7th Circuit Holds that Motorola Cannot Recover Damages on Behalf of Foreign Subsidiaries under FTAIA | Practical Law

7th Circuit Holds that Motorola Cannot Recover Damages on Behalf of Foreign Subsidiaries under FTAIA | Practical Law

A three-judge panel for the US Court of Appeals for the Seventh Circuit upheld a district court's decision that Motorola, a US-based company, cannot recover damages on behalf of its foreign subsidiaries arising out of liquid-crystal display panel price-fixing.

7th Circuit Holds that Motorola Cannot Recover Damages on Behalf of Foreign Subsidiaries under FTAIA

by Practical Law Antitrust
Published on 01 Dec 2014 • USA (National/Federal)
A three-judge panel for the US Court of Appeals for the Seventh Circuit upheld a district court's decision that Motorola, a US-based company, cannot recover damages on behalf of its foreign subsidiaries arising out of liquid-crystal display panel price-fixing.
On November 26, 2014, a three-judge panel for the US Court of Appeals for the Seventh Circuit held in Motorola Mobility LLC v. AU Optronics Corp. that the Foreign Trade Antitrust Improvements Act (FTAIA) barred Motorola Mobility LLC from recovering damages on behalf of its foreign subsidiaries (No. 14-8003, (7th Cir. Nov. 26, 2014)). This decision affirms a decision by the same three-judge panel in March 2014, that originally affirmed a district court decision. The March 2014 appellate decision was vacated on July 1, 2014.
In Motorola, plaintiff charged defendants, foreign manufacturers of liquid-crystal display (LCD) panels incorporated into plaintiff's cellphones, with violating Section 1 of the Sherman Act by fixing the price of panels that were either:
  • Sold directly to Motorola in the US (1% of the panels).
  • Sold to Motorola's foreign subsidiaries and incorporated into cellphones to be sold in the US (42% of the panels).
  • Sold to Motorola's foreign subsidiaries and incorporated into cellphones to be sold abroad (57% of the panels).
The court noted Motorola has a clear claim under the Sherman Act for the 1% of panels sold directly to Motorola in the US, and that those panels were not part of this appeal.
The court explained that for Motorola to recover damages for the other 99% of panels sold to its foreign subsidiaries, it would have to satisfy the requirements of the FTAIA, including that the alleged illegal conduct both:
  • Had a direct, substantial and reasonably foreseeable effect on US domestic commerce.
  • Gave rise to an antitrust claim under federal antitrust law.
The court held that for the 57% of panels sold outside of the US, neither prong of the test was satisfied as the entire chain of commerce occurred outside the US and therefore had no effect on US domestic commerce. For the 42% of panels eventually sold within the US, the court assumed that the first prong of the FTAIA test was satisfied (because fixed prices for cellphone components eventually sold in the US would foreseeably have an effect on US domestic commerce), and focused on whether the conduct gave rise to an antitrust claim under US antitrust law.
In holding that the FTAIA barred Motorola from recovering damages on behalf of its subsidiaries for 99% of the panels, the court explained that Motorola was not the correct party to bring charges. The court reasoned that:
  • The immediate victims of the price-fixing were Motorola's foreign subsidiaries, which are incorporated under foreign law and are required to seek relief under the laws of the country in which they are incorporated or do business.
  • Under the Illinois Brick doctrine, Motorola is barred from seeking damages as an indirect purchaser of the panels. The court further noted that although Motorola owns its foreign subsidiaries (the direct purchasers), those foreign subsidiaries are incorporated under foreign law and are not subject to Illinois Brick or other US antitrust law.
As a caveat, the court explained that it will honor the DOJ's request to limit its holding to civil actions under the Sherman Act. Therefore, the DOJ's efforts to enforce international criminal violations of the Sherman Act will not be limited by this decision.
The court noted the US Supreme Court's warning in F. Hoffman-La Roche Ltd. v. Empagran S.A. that the FTAIA has been interpreted to prevent unreasonable interference with other countries' antitrust authority, and that allowing Motorola to obtain damages under US antitrust law would substantially increase the reach of US antitrust law (542 US 155 (2004)). The decision to limit the reach of the Sherman Act in civil matters also heeds concerns of Korea, The Republic of China, Taiwan and Japan, who filed amicus curiae briefs with the Seventh Circuit urging the court to honor their regulatory sovereignty.