• Seventh Circuit Affirms Dismissal of Motorola’s LCD Antitrust Claims Based on Foreign Purchases
  • April 21, 2014 | Author: Dylan I. Ballard
  • Law Firm: Sheppard, Mullin, Richter & Hampton LLP - San Francisco Office
  • On March 27, in the latest major development in Motorola Mobility’s lawsuit alleging price-fixing of liquid crystal display modules (LCDs), a three-judge panel of the Seventh Circuit, including renowned antitrust jurist Judge Richard Posner, simultaneously granted Motorola’s petition for interlocutory appeal and affirmed a ruling by U.S. District Judge Joan B. Gottschall that more than 99% of Motorola’s $5.4 billion in claimed damages are beyond U.S. antitrust jurisdiction under the Foreign Trade Antitrust Improvements Act, 15 U.S.C. 6a. The Court decided the substantive issue on the basis of the district court record and the parties’ interlocutory appeal papers, dispensing with further appellate briefing and oral argument.

    The FTAIA provides that U.S. antitrust laws do not apply to anticompetitive conduct in foreign, non-import commerce, unless the foreign conduct satisfies the so-called “domestic effects” exception, i.e., (1) the conduct has a “direct, substantial, and reasonably foreseeable effect” on U.S. commerce, and (2) that effect “gives rise to” the plaintiff’s claim. In January, Judge Gottschall ruled that Motorola’s claims based on LCD purchases by its foreign affiliates—purchases that were allegedly negotiated and approved in the United States but otherwise “overwhelmingly foreign in nature”—did not satisfy this exception because the mere negotiation or approval of prices is not an anticompetitive effect on U.S. commerce where the prices are actually paid in a foreign country.

    The Seventh Circuit, in an opinion authored by Judge Posner, largely agreed with the lower court’s analysis. The Court immediately rejected 57% of Motorola’s damages claims—those based on foreign LCD purchases where the LCD was used to make a cell phone that was also sold in a foreign country—as “frivolous” because the products acquired by those purchases “never entered the United States, so never became domestic commerce.” The Court then turned to the remaining damages claims at issue—those based on foreign-purchased LCDs that were subsequently incorporated into a cell phone sold in the United States. With respect to that category, the Court held that neither prong of the “domestic effects” exception was satisfied. The fact that finished cell phones were sold in the United states did not amount to a “direct effect” on U.S. commerce because “the effect of component price fixing on the price of the product of which it is a component is indirect”. And this effect on U.S. commerce did not “give rise to” Motorola’s claim because Motorola’s damages claims were based not on the sale of cell phones in the United States, but on purchases of LCDs by its foreign subsidiaries in foreign markets.

    Motorola has indicated that it will seek en banc review of the opinion. If it stands, the opinion is likely to have far-reaching effects on the interpretation and application of the FTAIA to claims based on foreign component purchases—an increasingly common fact pattern in U.S. antitrust cases.

    Samsung SDI, one of the defendants involved in Motorola case, is represented by Gary Halling, James McGinnis, and Michael Scarborough of Sheppard Mullin Richter & Hampton LLP.

    The district court case is Motorola Mobility, LLC v. AU Optronics Corp. et al., Case No. 09-cv-6610 (N.D. Ill.). The appellate case is Motorola Mobility, LLC v. AU Optronics Corp. et al., No. 14-8003 (7th Cir.).