Presenting a live 90-minute webinar with interactive Q&A. Today s faculty features:

Presenting a live 90-minute webinar with interactive Q&A Foreign Trade Antitrust Improvements Act: When Do U.S. Antitrust Laws Apply to Foreign Conduct? Navigating the Applicability of the FTAIA's "Effects Test" to the Purchase of Foreign Component Parts TUESDAY, FEBRUARY 24, 2015 1pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: W. Joseph Bruckner, Partner, Lockridge Grindal Nauen, Minneapolis Jeffrey S. Jacobovitz, Partner, Arnall Golden Gregory, Washington, D.C. Daniel Schaefer, Esq., Dickstein Shapiro, Washington, D.C. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.

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Strafford CLE Webinar When Do U.S. Antitrust Laws Apply to Foreign Conduct? Jeffrey Jacobovitz, Partner February 24, 2015

AU Optronics Corp, et al. Defendants: On March 13, 2012, AU Optronics Corporation of America ( AUOA ); AU Optronics ( AUO), a Taiwanese Company; AUO s retailer and two executives from AUO. Conviction: Conspiracy to fix prices of Liquid Crystal Display panels ( LCDs ) in violation of the Sherman Act. 2015. Arnall Golden Gregory LLP 6

United States District Court EIGHT week trial $500 mil Taiwanese & Korean LCD electronic manufacturer District court denied a motion to dismiss the indictment and rejected the argument that the indictment was deficient for failing to allege an intended and substantial effect on U.S. commerce as required by the Foreign Trade Antitrust Improvements Act ( FTAIA ). 2015. Arnall Golden Gregory LLP 7

United States District Court (cont d) District Court held that the FTAIA was inapplicable to the import activity conducted by the defendants and the FTAIA did not bar prosecution of the price fixing conspiracy involving both foreign and domestic conduct. The jury held that the price fixing was per se illegal and that AUO was liable for $500 million damages Individuals sentence to 36 months in prison and a $200,000 fine. 2015. Arnall Golden Gregory LLP 8

Ninth Circuit Appeal On July 10, 2014, the Ninth Circuit affirmed the convictions of all defendants (United States v. Hui Hsiung, 758 F.3d 1074 (9th Cir. 2014). The Ninth Circuit held that: Foreign Trade Improvements Act of 1982, 15 U.S.C. 6a ( FTAIA ) either did not apply or that its requirements were satisfied 2015. Arnall Golden Gregory LLP 9

Ninth Circuit Appeal (cont d) >$600M in sales Defendants: A bulk of the panels were sold to third parties worldwide, rather direct import to the United States, the nexus to U.S. commerce was insufficient under the FTAIA. 9 th Circuit: Indicated they need not reach the alternate theory under the FTAIA relating to the domestic effects of the transaction. 2015. Arnall Golden Gregory LLP 10

Background - FTAIA The Sherman Act shall not apply to conduct involving trade or commerce (other than import trade or commerce) with foreign nations unless: 1. such conduct has a direct, substantial, and reasonably foreseeable effect, 2. on trade or commerce which is not trade or commerce with foreign nations 2015. Arnall Golden Gregory LLP 11

Background FTAIA (cont d) The FTAIA removes from the reach of the Sherman Act: 1. export activities and, 2. other commercial activities taking place abroad unless those activities adversely affect domestic commerce, imports to the U.S. or exporting activities of one engaged in such activities within the U.S. F. Hoffman-LaRoche Ltd. v. Empagran S.A. 542 U.S. 155, 161 (2004) 9 th Circuit: The FTAIA s requirement that the defendants conduct have a direct, substantial, and reasonably foreseeable effect on domestic commerce displaced the intentionality requirement of Hartford Fire (509 U.S. at 796) 2015. Arnall Golden Gregory LLP 12

Background FTAIA (cont d) Section 6(a) of the FTAIA makes the Sherman Act inapplicable to nonimport foreign commerce when the effect on the U.S. is insignificant. The European Union: Indicated that the application of antitrust laws to conduct involving sales outside Europe is justified when that conduct has an immediate, substantial, and foreseeable effect in Europe. Case T-286/09, Intel Corp. v. Comm`n, 231, 233-36, 243-44 (Gen. Ct. June 12, 2014). Courts: The Sherman Act applies to foreign conduct that was meant to produce and did in fact produce some substantial effect in the United States. Hartford Fire Ins. Co. v. Cal., 509 U.S. 764, 796 (1993). 2015. Arnall Golden Gregory LLP 13

Jurisdiction vs Coverage FTAIA Issues in AU Optronics 1. Does the FTAIA affect subject matter jurisdiction of the district court or does it relate to the scope of coverage of the antitrust laws? Held: FTAIA is not a subject matter jurisdiction limitation on the power of federal courts but a component of the merits of a Sherman Act claim. The FTAIA removes conduct from the Sherman Act s reach 2015. Arnall Golden Gregory LLP 14

Name vs Statutory Citation FTAIA Issues in AU Optronics 2. Was the indictment insufficient because the Government failed to mention the FTAIA by name or statutory citation? Held: The indictment contained the factual allegations necessary to establish that the FTAIA either did not apply or that its requirements were satisfied. No prejudice from the indictment s failure to cite the FTAIA The defendants conduct constituted import trade and falls outside the scope of the FTAIA The indictment was replete with allegations that the defendants engaged in import trade 2015. Arnall Golden Gregory LLP 15

Domestic Effects FTAIA Issues in AU Optronics 3. Did the Government proceed on a domestic effects exception to the FTAIA? Held: The allegations gave fair notice that the defendants conduct had a direct, substantial and reasonably foreseeable effect on U.S. Commerce. The indictment sufficiently alleged such conduct. Circuit: Conduct has a direct effect for purposes of the domestic effects exception to the FTAIA if it follows as an immediate consequence of the defendants activity. Court: A proximate causation standard exists for a causal connection to give rise to the plaintiff s claim. 2015. Arnall Golden Gregory LLP 16

Facts Plaintiff / Lotes: manufacturer of USB connectors (a component of laptop computers) in Taiwan. Defendants: competing foreign USB manufacturers. Plaintiff alleged that defendants violated Sherman Act Sections 1 and 2 by attempting to use their ownership of key patents in new technology (USB 3.0) to acquire a monopoly in the USB connector industry. USB connectors integrated into most personal computers bought in the US. dicksteinshapiro.com 19 2015 Dickstein Shapiro LLP. All Rights Reserved.

Lotes Outcome 2nd Circuit held that the FTAIA barred plaintiff s antitrust claims and dismissed the case. Defendants conduct did not give rise to a claim under the Sherman Act. The harm to plaintiff preceded the domestic effects of the conduct. The court also took steps to clarify its position on: Whether the FTAIA is substantive or jurisdictional in nature. What constitutes a direct effect on domestic commerce under the statute. dicksteinshapiro.com 20 2015 Dickstein Shapiro LLP. All Rights Reserved.

The FTAIA Is Substantive FTAIA goes to the merits and not jurisdictional requirements. 2nd Circuit joined the 3rd, 7th and 9th Circuits. We can expect future decisions to follow suit. Going forward, these issues will be decided under the procedural framework governing a motion for dismiss for failure to state a claim under Rule 12(b)(6). dicksteinshapiro.com 21 2015 Dickstein Shapiro LLP. All Rights Reserved.

Direct, Substantial, & Reasonably Foreseeable Need only be a reasonably proximate cause. Not an immediate consequence: Reading direct as immediate would render reasonably foreseeable meaningless. This would collapse the domestic effects exception into the separate import exclusion. dicksteinshapiro.com 22 2015 Dickstein Shapiro LLP. All Rights Reserved.

Direct, Substantial, & Reasonably Foreseeable Immediate consequence focused too narrowly on time and space between defendant s conduct and the relevant effect. Courts must look at many factors (e.g., structure of the market, commercial relationships), to decide whether nexus between foreign conduct and domestic effect is direct. Many a trip continues long after movement in time and space have ceased. John Steinbeck, Travels with Charlie dicksteinshapiro.com 23 2015 Dickstein Shapiro LLP. All Rights Reserved.

Gives Rise To Prong 2nd Circuit did not rule on whether proximate cause standard satisfied because the alleged domestic effects did not give rise to the plaintiff s harm. The alleged domestic effects did not proximately cause the plaintiff s injury: The allegedly higher prices of computers with USB 3.0 connectors in the U.S. did not cause Lotes s injury of being excluded from the market for USB 3.0 connectors. That injury flowed directly from the defendant s exclusionary foreign conduct, which preceded any domestic effect in the causal chain. dicksteinshapiro.com 24 2015 Dickstein Shapiro LLP. All Rights Reserved.

FOREIGN TRADE ANTITRUST IMPROVEMENTS ACT When do U.S. Antitrust Laws Apply to Foreign Conduct? Presented by: W. Joseph Bruckner

Motorola Mobility LLC v. AU Optronics Corp. 2015 WL 137907 (7 th Cir. 2015) W. Joseph Bruckner Lockridge Grindal Nauen P.L.L.P. 26

THE FOREIGN TRADE ANTITRUST IMPROVEMENTS ACT Does not apply to conduct involving import trade or import commerce. The Sherman Act applies without FTAIA limitation. Allows a claim under 15 U.S.C. 1-7 based on conduct involving trade or commerce with foreign nations IF Such conduct has a direct, substantial and reasonably foreseeable effect on domestic commerce AND Such conduct gives rise to a claim under 15 U.S.C. 1-7. W. Joseph Bruckner Lockridge Grindal Nauen P.L.L.P. 27

THE FACTS Motorola And Its Foreign Subsidiaries Bought LCD Panels From Defendant Manufacturers Overseas. The LCD panels were the subject of a price-fixing conspiracy. Three Categories of Purchases: About 1% of the panels sold by the defendants to Motorola and its foreign subsidiaries were bought by, and delivered to, Motorola in the United States for assembly here into cellphones. And 42% of the panels were bought by Motorola s foreign subsidiaries and incorporated by them into cellphones that the subsidiaries then sold to and shipped to Motorola for resale in the United States. Another 57% of the panels, also bought by Motorola s foreign subsidiaries, were incorporated into cellphones abroad and sold abroad. W. Joseph Bruckner Lockridge Grindal Nauen P.L.L.P. 28

THE PANEL Summarily rejected the import commerce exclusion because defendants did not physically import the goods. 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. Assumed that the requirement of a direct, substantial, and reasonably foreseeable effect on domestic commerce has been satisfied. W. Joseph Bruckner Lockridge Grindal Nauen P.L.L.P. 29

THE PANEL Found that the FTAIA s gives rise to requirement tripped up Motorola s suit. [T]he cartel-engendered price increase in the components and in the price of cellphones that incorporated them occurred entirely in foreign commerce. Found that the immediate victims of the price fixing were Motorola s foreign subsidiaries. Declined to treat Motorola and all of its foreign subsidiaries as a single integrated enterprise. Found that at most Motorola suffered a derivative injury, which does not give rise to an antitrust claim. W. Joseph Bruckner Lockridge Grindal Nauen P.L.L.P. 30

THE PANEL Also found that Motorola s claim collided with the indirectpurchaser doctrine of Illinois Brick. There is still more that is wrong with Motorola s case the rampant extraterritorial application of U.S. law. [T]o give Motorola rights to take the place of its foreign companies and sue on their behalf under U.S. antitrust law would be an unjustified interference with the right of foreign nations to regulate their own economies. W. Joseph Bruckner Lockridge Grindal Nauen P.L.L.P. 31

NOTABLE ISSUES The DOJ and the Private Plaintiff Came to a Fork in the Road They were in agreement through direct, substantial and reasonably foreseeable. But they parted ways on damages claims by civil plaintiffs. W. Joseph Bruckner Lockridge Grindal Nauen P.L.L.P. 32

OPEN ISSUES Did the Court Err (Or Create a Circuit Split) in Rejecting Import Commerce? Finding only that [i]t was Motorola, rather than the defendants, that imported these panels into the United States, the Court summarily dismissed the Import Commerce exclusion, without citation or further analysis. But the Court acknowledged that Defendants knew that Motorola s foreign subsidiaries intended to incorporate the panels into products that Motorola would resell in the United States. And Motorola alleged that Defendants integrated themselves into the design of Motorola s U.S. products, and intentionally manipulated Motorola s price negotiations. See Animal Science Products, Inc. v. China Minmetals Corp., 654 F. 3d 462, 470 (3d Cir. 2011): The District Court should assess whether plaintiffs adequately allege: That defendants' conduct is directed at a U.S. import market NOT solely whether the defendants physically imported goods into the United States. W. Joseph Bruckner Lockridge Grindal Nauen P.L.L.P. 33

What is the rationale? Gives Rise To? Illinois Brick? Choice of law and extraterritorial application of US law? Or all three? W. Joseph Bruckner Lockridge Grindal Nauen P.L.L.P. 34

ISSUES Did The Court Conflate the Import Commerce Exclusion and the Domestic Effects Exception? In dicta the Court held that even if Motorola made the purchase, the purchase took place overseas and therefore no domestic effect. Assume for the sake of argument that Motorola and its subsidiaries were one. If so, the one Motorola was injured abroad, and the FTAIA requires that the domestic effect must give rise to the antitrust cause of action. If the purchase must take place in the US to give rise to a Sherman Act claim under the domestic effect exception, how is that any different than import commerce? Doesn t such a requirement conflate the domestic effects exception and the Import Commerce exclusion, and render one or the other superfluous? W. Joseph Bruckner Lockridge Grindal Nauen P.L.L.P. 35

Questions Are the Motorola and Lotes decisions inconsistent with the Ninth Circuit Will the U.S. Supreme Court grant cert. on these issues 2015. Arnall Golden Gregory LLP 36

For more information, please contact: Jeffrey Jacobovitz, Partner jeffrey.jacobovitz@agg.com 202.677.4056 All rights reserved. This presentation is intended to provide general information on various regulatory and legal issues. It is NOT intended to serve as legal advice or counsel on any particular situation or circumstance. 2015. Arnall Golden Gregory LLP

Current Grey Areas What s the scope of the exclusion for conduct affecting U.S. import commerce? Have Lotes and Motorola lowered the bar on the direct effects prong? Do Lotes and Motorola signal more aggressive application of the give rise to prong? Are courts just flat out misusing the FTAIA to decide questions of standing? dicksteinshapiro.com 39 2015 Dickstein Shapiro LLP. All Rights Reserved.

Best Practices for U.S. Manufacturers Problem with Motorola is that it encourages inefficiencies in global supply chain management: U.S. manufacturer can t reasonably be expected to relocate its foreign subsidiary from Taiwan to Guam or someplace else on U.S. territory if it suspect its suppliers might be price fixing. Because courts now treating this as a substantive issue, U.S. companies might try to contract around some of these problems. This assumes U.S. company has bargaining power (it probably doesn t if dealing with a foreign cartel). Don t sue in the 7th Circuit! Try the 9th instead (where Motorola won). dicksteinshapiro.com 41 2015 Dickstein Shapiro LLP. All Rights Reserved.

Final Thoughts Tensions among competing cartel enforcement regimes on the rise in 2014. The challenges that U.S. courts face over the extent of jurisdictional reach playing out against backdrop: Surging global cartel fine totals; The emergence of new enforcement regimes; Efforts by existing authorities to increase their aggressiveness against cartels. U.S. victims of foreign cartels must prepare to face an increasingly crowded and confused enforcement landscape. dicksteinshapiro.com 42 2015 Dickstein Shapiro LLP. All Rights Reserved.

OVERALL ISSUES What Does Direct Mean, in Direct, Substantial and Reasonably Foreseeable? Immediate Consequence (9 th Circuit in LSL Biotechnologies and AU Optronics borrowed from the Foreign Sovereign Immunities Act), or Proximate Cause (7 th Circuit in Minn-Chem, 2 nd Circuit in Lotes) Which better conforms to global commerce and the goal and language of the FTAIA? W. Joseph Bruckner Lockridge Grindal Nauen P.L.L.P. 44

OVERALL ISSUES The FTAIA s requirements are an element of Plaintiffs claim to be alleged and proved, not a jurisdictional requirement. Every circuit which has specifically considered the issue agrees. Practical effects. W. Joseph Bruckner Lockridge Grindal Nauen P.L.L.P. 45

OVERALL ISSUES What s a company to do to protect itself? Buy directly? Have purchases made by a foreign division instead of a subsidiary? Ship goods to the US, even temporarily? W. Joseph Bruckner Lockridge Grindal Nauen P.L.L.P. 46

W. Joseph Bruckner 612-339-6900 wjbruckner@locklaw.com