Seventh Circuit Vacates Motorola Mobility v. AU Optronics

The extent to which U.S. antitrust law liability may be imposed on foreign parties for foreign conduct remains somewhat uncertain, as the Seventh Circuit Court of Appeals just vacated its March 27 decision in Motorola Mobility, LLC v. AU Optronics Corp. and agreed to re-hear plaintiff’s case against several Asian companies for alleged violations of the Sherman Antitrust Act based on activities that took place in Asia.

Motorola Mobility filed the underlying lawsuit in the U.S. District Court for the Northern District of Illinois, alleging that several foreign manufacturers of liquid-crystal display (“LCD”) panels, including Samsung, Sharp and AU Optronics allegedly engaged in illegal price-fixing that caused plaintiff to pay higher prices for the panels than it should have. The district court dismissed most of plaintiff’s antitrust claims and, in March, the Seventh Circuit affirmed on the grounds that plaintiff failed to meet the criteria required by the U.S. Foreign Trade Antitrust Improvements Act (“FTAIA”).

Found at Section 6 of the Sherman Act, the FTAIA reads in its entirety as follows:

Sections 1 to 7 of this title shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless–

(1) such conduct has a direct, substantial, and reasonably foreseeable effect–

(A) on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or

(B) on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States; and

(2) such effect gives rise to a claim under the provisions of sections 1 to 7 of this title, other than this section.

If sections 1 to 7 of this title apply to such conduct only because of the operation of paragraph (1)(B), then sections 1 to 7 of this title shall apply to such conduct only for injury to export business in the United States.

Unfortunately for plaintiff, the Seventh Circuit found 99% of the purchases were made not by plaintiff, but by its foreign subsidiaries, which were not named as plaintiffs. Moreover, 57% of the panels never entered the U.S., but were incorporated outside the U.S. into products sold outside the U.S., so any misconduct pertaining to those panels could not have a direct effect on U.S. commerce – the first prong of the FTAIA – and that portion of the claim was dismissed.

The remaining 42% of the panels were purchased by plaintiff’s foreign subsidiaries and incorporated into cellphones that were imported into the U.S. However, the court excluded that portion of the claim for two reasons.

First, the court found, “the effect of component price fixing on the price of the product of which it is a component is indirect,” not direct, so the first prong could not be met.

Second, even if the misconduct resulted in higher U.S. prices, that domestic effect did not “give rise” to plaintiff’s claim, because plaintiff bought the panels from its foreign subsidiaries. Thus, if plaintiff paid too much for the panels it was not due to higher U.S. prices, but due to higher foreign prices and “U.S. antitrust laws are not to be used for injury to foreign customers.”

The decision came as a relief to foreign parties concerned about U.S. courts violating principles of international comity by unfairly expanding their reach and violating the sovereign authority of other nations. As Judge Posner stated in the March decision:

“If Motorola’s foreign subsidiaries have been injured by violations of antitrust laws in the countries in which they do business, they have remedies. If the remedies are inadequate, or if the countries don’t have or don’t enforce antitrust laws, these were the risks that the subsidiaries (and hence Motorola) assumed by deciding to do business in those countries.”

However, the Seventh Circuit has now vacated that decision and the defendants, and others interested in the extent to which U.S. antitrust law may apply to foreign conduct will be watching the case closely for further developments.

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