March Madness for Foreign Companies: Supreme Court asked to resolve Circuit Split on Reach of FTAIA
The Supreme Court has been urged to resolve a circuit split concerning the reach of the Foreign Trade Antitrust Improvements Act (FTAIA) to foreign conduct that may affect U.S. commerce. Motorola this week filed a petition for certiorari in a Seventh Circuit case interpreting the FTAIA as barring Sherman Act claims arising out of the foreign conduct of an alleged liquid crystal display (LCD) panel cartel. The petition comes on the heels of another asking the Court to review a Ninth Circuit holding that the conduct of the same cartel was, indeed, within the reach of the Sherman Act. (We’ve written extensively about the FTAIA; you can read our latest update on the Seventh Circuit case here and the Ninth Circuit case here.)
The conflict between the cases “could not be sharper,” the petitioners in the Ninth Circuit case, Hsiung, et al. v. United States, pointed out to the Court in their petition. The two cases concern the same products, the same conspiracy, and the same FTAIA provisions—yet the circuit courts drew very different conclusions.
It’s no surprise that courts are divided on the application of the FTAIA. In general, the FTAIA imposes restrictions on plaintiffs trying to bring U.S. antitrust claims for foreign conduct. Namely, plaintiffs must show that the conduct at issue “has a direct, substantial, and reasonably foreseeable effect” on U.S. commerce, and that “such effect gives rise to” a Sherman Act claim. However, these restrictions do not apply—and, therefore, the Sherman Act operates with full force—if the foreign conduct at issue involves “import trade or import commerce.”
It is these FTAIA provisions that are at issue in these two cases. A close look at the facts of each case highlights the conflict:
● Defendants in Motorola Mobility LLC v. AU Optronics et al., AU Optronics, manufacture LCD panels for use in cell phone screens. Motorola brought suit in federal district court in Illinois alleging that AU Optronics had secretly conspired to fix the prices on more than $5 billion of LCD panels it sold to Motorola, including through its foreign subsidiaries. Motorola contended that AU Optronics carried out the conspiracy through express agreements with would-be competitors to fix prices and limit output. The district court found that the FTAIA barred most of the suit, and dismissed those portions accordingly.
The Seventh Circuit affirmed. It explained that AU Optronics’s alleged conduct was not “import commerce” because Motorola, not AU Optronics, had imported the LCD panels into the United States through its foreign subsidiaries. The court went on to interpret the FTAIA’s “direct and substantial effect” provision as requiring that the alleged injury arose from the effect on domestic commerce. Here, the Seventh Circuit said, any injury to Motorola took place exclusively in foreign commerce. Thus, the district court correctly found that the FTAIA barred Motorola’s Sherman Act claims against AU Optronics.
● In Hsiung et al. v. United States, the United States Department of Justice’s Antitrust Division brought criminal charges in California against former AU Optronics executives Hui Hsiung and Hsuan Bin Chen for a conspiracy to fix prices on LCD panels that were eventually sold in the United States—in essence, the same conduct complained of in the Seventh Circuit Motorola case. A jury found the defendants guilty of violating the Sherman Act. The defendants moved for a judgment of acquittal or, in the alternative, for a new trial. The defendants argued that their conduct was not “import commerce,” so the FTAIA applied. Moreover, they said, their conduct did not have “a direct and substantial effect” on U.S. commerce; thus, no antitrust claims could be brought under the FTAIA. The district court denied these motions and sentenced each defendant to 36 months’ imprisonment and a $200,000 fine.
The Ninth Circuit affirmed. It held that the conduct constituted “import trade” because the LCD panels were eventually sold to customers in the United States. Thus, the conduct was actionable under the Sherman Act. Although the court did not need to reach the question of whether the conduct had a direct and substantial effect on U.S. commerce since it fell within an exclusion to the FTAIA, it nonetheless opined that such an effect was present because the price-fixing abroad ultimately impacted the price of devices containing the LCD panels in the U.S. market.
This interpretation of the FTAIA aligns with a 2011 ruling in the Third Circuit, Animal Science Products v. Minmetals.
If the Supreme Court decides to provide clarity on the reach of the FTAIA, it will likely decide these cases together. Motorola would urge the Court to adopt the Ninth Circuit’s interpretation so that its suit can go forward; the AU Optronics executives in Hsiung would ask the Court to side with the Seventh Circuit, and throw out their convictions. Either way, such a ruling could have far-reaching consequences for companies with foreign subsidiaries importing products into the United States.