Judge Posner backs down (for now) in antitrust policy duel with U.S.

July 2, 2014

It’s not often that Judge Richard Posner of the 7th U.S. Circuit Court of Appeals concedes that he might have been wrong. (Just ask U.S. Supreme Court Justice Antonin Scalia and his “Reading Law” co-author Bryan Garner, who have been engaged in a back-and-forth war of words with Posner since he first harshly criticized their research back in August 2012.)

But it’s also not often that a federal appellate panel suggests that it has a deeper understanding of U.S. foreign economic policy concerns than the Justice Department.

On Tuesday, Posner and two other 7th Circuit judges agreed to reconsider their March 27 decision in Motorola’s antitrust suit against international liquid crystal display screen makers. That’s a relief to both Motorola and the U.S. government; the panel’s opinion, written by Posner, had effectively erased U.S. liability for foreign price-fixing cartels that sell component parts to foreign subsidiaries of U.S. companies — even if the subsidiaries’ purchasing decisions were dictated by the U.S. headquarters and even if the cartel’s products ended up being sold to U.S. consumers.

Posner reasoned that the foreign conduct in those circumstances didn’t directly affect domestic or import commerce, so the alleged price fixing didn’t satisfy the requirements of the Foreign Trade Antitrust Improvements Act amendment to the Sherman Act. “The defendants did not sell in the United States and, if they were overcharging, they were overcharging other foreign manufacturers — the Motorola subsidiaries,” Posner wrote. “The position for which Motorola contends would if adopted enormously increase the global reach of the Sherman Act, creating friction with many foreign countries.”

As you would expect, the ruling prompted Motorola’s lawyers at Goldstein & Russell to petition for an en banc rehearing, arguing that the panel’s decision was contrary to 7th Circuit precedent on the exact same provision of the Sherman Act — and that it would have disastrous consequences not just in private antitrust litigation but also in the U.S. government’s prosecution of international price-fixing conspirators. AU Optronics officials, the en banc petition said, had already cited the panel’s ruling in the 9th Circuit appeal of their convictions for fixing LCD panel prices. And Posner and his panel colleagues (Judges Michael Kanne and Ilana Rovner), Motorola said, had remade U.S. antitrust policy without even consulting the executive branch, since the panel issued its interlocutory opinion based only on the trial judge’s decision and preliminary briefs from Motorola and the defendants.

On the same day that Motorola asked for a rehearing, the Justice Department and the Federal Trade Commission filed an amicus brief warning that Posner’s opinion “threatens the ability of government law enforcement and private actions to prevent and redress massive harm to U.S. consumers.”

That’s when this case took a hard turn into weirdness, as my Reuters colleague Andrew Longstreth has faithfully chronicled. On May 1, the 7th Circuit panel judges sent a letter to the U.S. State and Commerce departments — which hadn’t specifically signed the Justice Department amicus brief — inviting them to file their own brief to address “the potential effects on foreign relations resulting from the issues presented by this case.”

Solicitor General Donald Verrilli responded with a polite-but-firm letter to the 7th Circuit on May 19. He had personally authorized the amicus brief urging reconsideration of the panel’s decision “on behalf of the United States after appropriate consultation with interested components of the federal government,” Verrilli wrote. “It reflects the views of the United States on the matters expressed therein. Neither the United States nor any of its departments plans to file an additional brief at this stage of the appeal.”

That was not a good enough answer for the 7th Circuit panel. On May 22, Posner and the other judges issued a quite stunning order directing the solicitor general to name the government officials he consulted before sending the May 19 letter, to describe the nature of those consultations and to explain exactly what he meant when he said that Justice’s amicus brief reflects “the views of the United States.”

When the 7th Circuit order came down, Jefferson Powell of Duke University School of Law told Reuters’ Longstreth that it was “essentially saying, ‘We don’t respect the executive branch’s own definition of itself.” Professor Paul Bender of the Sandra Day O’Connor College of Law, a former deputy solicitor general, told Longstreth in an email, “I don’t know of a case where that has happened before in a Court of Appeals. I am also unaware of the Supreme Court ever trying to get around the Solicitor General’s traditional role as the representative of all parts of the U.S. government.”

The 7th judges apparently recognized that they’d gone too far and withdrew the order to Verrilli the day after they issued it. But they still weren’t convinced that the Justice Department had taken into sufficient account “the possible harm to U.S. foreign relations of extraterritorial enforcement (of U.S. antitrust law) that is perceived by foreign countries as an improper interference with their sovereign economic policies.” In a June 2 letter to Verrilli, the 7th Circuit panel cited filings in various antitrust cases (including the Motorola litigation) by Japan, Korea, Taiwan and other countries friendly to the U.S., expressing concern about overly aggressive U.S. enforcement.

The June 2 letter requested (but did not order!) a response from Verrilli, which the judges said would enhance “the credibility of the amicus curiae brief filed with your approval by the FTC and the antitrust division.” (I’m quoting that language because the 7th Circuit pointedly did not say Justice’s brief was filed on behalf of the entire U.S. government.)

In a brief filed last Friday, the Justice Department schooled Posner and the other panel judges on the history of the law extending U.S. jurisdiction over foreign cartels (which, as the brief explained, actually stemmed from Congress’s intention of protecting U.S. companies with overseas operations from antitrust accusations by foreign governments). Legislators were well aware of the possibility of friction with foreign allies when they passed the law, the brief said, but the U.S. government’s subsequent decisions about when to enforce it have been informed by a concern for international comity.

“We are not aware of an instance in which a foreign government has expressed disapproval of those prosecutions to any official of the United States,” Justice wrote, “despite regular consultations between officials of the U.S. antitrust agencies and their foreign counterparts.”

It would appear, given how quickly the 7th Circuit panel reacted, that Justice’s brief persuaded Posner and his colleagues to vacate their previous opinion and agree to hear Motorola’s appeal again, this time with merits briefs from both sides. Those should be interesting: Earlier this month, the 2nd Circuit, in Lotes v. Hon Hai Precision Industry, adopted the government’s interpretation of what constitutes a direct effect on U.S. commerce, putting the 2nd Circuit squarely at odds with the holding in Posner’s now-vacated Motorola opinion.

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