On Monday, June 15, the Supreme Court of the United States refused to hear appeals concerning the Foreign Trade Antitrust Improvements Act (FTAIA), 15 U.S.C. § 6a, that could have clarified the reach of U.S. antitrust law to anticompetitive conduct outside the United States. In doing so, the Supreme Court let stand a ruling that significantly narrows the ability of private plaintiffs to claim civil damages under federal antitrust law based on component sales transactions consummated abroad.
Both AU Optronics Corp., a criminal and civil defendant, and Motorola Mobility LLC, a civil plaintiff, asked the Supreme Court to hear the appeals. Those requests arose from two separate decisions by the U.S. Courts of Appeals for the Seventh and Nine Circuits involving similar facts, the same defendant and the application of the FTAIA.
Both decisions focused on whether U.S. antitrust law applied to AU Optronics’ and its co-conspirators’ agreement to fix prices of liquid crystal display panels, a component part of many finished electronics products (e.g., cellphones). AU Optronics sold some components directly in the United States, conduct to which the Sherman Act clearly applies. AU Optronics also sold some components to foreign entities outside the United States, and those other entities incorporated the components into finished products sold in the United States. The FTAIA provides that federal antitrust laws apply to anticompetitive conduct outside the United States only if that conduct (a) affects import commerce or (b) has a “direct, substantial, and reasonably foreseeable effect” on U.S. commerce and such effect gives rise to a Sherman Act claim. 15 U.S.C. § 6a.
The Criminal Case
The Ninth Circuit decision, United States v. Hsiung, affirmed federal price-fixing convictions of AU Optronics and two of its executives based on the company’s direct sales of price-fixed products to purchasers in the United States. In the Ninth Circuit’s amended opinion, the court concluded that AU Optronics’ sales of components affected by price-fixing, although consummated outside the United States, also supported those convictions. United States v. Hsiung, 778 F.3d 738, 758-60 (9th Cir. 2015).
The court noted that the components were a substantial cost of the finished products purchased by U.S. consumers. Depending on the particular, finished product, components comprised between 30 and 40 percent or 70 and 80 percent of the finished product’s total price. The defendants understood that “substantial numbers of finished products were destined for the United States” and would increase prices to U.S. consumers. The court also noted that the effect of component price-fixing on U.S. commerce was “integrated, close, and direct” based on evidence that AU Optronics sold components to: (a) an overseas factory that sent 100 percent of its finished products to the United States; (b) systems integrators that incorporated the components into finished products “with the direct oversight” by U.S. manufacturers of the finish products’ pricing; and (c) foreign supply-chain intermediaries who bought the components based on orders from U.S. customers for direct shipment to those same customers. Id. at 759.
The Civil Case
The Seventh Circuit decision, Motorola Mobility, LLC v. AU Optronics, rejected the plaintiffs’ ability to recover money damages under the Sherman Act based on sales of price-fixed products consummated outside the United States. Motorola Mobility, LLC v. AU Optronics, 775 F. 3d 816 (7th Cir. 2015). The court considered two scenarios that together accounted for 99 percent of the sales subject to Motorola Mobility’s civil damages claims under the Sherman Act.
In the first scenario, Motorola Mobility’s foreign subsidiaries purchased price-fixed components outside the United States. Those purchasers received the components, incorporated them into finished goods, and sold the finished products outside the United States. These transactions accounted for 57 percent of the purchases for which Motorola Mobility sought treble damages. The court concluded that those sales had no effect on U.S. commerce and could not form the basis of a Sherman Act claim.
In the second scenario, Motorola Mobility’s foreign subsidiaries purchased price-fixed components outside the United States for delivery and manufacture into finished goods outside the United States; Motorola Mobility itself sold these as finished goods in the United States. These transactions accounted for 42 percent of the purchases for which Motorola Mobility sought treble damages. The court assumed that these sales had a “direct, substantial, and reasonably foreseeable effect” on U.S. commerce. The court concluded, however, that Motorola Mobility lacked standing to pursue damage claims because it was an indirect purchaser of the components, even though its separately incorporated foreign subsidiaries were the direct purchasers. Subject to certain exceptions—none of which applied in Motorola Mobility’s case—indirect purchasers lack standing to seek money damages under federal antitrust law. Id. at 817-19; id. 821-23 (citing and discussing Ill. Brick Co. v. Illinois, 431 U.S. 720 (1977)).
The Consequences of the Supreme Court’s Decision Not to Hear the FTAIA Appeals
Given the Supreme Court’s refusal to review Hsiung and Motorola Mobility, both the criminal and civil cases are now final. The immediate consequences of the Supreme Court’s refusal to hear these appeals are threefold.
First, neither case limits the U.S. Department of Justice’s (DOJ) ability to prosecute anticompetitive conduct that occurs outside the United States and that has a direct, substantial, and reasonably foreseeable effect on U.S. commerce. As Hsiung and Motorola Mobility illustrate, the DOJ can seek criminal penalties and injunctive remedies against companies based on Sherman Act charges, even when private parties might not be able to claim civil damages under federal law for the same conduct. The Motorola Mobility decision expressly noted this consequence. Id. at 825, 826-27.
Second, the Supreme Court’s decision not to hear these appeals allows existing uncertainty to persist about how the courts will apply FTAIA’s domestic-effects exception. For instance, in Motorola Mobility, the Seventh Circuit assumed that the facts satisfied that exception, leaving untouched that court’s previously stated standard that the domestic-effects exception applies when there is a “reasonably proximate causal nexus” between the foreign anticompetitive conduct and U.S. commerce. SeeMinn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845, 853 (7th Cir. 2010). In the Ninth Circuit, however, the government or civil plaintiffs prove the exception if the effect on U.S. consumers “follows as an immediate consequence of the defendant’s activity.” SeeUnited States v. LSL Biotechs., 379 F.3d 672, 680-81 (9th Cir.2004). This uncertainty may influence where the DOJ decides to prosecute cases involving anticompetitive conduct that occurs overseas.
Third, the ruling in Motorola Mobility stands. That ruling provides civil defendants firmer footing on which to oppose the application of U.S. antitrust law to conduct outside the United States. In the Seventh Circuit, civil plaintiffs are indirect purchasers that will lack standing under the Sherman Act to seek damages if they buy price-fixed components from direct purchasers who initially purchased those components outside the United States. Based on similar reasoning, the same civil plaintiffs should lack standing even under the antitrust laws of states that have conferred standing on indirect purchasers. See, e.g., In re Static Random Access Memory (SRAM) Antitrust Litig., No. 07–md–01819 CW, 2010 WL 5477313, at *4 (N.D. Cal., Dec. 31, 2010) (citing Japan Line, Ltd. v. County of L.A., 441 U.S. 434, 448, 453-54 (1979)) (granting in part motion to dismiss claims arising from products billed and shipped to a country outside the United States).Motorola Mobility is controlling in only the Seventh Circuit. Nevertheless, because Judge Richard Posner, a respected authority on antitrust law, drafted the opinion, Motorola Mobility will likely influence antitrust decisions around the United States. It is also likely to limit the availability of treble damages for anticompetitive conduct that occurs outside the United States.