Dueling petitions at SCOTUS cite circuit split on foreign antitrust

March 17, 2015

It seems very likely that the U.S. Supreme Court will eventually have to clarify the reach of U.S. antitrust laws to foreign cartels whose actions ultimately impact U.S. companies and consumers. There is a stark split among the federal circuits on the question, as you can see from two new petitions for Supreme Court review. The Taiwanese company AU Optronics and two former officers of the company argue that the 9th U.S. Circuit Court of Appeals wrongly held the Sherman Act can extend to overseas sales between foreign companies when it affirmed their convictions for conspiring to fix the prices of liquid crystal display screens used in mobile devices sold in the United States. Motorola, which sold devices featuring the very same LCD screens sold by AU Optronics and its cartel partners, believes the 7th Circuit made a mistake when it said Motorola can’t sue over the price-fixing.

Both cert petitions emphasize the enormous consequences at stake for companies with global supply chains and multinational markets. Both briefs argue that the direct split between the 7th and 9th Circuit analyses of the exact same cartel creates uncertainty and unfairness in the application of U.S. antitrust laws. Both cases turn on the same hazy statutory language of the Foreign Antitrust Trade Improvements Act. And if the Supreme Court accepts the invitation to set some clear guidelines, those guidelines will probably end up deciding both cases.

So, which will the court pick if it decides to pick one?

First, a quick review of the issues kicked up by the frustratingly vague FTAIA. The 1982 law says that as a general rule, foreign conduct isn’t covered by the Sherman Act. But there are a couple of circumstances when the Sherman Act does apply: if the allegedly illegal conduct involves the U.S. import market or if it has a direct and substantial effect on U.S. commerce that would give rise to a Sherman Act claim. I’ve drastically oversimplified (and frankly, you should thank me for not getting into the difference between the FTAIA “exemption” and FTAIA “exception”) but you can see that even my no-frills explanation leaves room for debate. What constitutes “import trade” and thus triggers FTAIA’s exemption to the rule that the Sherman Act doesn’t apply to foreign conduct? And when does conduct among foreign companies have a “direct” and illegally anticompetitive effect on U.S. commerce?

The 9th Circuit found that the Sherman Act applied to the conduct of the LCD cartel under both the import trade and direct effect tests because (again, drastically oversimplifying) the price-fixing scheme ultimately impacted the price of devices sold in the United States. The 7th Circuit, in contrast, said in the Motorola case that cartel participants weren’t involved in “import trade” because their products didn’t reach the U.S. market directly but were sold to Motorola foreign subsidiaries and later imported into the United States by Motorola itself. The 7th Circuit also said that although the price-fixing may have had a direct effect on U.S. consumers, Motorola didn’t meet the FTAIA exception direct effect test because any anticompetitive injury to Motorola happened overseas, when its foreign subsidiaries bought the overpriced LCD screens.

The AU Optronics petition, filed by counsel of record Neal Katyal of Hogan Lovells, argues that the 9th Circuit case is the appropriate vehicle for resolving the split (which also includes a 2011 3rd Circuit ruling, Animal Science Products v. Minmetals, that aligns with the 9th Circuit interpretation of FTAIA) because the defendants appealed a final judgment and unless the Supreme Court resolves the circuit split, two foreign executives will have to go to prison for behavior that might be legal in other federal courts. Motorola’s brief, by Thomas Goldstein of Goldstein & Russell, just says Motorola’s case is “an ideal vehicle” to resolve the circuit split because “the 7th Circuit’s decision presents an opportunity to resolve the pervasive uncertainty that surrounds the FTAIA’s application to international cartels that deliver products abroad for importation into the United States.”

What neither brief mentions is that the split between the 7th and 9th Circuits might not affect the government’s ability to enforce the Sherman Act against foreign cartels. Judge Richard Posner of the 7th Circuit, who wrote the decision in the Motorola case, was deeply interested in the government’s view of the FTAIA, and the opinion he ended up writing left some room for the Justice Department to bring actions that private parties cannot. Justice would probably be perfectly satisfied to preserve the status quo, so I’m eager to see what the solicitor general’s office has to say about the circuit split.

Motorola’s brief raises an alternative reason for the Supreme Court to grant cert: the 7th Circuit’s apparently unique practice of permitting motions panel judges to also hear the merits of cases they consider interesting or notable. You may remember the strange backstory of the 7th Circuit ruling in the Motorola case, in which a Posner-led panel originally decided the merits of the case based only on motions briefing about whether Motorola could bring an interlocutory appeal. Motorola’s protest of the ruling led to a weird contretemps between Judge Posner and Solicitor General Donald Verrilli when Posner questioned whether Justice’s amicus brief supporting Motorola reflected the views of the State and Commerce Departments. Motorola eventually won a hearing on the merits of its arguments, but its cert petition asserts that the conclusion was never in doubt because the same Posner-led panel retained control of the case.

Now that would be a fun Supreme Court case.

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