In response to petitions presented to the United States Supreme Court for review of two rulings by the Ninth and Seventh Circuit Courts of Appeals, the United States Supreme Court denied cert earlier this week regarding the issue of the reach of the United States antitrust laws as to foreign transactions for goods intended for import to the United States. This despite the fact that appellate courts had arrived at seemingly opposite conclusions regarding the reach of the law with “precisely the same foreign price-fixing agreement.” At issue in this matter was the extent to which the United States Antitrust Laws could be used to reach conduct that originates outside of the country.
Section 1 of the Sherman Act prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nationals.” In 1982, Congress enacted the Foreign Trade Antitrust Improvements Act (“FTAIA”) to place some restriction on the reach of Section 1 of the Sherman Act. Under FTAIA, Section 1 does not apply to conduct involving trade or commerce (other than import trade or commerce) with foreign nations unless that conduct has “a direct, substantial, and reasonably foreseeable effect -- (A) … on import trade or import commerce with foreign nations; … and (2) such effect “gives rise to” a claim under the provisions” of Section 1. The result of this rather wordy and somewhat convoluted statute is that (1) Section 1 of the Sherman Act applies to import trade or import commerce with foreign nations and (2) FTAIA, after exempting from Section 1 conduct related to non-import trade or commerce, nevertheless brings such conduct back into coverage provided that the conduct meets the requirement of having a “direct, substantial, and reasonably foreseeable effect” on domestic trade or commerce and gives rise to the claim. FTAIA, however, does not define when the conduct is sufficiently “direct” under this domestic effects exception, leaving this open to judicial interpretation, and potentially, to conflicting outcomes.
This was the situation, at least the petitioners contended it was, resulting from two appellate cases that originated from the same foreign price-fixing agreement involving thin-film transistor, liquid-crystal display panels (“TFT-LCD panels”). In United States v. Hsiung, et al., the Department of Justice brought a criminal complaint against individuals and corporate defendants including AU Optronics, for violations of Section 1 related to alleged price fixing for the TFT-LCD panels. In the indictment, and at trial, the government alleged and proved that the defendants entered into a price-fixing agreement outside the United States but then shipped the TFT-LCD panels directly into the United States and incorporated the panels into finished consumer goods outside the United States which were then sold and delivered in the United States. According to the Ninth Circuit, the direct importing of the panels was exempt under FTAIA and established Section 1 liability. And as to the panels incorporated into finished goods (computers, cell phones), the domestic effects exemption, which stood as a separate basis for Section 1 liability, applied as the conduct was not too attenuated as to be direct and reasonably foreseeable.
The Seventh Circuit Court of Appeals, in reviewing a private antitrust action on the identical price-fixing agreement in Motorola Mobility LLC v. AU Optronics, et al., dismissed the claim brought by Motorola, finding in an amended opinion that Motorola had not bought the panels at issue -- rather, its foreign subsidiaries had -- and therefore, Motorola was at best a “derivative victim” and the commerce, reflecting a purchase by the foreign subsidiary from a foreign seller, was “foreign commerce” not subject to the Sherman Act. The Seventh Circuit also found that Motorola’s claim ran directly into the indirect-purchaser doctrine set by Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) and its failure to show antitrust injury. For the Seventh Circuit, Motorola’s argument – that it could claim damages based on the panels being shipped into the United States as part of finished goods – fundamentally failed because Motorola, not the subsidiaries, shipped the finished goods into the United States. Motorola had set up the corporate structure of its subsidiaries, which it could not simply disregard, and the subsidiaries could seek redress in the courts of countries where they had been formed or operated.
The similarity in these two cases seemed facially appealing, stemming from the fact that the claims emanated from the same price-fixing scheme and that finished products that included the panels had been shipped into the United States in both cases. The differences between the two cases, however, became evident and the Supreme Court found no need to tread into the matter.
While the FTAIA continues to be a somewhat befuddling mess of words, the conclusions to be drawn here seem unmistakable:
- First, the government may have greater flexibility in bringing a case successfully and proving direct and substantial effects on domestic commerce for defendants involved in foreign price-fixing agreements and conspiracies than private litigants, who must show that they suffered antitrust injury.
- Second, directly imported products into the United States have provided, and will continue to provide, the necessary predicate for potential liability under Section 1 of the Sherman Act.
- Third, and perhaps most importantly, just because the product is not shipped as such directly into the United States but rather is first incorporated into finished goods outside the United States for subsequent sale and shipment into the United States, does not exempt that product from coverage under the Sherman Act, and certainly not as to criminal prosecution. Price fixing for products that are then incorporated into finished goods are also subject to Section 1 assuming the effects are direct and substantial enough in terms of their effects on domestic commerce and gives rise to the antitrust claim.
Questions regarding this legal update or Parker Poe’s antitrust litigation practice can be addressed to Eric Welsh at firstname.lastname@example.org/704-335-9052. This legal update does not constitute the provision of legal advice or the creation of an attorney/client relationship with any party.