Does The Sherman Act Reach Price Fixing Beyond U.S. Borders?

Posted On Monday, October 21, 2013

On October 18, 2013, the Ninth U.S. Circuit Court of Appeals will hear arguments from AU Optronics Corp. (“AUO”) and two of its executives attempting to overturn their convictions for fixing the price of liquid crystal display panels (“LCDs”). The case, USA v. AU Optronics Corp., et al., case numbers 12-10492, 12-10493, 12-10500 and 12-10514 (9th. Cir. )., could determine how far U.S. antitrust law can reach to tackle price fixing activities that occur outside the United States.

In 2012, a federal jury in San Francisco convicted AUO, its U.S. subsidiary, former president and former vice-president of participating in a global plot to fix the price of LCDs. AUO was fined $500 million and the two executives were sentenced to three (3) years in prison. The defendants have appealed their convictions to the 9th Circuit arguing that the U.S. Department of Justice failed to establish why the Foreign Trade Antitrust Improvements Act did not apply to the case, given the fact that the bulk of the alleged price fixing activity took place overseas. The Foreign Trade Antitrust Improvements Act limits the foreign reach of the Sherman Act except where the conduct has a “direct, substantial and reasonably foreseeable effect” on U.S. commerce. The defendants have also argued that the convictions should be overturned based on 9th Circuit precedent that the per se antitrust standard does not apply to foreign conduct. Instead, they argue, that the trial court should have applied the rule of reason test to the alleged price fixing. The rule of reason test would have required the government to establish that the harm caused by the conduct outweighed any pro-competitive benefits.

In response, the Department of Justice argued that the Sherman Act does in fact reach the defendants’ conduct because a portion of the price fixing plot took place in California and because the conspiracy among the defendants harmed U.S. consumers. The DOJ argued that defendants cannot simply “off-shore” their conspiracy meetings to put their conduct outside the reach of U.S. antitrust laws. Further, the DOJ maintained that the per se antitrust standard, not the rule of reason test, applies to defendants’ conduct.

AUO manufactured its LCDs outside the U.S. Since most manufacturing takes place beyond U.S. borders today, the Court’s decision will have significance in determining the reach of U.S. antitrust laws to overseas manufacturing. Stay tuned.