On November 12, 2014, the parties in Motorola Mobility v. AU Optronics reargued their case to a three judge panel of the Seventh Circuit – the same panel that ruled on the case earlier this year. The United States Department of Justice (“DOJ”) also had the opportunity to argue its position in this closely-watched Foreign Trade Antitrust Improvements Act (“FTAIA”) case.
This case has received ample coverage on this blog (click here, here and hereto read more). In March 2014, the Seventh Circuit rejected Motorola’s antitrust arguments seeking billions of dollars in damages from a group of liquid crystal display (“LCD”) panel manufacturers. The Court held that the alleged wrongdoing was “too remote” under the FTAIA to have a direct effect on United States commerce. Less than four months later, this decision was vacated after Motorola petitioned for an en banc rehearing, and the parties were given an opportunity to submit briefs.
A Seventh Circuit panel consisting of judges Richard A. Posner, Ilana Diamond Rovner, and Michael S. Kanne heard the November 12 arguments, which lasted less than one hour.
Motorola primarily argued that the defendants’ sale of LCD panels to Motorola’s foreign subsidiaries satisfies the FTAIA “direct effects” exception. Motorola claimed that its U.S. parent company’s import of phones containing the price-fixed LCD panels [into the United States] and subsequent sale of those phones to U.S. consumers had a direct effect on U.S. commerce. Counsel asserted that the “direct effect is the increased price the parent paid for importing the phones” from its foreign subsidiaries.
The panel asked numerous questions regarding the fact that the transactions at issue in this litigation occurred abroad. For example, in response to Judge Rovner’s query regarding the “limiting principal” that could be applied to this type of price fixing case, counsel for Motorola emphasized that even though the actual purchases from LCD manufacturers were made by Motorola’s foreign subsidiaries, the parent company in the United States negotiated pricing directly with defendants. Consequently, when subsidiaries made their purchases, they did so at the parent company’s direction and at prices negotiated by the parent.
There was considerable questioning, early on, about whether or not Motorola is attempting to “have it both ways,” by taking advantage of the tax advantages of foreign subsidiaries, yet downplaying the foreign nature of those entities when trying to avail itself of the protections afforded by United States antitrust law. In response, counsel for Motorola stated that profits from foreign subsidiaries are repatriated to the United States, where the parent company pays taxes on them. It was not apparent from the oral argument that the panel was convinced by this argument.
The panel also expressed concern that Motorola managed to recoup the defendants’ overcharges by increasing the prices to United States consumers. Motorola’s counsel received numerous questions about whether consumers, who paid higher prices, would be the proper plaintiffs. Counsel responded that the pass-through was not decisive and that, as the first domestic purchaser of the price-inflated items, the Motorola parent company remained the correct party to bring this lawsuit.
Counsel for the Antitrust Division of the DOJ also argued on behalf of the DOJ and FTC. The DOJ and FTC had previously weighed in on the FTAIA issues — at the same time that Motorola asked for a rehearing of the Seventh Circuit’s initial decision — by filing an amicus brief arguing that the panel’s original opinion would “threaten the ability of government law enforcement and private actions to prevent and redress massive harm to U.S. consumers.” The Seventh Circuit and the Justice Department also exchanged letters, and DOJ filed an additional brief in late June 2014, urging the Court to reconsider its position.
Although counsel made it clear that DOJ/FTC was not taking the side of either party, counsel argued that the price fixing of components of a product can have a direct effect on U.S. commerce. The government’s argument focused on the application of the term “direct” with an emphasis on whether there is a natural and probable chain of events from the defendants’ conduct to the United States. The panel expressed surprise that the government’s argument was “negative” toward Motorola’s position and did not concur with the plaintiff’s argument that Motorola, as the “first purchaser” affected in U.S. commerce, was the proper plaintiff to bring this case. In response, counsel cited problems with Motorola’s case, and stated that the alleged cartel conduct did not necessarily “give rise to” antitrust injury under the FTAIA. DOJ asked the Court, however, not to render a narrow reading of antitrust law that would hinder the government’s enforcement abilities.
The panel also noted that they had received amicus briefs from regulators in other countries, such as Belgium and Japan, arguing that this type of lawsuit interferes with foreign antitrust enforcement. When asked to weigh in on this point, counsel for the government stated that the issues raised by the foreign governments pertained to situations where a foreign party is harmed abroad, but the harm is not directly felt in the United States. In such situations, he suggested, redressing this harm in a United States court could cause friction with foreign governments.
Perhaps not surprisingly, counsel for the defendant LCD manufacturers focused on the fact that the alleged price fixing concerned overseas transactions for items manufactured overseas, involving foreign funds and foreign-issued purchase orders that incorporated foreign law. Counsel emphasized that the alleged anticompetitive effects touched foreigncommerce, and that the U.S. parent company did not suffer injury. He said that “we don’t use U.S. antitrust law to police harm that flows from effects on foreign economies.”
Counsel for defendants also contended that Motorola’s argument that injury occurred when it purchased overpriced phones containing defendants’ components from its foreign subsidiaries, was waived because it was not raised in the district court or in written discovery requests. Motorola did not address this in its brief rebuttal argument and the panel did not pursue it with questioning. Further, counsel for defendants argued that this “new” theory should fail because there is no case in which a court has said that an internal transaction between a parent and a subsidiary gives rise to an antitrust injury.
Although the outcome of this case remains to be seen, the panel appeared particularly concerned with the fact that Motorola’s foreign subsidiaries purchased the LCD component parts from defendants, and with the possibility that Motorola is “foreign shopping” by bringing suit under United States antitrust laws rather than utilizing foreign remedies. The questioning at oral argument revealed some skepticism as to whether or not the U.S.-based Motorola parent company, as opposed to the foreign subsidiaries, actually suffered antitrust injury. Antitrust practitioners will have to wait and see whether or not the panel will accept Motorola’s position or issue some revised version of its earlier ruling dismissing Motorola’s claims.