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Motorola Oral Arguments Today – Will the Seventh Circuit Revise Its Interpretation of the FTAIA, and If so, How?

Today the Seventh Circuit Court of Appeals hears oral argument from the parties and amicus curiae the United States concerning the reach of the Foreign Trade Antitrust Improvements Act (“FTAIA”), 15 U.S.C. § 6a, in Motorola Mobility LLC v. AU Optronics. Last March, as we’ve written previously, the court ruled against Motorola in an interlocutory appeal concerning the FTAIA’s application to offshore components manufacturers. The court subsequently withdrew its opinion, denied a petition for en banc  review, and ordered oral argument.

The case concerns three categories of components, all of which were manufactured overseas and sold through an alleged price fixing conspiracy: Category 1: LCD screens sold directly to Motorola (1% of the total components at issue); Category 2: LCD screens sold to Motorola’s foreign subsidiaries and then used in products imported into the U.S. by Motorola (42%); and Category 3: LCD screens sold to Motorola’s foreign subsidiaries and used in products shipped to other countries (57%).

In its initial decision in March, the Seventh Circuit determined that only the first category represented conduct meeting the FTAIA’s requirement of a “direct, substantial, and reasonably foreseeable effect” on trade or commerce. In doing so, the court wiped out 99% of Motorola’s lawsuit and indicated that Category II and Category III conduct does not violate the Sherman Act.

That is a sweeping reading of the FTAIA. If this ruling stands, it would undermine a great deal of the DOJ and FTC’s anti-cartel enforcement efforts—not to mention claims from civil claimants. The question today will be whether the FTAIA should be read as a more limited restriction on Sherman Act claims.

One response would be to accept the United States’ invitation to read the FTAIA’s “direct . . . effect” requirement as shorthand for proximate cause. This approach would likely allow criminal prosecutions and private claims based on Category II conduct, since such conduct results in higher prices that are passed along in U.S. markets. It probably would not cover Category III conduct, and neither the United States nor Motorola makes vigorous arguments about Category III conduct.

It seems likely that the court will take some steps toward mitigating the interpretation in its previous opinion. We will continue to observe this case to see which course it chooses.