One of the most intriguing aspects of the vast antitrust litigation over price-fixing in the market for thin-screen liquid crystal display screens is the interplay between U.S. antitrust laws and the global marketplace. Antitrust laws, remember, were passed when there was still manufacturing in America. In particular, a 1982 law called the Foreign Trade Antitrust Improvement Act, was designed to shield U.S. manufacturers from price-fixing claims by overseas purchasers. The FTAIA holds that the Sherman Act does not apply to conduct that takes place overseas, which means that if a U.S. company engaged in price-fixing, it's not liable to anyone who bought its product outside of the U.S.
But a funny thing happened as manufacturing moved overseas. Foreign antitrust defendants began to turn the FTAIA against U.S. purchasers. U.S. electronics companies, for instance, typically make their products overseas and bring finished goods back to the U.S. Their foreign manufacturing subsidiaries or factories-rather than the U.S. headquarters--are often the purchasers of foreign-made parts. So defendants argued that when antitrust claimants can't show their products were bought inside the U.S., they're not liable under the FTAIA. (Say whatever else you want about the American economy: We're still very good at manufacturing legal theories.)
The law has been an important battleground in the LCD MDL, since an overwhelming percentage of the products that include liquid crystal display screens are entirely manufactured abroad. The evidence of a price-fixing conspiracy in the case, given that many of the defendants have pled guilty in a long-running Justice Department criminal antitrust investigation, is very strong, so the foreign trade law was probably the defendants' best chance of mitigating damages. In a summary judgment brief filed last June, the defendants argued that the millions of U.S. consumers who've been certified as a class of indirect purchasers cannot bring claims based on foreign conduct. "Undisputed facts show that the long and winding series of events that culminated in the [indirect purchasers'] retail domestic purchases of finished products typically began with panel sales that occurred abroad between foreign companies," the brief argued.
Congress, however, kept an eye out for U.S. consumers when it passed the FTAIA back in 1982. The law includes a provision that foreign antitrust violations are still subject to Sherman Act claims in the U.S. if they had a direct impact on domestic commerce. Lawyers for the purchasers of TVs, laptops, and computer monitors with liquid crystal display screens argued in a response to the defense summary judgment motion that the LCD makers "intended to harm American consumers, who paid -- in the U.S. -- more than they should have." The brief also pointed out that the defendants were trying to use the FTAIA to "place their admitted anticomptetive conduct beyond the reach of United States law, and thereby permit them to keep billions of U.S. dollars they illegally extracted from U.S. consumers."
San Francisco federal judge Susan Illston, who is presiding over the MDL, agreed with class counsel from Zelle Hofmann Voelbel & Mason and The Alioto Firm. In a 19-page opinion Wednesday, the judge concluded that the defendants were advocating too narrow a view of the domestic impact of their alleged price-fixing, since the evidence showed they targeted the U.S. consumer market when they decided how to price their screens. "Adopting a definition of 'direct' under which only the first sale of a product could satisfy the standard would exclude from the Sherman Act's reach a significant amount of anticompetitive conduct that has real consequences for American consumers," she wrote. "As this case illustrates, modern manufacturing takes place on a global scale. The court is skeptical that Congress intended to remove from the Sherman Act's reach anticompetitive conduct that has such a quantifiable effect on the U.S. economy." Judge Illston denied the defense motion, finding that the domestic impact of the alleged price-fixing is a question of fact.
Class counsel Francis Scarpulla told me the ruling is in line with other interpretations of the FTAIA that have held the domestic impact of foreign antitrust violations is not a jurisdictional question, but an issue of fact. He said Judge Illston's ruling eliminates a big stumbling block for the 24 subclasses of U.S. consumers.
Defense counsel John Grenfell of Pillsbury Winthrop and Michael Lazerwitz of Cleary Gottlieb Steen & Hamilton declined comment; a bevy of other defense lawyers didn't respond to my e-mails requesting comment. They're sure to ask Judge Illston for leave to file an interlocutory appeal, however. The U.S. Court of Appeals for the Ninth Circuit previously turned down a request by the LCD defendants to review Judge Illston's findings that the FTAIA doesn't shield them from claims by Motorola and Dell, which opted out of the class action. Those were narrower rulings, though, based on a factual finding that Motorola and Dell made plans to buy LCD screens in the U.S. The Dell and Motorola findings also came on motions to dismiss. Given the full record in the consumer case and the broad implications of Judge Illston's decision, the appellate court may want to take a look at this one.
(Reporting by Alison Frankel)
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