Call me, maybe? The Seventh Circuit's call in Motorola Mobility.

• Author: Smith, Jeffrey H.

INTRODUCTION

Global supply chains are prolific throughout modern business, provide unique business advantages in a globalized economy, and should be protected to some degree by American antitrust law. A supply chain is defined as a "network created amongst different companies producing, handling and/ or distributing a specific product." (1) In its most basic form, a supply chain encompasses each step from the supplier to the final consumer in the production of a good or in the administration of a service. (2) Globalization or the use of a global supply chain refers to the practice of "sourcing, manufacturing, transporting and distributing products outside of your native country." (3) Global supply chains have become an integral part of current business practice, specifically in the technology market. (4) For example, in producing the iPhone 6, Apple uses displays from South Korea, cameras from Japan, chips from Taiwan, and manufacturing facilities in China. (5)

American businesses that utilize global supply chains are at a high risk of being the victim of anticompetitive activity by foreign cartels. Many businesses that hope to remain competitive in the globalized economy have begun to expand abroad. (6) A common organizational strategy involves the establishment by a domestic parent company of a foreign subsidiary that acts as a link in the parent's global supply chain. (7) Generally, this allows the parent to more efficiently manufacture a product, ease distribution, or gain some other business advantage. (8) However, an issue arises when the foreign subsidiary is the victim of anticompetitive conduct abroad. Does a domestic company have a cause of action against a foreign cartel who violates the Sherman Act? This is the issue at the heart of Motorola Mobility v. AU Optronics and similar cases: whether anticompetitive activity abroad which affects a domestic company's foreign subsidiaries can give rise to an antitrust claim in the United States under the Sherman Act and the Foreign Trade Antitrust Improvements Act (FTAIA). (9)

Motorola Mobility, Inc. v. AU Optronics Corp. (10) involved a domestic technology company, Motorola Mobility (Motorola) that utilizes a global supply chain to manufacture and distribute electronic devices, including cellular phones. (11) The defendants, AU Optronics Corp. (AU Optronics), sold LCD panels to Motorola and its foreign affiliates to be incorporated into Motorola's phones. (12) Motorola alleged that the defendants engaged in anticompetitive conduct by taking part in a global price-fixing conspiracy that resulted in the price of the LCD panels rising to an unsustainable point. (13) The District Court granted summary judgment for the defendants, holding that Motorola had failed to satisfy the FTAIA. Motorola appealed the judgment to the Seventh Circuit. The Seventh Circuit affirmed the District Court's grant of summary judgment but subsequently vacated its opinion and granted rehearing. Upon rehearing, the Seventh Circuit again affirmed the District Court's holding in favor of AU Optronics.

This Note seeks to establish that the Seventh Circuit should have held in Motorola Mobility that the FTAIA's "direct ... effect" requirement is satisfied when a foreign subsidiary suffers a harm due to anticompetitive activity abroad and there exists a reasonably proximate causal nexus between that harm and the domestic effect in the United States. Furthermore, the "gives rise to" requirement of the FTAIA sufficiently accounts for concerns of international comity and, under the facts of this case, causes Motorola's claim to fail. Part I explores the history of the Sherman Antitrust Act and its international application before and after the FTAIA, beginning with American Banana Co. v. United Fruit Co. and extending through Hartford Fire Ins. Co. v. California. Part II describes the statutory language of the FTAIA. Part III discusses the consensus of the circuits that, after Arbaugh v. Y & H Corp., the FTAIA goes to the merits of a plaintiff's claim. Section IV.A will discuss the recent circuit agreement regarding the second prong of the FTAIA--when an injury "gives rise to" a claim under the Sherman Act. Section IV.B will analyze the two competing tests for determining whether the "direct ... effect" requirement--the first prong of the FTAIA--has been satisfied and will argue that the "reasonably proximate causal nexus" test is the appropriate standard. Part V will apply this standard to the facts in Motorola Mobility and will ultimately conclude that the "direct effects" requirement was satisfied but that the domestic effect failed to "give rise to" a Sherman Act claim, with the conclusion that the Seventh Circuit should have administered its holding in accordance with this reasoning.

1. A BRIEF HISTORY: THE SHERMAN ANTITRUST ACT APPLIED ABROAD

   1. A Strict Interpretation: American Banana

      The international reach of the Sherman Act was first considered by the Supreme Court in American Banana Co. v. United Fruit Co. (14) In that case, the defendant owned banana plantations in Central America and was in the business of exporting them to the United States. (15) The plaintiff, a competitor in the market, brought a claim in the United States under the Sherman Act. (16) The Supreme Court determined that the Sherman Act did not reach acts that took place in Panama and Costa Rica. (17) Despite the fact that both parties to the litigation were American corporations, the Supreme Court held that "the general and almost universal rule is that the character of an act as lawful or unlawful must be determined wholly by the law of the country where the act is done." (18) The Court further reasoned that to hold otherwise would result in an "interference with the authority of another sovereign" and would be "contrary to the comity of nations." (19)

   2. A Softening Standard: Alcoa and Timberlane

      Over time, the strict interpretation of the international reach of the Sherman Act gradually softened and courts began exercising jurisdiction over certain extraterritorial actions that affected competition in the United States. (20) Two important circuit court cases emerged before Congress passed the FTAIA in 1982. These are the Second Circuit's opinion in United States v. Aluminum Co. of America (Alcoa) (21) and the Ninth Circuit's opinion in Timberlane Lumber Co. v. Bank of America. (22)

      In Alcoa, (23) the Second Circuit was confronted with the issue of whether the Sherman Act extended to a foreign subsidiary's acts outside of the United States when those acts had an effect on competition in the United States. (24) In a landmark decision, Judge Learned Hand developed an intent/effects test for determining when extraterritorial activity could be subject to liability under the Sherman Act. (25) Under this test, in order for extraterritorial activity to fall within the reach of the Sherman Act, the activities at issue must have been "intended to affect imports" and must have actually affected them. (26) Judge Hand proceeded to determine that the defendant in that case had both intended to affect and did affect the imports involved and was therefore subject to the Sherman Act. (27) Notably, the court did not address what the outcome would be if only one of the elements was satisfied. (28)

      In contrast, in Timberlane, the Ninth Circuit rejected the intent/effects test articulated by Judge Hand. (29) Timberlane involved a number of parties, some principal, some subsidiary, some foreign, and some domestic. (30) Ultimately, it was determined that the defendants' actions occurred primarily in Honduras and that a majority of the effect was felt there as well. (31) As a result, the district court dismissed the case for its failure to satisfy the intent/effects test. (32) The Ninth Circuit reversed, stating that the test did not adequately take into consideration a number of other significant factors, including comity. (33) As a result, the court developed a more nuanced approach, which required three steps and the consideration of numerous factors. (34) While this approach may have offered a more tailored result on a case-by-case basis, it was often criticized for the burden it imposed on courts and the inconsistent outcomes it produced. (35)

   3. Considerations of Comity: Hartford Fire

      Hartford Fire Ins. Co. v. California (36) involved domestic and foreign insurers and reinsurers who allegedly violated the Sherman Act by engaging in conspiracies to affect the American insurance market. (37) The London reinsurers who were named as defendants did not contest that the court had jurisdiction but argued that this was an improper application of the Sherman Act to foreign conduct. (38) While holding that this was not an improper application of the Sherman Act, the majority addressed the FTAIA only so far as to determine that considerations of international comity were not present in the statute and therefore need not have been considered. (39) However, Justice Scalia argued in dissent that considerations of international comity--"the respect sovereign nations afford each other by limiting the reach of their laws" (40)--counseled strongly against application of the Sherman Act in this instance. (41) Relying on [section] 403 of the Restatement (Third) of the Foreign Relations Law of the United States, Justice Scalia determined that application of United States law in that situation would have been unreasonable and should therefore have been avoided. (42)

2. THE FTAIA

   In an attempt to resolve the conflict regarding the application of the Sherman Act extraterritorially, Congress passed the Foreign Trade Antitrust Improvement Act in 1982. (43) The purpose of the legislation was to codify an effects test for determining the extraterritorial reach of the Sherman Act. (44) Congress had two primary concerns that led to the passing of the statute. First, Congress was concerned that United States courts would be overwhelmed with...