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From Antitrust Law Daily, March 28, 2014

Dismissal of Sherman Act claims for purchases made by foreign affiliates of domestic company upheld

By Linda O’Brien, J.D., LL.M.

The U.S. Court of Appeals in Chicago has affirmed the dismissal of antitrust claims brought by a domestic telecommunications equipment company against foreign manufacturers of liquid-crystal display panels used in mobile devices in relation to the purchases of the panels made by its foreign subsidiaries, the U.S. Court of Appeals in Chicago has decided (Motorola Mobility LLC v. Au Optronics Corp., March 27, 2014, Posner, R.).

Telecommunications equipment company Motorola Mobility and its foreign subsidiaries buy liquid-crystal display (LCD) panels and incorporate them into mobile devices manufactured either by Motorola or the subsidiaries. Motorola filed suit against several foreign manufacturers of the LCD panels, alleging that the manufacturers engaged in a conspiracy to raise the prices of the LCD panels, in violation of Section 1 of the Sherman Act. Of the LCD panels purchased for use in its mobile devices 42 percent were bought by the subsidiaries and incorporated into mobile devices sold in the United States; 57 percent were bought by the subsidiaries and incorporated into mobile devices sold abroad; and one percent were bought by and delivered to Motorola. The federal district court in Chicago granted the defendants’ motion for partial summary judgment, ruling that the Sherman Act did not apply to the purchases made the foreign subsidiaries. Motorola appealed.

The Foreign Trade Antitrust Improvements Act (FTAIA) provides that the Sherman Act does not apply to conduct involving trade or commerce with foreign nations unless the conduct has a direct, substantial, and reasonably foreseeable effect on domestic trade or commerce. According to the appellate court, the claims regarding the 57 percent of panels bought by the subsidiaries and incorporated into mobile devices sold abroad were clearly barred by the FTAIA. To establish a Sherman Act claim regarding the 42 percent of panels bought by the subsidiaries and incorporated into mobile devices sold in the United States, Motorola must show that the alleged price-fixing had a direct, substantial, and reasonably foreseeable effect on commerce within the United States.

The appellate court found that Motorola was unable to establish a direct effect on domestic commerce. The alleged price-fixing panel manufacturers did not sell the panels in the United States. The panels were sold to the foreign subsidiaries that incorporated them into products to be sold in the United States. As a result, the effect of the component price fixing on the price of the product was indirect. Motorola determined what price to charge U.S. consumers for the mobile devices containing the alleged price-fixed component. Its antitrust claims were not based on the illegality of the prices it charged, but rather on the effect of the alleged price-fixing on its foreign subsidiaries.

Additionally, U.S. antitrust laws cannot be used to address injury to foreign customers. The subsidiaries are foreign customers that are subject to the laws of the countries in which they operate. If Motorola’s subsidiaries have been injured by antitrust violations, they must seek remedies in the countries in which they do business. Noting the practical stakes in an expansive interpretation of the “effect” requirement for a Sherman Act claim, the court observed that it has become more common for products imported into the United States to include components bought from foreign manufacturers. The FTAIA was intended to prevent unreasonable interference with the sovereign authority with other nations. To adopt a position which would enormously increase the global reach of the Sherman Act would 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,” the court concluded.

The case is No. 14-8003.

Attorneys: Jerome A. Murphy (Crowell & Moring LLP) for Motorola Mobility LLC. Carl L. Blumenstein (Nossaman LLP) for Au Optronics Corp. Terence H. Campbell (Cotsirilos, Tighe & Streicker, Poulos & Campbell) for Chunghwa Picture Tubes Ltd. Jason M. Bussey (Simpson Thacher & Bartlett LLP) for Hannstar Display Corp. Nathan P. Eimer (Eimer Stahl LLP) for LG Display Co., Ltd. Robert D. Wick (Covington & Burling LLP) for Samsung Electronics Co., Ltd. James A. Morsch (Butler, Rubin, Saltarelli & Boyd) for Sharp Electronics Corp. Daniel Cummings (Rothschild, Barry & Myers) for Toshiba Corp.

Companies: Motorola Mobility LLC; Au Optronics Corp.; Chunghwa Picture Tubes Ltd.; Hannstar Display Corp.; LG Display Co., Ltd.; Samsung Electronics Co., Ltd.; Sharp Electronics Corp.; Toshiba Corp.

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