Cartel Capers

A blog about cartels, competition and compliance

100 Blawg Honoree

DOJ Files Brief Opposing Cert in AU Optronics

by

On May 15th, the Department of Justice filed a brief (here) in the United States Supreme Court opposing the AU Optronics defendants’ request for the Court to grant cert. The DOJ argued that the Ninth Circuit decision upholding the conviction of AU Optronics and two of its executives was without error and that the decision was in harmony with the Seventh Circuit decision in Motorola Mobility LLC v. AU Optronics Corp., 775 F.3d 816 (2015), petition for cert. pending, No. 14-1122 (filed Mar. 16, 2015) (Motorola).

Summary of DOJ Brief

AU Optronics raised three points in seeking Supreme Court review. The defendants’ contended their convictions could not be sustained because: (1) the LCD price-fixing conspiracy did not involve U.S. import commerce; (2) the cartel did not directly affect U.S. commerce within the meaning of the FTAIA; and (3) any agreement should have been judged under a rule of reason standard, not the per se rule, because the agreement involved foreign conduct.

Import Commerce–Price-fixed TFT-LCD panels reached the United States as imports shipped from the conspiring manufacturers to purchasing companies in the United States.  There was evidence in the case that AU Optronics directly imported TFT-LCD panels into the United States. AU Optronics disputed that evidence. But the DOJ replied that the evidence was overwhelming that some conspirators directly imported panels into the U.S.  “At trial, the government’s expert economist testified that 2.6 million of the conspirators’ price-fixed raw panels—priced at more than $638 million—were shipped into the United States between 2001 and 2006.”  The DOJ noted that AU Optronics was responsible for the acts of all of its co-conspirators.

But there was no need to consider separately the import sales by individual conspirators, or to parse out the percentage of sales undertaken by petitioners. The Sherman Act applies to “conduct involving * * * import trade or import commerce.” 15 U.S.C. 6a. The term “conduct” refers to activity that might violate the Sherman Act—in this case, a single antitrust conspiracy among AUO and other manufacturers to fix the price of TFT-LCD panels. Accordingly, whether the charged conspiracy involved import commerce turns not on the acts of any particular defendant, but on whether the price-fixing agreement and acts of any conspirator furthering that agreement involved import commerce.

The DOJ also noted uphold AU Optronics condition on the basis of import commerce was consistent with dicta in Motorola: “[h]ad the defendants conspired to sell LCD panels to Motorola in the United States at inflated prices, they would be subject to the Sherman Act because of the exception in the [FTAIA] for importing.”  [Sometimes lost in the discussion of Motorola is that the Seventh Circuit let stand Motorola’s damage action based on LCD screens actually bought by Motorola in the U.S. (i.e., imports outside the scope of the FTAIA.)

FTAIA–Price-fixed panels also were incorporated abroad into finished products—such as notebook computers and desktop monitors—that were later imported into the United States.  The FTAIA provides that conduct involving non-import foreign commerce is subject to the Sherman Act if it has a “direct, substantial, and reasonably foreseeable effect” on U.S. commerce.   The Ninth Circuit found that the FTAIA standard was satisfied. Some of the relevant facts cited by the DOJ and relied on by the Ninth Circuit:

  • “TFT-LCD panels are the single largest cost component of those finished products….”
  • “Witnesses from Dell and HP testified that increased panel prices led to increased prices for monitors and notebook computers sold in import commerce. As one conspirator put it: “[I]f the panel price goes up, then it will directly impact the monitor set price.”
  • “The conspiracy was very successful. The conspirators increased their margins an average of $53 per panel—on an average panel price of $205—through the group Crystal Meetings.
  • “The economist also testified that price-fixed panels, sold for $23.5 billion, entered the United States as components in notebook computers and desktop monitors.’

Again the DOJ brief noted the Ninth Circuit was in accord with the Seventh Circuit, which “assume[d] that the requirement of a direct, substantial, and reasonably foreseeable effect on domestic commerce has been satisfied.”

Application of the Per Se Rule

 The AU Optronics defendants argued that the rule of reason, not per se rule, should apply because of a prior Ninth Circuit case that held that the per se rule did not apply to foreign conduct. Putting aside that there was a great deal of conspiratorial conduct in the United States, the DOJ wrote:

Moreover, the Ninth Circuit here construed its prior decision in Metro Industries, Inc. v. Sammi Corp., 82 F.3d 839, cert. denied, 519 U.S. 868 (1996), in a manner contrary to petitioners’ reading, making clear that Metro Industries “was not a price-fixing case” and that the rule-of-reason analysis it applied does not extend to “a horizontal price-fixing scheme * * * where both part of the conduct and the effects of that conduct occurred in the United States.

AU Optronics Consistent with Motorola

The AU Optronics defendants (and others) have tried to paint the Ninth Circuit and Seventh Circuit as being in conflict with each other because in AU Optronics the defendants were convicted of fixing the price of LCD panels but in Motorola, certain civil damage claims against the LCD defendants were dismissed.  But, any conflict between the Ninth and Seventh Circuit is superficial. The DOJ brief explained the difference between a government enforcement action (AU Optronics) and a private damage action (Motorola).

The Motorola court’s analysis casts no doubt on the validity of petitioners’ criminal convictions. Unlike a private antitrust suit, which arises only when the private plaintiff is “injured in his business or property by reason of” the Sherman Act violation, 15 U.S.C. 15, government enforcement actions—whether a criminal prosecution or “proceedings in equity to prevent and restrain [Sherman Act] violations,” 15 U.S.C. 4—do not require any private injury. Instead, the government sues in its sovereign capacity to redress a violation of its laws. See Empagran, 542 U.S. at 170. The enforcement provision that can be invoked by the United States even when no plaintiff has suffered an injury.”), cert. dismissed, 539 U.S. 978 (2003), abrogated on other grounds, 542 U.S. 155 (2004). As the Motorola court itself explained, “[i]f price-fixing by the component manufacturers had the requisite statutory effect on cellphone prices in the United States, the Act would not block the Department of Justice from seeking criminal or injunctive remedies.

Comments

I’ve written earlier (here) that I did not think the Supreme Court would grant cert. in AU Optronics (or Motorola).   The LCD “cartel ended when the FBI raided AU Optronics America office in Houston, Texas.” This does not sound like a good fact from which to launch an argument that the cartel was outside the scope of the Sherman Act.

There will, however, be future, more difficult cases for the courts, and eventually the Supreme Court, to consider.   Both AU Optronics and Motorola recognize that, depending on the facts, fixing the price of goods sold abroad but used as components in products bound for the United States can have a “direct, substantial and reasonably foreseeable” effect on U.S. commerce within the meaning of FTAIA.  But, those facts will not always be as simple as here where the LCD screens represented the largest component cost of finished product. And, $23.5 billion in component commerce passes any test of “substantial.” Also, the supply chain here was reasonably “direct.” A price fixed LCD screen went into the component that was then shipped into the finished product.

But, what if the price-fixed product was a raw material used to make the screen?  And sold by a manufacture to distributors?  Then, fabricators chemically treated the raw material and other fabricators added some other value enhancing process[es] before the raw material became a TFT-LCD screen?  A myriad of fact patterns will test the courts ability to set the contours of what constitutes a “direct, substantial and reasonably foreseeable” effect on US commerce.  In these “closer calls” the view of government enforcement agencies and private plaintiffs will sometimes (often?) diverge. International comity plays a role in defining the reach of the Sherman Act. As I have written about before (here) and (here), (and cited by Judge Posner in Motorola), enforcement agencies have “skin in the game” of respecting international comity and developing cooperation with foreign competition enforcement agencies. Private plaintiffs, on the other hand, are charged with advocating for the interest of their clients who may have a claim under the Sherman Act for price-fixing.   Foreign governments who have filed amicus briefs asking courts to respect foreign comity interests in deciding the extraterritorial scope of the Sherman Act are principally concerned with having  foreign companies hauled into U.S. courts and be subjected to the U.S. treble damage class action regime. This is going to a continuing area of judicial development.  Eventually the reach of the Sherman Act in component price-fixing cases will have to be addressed by the Supreme Court. I just don’t believe that either AU Optronics or Motorola will be that case.

Thanks for reading.