Motorola Mobility flat-panel cartel case tests antitrust reach

Motorola Mobility, twice rebuffed by U.S. courts, is getting a third chance to argue federal antitrust laws apply to the overseas companies it accused of conspiring to fix prices, a case one legal scholar called "immensely important."

To win, Motorola Mobility -- now part of China's Lenovo Group Ltd. -- will have to change the minds of three federal appellate judges who in March unanimously upheld a trial judge's decision dismissing the bulk of the mobile phone-maker's claims.

Motorola Mobility is scheduled to make its argument at a hearing today in Chicago, where it will be opposed by Samsung Electronics Co., Sharp Corp. and other companies accused of fixing prices for flat panel mobile phone screens.

Motorola Mobility's predecessor, along with overseas units, paid the display makers more than $5 billion during the alleged conspiracy from 1996 to 2006. At the heart of the dispute is a 1982 law that put foreign commerce beyond the reach of American antitrust laws unless there's a direct link to domestic or import commerce.

The trial judge called the vast majority of commerce in Motorola Mobility's case -- the overseas making of parts for delivery to companies outside the U.S. that incorporated them into phones sold world over -- "overwhelmingly" foreign in nature and outside the boundaries of American law.

Overseas Subsidiaries

Affirming that conclusion, a three-judge panel concluded in March that the transactions had no direct effect on U.S. commerce and that if overseas Motorola units were hurt by antitrust violations in nations where they do business, they're limited to the recourse available there.

"If the remedies are inadequate, or if the countries don't have or don't enforce antitrust laws, these were the risks that the subsidiaries (and hence Motorola) assumed by deciding to do business in those countries," U.S. Circuit Judge Richard Posner wrote.

The decision prompted requests for reconsideration by a larger panel of judges from Motorola Mobility, the U.S. Federal Trade Commission and the independent American Antitrust Institute.

On July 1, the three-judge panel rescinded its decision without elaboration and said it would hear the case again.

"They should not change their mind," Richard Epstein, a New York University law professor, said yesterday in a phone interview.

Both Sides

He said the government, by supporting an exception to the 1982 law for Motorola Mobility's case, is trying to take both sides of the issue.

FTC attorneys faulted the trial judge for failing to consider the effect the panel-makers' conspiracy had on imports and domestic commerce in phones that incorporated them. The manufacturers said 40 percent of the displays sold to Motorola were installed in phones that reached the U.S., according to the FTC's Sept. 5 filing.

"The conspiracy could and did affect that commerce and this effect was substantial, reasonably foreseeable and direct," according to the U.S. filing,

Epstein said the American government tends to protect its own export cartels while demanding concessions from other countries. "Why are we so special as compared to everybody else?" he asked.

'Immensely Important'

He called the dispute "immensely important" in the context of modern commerce. "You're going to see this happening all the time," he said.

The commerce at issue is foreign, not domestic, lawyers for the panel makers told the appeals court in an Oct. 22 filing, contending they aren't covered by U.S. law.

"It makes no difference that some of the panels eventually reached the United States as components of phones because the underlying injuries arose in foreign markets," they said.

Motorola Mobility's attorneys called display makers a "cartel" and said they targeted the phone-maker because of its prominence.

The company developed manufacturing operations in China and Singapore to be closer to its suppliers and that's where the displays were delivered, according to an Aug. 29 court filing.

"But as defendants knew, all aspects of Motorola's mobile- phone business began and ended with the U.S. parent," based in Illinois, the company said.

The screen makers integrated themselves into Motorola's phone-making process and, by allegedly exchanging company- specific information, were able to establish an inflated price throughout its global supply chain, Motorola Mobility said.

"Were this court to affirm, it would leave U.S. companies, markets, and consumers vulnerable to hard-core anticompetitive conduct that remains altogether too common," Motorola Mobility's lawyers said.