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No Tax-Free Cake and Eating Antitrust Protection Too For Motorola

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By William Peacock, Esq. on December 02, 2014 4:09 PM

Motorola makes phones. It makes nearly all of those phones in Asia. It buys its components from Asian suppliers. So, for all you 1Ls out there, here is the question: can a U.S. company sue on behalf of its Asian subsidiaries over price fixing that occurred in commerce that was exclusively carried out in Asia?

It is, after all, a U.S. parent company. But the subsidiary companies are Asian and the suppliers are Asian. The answer to this law school hypothetical (and Seventh Circuit case) is a resounding no.

Our Long-Arms Aren't Stretch Armstrong

"Motorola's foreign subsidiaries were injured in foreign commerce -- in dealings with other foreign companies -- and to 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," Judge Richard Posner wrote for the court.

That's not to say that the LCD manufacturers were innocent of wrongdoing -- LCD price fixing class action cases have been filed and settled, and according to The Wall Street Journal, Sharp and LG each were charged criminally and paid fines to the Justice Department. Samsung, a co-conspirator, turned state's witness and was not charged. However, any recourse that Motorola may have will have to come from foreign courts under foreign law, as a 1982 law limits antitrust remedies to those directly injured in interstate commerce. Motorola, as a parent company, was not the direct victim.

And, of course, the reason for such a subsidiary arrangement is to take advantage of tax laws in other countries. However, the court wasn't willing to allow Motorola to benefit from foreign tax laws and claim U.S. antitrust protection at the same time.

Narrowed Opinion

The WSJ notes that this is the second opinion out of the Seventh Circuit in this case. The second opinion narrows the reasoning from the first opinion at the government's request, as it was far too broad and would have had deleterious effects on the government's ability to enforce its antitrust laws and to prosecute price-fixers abroad.

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