Motorola Mobility LLC v. AU Optronics Corp., 746 F.3d 842 (7th Cir. 2014) [click for opinion]
Motorola Mobility LLC (“Motorola”) and its foreign subsidiaries bought LCD panels from foreign LCD panel manufacturers, and incorporated those LCD panels as component parts into mobile cell phones which, to some degree, Motorola or its subsidiaries sold in the U.S. market. Motorola filed suit under Section 1 of the Sherman Act (“Sherman Act”) against certain of the foreign LCD manufacturers (“Defendants”) for allegedly fixing the price of the LCD panels.
Only about 1 percent of the LCD panels were bought by, or delivered to, Motorola in the U.S. however; the other 99 percent were bought by, paid for, and delivered to Motorola’s foreign subsidiaries. And only 42 percent of all the LCD panels bought by Motorola’s foreign subsidiaries were incorporated into Motorola mobile devices sold in the U.S. market; whereas the remaining 57 percent of the LCD panels bought by Motorola’s foreign subsidiaries were incorporated into products that were sold abroad.
Defendants filed a partial motion for summary judgment with the U.S. District Court for the Northern District of Illinois with respect to the 99 percent of LCD panels purchased by Motorola’s foreign subsidiaries, claiming that 15 U.S.C. § 6a(1)(A) of the Foreign Trade Antitrust Improvements Act barred Motorola’s Sherman Act claim. Defendants pointed to the language of the Foreign Trade Antitrust Improvements Act in particular, which provides that the Sherman Act “‘shall not apply to conduct involving 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.”’ The district court granted Defendants’ partial summary judgment motion.
Motorola then sought interlocutory appeal pursuant to Section 1292(b) with the Seventh Circuit Court of Appeals. Writing on the Seventh Circuit’s behalf, Judge Posner granted interlocutory appeal on the basis that the district court’s order presented a question of law as to which there is “‘substantial ground for difference of opinion”’ and noted that an immediate order would “‘materially advance the ultimate termination of the litigation.’”
Addressing the merits, the Seventh Circuit affirmed the district court’s decision to grant Defendants’ partial summary judgment as to the 99 percent of the LCD panel purchases Motorola made through its foreign subsidiaries. The Seventh Circuit began by noting that the real question had only to do with the 42 percent of LCD panels that made their way into the U.S. market, as the 57 percent that did not touch the U.S. clearly fell outside the bounds of the Sherman Act. Looking to the “direct, substantial, and reasonably foreseeable effect” clause of the Foreign Trade Antitrust Improvements Act, the Seventh Circuit determined that “what is missing from Motorola’s case is a ‘direct’ effect” on commerce within the U.S.
Judge Posner acknowledged that, assuming the foreign LCD manufacturers engaged in some price fixing as Motorola alleged, there was “doubtless some effect” on U.S. commerce, but that effect was merelyindirect within the meaning of the Foreign Trade Antitrust Improvements Act. As Judge Posner explained: the “alleged price fixers are not selling the panels in the United States[,] they are selling them abroad to foreign companies ... that incorporate them into products that are then exported to the United States for resale by the parent. The effect of component price fixing on the price of the product of which it is a component is indirect, compared to the situation in Minn-Chem, where ‘foreign sellers allegedly created a cartel, took steps outside the United States to drive the price up of a product that is wanted in the United States, and then (after succeeding in doing so) sold that product to U.S. customers.’” Judge Posner reasoned that the instant scenario “is closer” to the “‘situation in which action in a foreign country filters through many layers and finally causes a few ripples in the United States.’”
Moreover, the Seventh Circuit cited an additional basis for affirming the district court’s ruling. Namely, the Court held that the other applicable clause within the Foreign Trade Antitrust Improvements Act – the requirement that the “effect” of a defendant’s practice on domestic U.S. commerce “give rise to” an antitrust claim – likewise barred application of the Sherman Act against Defendants. According to Judge Posner, the “effect of the alleged price fixing on that commerce in this case is mediated by Motorola’s decision on what price to charge U.S. consumers for the cellphones manufactured abroad that are alleged to have contained a price-fixed component.” In turn, the anti-trust claim against the foreign LCD manufacturers “is based not on any illegality in the prices Motorola charges[,] … but rather on the effect of the alleged price fixing on Motorola’s foreign subsidiaries.” As such, continued Judge Posner, “‘U.S. antitrust laws are not to be used for injury to foreign customers.’” That is, U.S. companies cannot have the benefit of creating subsidiaries with a separate legal existence abroad while also having “‘their separate corporate existence disregarded for its own benefit against third parties.’”
Finally, the Seventh Circuit cited an additional, policy-oriented, reason for affirming the district court’s summary judgment ruling. The court emphasized that Motorola’s “expansive interpretation” of the Foreign Trade Antitrust Improvements Act implicated large “practical stakes” that cut against such an expansive interpretation. Commenting that “[n]othing is more common nowadays than for products imported to the United States to include components that the producers bought from foreign manufacturers,” the Seventh Circuit invoked the U.S. Supreme Court’s warning that “rampant extraterritorial application of U.S. law ‘creates a serious risk of interference with a foreign nation’s ability independently to regulate its own commercial affairs.’” The Seventh Circuit observed that the purpose of the Foreign Trade Antitrust Improvements Act was to prevent such “interference.” This led Judge Posner to conclude that Motorola’s request for expansive application of the Sherman Act, if adopted, would “enormously increase” the Act’s “global reach” and create “friction with many foreign countries and ‘resent[ment at] the apparent effort of the United States to act as the world’s competition police officer[.]’”