, 431 U.S. at 736 n.16; In re Refrigerant Compressors Antitrust Litig., 2016 WL 6138600, at *9.

13 In re Refrigerant Compressors Antitrust Litig., 92 F. Supp. 3d 652, 658 (E.D. Mich. 2015).

14 In re Refrigerant Compressors Antitrust Litig., 2016 WL 6138600, at *8.

15 Id. at *7.

16 Id. at *8.

17 Id. (quoting Motorola Mobility III, 775 F.3d at 818).

18 Id. at *9.

19 Id. (quotingJewish Hosp. Ass'n of Louisville, Ky v. Stewart Mech. Enters., 628 F.2d 971, 975 (6th Cir. 1980)).

20 Id.

21 The other recent leading FTAIA appellate decision is United States v. Hsiung, 778 F.3d 738 (9th Cir. 2015). It is important to be familiar with the Ninth Circuit's analysis in Hsiung. Recently, a court in the Northern District of California, relying on Hsiung, declined to follow Motorola Mobility's test for "gives rise to" a claim. In re Cathode Ray Tube (CRT) Antitrust Litig., MDL No. 1917, No. C-07-5944 (N.D. Cal. Sept. 30, 2016), Dkt. 4919, Order on Motions for Summary Judgment Concerning the FTAIA, at 9 n.4. For a discussion of Motorola and Hsiung, click here for Orrick's article published in Japan's JCA Journal.

22 Wallach, et al. v. Eaton Corp., et al., No. 15-3320, 2016 WL 4791849 (3d Cir. 2016). Click here for a discussion of Wallach on our blog, AntitrustWatch.com.

23 A court in the Northern District of California recently noted that the FTAIA may limit state indirect purchaser statutes in the same way that it limits the Sherman Act: "District court opinions have in general declined to find that state competition laws cast a wider net than the FTAIA", and that "[s]ome state courts have reached the same conclusion." In re Capacitors Antitrust Litig., No. 3:14-cv-03264 (N.D. Cal. Sept. 30, 2016), Dkt. 1302, Order re Phase I of Summary Judgment on Foreign Transactions, at 12-13 (citing cases). The court noted that the plaintiffs had "not cited any federal or state decisions that extend the reach of a state law beyond the FTAIA, and the Court declines to do so here." Id. at 13.

24 See Motorola Mobility III, 775 F.3d at 820-21 (citing Mid–State Fertilizer Co. v. Exchange Nat'l Bank of Chicago, 877 F.2d 1333, 1335–36 (7th Cir. 1989)).

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
Events from this Firm
26 Sep 2018, Seminar, Tokyo, Japan

Orrick’s Global Japan Practice is hosting a series of “Orrick Library” seminars to explore legal issues in various fields in Japan as well as the United States, Asia and Europe

26 Sep 2018, Conference, New York, United States

Employment Partner, Mandy Perry and Chair of Orrick's Global Employment Law Practice, Mike Delikat will be participating in the Global Business Protections 2018: International Restrictive Covenants and Confidential Information Conference.

10 Oct 2018, Conference, Florida, United States
Julie Totten is Program Chair of this year’s conference, Lynne Hermle is speaking on women in the courtroom, boardroom, and c-suite, and Erin Connell is speaking on pay equity and pay transparency.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
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