Distribution, Competition, and Antitrust / IP Law

Motorola’s FTAIA Quest Ends With a Whimper in the Seventh Circuit

Deutsch: Motorola M3888 ca. 2000

Deutsch: Motorola M3888 ca. 2000 (Photo credit: Wikipedia)

On November 26, 2014, the Seventh Circuit (Posner, J.) issued its order upon rehearing of Motorola Mobility LLC v. AU Optronics Corp. (Case No. 14-8003). Motorola still effectively lost the appeal, but the Court’s more circumspect reasoning means that the decision doesn’t have nearly the same significance as Judge Posner’s initial decision.

 
In a nutshell, Motorola’s foreign subsidiaries bought LCD panels overseas, which were allegedly subject to a price-fixing cartel. The subsidiaries assembled mobile phones and sold and shipped the phones to Motorola in the U.S. Motorola sued in federal court in the U.S. for overcharges from the alleged conspiracy.

On rehearing, the Seventh Circuit applied the Foreign Trade Antitrust Improvements Act (“FTAIA”), and assumed that the FTAIA’s first requirement – that the alleged cartel had a direct, substantial, and reasonably foreseeable effect on domestic (U.S.) commerce – was met.

But, the Court held, Motorola’s claims foundered on the FTAIA’s other requirement, namely that the domestic effect give rise to Motorola’s Sherman Act claims. The Court refused to view Motorola as a single entity, insisting that “[h]aving submitted to foreign law, the subsidiaries must seek relief for restraints of trade under the law either of the countries in which they are incorporated or do business or the countries in which their victimizers are incorporated or do business. The parent has no right to seek relief on their behalf in the United States.”  Motorola’s foreign subsidiaries, the direct purchasers from the makers of the LCD panels, “are legally distinct foreign entities and Motorola cannot impute to itself the harm suffered by them.”
Even if Motorola and its subsidiaries were viewed as a single entity, the Court continued, that entity “would have been injured abroad when ‘it’ purchased the price-fixed components,” and thus would not have been injured in U.S. commerce.

The Court went out of its way – at the request of the Justice Department and the FTC – to hold that a ruling against Motorola would not interfere with criminal and injunctive remedies sought by the government against antitrust violations of foreign companies.

So Motorola still lost, but it lost because it decided to do business through subsidiaries abroad, and in the Court’s view, was forced to live with that choice for all purposes. Had Motorola decided to buy parts directly from Asian manufacturers, the result of the case may have been very different. While it is true that there are strong reasons why multinational corporations decide to do business through often complex chains of subsidiaries, that is a choice they make, and does not relate to or reflect any fundamental principle of antitrust law. And it is for that reason the recent decision ends not with a bang, but with a whimper – it merely follows principles of corporate law to what many might argue is a plausible if not obvious endpoint.

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About Howard Ullman

Antitrust, competition, and IP law enthusiast.

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