The Motorola Decision Overlooks How Cartels and Corporate Families Operate

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David Barth, Jan 29, 2015

In Motorola Mobility LLC v. AUO Optronics Corp., a three-judge appellate panel in the Seventh Circuit issued a series of rulings removing approximately 99 percent of Motorola’s claimed purchases from the case. In each ruling, the Court held that those purchases were not subject to U.S. law in light of the Foreign Trade Antitrust Improvements Act of 1982. This article discusses the Court’s most recent ruling.

I disagree with the Court’s reasoning as well as its ultimate conclusion—both the means and the end are faulty. I believe that the Court’s ultimate conclusion is incorrect for the reasons stated in a prior article: As a matter of economic policy, a ruling benefiting defendants and exempting any of Motorola’s purchases from U.S. antitrust law before a jury can assess the veracity of Motorola’s claims is undesirable because it would increase the incentives that foreign firms have to engage in cartel behavior in global markets. Plus, it would create new incentives to change otherwise efficient supply chain behavior.

In this article, I analyze the Court’s reasoning through the lens of economics. I address two questions: First, from the perspective of the economics of cartels, would it matter whether Motorola bought an LCD panel overseas and imported it as part of a finished cell phone, or imported the LCD panel and assembled the cell phone here? Second, should it matter that Motorola used foreign subsidiaries to buy LCD panels, rather than buying them itself?