Distribution, Competition, and Antitrust / Intellectual Property (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.

Seventh Circuit Allows Foreign Price-Fixing Claims to Proceed

Yesterday, in Minn-Chem, Inc. v. Agrium Inc., No. 10-1712, the en banc 7th Circuit addressed the Foreign Trade Commerce Antitrust Improvements Act (“FTAIA”) in the context of an alleged worldwide scheme to fix potash prices (including to buyers in the U.S.). The Court held two notable things.

First, the FTAIA establishes an element of a plaintiff’s claim, but is not a subject matter jurisdictional bar.

Second, as to the import commerce exception, the court held that the “direct” effect on import commerce required by the statute means “a reasonably proximate causal nexus.” The Minn-Chem court disagreed with the approach of the Ninth Circuit in United States v. LSL Biotechs., 379 F.3d 672 (9th Cir. 2004), where the court held that a “direct” effect is one that “follows as an immediate consequence” of the defendant’s activity.

The Seventh Circuit’s approach thus makes it easier for U.S. plaintiffs or importers to sue foreign entities on worldwide price-fixing claims.  Applying that approach, the court affirmed the district court’s decision not to dismiss the complaint on FTAIA grounds.

Supreme Court Denies Review of Case Involving Foreign Antitrust Claims

In Animal Science Products Inc. v. China Minmetals Co., 654 F.3d 462 (3d Cir. 2011), the Third Circuit held that the Foreign Trade Antitrust Improvements Act (“FTAIA”) does not impose a subject matter jurisdiction bar on antitrust claims in federal court, but rather specifies elements of a Sherman Act claim.

Why does this matter?  It matters because Congress and the courts care whether U.S. courts are open to foreign entities’ foreign antitrust claims.  There are strong policy reasons for not wanting U.S. courts to be open to all such claims, especially those with a tenuous connection to U.S. commerce.

The precise issue in Animal Science Products is technical and a bit complicated, but whether the FTAIA bars jurisdiction over certain foreign claims, or whether it “merely” specifies elements of a claim, might, in some cases, determine whether a case asserting foreign claims is tossed on a motion to dismiss or survives until after possibly expensive fact discovery.  (As I’ve suggested previously, the implications of the distinction may be overblown — under either approach, some cases are clearly outside the reach of the Sherman Act.  See, e.g., Minn-Chem Inc. et al. v. Agrium Inc., 657 F.3d 650, 653 (7th Cir. 2011) (dismissal appropriate under either standard).)

On Monday, the Supreme Court refused to grant certiorari to hear the Animal Science Products case.  So for now, the decision stands in the Third Circuit.  In 2003, the Seventh Circuit in the United Phosphorus case reached the opposite conclusion (that the FTAIA does impose a subject matter jurisdiction bar).  However, this fall, in Minn-Chem Inc. et al. v. Agrium Inc., 657 F.3d 650, 653 (7th Cir. 2011), the Seventh Circuit suggested that United Phosphorus might be “ripe for reconsideration,” but reserved the issue for possible later resolution.  We are likely to see more case law in this area in the future.

Sony’s Indirect LCD Purchaser Claims Survive Motion to Dismiss on Foreign Trade Antitrust Improvements Act and Other Grounds

In re: TFT-LCD (Flat Panel) Antitrust Litigation, No. M 07-1827 SI (Feb. 15, 2012) (Illston, J.)

Sony filed suit against LG as an indirect purchaser of thin-film transistor liquid-crystal display (“TFT-LCD”) panels. In rejecting LG’s motion to dismiss, Judge Illston ruled that allegations of fraudulent concealment were sufficient to toll the statute of limitations.

Judge Illston also rejected LG’s Foreign Trade Antitrust Improvements Act (“FTAIA”) argument, noting that Sony contended that its purchases fell within the domestic injury exception to the FTAIA because its claims were based solely on purchases made in the U.S. LG countered that Sony’s purchases were foreign – and therefore beyond the Sherman Act’s reach – because Sony took possession outside the U.S. of LCD panels and products it purchased. In rejecting this second LG argument, the Court held that it is the location of the purchase, not the ultimate destination of the LCD products, that determines where the injury occurred. Because Sony alleged domestic purchases (Sony alleged that it agreed to pay and paid inflated prices for LCD panels and products from its U.S. headquarters), the Court concluded that Sony had adequately alleged domestic purchases and domestic injury.

Finally, the Court also rejected LG’s antitrust standing argument and LG’s argument that Sony could not assert a stand-alone claim for unjust enrichment.

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