Motorola Mobility LLC v. AU Optronics Corp., No. 14-8003 (7th Cir. Mar. 27, 2014).

On March 27, 2014, the Seventh Circuit held that the Foreign Trade Antitrust Improvements Act (FTAIA) bars antitrust suits under Sherman Act section 1 regarding alleged price fixing in foreign markets for parts used abroad to manufacture products later imported into and resold in the United States. The court held that such price fixing lacks sufficiently direct effects on United States commerce under the FTAIAs direct effects test and that the effect of the defendants conduct did not gives rise to an antitrust claim in the United States. Plaintiff Motorola Mobility LLC (Motorola) and its foreign subsidiaries incorporate liquid-crystal display (LCD) panels into the cellphones that they manufacture. Motorola brought suit against several foreign manufacturers, alleging an illegal agreement in violation of section 1 of the Sherman Act, whereby those manufacturers allegedly agreed to fix prices for the LCD panels that they sold. Only about 1% of the LCD panels bought by Motorola and its subsidiaries were purchased by and delivered to Motorola in the United States; the remainder were purchased by and delivered to Motorolas foreign subsidiaries in other countries. Roughly 42% of the panels purchased by those foreign subsidiaries were incorporated into products ultimately resold by Motorola in the United States. (The remainder of the LCD panels never entered the United States, either as LCD panels or as part of other products resold in the United States.) The United States District Court for the Northern District of Illinois ruled that Motorolas claim regarding the 42% of LCD panels that were resold in the United States was barred by the FTAIA, 15 U.S.C. 6a(1)(A), which provides that Sherman Act section 1 does not apply to trade or commerce with foreign nations unless such conduct has a direct, substantial, and reasonably foreseeable effect on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations, and unless the effect gives rise to a claim under federal antitrust law. Motorola sought an interlocutory appeal of this ruling pursuant to 28 U.S.C. 1292(b), and the district court certified the issue for immediate appeal. The Seventh Circuit granted the interlocutory appeal, concluding that the district courts ruling involved a controlling question of law as to which there is a substantial ground for difference of opinion, and decided the substantive issue based on the petition, the opposition, and the record below, without ordering additional briefing on the merits. The Seventh Circuit ruled that Motorola was required to demonstrate that the defendants alleged price fixing of the LCD panels that they sold abroad to Motorolas foreign subsidiaries had a direct, substantial, and reasonably foreseeable effect on commerce within the United States. The court recognized that there was doubtless some effect on United States commerce from the alleged price fixing, because the LCD panels were incorporated into products eventually sold in the United States, but ultimately held

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that any effect on United States commerce with respect to those 42% of sales to Motorolas foreign affiliates was not direct. Specifically, the court concluded that the effect of component price fixing on the price of the ultimate product of which it is a component is indirect for purposes of the FTAIA. The court rejected Motorolas contention that, because Motorola itself determined the price that its foreign subsidiaries paid for the LCD panels, the effect on United States commerce was direct. The court stressed that the alleged price-fixing cartel did not sell those LCD panels in the United States, and if they were charging inflated prices for those panels, they were overcharging other foreign manufacturers (Motorolas foreign subsidiaries). The court further concluded that the effect of AU Optronics alleged price fixing did not give rise to an antitrust claim. The court determined that the effect of the alleged price fixing on commerce was mediated by Motorolas decision on what price to charge U.S. consumers for the products manufactured abroad with the LCD panels at issue. Specifically, the court noted that Motorolas claim was not based on the price that Motorola itself charges its customers, but rather on the effect of the alleged price fixing on Motorolas foreign subsidiaries. Those subsidiaries are foreign customers, whose injury is not protected by the U.S. antitrust laws; instead, those foreign subsidiaries could seek remedy, if available, under the antitrust laws of the countries in which they operate. Before concluding, the Seventh Circuit noted the practical stakes in the expansive interpretation of the FTAIA urged by Motorola in a global economy in which [n]othing is more common . . . than for products imported to the United States to include components that the producers had bought from foreign manufacturers. The court stressed that Motorolas position would greatly increase the reach of the Sherman Act abroad, contrary to the purpose of the FTAIA.

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