7th Circuit Holds That the FTAIA Bars a U.S. Manufacturer’s Price-Fixing Claims Based on Its Foreign Affiliates’ Purchases of Price-Fixed Goods From a Foreign Manufacturer

On March 27, 2014, the 7th U.S. Circuit Court of Appeals affirmed a district court decision that Motorola’s price-fixing claims based on purchases that its non-U.S. affiliates made from non-U.S. defendants were barred under the Foreign Trade Antitrust Improvement Act. Motorola Mobility LLC v. AU Optronics Corp. et al., No. 09 C 6610 (7th Cir. March 27, 2014).

As explained in the February 2014 issue of Orrick’s Antitrust and Competition Newsletter, in multi-district litigation in the Northern District of California, Illinois-based Motorola asserted price-fixing claims against manufacturers of liquid crystal display (LCD) panels used in mobile phones. Its claims fell into three groups: (1) purchases of LCD panels by Motorola that were delivered directly to Motorola facilities in the United States (Category I); (2) purchases of LCD panels by Motorola’s foreign affiliates that were delivered to the foreign affiliates’ manufacturing facilities abroad, where they were incorporated into mobile phones that later were sold in the United States (Category II); and (3) purchases of LCD panels by Motorola’s foreign affiliates that were delivered to the foreign affiliates’ manufacturing facilities abroad and incorporated into mobile phones sold outside the United States (Category III).

Judge Susan B. Illston, the MDL judge, denied defendants’ summary judgment motion and allowed Motorola to proceed with all three categories of purchases. When the case was transferred back to the Northern District of Illinois, Judge Joan B. Gottschall parted company with Judge Illston, holding that Motorola could proceed only with respect to Category I claims, which eliminated 99 percent of Motorola’s claim. Motorola Mobility, Inc. v. AU Optronics Corp. et al., No. 09-c-6610 (N.D. Ill. Jan. 23, 2014). With Judge Gottschall’s approval, Motorola filed a petition with the 7th Circuit for interlocutory review under 28 U.S.C. 1292(b), which the defendants opposed.

On March 27, the 7th Circuit, in a short opinion by Judge Richard Posner, granted the petition and affirmed Judge Gottschall’s decision based on the records before the district courts without accepting further briefs or holding oral argument. Judge Posner quickly disposed of Motorola’s Category III claims, characterizing them as “frivolous.” For the Category II claims, Judge Posner explained that Motorola did not show, as the FTAIA requires, that the price-fixed panels had “a direct, substantial, and reasonably foreseeable effect” on commerce within the United States, because they were not sold into the United States—and therefore had only an indirect effect. In addition, the defendants’ price-fixing did not have an effect on prices charged in the United States that could give rise to an antitrust claim. He added that Motorola’s foreign subsidiaries paid the overcharges where they reside, and they can bring antitrust claims in those countries. If those countries have inadequate antitrust laws, that is a consequence of Motorola’s decision to locate there. Judge Posner concluded by noting that allowing the Category II claims would “enormously increase the global reach of the Sherman Act, creating friction with many foreign countries.” Motorola is expected to seek en banc review of the decision.

If the decision stands, it effectively eliminates Sherman Act liability for a non-U.S. company that engages in price fixing but sells the price-fixed good to an unrelated non-U.S. company before the good enters the United States. Accordingly, it will provide defendants with a powerful defense against some Sherman Act claims and, potentially, some indirect purchaser claims in states that allow such claims.

A copy of the decision is available here.