Bloomberg News

Trustbusters Targeting Cartels Abroad Reined in by U.S. Judges

May 19, 2014

U.S. prosecutors have turned price-fixing probes into a source of billions of dollars in criminal fines over the past decade.

Now they’re fighting to protect their turf.

The threat comes from an appeals court ruling the Justice Department says undermines U.S. policing of overseas cartels. The department is pushing the court to undo a victory by foreign companies over mobile-phone maker Motorola Mobility, which claims it was forced by a conspiracy to overpay for liquid crystal display panels.

“It could be crippling,” Richard Brunell, general counsel for the American Antitrust Institute, said of the decision. “It would severely undercut anti-cartel enforcement.”

Cartel investigations with overseas tentacles have targeted industries including autoparts, air transportation and LCDs. The Justice Department obtained $1 billion in criminal antitrust fines in fiscal year 2013, up from $107 million in fiscal 2003, according to the department, providing a growing stream of funds for crime victims.

“There is more to come,” antitrust chief Bill Baer said in a speech in January.

‘Indirect Effect’

Then the U.S. Court of Appeals in Chicago ruled in March that American antitrust laws can’t reach foreign price-fixing that has only an “indirect effect” on domestic commerce. The decision dismissed claims by Motorola Mobility stemming from about $5 billion in LCD screens purchased from foreign manufacturers. Motorola Mobility’s parent, Google Inc., agreed to sell the company to Lenovo Group Ltd. earlier this year.

The court said if price-fixing did occur, it hurt Motorola’s foreign subsidiaries, not the U.S. parent company, and if the countries where those units operate don’t have or don’t enforce antitrust laws, that’s a risk Motorola assumed by doing business there.

Extending the reach of U.S. antitrust laws could create “friction” with other countries and interfere with their ability to independently regulate commerce within their borders, the panel said.

After the ruling, the Justice Department and the Federal Trade Commission, which weren’t involved in the Motorola Mobility lawsuit, jumped in to ask the appeals court to reverse itself.

Harm Consumers

The decision is “likely to constrain the government’s ability to effectively prosecute cartels that substantially and intentionally harm U.S. commerce and consumers,” they said in a filing in April.

Companies prosecuted by the U.S. in LCD price-fixing probes include Seoul, South Korea-based LG Display Co. (034220), Osaka, Japan-based Sharp Corp. (6753) and Hsinchu, Taiwan-based AU Optronics Corp. The investigation has led to about $1.4 billion in fines, according to the department.

“They are very protective of their turf,” Edward Schwartz, an antitrust lawyer at Steptoe & Johnson in Washington, said about the Justice Department. “Cartel enforcement is their number one priority, and any decision that even has the potential to cut their extraterritorial jurisdiction is going to cause them concern.”

Motorola Mobility sued manufacturers over LCD displays that were sold to its foreign subsidiaries and incorporated into products that were then shipped to the U.S., according to court documents. The appeals court upheld dismissal of those claims because the effect of the conspiracy on the price of the final product was indirect, it said.

‘Natural’ Consequence

The Justice Department disagrees, saying in its filing that the “natural and probable consequence” of increasing the price of a “critical and substantial component” like LCD panels is to raise the price of mobile phones. The department said there is evidence that the overcharges were passed on to U.S. consumers.

Lawyers for Sharp, AU Optronics, Samsung Electronics Co., and LG Display, which are named as defendants in the Motorola Mobility lawsuit, couldn’t be reached for comment or declined to comment on the Justice Department’s filing.

The ruling opens the doors to foreign cartels to shield themselves from U.S. law by selling to a third party instead of directly into the U.S., said Robert Connolly, a lawyer at GeyerGorey LLP and a former prosecutor with the Justice Department’s antitrust division.

‘No Difference’

“People can fix prices and then use a middleman,” he said. “From an American consumer point of view, there’s really no difference.”

The Justice Department and the American Antitrust Institute, a Washington-based non-profit that advocates for antitrust enforcement, are asking for a rehearing before the full appeals court panel. The court has asked the U.S. Commerce and State departments to weigh in.

The appeals court decision has potentially “grave consequences” for U.S. businesses and consumers, the antitrust institute said.

“We’re worried because cartels cost U.S. consumers billions of dollars,” Brunell said, “and they’re significantly underdeterred already.”

The case is Motorola Mobility LLC v. AU Optronics Corp. (AUO:US), 14-8003, U.S. Court of Appeals for the Seventh Circuit (Chicago).

To contact the reporter on this story: David McLaughlin in Washington at dmclaughlin9@bloomberg.net

To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net Fred Strasser, Peter Blumberg


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