What Effects Are “Direct” Enough to Satisfy the FTAIA: An Analysis of 2014 FTAIA Decisions

Lauren Giudice* 

I. Introduction

The Foreign Trade Antitrust Improvements Act (“FTAIA”) serves to limit the reach of U.S. antitrust laws with respect to certain anticompetitive conduct occurring overseas.[1] The FTAIA fulfills this purpose by requiring that the alleged foreign anticompetitive conduct have a direct, substantial, and reasonably foreseeable effect on U.S. commerce before the conduct is deemed actionable. Additionally, when the FTAIA applies, it precludes Sherman Act claims unless the direct, substantial, and reasonably foreseeable effect on U.S. commerce also gives rise to the plaintiff’s harm.[2] The separate statutory clauses, “direct, substantial, and reasonably foreseeable” and “gives rise to” have been the source of ambiguity for courts in applying the FTAIA. Although the statute was enacted in 1982, courts and commentators have only started to seriously analyze the FTAIA in the past decade. Despite Congress’ stated intention to create a unified standard for courts to apply when analyzing foreign anticompetitive conduct,[3] judicial interpretation of the FTAIA has created significant circuit splits.

For example, the Ninth Circuit has interpreted the statutory term “direct” to require that the effect on U.S. commerce follow as an “immediate consequence” of the defendant’s conduct.[4] The Ninth Circuit adopted this definition from the Supreme Court’s interpretation of the term “direct” as used in the Foreign Sovereign Immunities Act.[5] The Seventh and Second Circuits, on the other hand, rejected the Ninth Circuit’s approach. Instead, the Seventh and Second Circuits construed the term “direct” in the FTAIA to denote a “reasonably proximate causal nexus.”[6]

As a direct factual comparison, the Ninth and Seventh Circuits issued opinions in the last year analyzing nearly the same extraterritorial anticompetitive conduct that arose from related criminal and civil multi-district litigation proceedings.[7] These decisions result from suits brought under Section 1 of the Sherman Act against foreign manufacturers of Thin Film Transistor Liquid Crystal Display Panels (“LCD Panels”) for agreeing to fix the price of LCD Panels sold in the United States and elsewhere. The Department of Justice brought criminal charges against six manufacturers. Five of the manufacturers pleaded guilty and one, including its American subsidiary and certain executives, was tried and found guilty in the Northern District of California. The Ninth Circuit affirmed the convictions last year.[8] Private plaintiffs brought several civil actions, one of which was to be tried in the Northern District of Illinois. The Seventh Circuit affirmed a grant of partial summary judgment for the defendants, disposing of ninety-nine percent of the plaintiff’s claims.[9] Both circuits analyzed whether the foreign price-fixing had a “direct” effect on U.S. commerce, as construed in the respective circuits. After some discussion, the Seventh Circuit ultimately assumed the directness of the effect when it affirmed summary judgment under the “gives rise to” prong.[10] The Ninth Circuit affirmed the convictions as both import commerce, and as having the requisite direct effect on U.S. commerce.[11] In a footnote, the Ninth Circuit stated, however, that the outcome of the case would have been the same regardless of which interpretation of “direct” were used.[12] Future price-fixing cases, however, may vary significantly depending on which interpretation of “direct” the court applies. The circuit split invites forum shopping and could allow for inconsistent results when plaintiffs bring Sherman Act claims based on the same anticompetitive conduct but in different jurisdictions. Forum shopping presents a more prevalent risk in situations involving foreign cartels, compared to domestic cartels, because foreign cartels are more likely to result in actionable sales in a number of districts, while domestic cartels may not.

In Section II, this article will address the purpose of the FTAIA and explain its terms.   Section III will review how courts interpret the “gives rise to” language. This language is addressed first because the seminal Supreme Court case to analyze the FTAIA denied the plaintiffs’ claims based on this statutory language. Subsequent circuit courts that have analyzed the “gives rise to” language construed it to require a proximate cause analysis in an attempt to limit the scope of potential plaintiffs.

Sections IV and V review cases analyzing the statutory language “direct.” Courts previously avoided deciding whether its use in the FTAIA constituted an additional statutory restriction on the operation of the Sherman Act or merely codified existing case law. Section V discusses how the Seventh and Ninth Circuits analyzed the term “direct” in the context of the LCD cases. Notably, both LCD appellate decisions avoided an in-depth discussion of the term “direct” until the Courts revisited their decisions at the request of the parties.

In Section VI, this article addresses the current status of the law. As discussed in detail below, these cases are likely candidates for Supreme Court review of the FTAIA. Despite informative decisions from the Second, Seventh and Ninth Circuits, litigants still do not have a clear rule regarding what constitutes a “direct” effect with respect to component price-fixing cases. The statutory language “direct” however is not the only source of ambiguity in the statute. In fact, additional circuit splits exist regarding other elements of the statute. While this article only focuses on use of the term “direct,” Section VI identifies in brief other ambiguities in applying the FTAIA, resolution of which is likely necessary before courts and litigants will have a clear understanding of how the FTAIA applies. For example, import commerce is excluded from the FTAIA and thus need not result in a direct, substantial, and reasonably foreseeable effect on U.S. commerce to be actionable. Courts, however, have blurred the line between what transactions constitute import versus non-import commerce. Thus, while conduct can produce a “direct” effect under one reading of import commerce, the very same conduct may constitute import commerce under another reading and not be subject to the FTAIA’s requirement of a direct, substantial, and reasonably foreseeable effect at all. Ambiguity in the definition of “direct” is thus exacerbated by the fact that courts are also using different interpretations of the term “import commerce.” Section VI will demonstrate the need for proper qualification of the transactions at issue and clarity regarding what impact foreign anticompetitive conduct must have on U.S. commerce to be actionable under the Sherman Act. This article also proposes, in Section VI, priorities the Supreme Court should consider when provided the opportunity to analyze the FTAIA.

II. Purpose and Language of the FTAIA

In 1982, Congress enacted the FTAIA, as an amendment to the Sherman Act, to address two concerns. First, Congress was concerned that small businesses perceived the Sherman Act as prohibiting efficiency-enhancing joint export activities.[13] Second, Congress wanted to create a unified legal standard to determine whether U.S. antitrust law applies to foreign transactions.[14] Lower courts applied various standards, and some even seemed to apply a de minimis effects standard.[15] As a result, Congress enacted the FTAIA to “make explicit [application of the Sherman Act and antitrust proscriptions of the Federal Trade Commission Act] only to conduct having a ‘direct, substantial, and reasonably foreseeable effect’ on domestic commerce or domestic exports.”[16] The relevant language provides:

Sections 1 to 7 of this title shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless—

(1) such conduct has a direct, substantial, and reasonably foreseeable effect—

(A) on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or

(B) on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States; and

(2) such effect gives rise to a claim under the provisions of sections 1 to 7 of this title, other than this section.

If sections 1 to 7 of this title apply to such conduct only because of the operation of paragraph (1)(B), then sections 1 to 7 of this title shall apply to such conduct only for injury to export business in the United States.[17]

The seminal Supreme Court case analyzing the FTAIA is F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155 (2004). The Court described the language of the FTAIA as,

initially lay[ing] down a general rule placing all (nonimport) activity involving foreign commerce outside the Sherman Act’s reach. It then brings such conduct back within the Sherman Act’s reach provided that the conduct both (1) sufficiently affects American commerce, i.e., it has a “direct, substantial, and reasonably foreseeable effect” on American domestic, import, or (certain) export commerce, and (2) has an effect of a kind that antitrust law considers harmful, i.e., the “effect” must “giv[e] rise to a [Sherman Act] claim.”[18]

The Seventh Circuit in the LCD case explained that, “[t]he first requirement, if proved, establishes that there is an antitrust violation; the second determines who may bring a suit based on it.”[19] Because the issue “who may bring a suit” was presented to the Supreme Court first, this article will discuss the “gives rise to” language next.

III. “Gives Rise to”: The Domestic Effects of the Foreign Conduct Must Proximately Cause the Plaintiff’s Injury

Empagran established that the FTAIA bars a plaintiff’s claim when the foreign, rather than the domestic, effects of the anticompetitive conduct independently cause the plaintiff’s injury.[20] As an example, if sellers around the world agree to fix prices, resulting in higher prices in the United States and independently resulting in higher prices in another country, a U.S. purchaser could bring a Sherman Act claim based on the domestic harm, but a foreign purchaser could not bring a Sherman Act claim based on the foreign harm.[21]

The plaintiffs in Empagran filed a class action suit on behalf of domestic and foreign purchasers of vitamins alleging that foreign and domestic vitamin manufacturers and distributors engaged in a price-fixing conspiracy that raised the price of vitamin products to purchasers in the United States and abroad.[22] Defendants moved to dismiss the complaint as to the foreign purchasers, who each bought vitamins from defendants for delivery outside of the United States.[23] The district court granted the motion to dismiss, and a divided panel of the D.C. Circuit reversed.[24] The Supreme Court described the conduct at issue as significantly affecting customers both within and without the United States, but assumed that the adverse foreign effect was independent of any adverse domestic effect.[25] On these facts, the Court found that the FTAIA barred the foreign purchasers’ Sherman Act claims because the plaintiffs’ harm (paying higher prices overseas) was independent of any domestic harm (increased prices in the United States).[26]

The Court’s first rationale was premised on international comity and the theory that courts should construe ambiguous statutes “to avoid unreasonable interference with the sovereign authority of other nations.”[27] The Court stated that although application of America’s antitrust laws to foreign conduct can interfere with a foreign nation’s ability to independently regulate its own commercial affairs, doing so is “nonetheless reasonable, and hence consistent with principles of prescriptive comity, insofar as they reflect a legislative effort to redress domestic antitrust injury that foreign anticompetitive conduct has caused.”[28] As a corollary, it is therefore unreasonable to apply U.S. law to foreign conduct where that conduct causes independent, foreign harm, and that harm alone gives rise to the plaintiff’s claim.[29] Quoting the legislative history, the Court stated that “[t]he FTAIA seeks to make clear to American exporters (and to firms doing business abroad) that the Sherman Act does not prevent them from entering into business arrangements (say, joint-selling arrangements), however anticompetitive, as long as those arrangements adversely affect only foreign markets.”[30]

The Court’s second line of reasoning was rooted in the statute’s language and history which “suggest that Congress designed the FTAIA to clarify, perhaps to limit, but not to expand in any significant way, the Sherman Act’s scope as applied to foreign commerce.”[31] The plaintiffs could not identify any pre-FTAIA precedent suggesting that a private plaintiff should be able to bring an antitrust claim based on entirely independently caused foreign harm.[32]

The Court held that the FTAIA bars a plaintiff’s claim that is based solely on independently caused foreign harm, and remanded the case for consideration of plaintiffs’ alternative argument that the foreign injury was not independent of the U.S. effects and was instead linked in some way.[33] The plaintiffs’ theory was that “because vitamins are fungible and readily transportable, without an adverse domestic effect (i.e., higher prices in the United States), the sellers could not have maintained their international price-fixing arrangement and respondents would not have suffered their foreign injury.”[34] The theory posits that, but for higher prices in the United States, overseas purchasers or arbitrageurs could have purchased vitamins in the United States at competitive prices and sold them abroad, preventing worldwide supra-competitive prices.

On remand, the D.C. Circuit rejected the plaintiffs’ theory. The Court found that the plaintiffs “paint a plausible scenario under which maintaining super-competitive prices in the United States might well have been a ‘but-for’ cause of the [plaintiffs’] foreign injury.”[35]   However, the Court held, “but-for” causation between the domestic effects and the foreign injury is not sufficient to satisfy the domestic effects exception: the “statutory language – ‘gives rise to’ – indicates a direct causal relationship, that is, proximate causation, and is not satisfied by the mere but-for ‘nexus’ the appellants advanced in their brief.”[36] Anything less than a proximate cause standard, the Court reasoned, “would open the door to [unreasonable] interference with other nations’ prerogative to safeguard their own citizens from anti-competitive activity within their own borders.”[37] As alleged, plaintiffs’ claims did not satisfy the proximate cause standard:

Although the appellants argue that the vitamin market is a single, global market facilitated by market division agreements so that their injuries arose from the higher prices charged by the global conspiracy (rather than from super-competitive prices in one particular market), they still must satisfy the FTAIA’s requirement that the U.S. effects of the conduct give rise to their claims. The but-for causation the appellants proffer establishes only an indirect connection between the U.S. prices and the prices they paid when they purchased vitamins abroad. Under the appellants’ theory, it was the foreign effects of price-fixing outside of the United States that directly caused, or “g[a]ve rise to,” their losses when they purchased vitamins abroad at super-competitive prices. That the appellees knew or could foresee the effect of their allegedly anti-competitive activities in the United States on the appellants’ injuries abroad or had as a purpose to manipulate United States trade does not establish that “U.S. effects” proximately caused the appellants’ harm.[38]

All other circuit courts that have considered this issue have held that the statutory language “gives rise to” requires a proximate cause analysis, rejecting but-for and arbitrage theories.[39]

IV. Analysis of What Effects are “Direct” Enough to Satisfy the FTAIA: A Review of the Two Interpretations

A. The Ninth Circuit Approach

The Ninth Circuit first considered what Congress meant by the term “direct” in United States v. LSL Biotechnologies, 379 F.3d 672 (9th Cir. 2004). As discussed in detail below, the Ninth Circuit defined the term “direct” to require that the effect “follow as an immediate consequence” of the defendant’s actions. The Court ultimately dismissed the claims, holding that an effect cannot be “direct” when it depends on uncertain intervening developments.

Defendants in LSL entered into a restrictive covenant that prohibited a foreign corporation from producing certain biochemically engineered tomato seeds for sale in North America. The United States filed a civil complaint alleging that the restrictive clause was so overbroad as to scope and unlimited in time that it constituted a naked restraint of trade in violation of the Sherman Act. Specifically, the United States described the anticompetitive effects of the restrictive clause as: (1) eliminating one of the few firms with the experience, track record, and know-how likely to develop seeds that will allow United States and other North American farmers to grow better fresh-market tomato seeds; and (2) allowing defendants to profitably charge more for their tomato seeds (or more for a license to use seeds with the relevant gene) than they otherwise could.[40] While the restricted market was defined as North America, the genetically enhanced gene grew best in Mexican climates. The Court therefore focused on consequences of prohibiting sales of seeds in Mexico and the resulting effect on tomatoes in the United States.

The Court in LSL first analyzed whether the FTAIA adds a new dimension to traditional antitrust law or whether it merely codifies antitrust precedent. Before the FTAIA’s enactment, the Second Circuit, sitting as the Court of last resort, articulated an “effects” test in United States v. Aluminum Company of America, 148 F.2d 416 (2d Cir. 1945) (“Alcoa”).   The Court in Alcoa held that the Sherman Act applies to foreign conduct only if the conduct was intended to, and did in fact produce, effects in U.S. commerce. The Supreme Court subsequently endorsed Alcoa’s effects test in Hartford Fire Insurance Company v. California, 509 U.S. 764 (1993), stating that “it is well established by now that the Sherman Act applies to foreign conduct that was meant to produce and did in fact produce some substantial effect in the United States.”[41]

The Ninth Circuit in LSL subsequently questioned whether the FTAIA was intended to replace Alcoa’s effects test or to merely codify it. The Supreme Court had avoided addressing this question in Hartford Fire – the only other case in which the Supreme Court has addressed, albeit briefly, the FTAIA. The Hartford Fire Court considered whether the Sherman Act should apply to an alleged conspiracy among London-based reinsurers to manipulate the American insurance market.[42] The parties in Hartford Fire conceded that the district court had jurisdiction over the Sherman Act claims, and thus there was no analysis of how the FTAIA would affect the Sherman Act’s application to the facts alleged.[43] The Court’s brief discussion of the FTAIA was only in response to the defendants’ argument that the Court should restrain its exercise of jurisdiction out of respect for the interests of foreign nations. The Court ultimately held that the Sherman Act applied to the alleged conduct. In a footnote, the Court stated that it is unclear “how [the FTAIA] might apply to the conduct alleged here. Also unclear is whether the [FTAIA’s] ‘direct, substantial, and reasonably foreseeable effect’ standard amends existing law or merely codifies it. We need not address these questions here.”[44] The dissent in LSL highlighted the fact that circuit courts continued to avoid deciding whether the FTAIA amends or codifies existing Sherman Act precedent.[45] The Ninth Circuit, however, approached the question head-on in LSL.

The Government in LSL argued that the FTAIA merely codified existing common law and that the court should continue to apply Alcoa’s effects test.[46] The Ninth Circuit rejected this argument, finding that adopting it “would render meaningless the word ‘direct’ in the FTAIA” and contravene the FTAIA’s purpose.[47] The dissenting opinion vehemently argued for a contrary interpretation, providing an in-depth analysis of pre-FTAIA precedent supporting the argument.[48]

The majority of the Ninth Circuit next defined the term “direct.” The Court relied on a dictionary definition and the Supreme Court’s construction of the word “direct” as used in the Foreign Sovereign Immunities Act (“FSIA”), as articulated in Republic of Argentina v. Weltover, Inc., 504 U.S. 607 (1992). In Weltover, the Republic of Argentina defaulted on certain bonds, and two Panamanian corporations and a Swiss bank brought breach of contract actions in the Southern District of New York, arguing that payment on the bonds was to occur in New York. On review from the Second Circuit’s affirmance of a motion to dismiss for lack of subject-matter jurisdiction, lack of personal jurisdiction, and forum non conveniens, the Supreme Court analyzed whether the conduct at issue satisfied one of the exceptions to the FSIA and would thus allow for suit against Argentina. The relevant exception to the FSIA applies to commercial activities by a foreign state that “cause[] a direct effect in the United States.”[49] The Second Circuit refused to follow what the Supreme Court described as a “suggestion” in the legislative history of the FSIA that an effect is not “direct” unless it is both “substantial” and “foreseeable.”[50] The “suggestion” comes from language in the house report which provides that conduct covered by the relevant section of the FSIA would be subject to jurisdiction in American courts “consistent with principles set forth in [S]ection 18 [of the Restatement of Foreign Relations Law of the United States].”[51] The Court described Section 18 of the Restatement as providing that “American laws are not given extraterritorial application except with respect to conduct that has, as a ‘direct and foreseeable result,’ a ‘substantial’ effect within the United States.”[52] According to the Supreme Court, that section “obviously deals with jurisdiction to legislate rather than jurisdiction to adjudicate, [and thus] this passage of the House Report has been charitably described as ‘a bit of a non sequitur.’”[53] Accordingly, the Supreme Court “reject[ed] the suggestion that [the relevant section of the FSIA] contains any unexpressed requirement of ‘substantiality’ or ‘foreseeability.’”[54] While jurisdiction may not be predicated on trivial effects in the United States, the Court affirmed the Second Circuit’s determination that “an effect is ‘direct’ if it follows ‘as an immediate consequence of the defendant’s . . . activity.’”[55] The Court then found that the conduct had a “direct” effect in the United States, explaining that, “[b]ecause New York was . . . the place of performance for Argentina’s ultimate contractual obligations, the rescheduling of those obligations necessarily had a ‘direct effect’ in the United States: Money that was supposed to have been delivered to a New York bank for deposit was not forthcoming.”[56]

The Ninth Circuit adopted this reasoning in LSL, and held that an effect is “direct” if it “follows as an immediate consequence” of the defendant’s conduct.[57] The Court then found that the effects alleged were not “direct” enough to allow the suit to proceed. Specifically, the alleged domestic effects from exclusion of the potential competitor were too remote because the potential competitor was in no position to develop a new seed or otherwise produce a seed in the United States without violating the other defendant’s patent.[58] According to the Ninth Circuit, an effect cannot be “direct” when it depends on uncertain intervening developments (i.e., that the foreign corporation enter the market, where other companies already hold a significant market share, and actually develop new seeds without violating the other defendant’s patent).

Additionally, the Court found that the restrictive clause did not have a direct effect on the prices paid by American consumers. Although the Government argued that the restrictive clause would allow defendants to profitably charge more for seeds than they otherwise could, the Government presented no evidence supporting that argument. Further, the U.S. Government had recently entered into an agreement with Mexican farmers setting a floor on the price of tomatoes shipped from Mexico to the United States.[59] This fact, according to the Court, seriously undercut the Government’s argument that defendants could artificially raise the prices of tomatoes sold to U.S. customers. The Court accordingly affirmed dismissal of the claims because the domestic effects did not follow as an “immediate consequence” of the defendants’ foreign conduct.

B. The Seventh Circuit Approach

The Seventh Circuit subsequently rejected the Ninth Circuit’s construction of “direct,” stating that the Ninth Circuit erred in applying the definition used by the Supreme Court in interpreting the FSIA. In Minn-Chem Inc. v. Agrium Inc., 683 F.3d 845 (7th Cir. 2012), the Seventh Circuit held that an effect is “direct” if there is a “reasonably proximate causal nexus” between the conduct and the domestic effect. As discussed below, the facts alleged in Minn-Chem demonstrated a sufficiently direct effect on U.S. commerce.

The defendants in Minn-Chem, global producers, marketers, and distributors of potash, allegedly created a cartel, took steps outside of the United States to increase prices of potash, a product with high demand in the U.S. market, and then applied those higher prices to sales in U.S. commerce. Specifically, the alleged cartel members “used a rolling strategy” to negotiate prices, “first negotiat[ing] prices in Brazil, India, and China, and then us[ing] those prices as benchmarks for sales to U.S. customers.”[60]   Plaintiffs, U.S. direct and indirect purchasers of potash, sued to recover overcharges paid as a result. The Court acknowledged that the complaint alleged both import and non-import non-domestic transactions. For example, certain potash producers sold potash directly to U.S. customers. Those import transactions,[61] the Court determined, were not affected by the FTAIA and were thus actionable under the Sherman Act if the foreign conduct produced a substantial and intended effect in the United States (the effects test).[62] Certain conduct alleged, however, could not be defined as import commerce and thus required analysis under the FTAIA. For example, one defendant was the marketing and sales agent in all markets other than the United States and Canada. The Court presumed that, in order to avoid the bar on indirect purchaser claims under the Sherman Act,[63] plaintiffs sought to hold the marketing and sales agent defendant jointly and severally liable for damages that the direct sellers might be required to pay.

The Seventh Circuit first held that the “gives rise to” prong was satisfied. Finding the case to be the “mirror image of the situation described in Empagran, where the foreign country whose consumers are hurt would have been the better enforcer,” the Seventh Circuit found that it was “U.S. authorities or private plaintiffs who have the incentive—and the right—to complain about overcharges paid as a result of the potash cartel, and whose interests will be sacrificed if the law is interpreted not to permit this kind of case.”[64]

The Seventh Circuit then analyzed whether the foreign conduct had a direct, substantial, and reasonably foreseeable effect on U.S. commerce. The facts alleged satisfied each of these elements, but the Court’s focus was whether the conduct had a “direct” effect on U.S. commerce.   As a threshold matter, the Seventh Circuit had to define the term “direct” for purposes of the FTAIA. The Seventh Circuit rejected the Ninth Circuit’s interpretation in LSL and instead adopted the interpretation offered by the Antitrust Division of the U.S. Department of Justice that the term “direct” means “a reasonably proximate causal nexus.”[65] The Seventh Circuit found the Ninth Circuit’s reasoning flawed, because the statutory language in both the FSIA and the FTAIA do not allow for similar interpretations of the term “direct.” The relevant language of the FSIA applies to commercial activity that takes place outside the United States when “that act causes a direct effect in the United States.” While the Supreme Court in Weltover refused to read into the legislative history of the FSIA that the term “direct” required the effect to be both substantial and foreseeable, the FTAIA actually does require that an effect be substantial and foreseeable before it is actionable. According to the Seventh Circuit, “[s]uperimposing the idea of ‘immediate consequence’ on top of the full phrase [direct, substantial, and reasonably foreseeable in the FTAIA] results in a stricter test than the complete text of the statute can bear. To demand a foreseeable, substantial, and ‘immediate’ consequence on import or domestic commerce comes close to ignoring the fact that straightforward import commerce has already been excluded from the FTAIA’s coverage.”[66] The term “direct,” according to the Seventh Circuit, exists to address “the classic concern about remoteness . . . [Just] as tort law cuts off recovery for those whose injuries are too remote from the cause of an injury, so does the FTAIA exclude from the Sherman Act foreign activities that are too removed from the ultimate effects on U.S. domestic or import commerce.”[67] According to the Seventh Circuit, the facts alleged were “not a House-that-Jack-Built situation in which action in a foreign country filters through many layers and finally causes a few ripples in the United States.”[68] Instead, the alleged effects were sufficiently direct:

The plaintiffs allege that the defendants would first negotiate prices in Brazil, India, and China, and then they would use those prices for sales to U.S. customers. The alleged supply reductions led to price hikes in these foreign markets, and those increases showed up almost immediately in the prices of U.S. imports. . . . It is no stretch to say that the foreign supply restrictions, and the concomitant price increases forced upon the [foreign] purchasers, were a direct – that is, proximate – cause of the subsequent price increases in the United States.[69]

The U.S. purchasers were thus allowed to move forward with their Sherman Act claims.

C. The Second Circuit Approach

The Second Circuit subsequently followed suit and adopted the Seventh Circuit’s definition of “direct” in Lotes Co. v. Hon Hai Precision Industry, 753 F.3d 395 (2d Cir. 2014). Although the Second Circuit ultimately decided that the plaintiff’s claims failed the “gives rise to” prong, the Court engaged in a lengthy analysis as to why the Second Circuit should adopt the Seventh Circuit’s definition of “direct” and reject that of the Ninth Circuit.

The Court in Lotes found that the FTAIA barred a Taiwanese electronics manufacturer’s claims against competitors for engaging in exclusionary conduct in Asia. The plaintiff and defendants manufactured Universal Serial Bus (“USB”) connectors in China for sale to original design manufacturers in China who assembled USB connectors for well-known computer brands such as Acer, Dell, HP, and Apple.[70]   Neither plaintiff nor defendants sold products directly into the United States. Plaintiff and defendants were members of a standard setting organization that allegedly required defendants to license technology related to the USB standard on reasonable and nondiscriminatory terms.[71] Although plaintiff attempted to negotiate licensing the technology, defendants denied plaintiff the patent licenses and instead brought patent infringement suits in China against two of plaintiff’s subsidiaries.[72] Plaintiff brought a Sherman Act claim based on this exclusionary conduct, and defendants moved to dismiss. Plaintiff claimed that “[g]iven the central role Chinese manufacturing plays in the global electronics supply chain, . . . curbing competition in China will have downstream effects worldwide, including in the United States.” Plaintiff further argued that “because any price increases in [USB] connectors will ‘inevitably’ be passed on through each stage in the production process to consumers in the United States, ‘[a]nything that affects the price, quantity, or competitive nature of the production market for [USB] connectors will . . . have a direct, substantial, and reasonably foreseeable effect on U.S. commerce.’”[73] The district court adopted the Supreme Court’s definition of “direct” from the FSIA and held that an effect is “direct” if it follows as an immediate consequence of the defendant’s activity.[74] Using this standard, the district court found only an indirect relationship between the alleged domestic effects and foreign exclusionary conduct and quoted defendants’ brief approvingly:

The alleged conduct, taking Plaintiff’s allegations as true, is connected to the United States only through a long and convoluted series of transactions and manufacturing steps: Plaintiff and other USB 3.0 connector manufacturers supply the USB 3.0 connector products to various manufacturers of motherboards in China, which incorporate the connectors into their motherboards in China. These motherboards are sold to original design manufacturers (“ODM”) in China that manufacture the finished goods for brands such as Dell and HP in China. Only then are these finished goods shipped to the United States for distribution.[75]

The district court distinguished the LCD cases[76] because there (1) defendants were alleged to have entered into a conspiracy to fix prices whose effects were easily quantifiable, while no price-fixing was alleged in Lotes; (2) LCD Panels were a major component of finished products where USB connectors are but one component in a host of components that make up the finished products; and (3) defendants in the LCD cases controlled more than eighty-percent of the LCD Panel market, while plaintiff in Lotes made no particular allegations demonstrating relevant market shares.[77] Consequently, the district court held that the effects of defendants’ foreign anti-competitive conduct in the USB connectors market were “too attenuated to establish the proximate causation required by the FTAIA.”[78] Interestingly, although the district court construed “direct” to require that the effect follow as an immediate consequence of defendants’ conduct, the court implicitly engaged in a proximate cause analysis.

On appeal, the Second Circuit found that the district court applied the wrong legal standard, and instead adopted the “less stringent approach” articulated in Minn-Chem and proposed in Lotes by the United States and the FTC as amici curiae. Accordingly, the Second Circuit construed “direct” to mean “a reasonably proximate causal nexus.”[79] The Court disagreed with LSL’s reasoning in several ways. First, the Ninth Circuit in LSL quoted Webster’s Third New International Dictionary, a dictionary published contemporaneously with the FTAIA’s enactment. The dictionary defined “direct” as “proceeding from one point to another in time or space without deviation or interruption.” The Ninth Circuit relied on this definition.[80] The Second Circuit, however, noted that the same dictionary “also defines ‘direct’ as ‘characterized by or giving evidence of a close especially logical, causal, or consequential relationship.’”[81] Although the dictionary provided alternative definitions, the Second Circuit emphasized that “the relative order of the common dictionary definitions of a single term does little to clarify that term’s meaning within a particular context. When a word has multiple definitions, usage determines its meaning.”[82]

Second, the Court in Lotes disagreed with the Ninth Circuit’s decision to rely on the Supreme Court’s interpretation of a nearly identical term in the FSIA. Noting that “the Supreme Court has cautioned that courts ‘must be careful not to apply rules applicable under one statute to a different statute without careful and critical examination,’” the Second Circuit emphasized that “both the purpose and the language of the FSIA and FTAIA differ in critical aspects.”[83] With respect to purpose, the FSIA provides the only basis to obtain jurisdiction over a foreign state, and thus “the ‘direct effect’ exception . . . must be carefully patrolled to preserve the FSIA’s ‘general rule of immunity.’”[84] The FTAIA, on the other hand, merely serves to clarify the scope of the Sherman Act with respect to conduct occurring in foreign commerce.[85] With respect to text, the Second Circuit echoed the Seventh Circuit’s concern about the linguistic differences in the FTAIA and the FSIA. According to the Second Circuit, “[r]eading ‘direct’ as ‘immediate’ would rob the separate ‘reasonabl[e] foreseeab[ility]’ requirement of any meaningful function, since [the Court is] hard pressed to imagine any domestic effect that would be both ‘immediate’ and ‘substantial’ but not ‘reasonably foreseeable.’”[86] Additionally, according to the Second Circuit, requiring an effect to follow as an immediate consequence of defendants’ foreign anticompetitive conduct “would all but collapse the FTAIA’s domestic effects exception into its separate import exclusion.”[87] A proximate cause standard, on the other hand, avoids these problems and remains harmonious with longstanding antitrust principles that require a proximate cause analysis when analyzing what injuries are of the type the antitrust laws properly redress.[88] The Court acknowledged that the concept of proximate cause is not easy to define, but courts “have a great deal of experience applying it, and there is a wealth of precedent for them to draw upon in doing so.”[89]

Reviewing the district court’s analysis, the Court stated that the “immediate consequence” standard focuses too narrowly on the spatial and temporal separation between the conduct and the effect.[90] The district court erred because it placed near dispositive weight on the fact that USB connectors are manufactured and incorporated into finished products overseas. This fact does not render an effect remote, according to the Second Circuit, because “[t]his kind of complex manufacturing process is increasingly common in our modern global economy, and antitrust law has long recognized that anticompetitive injuries can be transmitted through multi-layered supply chains.”[91] The Court continued:

There is nothing inherent in the nature of outsourcing or international supply chains that necessarily prevents the transmission of anticompetitive harms or renders any and all domestic effects impermissibly remote and indirect. Indeed, given the important role that American firms and consumers play in the global economy, we expect that some perpetrators will design foreign anticompetitive schemes for the very purpose of causing harmful downstream effects in the United States. Whether the causal nexus between foreign conduct and a domestic effect is sufficiently “direct” under the FTAIA in a particular case will depend on many factors, including the structure of the market and the nature of the commercial relationships at each link in the causal chain. Courts confronting claims under the FTAIA will have to consider all of the relevant facts, using all of the traditional tools courts have used to analyze questions of proximate causation.[92]

As such, “foreign anticompetitive conduct can have a statutorily required ‘direct, substantial, and reasonably foreseeable effect’ on U.S. domestic or import commerce even if the effect does not follow as an immediate consequence of the defendant’s conduct, so long as there is a reasonably proximate causal nexus between the conduct and the effect.”[93] The Court declined, however, to decide whether the plaintiff plausibly alleged that the defendants’ foreign anticompetitive conduct had a direct, substantial, and reasonably foreseeable effect on U.S. commerce. This is because, regardless of the effect defendants’ conduct had on U.S. commerce, that effect could not give rise to the plaintiff’s claims.[94] Although the plaintiff alleged that the defendants’ foreign conduct had the effect of driving up prices of consumer electronics products incorporating USB connectors in the United States, “those higher prices did not cause [plaintiff’s] injury of being excluded from the market for USB 3.0 connectors – that injury [instead] flowed directly from the defendant’s exclusionary foreign conduct” and “precedes any domestic effect in the causal chain.”[95] The plaintiff had thus alleged the type of independently caused foreign injury barred by the FTAIA under Empagran.

V. “Direct” Effects in the LCD Cases

The LCD cases arise from price-fixing by manufacturers of LCD Panels sold in the United States and elsewhere. The Department of Justice brought criminal charges against six Korean and Taiwanese LCD Panel manufacturers (including executives and subsidiaries of the manufacturers) for conspiring to stabilize and set target prices of TFT-LCD Panels. The conspirators met regularly, and these meetings were subsequently named the Crystal Meetings. Crystal Meeting participants created regular reports with price targets for LCD Panel sales. The price targets were subsequently used when negotiating prices for sales to customers such as Dell, HP, and Motorola. Relevant sales included both direct and indirect sales to U.S. customers. For example, Defendants sold LCD Panels directly to certain U.S. purchasers, such as Dell. Defendants also sold LCD Panels to foreign purchasers, such as overseas systems integrators or a global product arm of a U.S. company, who incorporated LCD Panels into finished products for sale to U.S. customers.

Five of the six manufacturers pleaded guilty to violations of the Sherman Act, and one, AU Optronics (“AUO”), its American subsidiary (“AUOA”) and two of AUO’s executives, exercised their right to go to trial in the Northern District of California. The jury convicted the defendants, and they subsequently appealed. The Ninth Circuit affirmed the convictions in July of 2014, finding that the facts alleged and proved at trial established Section 1 Sherman Act claims as both import commerce and under the FTAIA’s effects exception.[96] The Court did not formally analyze the facts under the domestic effects exception, however, because the convictions were substantiated as import commerce.[97] Defendants petitioned for rehearing en banc, arguing, among other things, that the panel of judges rested its decision on the incorrect factual belief that the corporate AU Optronics defendants sold panels directly into the United States.[98] The Ninth Circuit denied the petition for rehearing en banc, but revisited its analysis and issued an amended opinion on January 30, 2015. In its amended opinion, the Court expounded on how the conduct alleged and proved at trial qualified as import commerce and also satisfied the domestic effects exception of the FTAIA. The Seventh Circuit issued its decision in one of the civil cases, Motorola Mobility v. AU Optronics Corporation, before the Ninth Circuit issued its amended decision in the criminal case. Accordingly, the Motorola opinion will be discussed first.

Many civil cases were filed to recover damages, and these cases were consolidated for pre-trial purposes in an MDL proceeding in the Northern District of California. Some of these cases were subsequently remanded for trial to the districts in which the suits were commenced. Motorola Mobility, LLC (“Motorola”), a U.S. corporation, brought one of these civil actions against the manufacturers[99] alleging that they conspired to fix the price of LCD Panels, which raised the price of both LCD Panels and products incorporating those panels, a large portion of which were intended to be sold in the United States. Motorola and its foreign subsidiaries had purchased LCD Panels for incorporation into mobile phones to be sold in the United States and elsewhere. The U.S. Motorola entity itself only purchased one percent of the panels for which Motorola sought to recover. The other ninety-nine percent of panels were purchased by Motorola’s foreign subsidiaries, which then incorporated the panels into mobile phones. Forty-two percent of the panel purchases for which Motorola sought to recover were purchased by foreign subsidiaries and incorporated into mobile phones that were shipped to Motorola in the United States for sale to U.S. customers. The other fifty-seven percent of the panels were purchased by Motorola’s foreign subsidiaries and incorporated into mobile phones for sale to non-U.S. customers. Motorola’s foreign subsidiaries assigned their claims to Motorola.

In the MDL proceedings, defendants separately moved to dismiss and then for summary judgment under the FTAIA, arguing that Motorola’s claims based on LCD purchases in foreign markets were barred by the FTAIA. The MDL Court denied these motions and allowed Motorola to proceed with its claims.[100] The MDL Court based its summary judgment decision on Motorola’s “domestic roots,” “the locale of the transactions at issue,” and the fact that defendants (1) “targeted Motorola in the United States;” (2) “knew that Motorola sold mobile devices in the United States and that the United States was one of the largest markets for mobile devices in the world;” (3) “established U.S. subsidiaries to facilitate sales of LCD [P]anels to Motorola in the United States;” (4) “met with Motorola on several occasions in the United States to discuss, and, at times, negotiate prices for LCD [P]anels;” (5) “used their employees—both U.S.-based and those stationed abroad—in furtherance of the price-fixing conspiracy;” and (6) pled guilty to participating in a conspiracy to fix prices of LCD [P]anels sold in the United States.[101] The MDL Court found the “gives rise to” prong satisfied because “Motorola has presented admissible evidence from which a jury could infer that final decisions regarding pricing of LCD [P]anels took place in the United States. . . . Motorola also points to the deposition testimony of its employees to support its claim that foreign affiliates issued purchase orders at the price and quantity determined by Motorola in the United States.”[102] Despite Motorola’s arguments to the contrary, the MDL Court held that the purchases did not qualify as “imports” because Motorola’s foreign subsidiaries, rather than defendants, brought the LCD Panels into the United States. After the case was remanded to the Northern District of Illinois for trial, defendants moved for reconsideration of the MDL Court’s order denying summary judgment.

The court in the Northern District of Illinois (“Transferor Court”) granted defendants’ motion. Applying a clear error standard, the Transferor Court granted partial summary judgment for defendants, finding that the FTAIA barred recovery for the ninety-nine percent of the purchases made by Motorola’s foreign subsidiaries overseas.[103]   The Transferor Court found that none of the factors identified by the MDL Court demonstrate that the domestic effects, rather than the overall price-fixing conspiracy itself, proximately caused Motorola’s foreign subsidiaries to purchase LCD Panels from defendants at inflated prices.[104] A straightforward application of the principles articulated by the D.C. Circuit in Empagran demonstrated that the FTAIA barred Motorola’s claims based on purchases by its foreign subsidiaries because any injury based on those purchases did not arise from any domestic effect. The Transferor Court did not reconsider the MDL Court’s holding that the transactions did not qualify as imports because that “holding was clearly supported by precedent.”[105]

The Transferor Court certified its order for interlocutory appeal. The Seventh Circuit accepted it, and without further briefing or hearings, affirmed the Transferor Court’s grant of partial summary judgment for defendants. The Seventh Circuit described the fifty-seven percent of panels that never entered the United States, and “never became domestic commerce,” “as a frivolous element of Motorola’s” appeal that “can’t possibly support the Sherman Act claim.”[106] Regarding the other forty-two percent, the effect was “indirect – or ‘remote,’ the term used in [Minn-Chem], to denote the kind of effect that the statutory requirement of directness excludes.”[107] Additionally, the Seventh Circuit held that Motorola’s claims independently failed to satisfy the “gives rise to” prong, because the “effect of the alleged price fixing on [U.S.] commerce in this case is mediated by Motorola’s decision on what price to charge U.S. consumers for the cellphones manufactured abroad that are alleged to have contained a price-fixed component.”[108] Therefore, “the effect in the United States of the price fixing could not give rise to an antitrust claim.”[109] The Seventh Circuit also found that the practical consequences of the expansive interpretation urged by Motorola supported a finding that the FTAIA barred claims based on purchases by Motorola’s foreign subsidiaries.[110]   Defendants petitioned for a rehearing en banc. The Seventh Circuit denied an en banc hearing but vacated its opinion and invited briefing and heard oral argument.

The United States filed three amicus briefs and one letter.[111] In addition to other arguments,[112] the Government urged that the foreign price-fixing had a direct, substantial, and reasonably foreseeable effect on U.S. commerce.[113]   According to the Government, “there can be a close, significant, and predictable causal connection between fixing the price of a major component made and sold outside the United States and U.S. commerce in finished products incorporating that component.”[114] Such a holding does not offend notions of international comity because “Congress was aware of the potential for friction [with foreign sovereigns] when considering the FTAIA bill, but concluded that the ‘bill is not intended to restrict the application of American laws to extraterritorial conduct where the requisite effects exist.’”[115] Applying the interpretation of “direct” articulated in Minn-Chem, the Government argued that the

Court should hold that defendants’ conspiracy had a direct effect on import and domestic commerce in cellphones. The natural and probable consequence of increasing the price of a significant component like LCD panels is an increase in the price of cellphones. Motorola’s decision on what price to charge is an intermediate link in the causal chain. But as Minn-Chem’s and Lotes’ rejection of the immediate-consequence standard demonstrates, the mere existence of an intermediate link does not render an effect indirect. Motorola’s pricing decision is not a superseding or intervening cause (nor is the cellphone purchasers’ decision to accept that price). In this marketplace . . . the natural, predictable, and probable consequence of defendants’ charging more for LCD panels was higher prices for cellphones containing those panels.”[116]

The Government was concerned that a finding that “component price fixing cannot proximately cause effects on commerce in component-incorporating products [would likely] constrain the government’s ability to prosecute cartels that can significantly harm U.S. commerce and consumers.”[117] The Government reminded the Court that the United States has criminally prosecuted foreign defendants for fixing the price of LCD panels manufactured abroad, based in part on the price-fixing’s effects on import commerce in products incorporating those panels, and that those prosecutions “have not caused international friction.”[118] At that point in time, the Ninth Circuit had already affirmed convictions of AUO, AUOA, and two of AUO’s executives finding that the facts alleged and proved at trial supported Sherman Act violations under an import commerce theory.[119] Finally, the Government argued that a “different approach is required for criminal prosecutions and actions in equity brought by the government.”[120] Any concerns regarding over-expansive private enforcement of component price-fixing can be addressed through the “gives rise to” prong, where, as here, the domestic effects do not give rise to claims by Motorola’s foreign subsidiaries.[121]

The Seventh Circuit held that Motorola could not establish that the injury to its foreign affiliates, for which Motorola sought to recover, arose from any effects the price-fixing had on U.S. commerce. The Court assumed that the requirement of a direct, substantial, and reasonably foreseeable effect on domestic commerce was satisfied.[122] Before making this assumption, however, the Court stated that, if the prices of components were fixed, the effect would be foreseeable, “could be substantial, and might well be direct rather than ‘remote,’ the word used in Minn-Chem.”[123] The Court described the effect here as somewhere in between the clearly “direct” situation in Minn-Chem (where “foreign sellers allegedly created a cartel, took steps outside the United States to drive up the price of a product that is wanted in the United States, and then (after succeeding in doing so) sold that product to U.S. customers”), and the hypothetically “remote” situation rejected in Minn-Chem (the “situation in which action in a foreign country filters through many layers and finally causes a few ripples in the United States”).[124] According to the Court, while the circumstances before it “[didn’t] seem like ‘many layers,’ resulting in just ‘a few ripples’ in the United States cellphone market,” the ripple effect was probably “modest.”[125] This is because Motorola’s damages expert found that Motorola had raised the resale price of cellphones in the United States by an amount greater than the increased price that its foreign subsidiaries charged Motorola.[126] Even though the case was more than five years old, the Court found “a remarkable dearth of evidence from which to infer actual harm to Motorola.”[127] As such, the Court assumed that the domestic effects were sufficient because it was clear to the Court that the injury to Motorola’s foreign affiliates, for which Motorola sought to recover, could not have arisen from any domestic effect of the price-fixing.

In response to the Government’s concern about a ruling that could interfere with criminal and injunctive actions brought by the Government, the Seventh Circuit stated that “[i]f price fixing by the component manufacturers had the requisite statutory effect on cellphone prices in the United States, the [FTAIA] would not block the Department of Justice from seeking criminal or injunctive remedies.”[128] The Court added that “the Department successfully prosecuted AU Optronics for criminal price-fixing of the LCD [P]anels sold to Motorola’s foreign subsidiaries [and] the Department [did] not suggest that the defendants’ conduct gave rise to an antitrust damages remedy for Motorola.”[129]

Assuming that the effects were sufficiently direct, substantial, and reasonably foreseeable, the Court held that Motorola’s claims failed the “gives rise to” prong and were separately barred by the indirect purchaser doctrine of Illinois Brick. The Court emphasized that Motorola and its foreign subsidiaries are distinct legal entities.[130] To the extent Motorola’s subsidiaries were harmed by the price-fixing, those subsidiaries could seek redress under the laws in the country in which the subsidiaries or the price-fixers are citizens.[131] Allowing Motorola to sue under U.S. law on behalf of its foreign affiliates who were injured in foreign commerce would “be an unjustified interference with the right of foreign nations to regulate their own economies.”[132]

Additionally, Motorola’s claims were barred under Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). The Supreme Court in Illinois Brick announced a rule barring indirect purchasers from bringing Sherman Act claims for damages based on the theory that the direct purchaser (here Motorola’s subsidiaries) passed on to the indirect purchaser (Motorola) some or all of the cartel’s elevated price.[133] Here, the direct sale was to Motorola’s subsidiaries in foreign commerce. Consequently, Motorola, the indirect purchaser, could not bring a Sherman Act claim.

Finally, practical considerations, such as the “enormous potential for suits of this character should Motorola prevail,” and the fact that private plaintiffs do not have reason to “weigh comity and sovereignty concerns when bringing international component cartel case[s],” required barring Motorola’s claims.[134]

The Seventh Circuit issued its opinion on November 26, 2014, and then amended the decision on January 12, 2015. In the amended decision, the Court added language to emphasize why the Court could not ignore the fact that Motorola and its foreign subsidiaries are separate legal entities who cannot pick and choose when to exercise the benefits of the U.S. laws (where Motorola is incorporated) or the laws of the countries in which the subsidiaries are incorporated.[135] The Court also highlighted that barring Motorola’s recovery does not prohibit the U.S. government from bringing Sherman Act claims to prevent and punish the foreign price-fixing that was harmful to Motorola’s subsidiaries.[136]

Meanwhile, the AUO defendants continued to appeal their convictions based on their participation in the nearly identical price-fixing cartel. As previously discussed, the Ninth Circuit affirmed the convictions as import commerce, declining to analyze the sufficiency of the domestic effects.   Defendants petitioned for rehearing en banc, arguing, among other things, that that the panel of judges based its decision on the incorrect factual belief that the corporate AUO defendants sold panels directly into the United States.[137] The Ninth Circuit denied the petition but amended its decision on January 30, 2015, incorporating an analysis of why the conduct satisfied the domestic effects exception.[138]

The domestic effects exception is highly relevant in AUO, because the government brought charges against AUO in relation to the entire conspiracy, which involved a wider variety of transactions than those at issue in Motorola. For example, while the panels at issue in Motorola traveled from defendants to Motorola’s foreign affiliates to Motorola and then to U.S. customers, other purchasers had different arrangements for incorporating LCD Panels into products for sale in the United States. The Ninth Circuit described them as follows:

For example, Dell had a factory in Malaysia where 100% of the products were destined for the American market. In other situations, overseas systems integrators purchased the panels for integration into finished products, often with direct oversight of TFT–LCD panel pricing by United States manufacturers. In yet other circumstances, a global product arm of a United States company purchased the panels directly from one of the co-conspirators and then sold to system integrators. It was not uncommon that the orders placed with system integrators were based on custom orders from United States customers for direct shipment to that customer.[139]

The Ninth Circuit applied the standard articulated in LSL and defined conduct as having a “direct” effect if it “follows as an immediate consequence of the defendant[s’] activity.”[140] In a footnote, the Court acknowledged the Second and Seventh Circuits’ disagreement with this standard. The Court also stated that although the three-judge panel in AUO could not consider whether to overrule LSL, a prior decision of the Ninth Circuit, “the result is the same [regardless of which standard is applied] and the defendants benefit from our circuit’s formulation.”[141]   Analyzing the conspiracy as a whole and noting that the standard on appeal is whether “any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt,” the Court held that “the conduct was sufficiently ‘direct, substantial, and reasonably foreseeable,’ with respect to the effect on United States commerce.”[142] This finding was supported by the fact that “TFT-LCDs are a substantial cost component of the finished products” and “[o]ne of the trial witnesses explained the correlation: ‘[i]f the panel price goes up, then it will directly impact the monitor set price.’”[143] Further, the conspiratorial meetings “led to direct negotiations with United States companies, both domestically and overseas, on pricing decisions.”[144] Finally, evidence at trial estimated that “$23.5 billion in price-fixed panels were imported into the United States as part of finished products.”[145] According to the Court, “[t]he testimony underscored the integrated, close and direct connection between the purchase of the price-fixed panels, the United States as the destination for the products, and the ultimate inflation of prices in finished products imported into the United States. The direct connection was neither speculative nor insulated by multiple disconnected layers of transactions.”[146] The Court distinguished AUO from LSL, “where the effect of an agreement between United States and foreign firms rested on speculation as to future innovation in tomato seeds and lacked an existing effect on American tomato consumers.”[147] The Court quoted the Seventh Circuit in Motorola, noting that although the Seventh Circuit barred Motorola’s claims, the Motorola Court stated that “[i]f price fixing by the component manufacturers had the requisite statutory effect on cellphone prices in the United States, the Act would not block the Department of Justice from seeking criminal or injunctive remedies.”[148]

The Court ended its analysis of the direct effects exception with the caveat that “even disregarding the domestic effects exception, the evidence that the defendants engaged in import trade was overwhelming and demonstrated that the defendants sold hundreds of millions of dollars of price-fixed panels directly into the United States.”[149] This evidence, according to the Court, was sufficient to convict the defendants of price-fixing under the import commerce theory alone.[150]

VI. What Effect Will Be “Direct” Enough in the Future?

Neither of the three Circuits, the Ninth, Seventh or Second, established a clear rule regarding what constitutes a direct effect for the purpose of the FTAIA – at least for purposes of component price-fixing. While both the Seventh and Second Circuits in Motorola and Lotes examined the term “direct” to a degree, this analysis is dicta because both Courts rested their holdings on the “gives rise to” language and simply assumed a direct, substantial, and reasonably foreseeable effect on U.S. commerce.[151] Although the Ninth Circuit found that the conduct alleged and proved at trial established a direct effect,[152] the Ninth Circuit’s determination was highly fact-specific, relying on trial testimony and the specific arrangements used to incorporate the price-fixed good into finished products for sales in the United States.[153] More importantly, the Ninth Circuit emphasized that “even disregarding the domestic effects exception, the evidence that the defendants engaged in import trade was overwhelming . . . [and] sufficient to convict the defendants of price-fixing in violation of the Sherman Act.”[154] Litigants therefore do not have a clear idea what will constitute a direct effect, much more a direct, substantial, and reasonably foreseeable effect, across the circuits.

Defendants in AUO and plaintiff in Motorola have separately petitioned the Supreme Court for writs of certiorari. If the writs are granted, the Supreme Court will most likely analyze the cases together. In doing so, the Court will likely clarify the scope of the term “direct.” The questions presented in both of the petitions, however, seek much broader review.

For example, Motorola phrased one of its questions presented[155] broadly by asking “is a cartel’s delivery of price-fixed goods overseas for incorporation into finished products imported directly into the United States immune from private suit under U.S. antitrust law?”[156] The question is general and requires an analysis of, among other things, the interplay between the domestic effects exception and the import commerce exclusion.

Defendants’ petition for a writ of certiorari in AUO allows for similarly broad analysis. Two of the three questions presented in AUO’s petition are: (1) “[w]hether a foreign seller’s conduct can ‘involv[e] . . . import trade or import commerce’ even when the seller himself does not import any goods into the United States” and (2) “[w]hether a foreign price-fixing agreement can have an effect on U.S. commerce that is ‘direct’ and ‘gives rise to’ a Sherman Act claim even when the agreement fixes prices only in foreign sales.”[157] These questions too would likely require the Supreme Court to articulate the outer bounds of the import commerce exclusion when analyzing what effects are “direct” for purposes of the FTAIA.

Defining the scope of the import commerce exclusion is important for two reasons. First, there is a circuit split regarding what conduct qualifies as import commerce such that the conduct is not governed by the FTAIA. The Seventh Circuit in Minn-Chem and Motorola limited the scope of import commerce to situations where the defendant physically imports the price-fixed good.[158] The Illinois District Court in Motorola (the Transferor Court) applied this same reasoning when it refused to reconsider the MDL Court’s holding that the 99% of panel purchases do not qualify as import commerce because the defendants themselves did not physically import the panels.[159] Other circuits, and the Government in its amicus briefs in AUO and Motorola, have interpreted the term as something broader. For example, the Third Circuit in Animal Science Products, Inc. v. China MinMetals Corp., 654 F.3d 462, 470 (3d Cir. 2011) instructed district courts to analyze “whether the defendants’ alleged anticompetitive behavior ‘was directed at an import market’” or “target[ed] import goods or services.” The Government in its briefs in the LCD cases argued that import commerce describes more conduct than just direct imports.[160]

The second reason why a clear explanation of the scope of import commerce is necessary is because the situation described in AUO – where only some of the foreign cartel members sold price-fixed goods directly into the United States – was described in Minn-Chem as involving both import trade and conduct “sufficiently outside the arena of simple import transactions as to require application of the FTAIA.”[161] The Seventh Circuit in Motorola applied Minn-Chem’s definition of import commerce and described the transactions at issue, sales of LCD Panels to foreign intermediaries for incorporation into finished products sold into the United States, as non-import commerce.[162] The Ninth Circuit, however, held that the conduct alleged and proved at trial in AUO, which involved claims arising from similar anticompetitive conduct,[163] was sufficient to support the convictions under an import commerce theory.[164] In doing so, the Ninth Circuit declined to determine “the outer bounds of import trade by considering whether commerce directed at, but not consummated within, an import market is also outside the scope of the FTAIA’s import provisions because at least a portion of the transactions [t]here involve[d] the heartland situation of the direct importation of foreign goods into the United States.”[165]

The AUO defendants argue in their certiorari petition that the evidence at trial demonstrated that they only sold LCD Panels to foreign intermediaries who subsequently incorporated the panels into LCD products for sales in the United States.[166] If true, the Ninth Circuit’s qualification of the transactions at issue as import commerce is in direct conflict with that of the Seventh Circuit, which described the relevant transactions, sales of LCD Panels to foreign intermediaries for incorporation into finished products sold into the United States, as non-import commerce.[167] This contradiction cannot be explained away by the fact that one case was criminal while the other was civil, because the FTAIA’s distinction between import and non-import commerce applies equally to criminal and civil actions. While the United States has argued that application of other elements of the FTAIA differs depending on whether it is a private plaintiff or the Government bringing suit,[168] neither the Ninth nor Seventh Circuit attempted to distinguish application of the import commerce exclusion and domestic effects exception on the basis of whether the case is private or criminal.

Perhaps one reason why the Ninth Circuit found that the effects in AUO were “direct and followed ‘as an immediate consequence’ of the price fixing” is because the conduct tested the line between how circuits define import and non-import commerce.[169] A broader interpretation of the term “import commerce” renders less determinative the directness of the effects in cases where there is room for disagreement regarding the proper classification of the transactions at issue. The Second and Seventh Circuits have argued the corollary in asserting that the Ninth Circuit’s interpretation of the term “direct,” requiring the effect to follow as an immediate consequence of the defendant’s conduct, risks collapsing the domestic effects exception into the import commerce exclusion. A clearly articulated rule announcing the boundaries of import commerce will therefore help the Court in determining how to resolve the circuit split regarding the term “direct.”

If certiorari is granted, the cases may also present an opportunity for the Supreme Court to discuss the interplay between the doctrine of Illinois Brick and the FTAIA. The Government argued in a footnote in its amicus brief in support of neither party in Motorola that the Illinois Brick doctrine should be construed to permit damages claims by the first purchaser in affected U.S. commerce when the FTAIA bars the direct purchaser’s claims.[170] The Seventh Circuit did not approve or disapprove of this argument because the Court found that Motorola waived the argument that it could recover for overcharges on the finished product based on price-fixing of the component.[171] Supreme Court analysis of how the indirect purchaser doctrine of Illinois Brick affects, if at all, application of the FTAIA, could be useful when addressing the circuit split over the term “direct.” For example, the Seventh Circuit quickly defined Motorola as an indirect purchaser, because the subsidiaries, and not Motorola, purchased the price-fixed goods from the defendants.[172] The Seventh Circuit, however, did not quickly define the effect of the price-fixing as “indirect,” even though the purchases at issue were indirect. Nor did the Court address how to reconcile the definition of “direct” it used in applying the indirect purchaser doctrine with that used in the FTAIA. While recognizing that the Illinois Brick doctrine and the FTAIA serve different purposes, it would be interesting to see if and how the Supreme Court harmonizes use of these terms.

In conclusion, the LCD cases are likely candidates for Supreme Court review of the FTAIA. If reviewed, the Supreme Court should first set out clear guidelines for establishing whether conduct constitutes import commerce. The definition of import commerce should be provided first because conduct classified as import commerce does not need to be analyzed by the FTAIA at all. In rendering this analysis, the Supreme Court may also provide guidance regarding whether import commerce, which is not subject to the FTAIA, is still governed by Hartford Fire and Alcoa’s effects test. Next, the Court should address how to interpret the term “direct.” Once conduct is deemed non-import commerce, litigants and courts will need clear guidelines regarding how to determine whether the effect is direct enough to be actionable. At this point, the Court should consider addressing the issues raised by the Government in its briefing in the LCD cases, including whether the “gives rise to” language applies when the Government brings criminal or injunctive actions, and whether the Illinois Brick doctrine should be redefined when the FTAIA bars the direct purchaser’s claim. In sum, the situations presented by foreign price-fixing today present a wealth of issues for the Supreme Court to analyze. We can expect the circuit splits to continue until these questions are reviewed.

* I am currently a law clerk for a district court judge in the Southern District of New York. I graduated from Boston University School of Law in 2011 and worked in private practice for approximately three years before beginning the clerkship. I would like to thank my friends and mentors for their support during the drafting process. I would also like to thank the Boston University International Law Journal staff for their thoughtful comments and for the opportunity to publish with the Journal’s online series.

[1] See 15 U.S.C. § 6a; see also 15 U.S.C. § 45(a)(3) (amending the FTC Act).

[2] 15 U.S.C. § 6a.

[3] See H.R. Rep. No. 97–686, at 5–6 (1982), as reprinted in 1982 U.S.C.C.A.N. 2487, 2491.

[4] United States v. LSL Biotechnologies, 379 F.3d 672, 680 (9th Cir. 2004); see also United States v. Hui Hsiung, Nos. 12–10492, 12–10493, 12–10500, 12–10514, 2015 WL 400550, at *17 (9th Cir. July 10, 2014), as amended (Jan. 30, 2015).

[5] LSL, 379 F.3d at 680.

[6] Lotes Co. v. Hon Hai Precision Indus., 753 F.3d 395, 410 (2d Cir. 2014); Minn-Chem Inc. v. Agrium Inc., 683 F.3d 845, 856-57 (7th Cir. 2012).

[7] See Motorola Mobility LLC v. AU Optronics Corp., 775 F.3d 816, 819 (7th Cir. Nov. 26, 2014), as amended (Jan. 12, 2015); Hsiung, 2015 WL 400550.

[8] Hsiung, 2015 WL 400550.

[9] Motorola, 775 F.3d at 819.

[10] Id. at 819.

[11] Hsiung, 2015 WL 400550, at *1, 18.

[12] Id. at *17 n. 9.

[13] H.R. Rep. No. 97–686, at 5–6 (1982), as reprinted in 1982 U.S.C.C.A.N. 2487, 2489.

[14] Id. at 2490.

[15] Id. See also United States v. LSL Biotechnologies, 379 F.3d 672, 690 (9th Cir. 2004) (Aldisert, J., dissenting).

[16] H.R. Rep. No. 97-686, at 2487.

[17] 15 U.S.C. § 6a; see also 15 U.S.C. § 45(a)(3) (amending the FTC Act).

[18] F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 162 (2004). The language “a claim” has been interpreted to mean the plaintiff’s claim. Id. at 173-74.

[19] Motorola Mobility LLC v. AU Optronics Corp., 775 F.3d 816, 818 (7th Cir. Nov. 26, 2014), as amended (Jan. 12, 2015); see also Lotes Co. v. Hon Hai Precision Indus., 753 F.3d 395, 414 (2d Cir. 2014) (“The FTAIA thus includes two distinct causation inquiries, one asking whether the defendants’ foreign conduct caused a cognizable domestic effect, and the other asking whether that effect caused the plaintiff’s injury.”).

[20] Empagran S.A., 542 U.S. at 159.

[21] Id.

[22] Id.

[23] Id.

[24] Id. at 160.

[25] Id. at 164.

[26] Id. at 159.

[27] Id.

[28] Id. at 165 (emphasis added).

[29] Id.

[30] Id. at 161 (quoting H.R. Rep. No 97-686, at 1-3, 9-10 (1982), as reprinted in 1982 U.S.C.C.A.N. 2487, 2487-2488, 2494-2495).

[31] Id. at 169.

[32] Id. at 170-71.

[33] Id. at 175.

[34] Id.

[35] Empagran S.A. v. F. Hoffmann-La Roche, Ltd., 417 F.3d 1267, 1270 (D.C. Cir. 2005).

[36] Id. at 1270-71.

[37] Id. at 1271.

[38] Id. (citation omitted).

[39] See, e.g., Lotes Co. v. Hon Hai Precision Indus., 753 F.3d 395, 414 (2d Cir. 2014) (“[I]n the wake of Empagran, three courts of appeals have considered what kind of causal connection is necessary for a domestic effect to ‘give[ ] rise to’ a plaintiff’s claim. . . . Agreeing with our sister circuits, we adopt that standard here.”) (citations omitted); In re Dynamic Random Access Memory (DRAM) Antitrust Litig., 546 F.3d 981, 987 (9th Cir. 2008) (“Like the D.C. Circuit and the Eighth Circuit, we . . . adopt a proximate causation standard.”); In re Monosodium Glutamate Antitrust Litig., 477 F.3d 535, 538 (8th Cir. 2007) (“We therefore conclude . . . that the statutory ‘gives rise to’ language requires a direct or proximate causal relationship . . . .”); see also United States v. Hui Hsiung, Nos. 12–10492, 12–10493, 12–10500, 12–10514, 2015 WL 400550, at *17 (9th Cir. July 10, 2014), as amended (Jan. 30, 2015).

[40] United States v. LSL Biotechnologies, 379 F.3d 672, 680-81 (9th Cir. 2004).

[41] Hartford Fire Ins. Co. v. California, 509 U.S. 764, 796 (1993).

[42] Id. at 795-96.

[43] At this point in time, courts analyzed the FTAIA as granting a court subject matter jurisdiction over a dispute rather than simply articulating the elements of an antitrust claim. The Supreme Court subsequently announced a “readily administrable bright line” for when statutory requirements are jurisdictional in Arbaugh v. Y & H Corp., 546 U.S. 500 (2006): “If the Legislature clearly states that a threshold limitation on a statute’s scope shall count as jurisdictional, then courts and litigants will be duly instructed and will not be left to wrestle with the issue. But when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional in character.” Id. at 515-516. Courts of appeals that have addressed whether the FTAIA is substantive or jurisdictional after Arbaugh have overruled contrary pre-Arbaugh precedent and have held that the FTAIA’s requirements are not jurisdictional but instead relate to the substantive elements of an antitrust claim. See, e.g., Hsiung, 2015 WL 400550, at *10 (“We hold that the FTAIA is not a subject-matter jurisdiction limitation on the power of the federal courts but a component of the merits of a Sherman Act claim involving nonimport trade or commerce with foreign nations.”); Lotes, 753 F.3d at 398 (“We hold that, under the principles articulated in a line of recent Supreme Court decisions . . . the requirements of the FTAIA are substantive and nonjurisdictional in nature.”); Minn-Chem, Inc. v. Agrium Inc., 683 F.3d 845, 848 (7th Cir. 2012) (en banc) (“We hold first that the FTAIA’s criteria relate to the merits of a claim, and not to the subject-matter jurisdiction of the court.”); Animal Science Prods., Inc. v. China MinMetals Corp., 654 F.3d 462, 467-68 (3d Cir. 2011) (“[W]e will now overturn this aspect of our [precedent] and hold that the FTAIA constitutes a substantive merits limitation rather than a jurisdictional limitation.”).

[44] Hartford Fire, 509 U.S. at 796 n.23.

[45] LSL, 379 F.3d at 684 & n.2 (Aldisert, J., dissenting).

[46] Id. at 679 (majority opinion).

[47] Id.

[48] Id. at 683-91 (Aldisert, J., dissenting).

[49] 28 U.S.C. § 1605(a)(2).

[50] Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 617 (1992).

[51] Id. (quoting H.R. Rep. No. 94-1487 at 1, 19, as reprinted in 1976 U.S.C.C.A.N. 6604, 6618).

[52] Id. at 618.

[53] Id. (emphasis in original) (citation omitted).

[54] Id.

[55] Id.

[56] Id. at 619.

[57] United States v. LSL Biotechnologies, 379 F.3d 672, 680 (9th Cir. 2004).

[58] Id. at 681.

[59] Id. at 682.

[60] Minn-Chem, Inc. v. Agrium Inc., 683 F.3d 845, 849 (7th Cir. 2012) (en banc) (internal citation omitted).

[61] See infra Section VI for discussion regarding the circuit split over the scope of the term “import commerce.”

[62] Minn-Chem, 683 F.3d at 855.

[63] The Supreme Court in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), announced a rule barring indirect purchasers from bringing Sherman Act claims for damages under the theory that the direct purchaser passed on some or all of the illegal overcharge.

[64] Minn-Chem, 683 F.3d at 860. This analysis resembles the theory advocated by Judge Noonan in his concurring opinion in DRAM only four years earlier in the Ninth Circuit. Judge Noonan distilled the majority’s interpretation of the “gives rise to” language as a judgment that certain social interests are “worthy of protection. . . . [I]t has been the judgment of Congress and the Supreme Court that the economic interests of consumers outside the United States are normally not something that American law is intended to protect. Hence it is difficult to persuade a court that injury to foreign consumers has been ‘caused’ by price-fixing in the United States. . . . We reach this vanishing point not from guidance in words like ‘proximate’ or ‘direct’ but from a strong sense that the protection of consumers in another country is normally the business of that country. Location, not logic, keeps [the plaintiff’s] claims out of court.” In re Dynamic Random Access Memory (DRAM) Antitrust Litig., 546 F.3d 981, 991 (9th Cir. 2008) (Noonan, J., concurring).

[65] Minn-Chem, 683 F.3d at 856-57.

[66] Id. at 857.

[67] Id.

[68] Id. at 860.

[69] Id. at 859.

[70] Lotes Co. v. Hon Hai Precision Indus., 753 F.3d 395, 399 (2d Cir. 2014).

[71] Id. at 400.

[72] Id. at 402.

[73] Id. (citations omitted).

[74] Lotes Co. v. Hon Hai Precision Indus., No. 12 Civ. 7465, 2013WL 2099227, at *7 (S.D.N.Y. May 14, 2013).

[75] Id. at *7.

[76] The relevant LCD case involved claims by a class of retail consumers who purchased products containing LCD panels in the United States. The plaintiffs argued that the artificially inflated prices for LCD panels were passed through to plaintiffs, causing them to pay higher prices for products containing LCD panels. See In re TFT-LCD (Flat Panel) Antitrust Litig., 822 F. Supp. 2d 953 (N.D. Cal. 2011).

[77] Lotes, 2013 WL 2099227, at *10.

[78] Id. at *8.

[79] Lotes Co. v. Hon Hai Precision Indus., 753 F.3d 395, 410 (2d Cir. 2014).

[80] United States v. LSL Biotechnologies, 379 F.3d 672, 680 (9th Cir. 2004).

[81] Lotes, 753 F.3d at 410.

[82] Id. (citations omitted).

[83] Id. (citation omitted).

[84] Id. at 410-11 (citation omitted).

[85] Id. at 411.

[86] Id.

[87] Id.

[88] Id. at 412.

[89] Id.

[90] Id.

[91] Id. at 413.

[92] Id.

[93] Id. at 398.

[94] Id. at 398, 413.

[95] Id. at 398, 414.

[96] United States v. Hui Hsiung, 758 F.3d 1074 (9th Cir. 2014).

[97] Id.

[98] Petition for Panel Rehearing at 3-8, United States v. AU Optronics Corp. (9th Cir. Aug. 25, 2014) (Nos. 12-10500, 12-10514, 12-10492, 12-10493).

[99] Motorola named several other manufacturers as defendants and alleged a larger conspiracy period than the Department of Justice in the criminal cases.

[100] See, e.g., In re TFT-LCD (Flat Panel) Antitrust Litig., No. 07-md-1827, 2012 WL 3276932 (N.D. Cal. Aug. 9, 2012); In re TFT-LCD (Flat Panel) Antitrust Litig., 785 F. Supp. 2d 835 (N.D. Cal. 2011). Earlier, the MDL Court had granted defendants’ motion to dismiss but allowed Motorola to replead its claims. See In re TFT-LCD (Flat Panel) Antitrust Litig., Nos. M 07-1827, C 09-5840, 2010 WL 2610641 (N.D. Cal. June 28, 2010).

[101] In re TFT-LCD (Flat Panel) Antitrust Litig., 2012 WL 3276932, at *2; see also Motorola Mobility, Inc. v. AU Optronics Corp., No. 09 C 6610, 2014 WL 258154, at *3 (N.D. Ill. Jan. 23, 2014) (describing the MDL Court’s decision).

[102] In re TFT-LCD (Flat Panel) Antitrust Litig., 2012 WL 3276932, at *3.

[103] Motorola, 2014 WL 258154, at *10.

[104] Id. at *7-10.

[105] Id. at *10.

[106] Motorola Mobility LLC v. AU Optronics Corp., 746 F.3d 842, 843 (7th Cir. 2014).

[107] Id. at 844.

[108] Id. at 845.

[109] Id.

[110] Id. at 846.

[111] Brief for the United States and the Federal Trade Commission as Amici Curiae in Support of Panel Rehearing or Rehearing En Banc, Motorola Mobility LLC v. AU Optronics Corp. (No. 14-8003) (Apr. 29, 2014); Letter from Donald B. Verrilli, Jr., Solicitor General, United States Department of Justice (No. 14-8003) (May 19, 2014); Supplemental Brief for the United States as Amicus Curiae, Motorola Mobility LLC v. AU Optronics Corp. (No. 14-8003) (June 27, 2014); Brief for the United States and the FTC as Amici Curiae in Support of Neither Party, Motorola Mobility LLC v. AU Optronics Corp. (No. 14-8003) (Sept. 5, 2014).

[112] The Government offered a novel argument in its third amicus brief, asserting that the Illinois Brick doctrine, which generally bars Sherman Act claims by downstream purchasers for damages incurred from overcharges allegedly passed on by direct purchasers, should be construed to permit damages claims by the first purchaser in affected U.S. commerce when the FTAIA bars the direct purchaser’s claims. The Government acknowledged that this would be an issue of first impression presented in an appeal of a case with facts that likely would not support a ruling on this novel theory. See Brief for the United States and the Federal Trade Commission as Amici Curiae In Support of Neither Party at 6, 23 & n.3. The Seventh Circuit did not approve or disapprove of the Government’s Illinois Brick extension because it found that Motorola had waived the argument that it could recover for overcharges on the finished product based on price-fixing of the component. Motorola Mobility LLC v. AU Optronics Corp., 775 F.3d 816, 818 (7th Cir. Nov. 26, 2014), as amended (Jan. 12, 2015) (“In any event Motorola waived in the district court any argument that it could base damages on the effect of the cartel’s pricing of components on the cost to Motorola of cellphones incorporating those components.”).

[113] See, e.g., Supplemental Brief for the United States as Amicus Curiae at 5.

[114] Id.

[115] Id. (quoting H.R. Rep. No. 97-686, at 13 (1982) (citing Statement of James R. Atwood at n.7), as reprinted in 1982 U.S.C.C.A.N. 2487, 2495).

[116] Brief for the United States and the FTC as Amici Curiae in Support of Neither Party at 14-15.

[117] Id. at 17.

[118] Id. at 18-19.

[119] The Ninth Circuit declined to analyze the sufficiency of the evidence under the domestic effects exception because the Sherman Act convictions were already substantiated as import commerce. United States v. Hui Hsiung, 758 F.3d 1074, 1078, 1092 (9th Cir. 2014) (“We hold that the indictment sufficiently alleged such conduct. We do not need to reach, however, the defendants’ sufficiency of the evidence challenge on domestic effects because sufficient evidence supported the alternate ground of conviction, the import trade theory.”).

[120] Brief for the United States and the FTC as Amici Curiae in Support of Neither Party at 10.

[121] Id.

[122] Motorola Mobility LLC v. AU Optronics Corp., 775 F.3d 816, 819 (7th Cir. Nov. 26, 2014), as amended (Jan. 12, 2015).

[123] Id.

[124] Id. (citing Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845, 860 (7th Cir. 2012)).

[125] Id.

[126] Id.

[127] Id. at 821.

[128] Id. at 825.

[129] Id.

[130] See, e.g., id. at 820. Motorola argued that all of the Motorola entities should be treated as a “single enterprise” because Motorola determined the price at which, and amount of, LCD Panels the subsidiaries should purchase. Although the Court rejected this argument, it emphasized that the result would have been the same if it had accepted the theory, because all of the relevant purchases, and resulting harm, would still have occurred in foreign commerce. Id. at 823.

[131] See, e.g., id. at 820.

[132] Id. at 824.

[133] Id. at 821 (citing Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977)).

[134] Id. at 826-27 (quoting Robert Connolly, Motorola Mobility and the FTAIA, Cartel Capers (Sept. 30, 2014), http://cartelcapers.com/blog/motorolablog/motorola-mobility-ftaia (last visited Apr. 22, 2015)).

[135] Id. at 820-22.

[136] Id. at 826.

[137] Petition for Panel Rehearing at 3-8, United States v. AU Optronics Corp. (9th Cir. Aug. 25, 2014) (Nos. 12-10500, 12-10514, 12-10492, 12-10493).

[138] United States v. Hui Hsiung, Nos. 12–10492, 12–10493, 12–10500, 12–10514, 2015 WL 400550, at *14-18 (9th Cir. July 10, 2014), as amended (Jan. 30, 2015).

[139] Id. at *17.

[140] Id.

[141] Id. at *17 n. 9.

[142] Id. at *17 (emphasis in original).

[143] Id.

[144] Id.

[145] Id.

[146] Id.

[147] Id. at *18 (citing United States v. LSL Biotechnologies, 379 F.3d 672, 681 (9th Cir. 2004)).

[148] Id. (quoting Motorola, 775 F.3d at 825).

[149] Id.

[150] Id.

[151] See Motorola Mobility LLC v. AU Optronics Corp., 775 F.3d 816, 819 (7th Cir. 2014), as amended (Jan. 12, 2015) (“We’ll assume that the requirement of a direct, substantial, and reasonably foreseeable effect on domestic commerce has been satisfied, as in Minn–Chem and Lotes . . . . What trips up Motorola’s suit is the statutory requirement that the effect of anticompetitive conduct on domestic U.S. commerce give rise to an antitrust cause of action.”); Lotes Co. v. Hon Hai Precision Indus., 753 F.3d 395, 398 (2d Cir. 2014) (“We further hold that foreign anticompetitive conduct can have a statutorily required ‘direct, substantial, and reasonably foreseeable effect’ on U.S. domestic or import commerce even if the effect does not follow as an immediate consequence of the defendant’s conduct, so long as there is a reasonably proximate causal nexus between the conduct and the effect. . . . We need not decide, however, whether the plaintiff here has plausibly alleged the requisite ‘direct, substantial, and reasonably foreseeable effect’ under the proper standard. . . . Here, regardless of what effect the defendants’ conduct has on U.S. domestic or import commerce, any such effect did not ‘give[] rise to’ the plaintiff’s claim.”)

[152] The parties did not dispute that the effect was both substantial and had a reasonably foreseeable effect on U.S. commerce. See United States v. Hui Hsiung, Nos. 12–10492, 12–10493, 12–10500, 12–10514, 2015 WL 400550, at *16 (9th Cir. July 10, 2014), as amended (Jan. 30, 2015).

[153] Id. at *17.

[154] Id. at *18.

[155] The second question presented relates to the procedure the Seventh Circuit used to determine which judges would analyze the merits of the case if the petition for interlocutory appeal were granted. See Petition for a Writ of Certiorari at i, Motorola Mobility LLC v. AU Optronics et al., No. 14-1122 (Mar. 16, 2015) (“2. Absent special circumstances, may a motions panel assign itself to decide the merits of a case?”).

[156] Id.

[157] Petition for a Writ of Certiorari at i, Hui Hsiung, Hsuan Bin Chen, AU Optronics Corporation, and AUO Optronics Corporation America, Inc., No. 14-1121 (Mar. 16, 2015). The third question presented relates to application of the per se rule instead of the rule of reason. See id. (“3. Whether foreign price-fixing agreements should be condemned as per se unlawful, instead of evaluated on a case-by-case basis under the rule of reason.”).

[158] See, e.g., Motorola Mobility LLC v. AU Optronics Corp., 775 F.3d 816, 818 (7th Cir. Nov. 26, 2014) as amended (Jan. 12, 2015) (“Regarding the 42 percent [of LCD Panels that Motorola’s foreign subsidiaries purchased and incorporated into mobile phones which were sold to Motorola for sale to U.S. customers], Motorola is wrong to argue that it is import commerce. It was Motorola, rather than the defendants, that imported these panels into the United States, as components of the cellphones that its foreign subsidiaries manufactured abroad and sold and shipped to it.”); Minn-Chem, Inc. v. Agrium Inc., 683 F.3d 845, 854 (7th Cir. 2012) (describing import commerce as “transactions in which a good or service is being sent directly into the United States [by foreign sellers] with no immediate stops”).

[159] Motorola Mobility, Inc. v. AU Optronics Corporation, No. 09 C 6610, 2014 WL 258154, at *10 (N.D. Ill. Jan. 23, 2014).

[160] See, e.g., Brief for the United States and the FTC as Amici Curiae in Support of Neither Party at 5, Motorola Mobility LLC v. AU Optronics Corp. (No. 14-8003) (Sept. 5, 2014) (“A price-fixing conspiracy can involve import commerce even if the price-fixed product is physically imported by a third party or if the defendants did not focus on U.S. imports. A narrower interpretation of the exclusion would undermine the FTAIA’s purpose to protect purchasers in the United States.”); Response to the Petitions for Rehearing and Rehearing en Banc at 5, United States v. AU Optronics Corp., et al. (Nos. 12-10492, 12-104, 93, 12-10500, 12-10514) (Oct. 10, 2014) (“Nothing in the language of the FTAIA indicates that the import commerce exclusion is limited to the conduct of importers, and such a limitation would leave U.S. commerce and consumers vulnerable to foreign cartels that simply employ unwitting third parties as import agents.”).

[161] Minn-Chem, 683 F.3d at 855.

[162] Motorola Mobility LLC v. AU Optronics Corp., 775 F.3d 816, 818-19 (7th Cir. 2014), as amended (Jan. 12, 2015).

[163] As noted in note 99 supra, Motorola named several other manufacturers as defendants and alleged a larger conspiracy period than the Department of Justice in the criminal cases. Motorola also only brought claims based on purchases by Motorola entities; while the criminal cases included those purchases, they also brought charges based on harm resulting from sales to other purchasers.

[164] United States v. Hui Hsiung, Nos. 12–10492, 12–10493, 12–10500, 12–10514, 2015 WL 400550, at *1, 18 (9th Cir. July 10, 2014), as amended (Jan. 30, 2015).

[165] Id. at *13 n.8.

[166] Petition for a Writ of Certiorari at 6-7, Hui Hsiung, Hsuan Bin Chen, AU Optronics Corporation, and AUO Optronics Corporation America, Inc., No. 14-1121 (Mar. 16, 2015).

[167] Motorola, 775 F.3d at 818-19.

[168] The Government has stated in its briefing in the LCD cases that the “gives rise to” language does not apply when the U.S. brings claims for criminal or injunctive relief. See, e.g., Brief for the United States and the Federal Trade Commission as Amici Curiae in Support of Neither Party at 10 (“In damages actions, courts should distinguish among claims based on the underlying transactions to ensure each claim redresses injuries consistent with Sections 1 and 6a, . . . and antitrust standing and injury rules. . . . A different approach is required for criminal prosecutions and actions in equity brought by the government under Sections 1-4 of the Sherman Act. In these instances, the sovereign sues not to redress a particular injury in its business or to obtain compensation for damages to its property, but to prosecute or enjoin a violation of its laws.”). The Ninth Circuit briefly addressed the “gives rise to” language, however it did not seem to analyze how it applied in AUO. See United States v. Hui Hsiung, Nos. 12–10492, 12–10493, 12–10500, 12–10514, 2015 WL 400550, at *17 (9th Cir. July 10, 2014), as amended (Jan. 30, 2015). Supreme Court analysis on this issue would be highly beneficial as well.

[169] The standard of review used is also highly relevant. Note that, with respect to alternatively affirming the convictions under the domestic effects exception, the Ninth Circuit “view[ed] the evidence in the light most favorable to the prosecution . . . [and determined] whether any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.” Hui Hsiung, 2015 WL 400550, at *14 (emphasis in original).

[170] See Brief for the United States and the FTC as Amici Curiae In Support of Neither Party at 6, 23 & n.3.

[171] Motorola, 775 F.3d at 824 (“In any event Motorola waived in the district court any argument that it could base damages on the effect of the cartel’s pricing of components on the cost to Motorola of cellphones incorporating those components.”).

[172] Id. at 821.