The World in U.S. Courts: Spring 2014 - Antitrust | March.27.2014
This procedurally complicated case involves price-fixing claims brought under Section 1 of the Sherman Act, 15 U.S.C. § 1, against manufacturers of liquid-crystal display (LCD) panels used in mobile phones. The plaintiff Motorola brought claims arising from three categories of purchases: purchases of LCD panels by Motorola that were delivered directly to Motorola facilities in the U.S. (Category I), and purchases of LCD panels by Motorola’s non-U.S. affiliates that were delivered to the affiliates’ manufacturing facilities outside the U.S., where they were incorporated into mobile phones that later were either sold in the U.S. (Category II) or sold outside the U.S. (Category III).
Category I claims (LCD panels bought in the U.S. and incorporated into phones sold in the U.S.) were assumed to be within the federal courts’ antitrust jurisdiction. The case addressed by the U.S. Court of Appeals in Chicago considered whether Category II and Category III claims were barred by the Foreign Trade Antitrust Improvements Act (FTAIA), whose complicated provisions are intended to limit the antitrust jurisdiction of U.S. courts. For a U.S. claim to exist, the FTAIA requires, as relevant here, that the price-fixed panels had "a direct, substantial, and reasonably foreseeable effect" on commerce within the U.S.
The court first described as "frivolous" Motorola’s argument that Category III claims (LCD panels bought by and sold to non-U.S. entities) could satisfy the test, and thus dismissed the claims.
For the Category II claims (LCD panels bought outside the U.S. but incorporated into phones sold in the U.S.), the court concluded that the statutory requirement that an effect on U.S. commerce be "direct" could not be satisfied, as the only effect on U.S. commerce would be as a result of alleged price-fixing affecting a component of the product sold in the U.S. and potentially raising the product’s price. The court also found that the independent statutory requirement that the effect on U.S. commerce "give rise to" an antitrust claim could likewise not be satisfied. Under the federal antitrust laws, price-fixing claims can only be brought by direct purchasers of the products in question, which in this case would be the non-U.S. affiliates of Motorola, which were not plaintiffs and whose claim against the non-U.S. defendants could not be heard in U.S. courts. Finally, the court also based its decision on policy, observing that a rule permitting price-fixing claims to be brought based on products sold elsewhere and merely incorporated into products sold in the U.S. would "enormously increase the global reach of the Sherman Act, creating friction with many foreign countries . . . ."
[Editor’s note: If the decision stands, it would effectively eliminate 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 U.S. Such a rule would provide defendants with a powerful defense against many antitrust claims alleging worldwide conspiracies.]