District Court Finds FTAIA Requirements Satisfied for Component Product that has no Use other than as a Component, and whose Cost Constitutes a Substantial Portion of the Cost of Finished Products

The World in U.S. Courts: Winter 2016 - Antitrust/Competition/Foreign Trade Antitrust Improvements Act (FTAIA) | November.15.2016

In re: Cathode Ray Tube (CRT) Antitrust Litigation, US District Court for the Northern District of California, November 15, 2016

The plaintiffs in this multi-district and long-running case allege that the defendant manufacturers fixed the price of cathode ray tubes (CRTs) via meetings conducted worldwide.  CRTs have no commercial use except as components of larger finished products, including old-style tube TVs and computer screens.  The relevant chains of distribution were unusually varied:  CRT and CRT products were (i) manufactured in the US, (ii) imported and sold in the US directly by defendant manufacturers or their subsidiaries and affiliates, and (iii) manufactured outside the US and then imported and sold in the US by third parties. 

The Court began by observing that, except for claims involving US “import commerce,” the FTAIA generally precludes antitrust claims unless the actions complained of caused a “direct, substantial, and reasonably foreseeable effect” on US commerce that gives rise to an antitrust claim.  It described “import commerce” as requiring little more than an assertion that a product was sold from a non-US location to a US buyer in the US.  A particular defendant also could be liable even if it was not itself the seller of the product to a US purchaser; all the Court required was that the defendant have “negotiated to set the price of a good that was imported” into the US.  The Court also found that a plaintiff could bring a claim even if its US purchase was of a finished product incorporating a CRT, “particularly given that CRTs have no use other than as the primary component of a finished product.”

As an alternative to permitting a claim to proceed because it involved US import commerce, the Court found that the plaintiffs’ claims satisfied the FTAIA’s requirement that non-import transactions have a “direct, substantial, and reasonably foreseeable effect” on US commerce.  In so doing, it rejected the defendants’ argument that CRTs and finished products passed through so many hands and levels of distribution that no effect on US commerce could be “direct.”  The Court found that the relative messiness of the chain of distribution should be disregarded in cases, such as the one at bar, where (i) the price-fixed components were themselves sold in the US or were “substantial cost components” of finished products that were so sold, (ii) direct negotiations occurred with US companies, and (iii) the defendants understood that sales to non-US customers were destined for the US.  The Court also concluded that sales through intermediaries would “give rise to” a US antitrust claim, and in so doing specifically declined to follow the influential Motorola Mobility decision by the Court of Appeals in Chicago that found claims would not arise where sales of price-fixed products were made to non-US parties.

The Court emphasized in all of its rulings that it was not issuing findings on the merits but acting in response to the defendants’ motion for summary judgment, which had to be denied if a triable issue of material fact existed.

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