FTAIA And Foreign Sales: Seventh Circuit Limits Extraterritorial Reach Of U.S. Antitrust Law In Motorola Mobility v. AU Optronics

On March 27, 2014, in Motorola Mobility LLC v. AU Optronics Corp., the Seventh Circuit set precedent in the growing body of law interpreting the Foreign Trade Antitrust Improvements Act (FTAIA). Judge Posner held that the FTAIA bars antitrust suits over restraints in foreign markets for parts (inputs) used abroad to manufacture products later imported into the United States. The court held that such price fixing fails the FTAIA's "direct effects" test, as well as the FTAIA requirement that the effect of the defendant's conduct "gives rise to" an antitrust claim in the United States.

In Motorola Mobility LLC v. AU Optronics Corp., -- F.3d --, No. 14-8003, 2014 WL 1243797 (7th Cir. Mar. 27, 2014), the U.S. Court of Appeals for the Seventh Circuit set precedent in the growing body of law interpreting the Foreign Trade Antitrust Improvements Act (FTAIA), 15 U.S.C. § 6a, a statute that limits the extraterritorial application of U.S. antitrust law. Judge Posner, writing for the court in this opt-out LCD flat panel antitrust litigation, held that the FTAIA bars suits alleging the price fixing of component parts (LCD displays) sold and integrated abroad into final products (cellphones) eventually imported to and sold within the United States because such price fixing fails the FTAIA's "direct effects" test. See Motorola Mobility LLC, 2014 WL 1243797 at *2-4. The court also held that such price fixing failed another independent FTAIA requirement that the effect of the defendant's practice must "give[] rise to" an antitrust claim in the United States. Id. at *3-4.

Judge Posner's decision is critically important in today's global economy; "[n]othing is more common nowadays than for products imported to the United States to include components that the producers had bought from foreign manufacturers." Id. at *4. Despite a circuit split as to the precise meaning of "direct" in the FTAIA (a split relevant in other contexts), Motorola Mobility provides much-needed clarity: the extraterritorial reach of U.S. antitrust law does not extend to claims based on the anticompetitive conduct of foreign actors in non-U.S. sales of component parts, even if the defendant(s) know those components will be integrated into products eventually sold in the United States, and even if a U.S. entity determined the components' purchase price on behalf of its foreign subsidiary.

The FTAIA and "Direct" Effects

The FTAIA first sets a general rule that the Sherman Act does not apply to conduct "involving" non-import trade or commerce with foreign nations, but then creates a "domestic injury" exception, under which...