International Cartel Sales to Global Supply Chains Raise U.S. Antitrust Issues

10 December 2014 Manufacturing Industry Advisor Blog

How can American manufacturers bring claims against foreign cartels that fix prices of component parts? The answer became more clear last week. In a widely awaited opinion, Motorola Mobility LLC v. AU Optronics Corp, the United States  Seventh Circuit Court of Appeals addressed which purchasers may pursue treble (triple) damage through private civil actions, under the Sherman Act, based on foreign price fixing. Governments from around the world, including the United States, filed amicus briefs in the case because of the decision’s potential far-reaching impact.

The Foreign Trade Antitrust Improvements Act (“FTAIA”) limits the reach of American antitrust laws with two requirements. In its opinion, the Seventh Circuit assumed the first requirement—a direct, substantial, and reasonably foreseeable effect on domestic commerce—was satisfied where the cartel members sold components to incorporate them into finished products ultimately sold downstream in the United States. Based on that assumption, the conduct fell within the scope of the Sherman Act. 

The FTAIA requires a second element for purchasers, as opposed to the government, to bring actions seeking private treble damages. That second element is whether the effect of anticompetitive conduct on domestic U.S. commerce raises an antitrust cause of action. The Seventh Circuit found that Motorola did not satisfy that test for the components sold to its foreign subsidiaries because the foreign subsidiaries suffered the effect of the anticompetitive conduct in the foreign countries, not in the United States. According to the court, affected companies would have to pursue their remedies in foreign countries. The Second Circuit has reached a similar conclusion.

The Seventh Circuit also explained that the foreign subsidiaries were the direct purchasers of the price fixed components, while Motorola and its customers were indirect purchasers of the price fixed components. As such, Motorola and its customers’ claims are barred under Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). In its amicus brief, the United States proposed that the first U.S. purchaser of a price-fixed component part or finished product would be allowed to bring a claim against the component parts’ price fixer where the direct purchaser’s claim would be barred by the FTAIA. Such a rule would enable some U.S. purchasers to go after foreign price fixing. Otherwise, potentially no American purchasers could recover damages under federal antitrust laws despite the tremendous harm threatened by offshore component price fixing. Without either approving or disapproving that argument, the Seventh Circuit ruled that Motorola had waived it. Motorola had, according the decision, focused only on the overcharges paid on the component parts by foreign subsidiaries and dropped the point that Motorola itself paid more for the cellphones.

Based on the existing decisions, the government can bring enforcement actions involving price-fixed component parts shipped directly into the United States and also involving price fixed component parts incorporated into finished products shipped into the United States. The claims of customers, on the other hand, hinge on where the transactions took place and who the purchasers were. Practically speaking, as the Seventh Circuit noted, American manufacturers will need to decide whether to operate through foreign subsidiaries and whether to have those foreign subsidiaries purchase the component parts from foreign suppliers. The Court noted, if companies want to have the right to sue under U.S. antitrust laws, U.S. companies must purchase the component parts directly or through foreign divisions not foreign subsidiaries. If you are interested, check out a more complete analysis of the Motorola Mobility LLC v. AU Optronics Corp decision.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services

Insights

CMS Proposes Enhanced Scrutiny over Medicaid Supplemental Payments
20 November 2019
Health Care Law Today
The Purpose of a Corporation
November 2019
Legal News: Business Law
Should This Be a "Mobility" Industry Blog?
19 November 2019
Dashboard Insights
Data Processing Patent Eligibility: Federal Circuit Finds Claims Eligible in KPN v. Gemalto
19 November 2019
IP Litigation Current
PATH Summit 2019
18-20 December 2019
Arlington, VA
Madison CLE Days
18-19 December 2019
Madison, WI
MedTech Impact Expo & Conference
13-15 December 2019
Las Vegas, NV
HFMA MA-RI Annual Compliance Update
12 December 2019
Boston, MA