Manufacturers of optical disk drives defeated electronics companies’, retailers’ and indirect purchaser plaintiffs’ conspiracy claims after seven years of litigation. On December 18, 2017, the US District Court for the Northern District of California issued simultaneous orders that granted summary judgment in favor of defendants after finding that the electronics companies, retailers and indirect purchasers failed to demonstrate evidence of injury and causation.
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 [...]
On August 26, 2014, the Eastern District of Michigan denied a motion by a Japanese manufacturer and its U.S.-based subsidiary (NTN Corporation and NTN USA Corporation) to dismiss the direct and indirect purchaser complaints in In re Bearings, 2:12-cv-00500-MOB-MKM (E.D. Mich. Aug. 26, 2014), one of the cases in the In re Automotive Parts Antitrust Litigation MDL, No. 12-md-02311. Following an investigation by the Japan Fair Trade Commission in 2013, NTN admitted to participating in a conspiracy to fix prices for bearings, which the complaints describe as “friction-reducing devices that allow one moving part to glide past another moving part.”
According to NTN, the plaintiffs were trying to use NTN’s participation in a price-fixing conspiracy in Japan to “link NTN to a different conspiracy in the United States” simply because NTN had “knowledge that some of its bearings sold in foreign markets would enter the United States market.” This “theory of global United States antitrust jurisdiction,” NTN contended, is prohibited by the Foreign Trade Antitrust Improvements Act (FTAIA).
The court was unpersuaded. The plaintiffs’ allegations depicting foreign investigations were not merely attempts to recover for conduct that occurred in other countries; rather, the existence of foreign investigations and guilty pleas was what “render[ed] Plaintiffs’ claims of a conspiracy directed at the United States plausible.” According to the court, the FTAIA arguments did not apply to NTN USA, which was alleged to have manufactured and sold bearings in the United States. And “[w]ith respect to NTN, Plaintiffs allege[d] that NTN USA manufactured and sold price-fixed bearings directly into the United States market at the direction of NTN.” The court concluded that “[t]he conduct at issue in this case is not the type of conduct Congress sought to exclude from the Sherman Act’s reach.”
On July 24, 2014, the district court in Animal Sci. Prod., Inc. et al. v. China Nat’l Metals & Minerals Imp. and Exp. Corp. et al., Case No. 2:05-cv-04376 (D.N.J.), dismissed direct purchaser plaintiff’s Amended Complaint without prejudice in favor of magnesite producers accused of engaging in a price fixing scheme for magnesite and magnesite products sold in the United States. The court found that the direct purchaser plaintiff, Resco, did not plausibly plead facts to establish antitrust standing as a direct purchaser. The analysis was complicated by the fact that Resco inherited its claim from an assignor, Possehl (US), and the Amended Complaint contained no facts supporting the allegation that Possehl made direct purchases from the defendants. The court recommended amending the complaint to identify specific transactions and the governing agreements for those purchases.
The dismissal is another setback for the plaintiffs, who filed suit in 2005 against 17 foreign companies, 16 of which are located in China. None of the Chinese defendants responded to the complaint and in 2007, and plaintiffs filed a motion for a default judgment. Seven of the companies responded in 2008 with a motion to compel arbitration. However, before any of the motions were resolved, the case was administratively closed while the Third Circuit determined the appropriate standard for analyzing whether the district court had jurisdiction to hear the case under the Foreign Trade Antitrust Improvements Act. The case was reopened in April 2012 and the district court asked for briefing on antitrust standing issues, which resulted in the dismissal of the Amended Complaint.
FTAIA and Foreign Sales: Seventh Circuit Limits Extraterritorial Reach of U.S. Antitrust Law in Motorola Mobility v. AU Optronics
On March 27, 2014, in Motorola Mobility LLC v. AU Optronics Corp., the Seventh Circuit set precedent in the growing body of law interpreting the Foreign Trade Antitrust Improvements Act (FTAIA). Judge Posner held that the FTAIA bars antitrust suits over restraints in foreign markets for parts (inputs) used abroad to manufacture products later imported into the United States. The court held that such price fixing fails the FTAIA’s “direct effects” test, as well as the FTAIA requirement that the effect of the defendant’s conduct “gives rise to” an antitrust claim in the United States.
On September 3, 2013, a California federal jury unanimously found HannStar Display Corp. liable for conspiring to fix prices on liquid crystal display (LCD) panels. However, the jury found co-defendant Toshiba Corporation not liable. The jury awarded plaintiff Best Buy Company $7.47 million in direct damages. The case is In re: TFT-LCD (Flat Panel) Antitrust Litigation (3:07-md-01827) located in the U.S. District Court for the Northern District of California.
Best Buy accused Toshiba and HannStar of conspiring with other firms to fix prices for LCD panels. Prior to and during trial, HannStar admitted participating in meetings where major electronics makers agreed to fix panel prices. The lawsuit stemmed from an investigation by the U.S. Department of Justice which resulted in guilty plea agreements for HannStar and other Japanese, Taiwanese and Korean firms, not including Toshiba.
Plaintiff’s experts argued that the defendants owed Best Buy up to $770 million. Defense experts calculated damages significantly lower and the jury agreed with those estimates. However, even though the jury awarded damages, Best Buy may not be able to collect based on the jury’s decision that HannStar’s conduct did not have a direct, substantial and reasonably foreseeable effect on trade or commerce in the United States as required by the Foreign Trade Antitrust Improvements Act.
On December 2, 2011, the Seventh Circuit Court of Appeals granted plaintiffs’ petition for rehearing en banc and vacated the opinion issued by a Seventh Circuit panel in Minn-Chem, Inc. v. Agrium Inc., No. 10-1712. The Seventh Circuit panel had issued an order on September 23, 2011, directing the district court to dismiss a class-action price-fixing complaint against global producers of potash, a mineral used primarily in agricultural fertilizer.
The plaintiffs alleged a global price-fixing cartel among Canadian, Russian and Belarusian producers of potash, alleging that they fixed potash prices in Brazil, China and India, and the inflated prices in these overseas markets in turn influenced the price of potash sold in the United States. The defendants moved to dismiss the complaint under Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure, arguing first that the district court lacked subject-matter jurisdiction under the Foreign Trade Antitrust Improvements Act (FTAIA), 15 U.S.C. § 6a, and alternatively, that the complaint did not satisfy the pleading requirements of Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009). The district court denied the motion to dismiss and the defendants appealed.
On September 23, 2011, the Seventh Circuit panel reversed the district court and remanded with instruction that the district court dismiss the complaint. The Seventh Circuit panel held that the complaint failed to satisfy either of the import-related exceptions to the FTAIA. According to the panel, defendants’ anticompetitive conduct did not “involve” U.S. imports and did not “directly affect” the price of U.S. imports. The panel used the “plausibility” standard of Twombly and Iqbal to determine whether plaintiffs had adequately pled that the anticompetitive conduct fell within one of the FTAIA’s exceptions. However, the Seventh Circuit panel did not reach the question of broader sufficiency of the complaint under Twombly and Iqbal.
Plaintiffs then filed the current petition for rehearing en banc. In their petition, plaintiffs argued that the panel’s opinion conflicted with the Seventh Circuit’s decision in In re Text Messaging Antitrust Litigation, 630 F.3d 622 (7th Cir. 2010). Plaintiffs also argued that the panel misinterpreted the import-commerce exception in determining whether plaintiffs alleged sufficient anticompetitive conduct that “involved” U.S. import commerce. According to plaintiffs, the panel’s decision regarding the import-commerce exception conflicted with the Third Circuit’s decision in Animal Sci. Prods., Inc. v. China Minmetals Corp., No. 10-2288, 2011 WL 3606995 (3d Cir. Aug. 17, 2011).