On March 27, 2014, the US Court of Appeals for the Seventh Circuit held in Motorola Mobility LLC v. AU Optronics Corp. that the defendants' sale of price-fixed LCD panels for use in cellphones to foreign purchasers was exempt from antitrust enforcement under the Sherman Act by the Foreign Trade Antitrust Improvements Act (FTAIA) (No. 14-8003, (7th Cir. March 27, 2014)).

The FTAIA governs who may bring a US antitrust claim that involves trade with foreign nations. In general, the FTAIA exempts foreign commerce from US antitrust enforcement but creates exceptions for certain conduct affecting US commerce, bringing that conduct back within the reach of the US antitrust laws.

Plaintiff Motorola Mobility LLC, seeking over $5 billion in damages, alleged defendants AU Optronics and other foreign LCD manufacturers violated Section 1 of the Sherman Act by agreeing to fix prices for LCD panels sold to Motorola and its subsidiaries for use in cellphones. Motorola purchased the LCD panels:

In a prior ruling, the US District Court for the Northern District of Illinois ruled that Sherman Act price-fixing claims for LCD panels sold to Motorola's foreign subsidiaries (99% of the LCD panels at issue) were barred under the FTAIA because there was no direct, substantial and reasonably foreseeable effect on US commerce.

On appeal, Judge Posner of the Seventh Circuit held that Motorola's claim was barred as the defendants' actions did not:

First, the court explained that claims relating to LCD panels sold to foreign subsidiaries, which were never shipped back into the US, were clearly barred by the FTAIA and a frivolous element of Motorola's claim. Next, the court reasoned that the sales of LCD panels to foreign subsidiaries that were then incorporated into phones and sent to the US for sale were also barred. The court held that Motorola did not show that the defendants' LCD panel price-fixing had a direct, substantial and reasonably foreseeable effect on US commerce.

Focusing on the lack of direct effect on US commerce, Judge Posner held that a price-fixed object sold abroad and used only as a component of a product later sold in the US has only an indirect effect on the ultimate product price. It did not matter that Motorola determined the price its subsidiaries paid the defendants for the panels. Instead, the court focused on where the product was sold directly. Because the product was not sold directly to US customers but instead circulated through various foreign outlets before entering the US stream of commerce as part of a finished product, the effect of the fixed-price in the US was indirect.

Second, the court held that Motorola failed to establish that the defendants' foreign price-fixing gave rise to an antitrust claim (allegedly, higher prices on US cellphones) because Motorola:

The court also explained that injuries derived from a corporation's subsidiaries, such as Motorola's, do not generally give rise to antitrust claims under US antitrust law.

The court noted that if the defendants conspired to sell LCD panels directly to Motorola in the US, they would be subject to antitrust enforcement under the Sherman Act because of the FTAIA's exception for imported goods. The court noted that the 1% of LCD panels sold directly to Motorola in the US, which were not subject to the appeal, would fall under that exception.

In a broader cautionary statement, the court stated that US antitrust laws do not remedy injury to foreign customers, including foreign subsidiaries, who instead should be protected by the antitrust laws of their respective countries. The court cautioned that, as stated by the US Supreme Court, unchecked application of US law to foreign conduct:

In an era of increasing use of global supply chains and foreign subsidiaries, this case highlights the importance for:

Counsel should note that this case significantly limits applicability of the FTAIA exemption to products involving price-fixed components sold overseas entering US commerce as finished goods.

For more information on the FTAIA, see Practice Note, Foreign Trade Antitrust Improvements Act (FTAIA). For more information on the DOJ's investigation into the LCD Cartel, see DOJ TFT-LCD Cartel Investigation Chart. For more information on price-fixing allegations against AU Optronics, see Legal Update, DOJ Wins Jury Verdict in Recent Price-fixing Case.