Overview
On June 15, the Supreme Court denied petitions for review of conflicting decisions from the Seventh and Ninth Circuit Courts of Appeals regarding the scope of the Foreign Trade Antitrust Improvements Act (“FTAIA”).1 In doing so, the Court passed up the opportunity to resolve an important question regarding the scope of the extraterritorial reach of the US antitrust laws: does US antitrust jurisdiction extend to anticompetitive conduct – such as a price-fixing conspiracy – that affects the price of components bought and sold overseas which are then incorporated into products imported into the US? The answer to this question should be important to many companies, particularly foreign suppliers whose products might reach the US shores only after being sold (and perhaps resold) overseas.
Background on the FTAIA
Although Congress passed the FTAIA in part to clarify the extraterritorial scope of the US antitrust laws, its confusing structure and wording continue to confound lawyers, their clients, and the courts even 35 years after its enactment. The statute excludes from the scope of the US antitrust laws all foreign conduct, unless that conduct constitutes “import” commerce, or has a “direct, substantial and reasonably foreseeable” effect on US commerce that gives rise to the plaintiff’s claims. However, among the many questions raised by the statute’s language are what constitutes “import” commerce, and what constitutes a “direct” effect on US commerce.
The answers to these questions relate directly to whether price-fixed parts and components incorporated into other products and then imported into the US can give rise to US antitrust claims.
Seventh and Ninth Circuit Court of Appeals Split
The Supreme Court received petitions asking for clarification of two decisions – one from the US Court of Appeals for the Seventh Circuit and one from the US Court of Appeals for the Ninth Circuit – regarding the FTAIA’s reach.
In the Seventh Circuit petition, Motorola Mobility asked the Court to reconsider the Seventh Circuit’s dismissal of its claims against AU Optronics Corp for AU Optronics' part in a conspiracy to fix the prices of LCD panels.2 Motorola claimed that AU Optronics was engaged in a conspiracy to fix prices on more than $5 billion of LCD panels it sold to Motorola and Motorola’s foreign subsidiaries. AU Optronics argued that it was not liable under US law because the commerce in question was foreign conduct that did not fall within the FTAIA exceptions. AU Optronics pointed to the fact that 99% of the LCD panels purchased by Motorola were bought by, paid for, and delivered to Motorola’s foreign subsidiaries, with the remainder purchased by and delivered to Motorola in the United States. Furthermore, less than half of the foreign-purchased LCD panels were incorporated into electronic devices that were sold in the United States.
The Seventh Circuit ultimately held that Motorola could not recover damages because Motorola’s foreign subsidiaries bought the price-fixed panels overseas, incorporated them into cell phones overseas, then shipped them to Motorola in the US. Accordingly, the panels did not reach the United States directly and were imported into the United States by Motorola itself after buying them overseas. Motorola’s claim also failed the “directness” prong of the FTAIA test because the injury to Motorola arose from harm to foreign, not US, commerce.
In a separate case arising out of the same conspiracy, the Ninth Circuit provided a more expansive interpretation of the FTAIA exceptions.3 The Ninth Circuit decision stemmed from a criminal indictment of AU Optronics, its US subsidiary, and nine executives for fixing the prices of LCD panels. In 2012, after an eight-week trial, AU Optronics, its US subsidiary, and two executives were found guilty. The convicted defendants appealed, arguing that their conduct did not meet the FTAIA exception because their price-fixing did not have a “direct” effect on the United States. Like in Motorola Mobility, the defendants argued that because the manufacturers purchased and integrated the LCD panels outside the United States, there was no direct effect on US commerce.
The Ninth Circuit upheld the convictions and found that the defendants’ conduct had a direct impact on the US commerce. The court also found that the conduct constituted import trade because the price-fixing scheme ultimately impacted the price of devices sold in the United States.
Impact of Supreme Court’s Inaction
The appellants in both cases, as well as many observers, argued that the time was ripe for the Supreme Court to resolve the differences between the Seventh Circuit’s and Ninth Circuit’s interpretation of the FTAIA exceptions. The Supreme Court thought otherwise.
The Supreme Court does not explain why it decides not to take a case. It is possible that it denied the petitions here because it did not see the decisions of the Seventh and Ninth Circuit’s as being in direct conflict, in part because the Ninth Circuit case was criminal and the Seventh Circuit case was civil. Unlike the government, the FTAIA requires private plaintiffs to prove not only that the alleged conduct had a “direct, substantial and reasonably foreseeable” effect on US commerce, but that its injuries arose from the harm to US, not foreign commerce. Motorola could not carry that burden because its foreign subsidiaries made 99% of the purchases at issue.
Whatever the reason, in a global economy in which parts and components are frequently sold outside the US and imported into the US only after they have been incorporated into the end-products, foreign parts and component suppliers among others must continue to wonder whether their conduct outside the US might be subjected to US antitrust claims. As other cartel cases wind through the United States court system, it is likely that the Supreme Court will eventually have to resolve this and other ambiguities in the FTAIA. However, for now, foreign corporations must continue to be wary of the broad reach of the US antitrust laws, and should assume that even when they sell goods overseas, they still might find themselves subject to a claim that their conduct harmed US commerce, and be forced to defend US antitrust claims.
[1] 15 U.S.C. § 6a.
[2] Motorola Mobility LLC v. AU Optronics et al., 746 F.3d 842 (7th Cir. 2014), amended by, 775 F.3d 816 (7th Cir. 2015).
[3] United States v. Hsiung, 758 F.3d 1074 (9th Cir. 2014), amended by, 778 F.3d 738 (9th Cir. 2015).
