SCOTUS foreign antitrust cert denials show different tests for civil, criminal cases

June 15, 2015

(Reuters) – The U.S. Supreme Court on Monday refused to grant review of two antitrust cases based on the same basic facts about an illegal price-fixing cartel among foreign manufacturers of liquid-crystal display screens. In one case, AU Optronics and two employees had asked the justices to reverse a 2014 ruling by the 9th U.S. Circuit Court of Appeals that affirmed their conviction for violating U.S. antitrust laws. In the other, Motorola Mobility appealed the 7th Circuit’s holding that it cannot claim private damages from cartel members on behalf of foreign Motorola subsidiaries that spent about $5 billion on overpriced LCD screens installed in devices sold in the United States.

Both the 9th and 7th Circuit decisions addressed how U.S. antitrust laws – in particular the Foreign Trade Antitrust Improvements Act of 1982 – apply to transactions involving foreign defendants. And according to both AU Optronics’ counsel of record in the criminal case, Neal Katyal of Hogan Lovells and lead Motorola lawyer Thomas Goldstein of Goldstein & Russell, the two circuit court opinions could not be reconciled. The 9th Circuit upheld punishment for a foreign cartel member found to be selling goods that directly affected American commerce but the 7th Circuit let the same cartel member off the hook.

Those cert petitions were strong enough to convince me and the National Association of Manufacturers that the 9th and 7th Circuits were split on how far U.S. antitrust laws should extend to overseas conduct. But the Supreme Court was apparently unpersuaded that the circuits were divided or that either the 7th or 9th Circuit made a mistake in its interpretation. The justices denied both petitions for certiorari without even a relisting.

That’s a tribute to the opposition briefs filed by the Justice Department in the 9th Circuit criminal case and AU Optronics and other foreign screenmakers in the Motorola case. The solicitor general’s office and AU lawyer Robert Wick of Covington & Burling briefs said that technically, the 7th and 9th Circuits’ decisions relied on different prongs of the FTAIA. But fundamentally, they argued – and the Supreme Court seemed to agree – that when it comes to the scope of U.S. antitrust laws, civil and criminal cases are not the same. Overseas conduct that gives rise to a criminal conviction in the United States may not give American companies a right to private damages even when the conduct has a direct effect on U.S. commerce.

Broadly speaking, the FTAIA excludes foreign transactions from civil or criminal consequences under the Sherman Act except under two sets of circumstances: if the goods are sold to a U.S. importer (the import commerce exclusion) or if the sales have a direct effect on American commerce and give rise to a U.S. antitrust claim (the effect exception). According to the Justice Department’s opposition brief in the AU criminal case, the jury convicted the company and its executives for selling price-fixed products directly to U.S. importers. By contrast, Motorola’s appeal at the 7th Circuit centered on sales to foreign subsidiaries that incorporated the screens into products Motorola sold in the United States. In that case, the appeals court said that the import commerce exclusion didn’t permit Motorola’s claims because the screens were not sold to a U.S. importer.

The Justice Department and AU Optronics said in their cert opposition briefs that the 9th and 7th Circuits read the import commerce exclusion the same way: “Both courts applied the exclusion to panels that were imported ‘directly’ into the United States, and both declined to apply the exclusion to panels that were originally sold abroad and then shipped to the United States as components of consumer products” AU wrote. (The 9th Circuit, as the Justice Department brief acknowledged, discussed whether foreign sales of component parts of goods later imported into the U.S. would meet the definition of import commerce but said it didn’t have to decide because there was ample evidence AU Optronics sold screens directly to U.S. importers.)

Nor did the 7th and 9th Circuits disagree that foreign sales of price-fixed LCD screens had a direct effect on American commerce under the effect exception. Both courts concluded the effect was direct, foreseeable and substantial. “Indeed, the court of appeals in this case cited the 7th Circuit’s analysis with approval in finding sufficient evidence that the conspiratorial conduct had a ‘direct’ effect on U.S. commerce,” the Justice Department wrote in opposing review of the 9th Circuit case.

The 7th and 9th Circuit cases came out differently – in terms of consequences for the alleged wrongdoers – because of the second part of the effect exception test, according to the cert opposition briefs. The effect exception to the FTAIA requires not only proof that the transactions affected American commerce but also a showing that the conduct would give rise to a claim under the Sherman Act.

That’s easy for the government. As the Justice Department explained in its brief opposing review of the 9th Circuit holding, antitrust prosecutors can sue or bring criminal charges as a sovereign, based only a violation of the law. A civil plaintiff like Motorola, however, has to show it would be entitled to damages. Here, the 7th Circuit found Motorola couldn’t meet the test: Although the price-fixing cartel’s actions directly affected U.S. consumers who bought the devices with overpriced screens, any antitrust injury to Motorola occurred abroad, when its foreign subsidiaries bought the component parts.

In the end, the Supreme Court’s denial of certiorari is a vindication for 7th Circuit Judge Richard Posner, who wrote that court’s opinion in Motorola v. AU Optronics. As you may recall, Judge Posner was so mindful of the case’s implications for foreign antitrust enforcement actions that he (controversially) demanded an accounting from the solicitor general of the views of the U.S. State and Commerce Departments at a preliminary stage of Motorola’s appeal. Posner’s eventual opinion, however, explicitly distinguished between public and private antitrust rights and pointed out that the U.S. can invoke the Sherman Act even when private plaintiffs don’t have a claim.

Plenty of antitrust and economics professors believe Posner and the 7th Circuit shouldn’t have limited Motorola’s claims just because cartel sales were originally to foreign subsidiaries. AU Optronics, on the other hand, argued that Motorola is simply reaping the unintended antitrust consequences of a corporate structure designed to take advantage of favorable foreign tax, labor and regulatory laws.

For now, at least, the 7th Circuit’s view of private rights to sue over illegal foreign cartels remains the prevailing interpretation. And according to the Justice Department, that’s just fine.

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