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Cartels
Motorola Mobility and the FTAIA: A Deterrence-Based Definition of “Direct” Effect
In Motorola Mobility LLC v. AU Optronics, No. 14-8003, 2014 WL 1243797 (7th Cir. Mar. 27, 2014), the Seventh Circuit Court of Appeals offers an interpretation of the Foreign Trade Antitrust Improvements Act (FTAIA), 15 U.S.C. §6a that would have significant implications for the right to sue foreign companies under the Sherman Act. The FTAIA states that the Sherman Act “shall not apply to conduct involving trade or commerce … with foreign nations.” but provides some exceptions to that rule. The exception of relevance to Motorola Mobility is that foreign companies are liable under the Sherman Act when their conduct has “a direct, substantial, and reasonably foreseeable effect” on U.S. commerce and “such effect gives rise to a claim under [the Sherman Act].” Motorola Mobility involves an alleged cartel of foreign manufacturers of liquid crystal display (LCD) panels used in mobile phones. In a decision written by Judge Richard Posner, the LCD manufacturers were found not liable because their conduct did not have a “direct” effect and thus did not fall into the above-stated exception to the FTAIA:[1] The alleged price fixers are not selling the panels in the United States. They are selling them abroad to foreign companies (the Motorola subsidiaries) that incorporate them into products that are then exported to the United States for resale by the parent. The effect
Cartels
Are penalties for cartels excessive and, if they are, should we be concerned?
There is a growing concern among some scholars and practitioners that penalties for companies participating in a cartel have become excessive in the sense that they are more than sufficient to deter and may be causing social harm. Here I will argue that, even if there is validity to those claims, it is imprudent to begin lightening up on enforcement. There is no doubt that “cartel fines from public enforcement … are staggering”[1] and that, when a cartel operates in a jurisdiction allowing for private customer damages, the amounts can be vastly higher than staggering, shall we say gargantuan? Of course, the incremental profits earned through collusion may as well be staggering or even gargantuan. Thus, any assessment of whether penalties exceed or fall short of what is necessary to deter cartel formation requires a careful comparison of penalties with those profits while taking account of the likelihood of cartel members ever paying those penalties. Recently, some studies have pursued such an analysis. Using a traditional approach that compares the profit from colluding with the expected penalty (which equals the penalty multiplied by the probability of discovery and conviction), Connor and Lande (2012) argue that penalties are in the under-deterrence region.[2]  However, a different conclusion is reached in Allain, Boyer, and Ponssard (2011) who take issue with the method and estimated overcharges