Motorola Mobility's antitrust suit could have broader implications

New York

THE evidence is compelling. The cartel of Asian electronics makers worked for more than five years to set the prices of liquid-crystal display screens used in computers and cellphones. They gathered for monthly meetings in private conference rooms at luxury hotels.

They kept notes at these price-rigging meetings. A typical heading: "Extremely confidential. Must not distribute". A telling summary: "Must act together with the Korean makers in order to reap success."

The details surfaced in a Justice Department criminal antitrust investigation, in which first Samsung and then Toshiba, LG, Sharp and other companies cooperated, pled guilty and paid hundreds of millions of dollars in fines.

A large Taiwanese producer, AU Optronics, did not settle, and three years ago the company was convicted in a federal court in San Francisco and ordered to pay US$500 million. Two of its executives were sentenced to three years in prison.

Pointing to the same evidence, Motorola Mobility, one of the corporate victims of the price-fixing scheme, filed a follow-on civil antitrust suit, seeking damages from AU Optronics and other members of the cartel. But last November, a federal appeals court in Chicago tossed out Motorola's civil suit, saying the company's overseas subsidiaries could not reap the benefits of America's antitrust laws.

The Supreme Court will say this month if it will take up the issue. But already, the case has brought to light the challenges of applying decades-old antitrust laws to today's global corporations and their often complex and far-flung supply chains.

"To a degree that didn't exist before, things are made everywhere," said William Kovacic, an antitrust specialist at the George Washington University Law School. Mr Kovacic, a former chairman of the Federal Trade Commission, said that there was a "notable incoherence" in the law and court rulings.

Warning of the business impact of legal uncertainty, the National Association of Manufacturers wrote a friend-of-the-court brief urging the Supreme Court to take the case. The group said that it took no position on the criminal or civil cases. Instead, the trade association called for legal clarity.

Richard Posner, a federal appeals court judge and a prominent legal theorist, wrote the opinion in the Motorola case. His opinions, law scholars note, are as much conceptual essays as legal documents - often debated, and never boring.

His ruling in a smartphone patent case in 2012, for example, was a sweeping critique of the patent system, describing it as a system in "chaos". The Motorola case comes at time of change in the legal landscape, as many other countries are stepping up their antitrust enforcement programmes and the Supreme Court generally seeks to restrain the reach of US antitrust laws abroad.

Yet, the US remains the venue of choice for plaintiffs to bring civil antitrust suits mainly because the rewards can be so lucrative. Unlike most other countries, US courts offer triple damage awards for successful plaintiffs, even if companies are able to pass along the higher prices they pay for price-fixed goods to consumers.

On that basis, Motorola is seeking a total award of US$3.5 billion - a claim that the defendants say is exorbitantly inflated.

The problem for Motorola, according to Mr Posner, was how the company set up its corporate arrangements. Only one per cent of the liquid-crystal display panels it bought from the cartel suppliers were shipped directly to Motorola in the US for assembly in cellphones sold in the US. Another 42 per cent of the panels were shipped to Motorola foreign subsidiaries, mainly in China and Singapore, for cellphones assembled there and sold in the US market. The remaining 57 per cent of the panels were bought by Motorola's foreign subsidiaries for cellphones assembled abroad and sold in markets outside the US.

Motorola asserts that it operates as a "single enterprise," orchestrating its US and overseas operations to design and produce products globally. Mr Posner acknowledges that argument, but points out that corporations such as Motorola, which are based in America but operate globally, rarely make the claim that their foreign subsidiaries are bound by all US laws.

Mr Posner said that the overseas subsidiaries of companies such as Motorola need not conform to the workplace safety or labour laws of the US - and their subsidiaries could take advantage of low-tax regimes in foreign countries and avoid paying US corporate taxes. (In a court filing, Motorola said that it repatriated the profits from its foreign subsidiaries in the five years covered by the cartel case.)

"No doubt," Mr Posner writes, "Motorola thinks US antitrust remedies more fearsome than those available to its foreign subsidiaries under foreign laws." But, he adds later, "Motorola can't just ignore its corporate structure whenever it's in its interests to do so. It can't pick and choose from the benefits and burdens of United States corporate citizenship."

Motorola, Mr Posner writes, was an "indirect purchaser" of the panels its foreign subsidiaries bought and used to assemble cellphones. And thus, he concludes, Motorola cannot bring a civil antitrust suit in the US - even though many Motorola cellphones with price-fixed screens were sold in the US market and the Justice Department had a strong criminal case.

The Motorola side disputes Mr Posner's analysis. The judge, said Thomas Goldstein, counsel for Motorola, "got it wrong, and this is a super important issue". NYT