Two FTAIA related certiorari petitions have been filed recently; one by AU Optronics and two of its convicted executives, and the other by Motorola Mobility. I have no specific expertise in Supreme Court prognostication, but since I’ve seen experts opine “Who knows?” I’ll hazard my opinion that certiorari will not be granted.
The AU Optronics cert petition is challenging corporate and individual criminal convictions for participation in the Liquid Crystal Display panels (“TFT-LCD”) international cartel. Motorola Mobility is appealing the dismissal of its damage suit based on its foreign subsidiaries’ overseas purchase of LCD panels from AU Optronics. Both cert petitions were filed on the same day (coincidence or collusion?) to highlight the alleged contradiction: In the AU Optronics Ninth Circuit case, (778 F. 3d 738 (Jan. 30, 2015), the FTAIA was found not to bar AU Optronics criminal conviction, but in the Motorola Mobility Seventh Circuit case (775 F. 3d 816 (Jan. 12, 2015) the FTAIA was found to bar Motorola Mobility’s attempt to obtain damages from the same cartel. I don’t see either case as being wrongly decided or at odds with each other. Therefore, I’ll boldly predict that certiorari will not be granted.
No Conflict Between AU Optronics and Motorola Mobility
Any conflict between the holding in AU Optronics and Motorola Mobility is superficial and evaporates upon examination of the relevant facts of each case. Judge Posner emphasized in Motorola Mobility that the FTAIA has two requirements: “There must be a direct, substantial, and reasonably foreseeable effect on U.S. domestic commerce—the domestic American economy, in other words—and the effect must give rise to a federal antitrust claim. The first requirement, if proved, establishes that there is an antitrust violation; the second determines who may bring a suit based on it.” In AU Optronics, the Ninth Circuit found that the LCD cartel had a direct substantial and reasonably foreseeable effect on U.S. commerce. In Motorola Mobility the Seventh Circuit “assume[d] that the requirement of a direct, substantial and reasonably foreseeable effect on domestic commerce has been satisfied” but found that Motorola Mobility claim did not “arise from” this conduct. There is no inherent contradiction in finding that a foreign cartel is prosecutable by the Antitrust Division because the cartel had a “direct, substantial and reasonably foreseeable effect” on domestic commerce, but also find that a particular plaintiff’s quest for damages may be barred by the FTAIA if its claim “did not arise from this conduct….”
Neither Case Presents FTAIA Error For the Supreme Court to Review
Both the Motorola Mobility and AU Optronics cert petitions raised other issues besides the application of the FTAIA. Motorola Mobility, for example, urged the Supreme Court to review the procedure in the Seventh Circuit for assigning appellate cases. And, in AU Optronics, the defendants alleged error regarding, among other things, venue and application of the per se rule. Perhaps one of these issues will grab the Supreme Court’s attention, but I doubt it. I also don’t think there is any substantial FTAIA related issue for the Supreme Court to address.
One reason AU Optronics is not ripe for Supreme Court review is that the defendants’ convictions can stand on other grounds; namely that substantial price fixed LCD panels were shipped directly into the United States. The FTAIA has no application to this commerce. The LCD “cartel ended when the FBI raided AU Optronics America office in Houston, Texas.” This is a pretty big hole to start digging out of when arguing that the cartel is not subject to prosecution under the Sherman Act. Trial testimony established that AU Optronics imported over one million price-fixed panels per month into the United States. The Crystal Meeting participants earned over $600 million from the importation of TFT-LCDs into the United States. The Ninth Circuit wrote: “In light of the substantial volume of goods sold to customers in the United States, the verdict may be sustained as import commerce falling within the Sherman Act.”
As to the commerce to which the FTAIA applied, the Court noted: “the parties acknowledge that the conduct was both substantial and had a reasonably foreseeable impact on United States commerce.” The defendants, however, contend that the overseas conduct was not sufficiently “direct” under the FTAIA. But, the Court found 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. The direct connection was neither speculative nor insulated by multiple disconnected layers of transactions.”
The conspirators held Crystal meetings to fix the price of LCD screens, some of which were shipped directly into the United States and some of which would first be assembled into a product and then shipped into the United States. The evidence showed the price-fixing had a direct effect on U.S. commerce either way; especially since the screens represented a large part of the cost of the finished product. This seems pretty clearly the type of cartel directed at US commerce that Congress meant for FTAIA to include under the Sherman Act.
[Note:It is true that the Ninth Circuit applied a different definition of direct than that adopted in the Second and Seventh Circuit, but the AU Optronics defendants could be convicted under either definition. This is why the Ninth Circuit did not review its definition of direct and in all likelihood, neither will the Supreme Court.]
Motorola Mobility has a very limited, and I believe correct holding; simply that as a plaintiff, Motorola Mobility did not meet the second FTAIA requirement “that the conduct gave rise to Motorola’s Mobility’s claim. [Full disclosure: This blog and an article I wrote were cited by Judge Posner in the Motorola Mobility opinion.] As noted, the Seventh Circuit assumed that the cartel had a direct, substantial and reasonably forseeable effect on US commerce. The key fact in the case was this:
“Motorola says that it “purchased over $5 billion worth of LCD panels from cartel members [i.e., the defendants] for use in its mobile devices.” That’s a critical misstatement. All but 1 percent of the purchases were made by Motorola’s foreign subsidiaries.” [Motorola Mobility can still seek damages for the one percent of purchases that were direct imports].
Motorola Mobility made a conscious decision to make purchases through a foreign subsidiary and many benefits, including tax, flowed from being subject to the jurisdiction of a foreign country. But, when the opportunity to seek damages from a cartel presented itself, Motorola Mobility, quite understandably, preferred to bring the defendant into the treble damage regime in the United States. It was this kind of forum shopping [seeking damages suffered by an overseas subsidiary], that the Seventh Circuit found was barred by the FTAIA.
The Seventh Circuit was concerned with Motorola Mobility’s perceived forum shopping, as were the numerous countries that filed amicus briefs asking the Seventh Circuit to respect their sovereignty. Motorola Mobility quoted the Supreme Court, which has warned that rampant extraterritorial application of U.S. law “creates a serious risk of interference with a foreign nation’s ability independently to regulate its own commercial affairs.” (citing, F. Hoffmann‐La Roche Ltd. v. Empagran S.A.). Judge Posner wrote:
“The position for which Motorola contends would if adopted enormously increase the global reach of the Sherman Act, creating friction with many foreign countries and ‘resent[ment at] the apparent effort of the United States to act as the worlds competition police officer’ a primary concern motivating the foreign trade act.”
There is another factor in the case that, while not legally dispositive, tends to make Motorola Mobility an unsympathetic plaintiff. Judge Posner noted this fact during oral argument and wrote in the opinion: “According to Motorola’s damages expert, B. Douglas Bernheim, the company raised the price of its cellphones in the Unites States by more than the increased price charged to it by its foreign subsidiaries.” Perhaps legally it did not matter if Motorola Mobility may have profited from the cartel, but this fact along with the perceived forum shopping, did not help its chances.
For the above reasons, I don’t think the Supreme Court will grant certiorari in either AU Optronics or Motorola Mobility.
The Interesting Case of Indirect Purchasers
Eventually the Supreme Court will wade into to [hopefully] bring some clarity to the application of the FTAIA. I have been wondering if this may occur in a case involving indirect purchasers. There could be litigation where there is no question that a foreign cartel had a “direct, substantial and reasonably foreseeable effect” on US commerce. But suppose the plaintiffs are indirect purchasers? Illinois Brick would not bar the suit, but would it run afoul of the “give rise to” requirement of the FTAIA. The comity concerns of foreign governments will still be present and this federal interest should supersede state Illinois Brick repealer statutes. There is an excellent article on this issue by Dylan Ballard, Sheppard Mullin, “When Illinois Brick Goes Abroad.” (subscription required). On the other hand, indirect purchasers, the consumers who actually may have paid inflated prices for the price fixed product, are not forum shopping. They have no other forum in which to seek redress. An indirect purchasers case may present an interesting flash of policy issues.
However things turn out in AU Optronics, Motorola Mobility or some future case, it seems the FTAIA will continue to provide interesting topics to write about and occasionally even make some predictions.
Thanks for reading.