On March 16, 2015, AU Optronics Corporation America Inc. (AU Optronics) and Motorola Mobility LLC separately asked the U.S. Supreme Court to clarify the Foreign Trade Antitrust Improvements Act (FTAIA) and the extent to which its language allows foreign conduct to be brought within the scope of the Sherman Act. The requests for review follow from potentially conflicting holdings from the Seventh and Ninth Circuits in cases that stem from distinct interpretations of the same provisions in the FTAIA and involve the very same conduct – AU Optronics’ and its co-conspirators’ agreement overseas to fix the prices of liquid crystal display (LCD) panels. The cases have different procedural foundations in that the Ninth Circuit case is a criminal suit brought by the Department of Justice (DOJ), while the Seventh Circuit case is a civil matter in which private parties are seeking damages.
In Hsiung,[i] AU Optronics appeals the Ninth Circuit’s holding that the Sherman Act via the FTAIA can support criminal charges against foreign cartel conduct. In that case, the court had affirmed AU Optronics’ conviction in July 2014 and rendered an amended opinion on January 30, 2015. Meanwhile, Motorola Mobility appeals the Seventh Circuit’s finding in Motorola Mobility[ii] that a civil price-fixing claim against the same cartel could not be supported under the same provisions of the FTAIA. The Seventh Circuit decided the case on November 26, 2014 (after vacating a previous opinion from March 2014) and later amended its opinion on January 12, 2015. The companies believe that these interpretations of the FTAIA are conflicting and, therefore, ripe for Supreme Court review.
The FTAIA was adopted to clarify the enforcement scope of U.S. federal antitrust laws as applied to anticompetitive conduct that occurs abroad. Since its enactment, however, lower courts have interpreted the FTAIA differently, which has led to conflicting decisions and legal uncertainty. Under the FTAIA, all foreign conduct is placed outside the scope of the Sherman Act, unless (1) the alleged conduct involves import commerce (import commerce exemption) or (2) it has a “direct, substantial, and reasonably foreseeable effect” on U.S. commerce and the criminal charge or civil claim “arises from” that effect (domestic effects exception).
The circuit courts interpreted certain language in these provisions differently, specifically “import commerce” and “direct effect,” and when such effect “gives rise to a Sherman Act claim.” In Hsiung, the Ninth Circuit considered import commerce to be any conduct affecting an import market, which means that it need not be shown that a foreign defendant directly imported goods himself into the U.S. As to the domestic effects exception, the Ninth Circuit further explained that foreign conduct has a direct effect on U.S. commerce where the conduct “follows as an immediate consequence of the defendant[s’] activity.” According to the court, AU Optronics’ conduct had a direct effect on U.S. commerce that gave rise to a Sherman Act claim because the price-fixed goods manufactured abroad were a significant component of finished products that were eventually sold in the U.S. The Ninth Circuit emphasized that the “testimony underscored the integrated, close and direct connection between the purchase of the price-fixed panels, the United States as the destination for the products, and the ultimate inflation of prices in finished products imported to the United States.” These findings allowed the Ninth Circuit to conclude that there was sufficient evidence to affirm AU Optronics’ prosecution under either the import commerce exemption or the domestic effects exception.
In Motorola Mobility, however, the Seventh Circuit limited “import commerce” to direct transactions between foreign sellers and domestic buyers – that is, sales when a foreign defendant directly sells goods into the U.S. market. The Seventh Circuit concluded that it was wrong to consider ~99 percent of AU Optronics’ sales to Motorola Mobility as import commerce because those sales were made to a foreign Motorola Mobility subsidiary located outside the U.S., and the products were delivered outside the U.S. Only after the sale to Motorola Mobility’s foreign subsidiary did Motorola Mobility then import those products into the U.S. Thus, the Seventh Circuit found insufficient evidence to support Motorola Mobility’s claims under the FTAIA’s import commerce exemption.
The Seventh Circuit then addressed Motorola Mobility’s claims under the domestic effects exception. It concluded that even though it could be assumed that the conduct had a direct, substantial, and reasonably foreseeable effect on domestic commerce, the conduct did not “give rise” to a Sherman Act claim, because the anticompetitive harm occurred in foreign commerce and affected Motorola Mobility’s foreign subsidiaries. The Seventh Circuit’s opinion differentiates between private claims and public enforcement and, thus, leaves room for the Supreme Court to conclude that its decision is not in direct conflict with the Ninth Circuit’s opinion in Hsiung. Indeed, the Seventh Circuit concluded that if conduct has a direct, substantial, and reasonably foreseeable effect on domestic U.S. commerce, then the DOJ should be able to seek criminal penalties and injunctive remedies, even in situations where private parties are barred from action. The Seventh Circuit precisely made reference to the case before the Ninth Circuit by mentioning that the DOJ had successfully prosecuted AU Optronics for its price-fixing conduct.
Given the impact of these cases on the global supply chain and our multi-national economy, as well as other jurisdictions’ antitrust enforcement regimes, it will be interesting to see whether the Supreme Court will take up one or both of these cases. Should the Supreme Court decide to do so, amici from foreign antitrust enforcers should be expected (several amici were filed in the proceedings before the Ninth and Seventh Circuits). It is more likely that amici addressing the Seventh Circuit appeal would express concern over the extraterritorial application of U.S. antitrust law in the sphere of private enforcement, rather than public enforcement. In the European Union (EU), for example, EU law may apply to foreign conduct where the conduct at stake is either implemented within the EU or has an immediate, foreseeable, and substantial effect in the EU. In its LCD decision, the European Commission precisely considered that the conduct did have immediate effect in the EU because the cartel directly influenced the setting of prices for LCD panels delivered either directly in the EU or through transformed products to European customers. Foreign antitrust enforcers, notably in the EU, could, however, argue against the possibility for private claimants to rely on the Sherman Act for foreign conduct, as this could notably have an impact on potential leniency applicants’ decision to come forward and reveal cartel conduct to European competition authorities.
[i] United States v. Hsiung, No. 12-10492, slip op. (9th Cir. Jan. 30, 2015).
[ii] Motorola Mobility, LLC v. AU Optronics, No. 14-8003, slip op. (7th Cir., Nov. 26, 2014).