Case 3:14-cv-03264-JD Document 2001 Filed 01/05/18 Page 1 of 5
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`Charles E. Tompkins
`Direct: (617) 276-2984
`Fax: (312) 630-8586
`cet@willmont.com
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`January 5, 2018
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`Re:
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`In re Capacitors Antitrust Litig., No. 14-cv-3264-JD (N.D. Cal.)
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`Via ECF and Hand Delivery
`The Honorable James D. Donato
`United States District Court
`Northern District of California
`450 Golden Gate Avenue
`Courtroom 11, 19th Floor
`San Francisco, CA 94102
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`Dear Judge Donato:
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`In connection with the Phase II FTAIA Motion for Partial Summary Judgment (the
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`“Motion”, Dkt. No. 1652-4) brought by the Flextronics Defendants against Plaintiff Flextronics
`International USA, Inc. (“Flex”), the parties agreed to simultaneously submit letter briefs to
`address Judge Seeborg’s recent decision in In re Optical Disk Drive Antitrust Litigation, 3:10-md-
`02143-RS. See In re Optical Disk Drive Antitrust Litig., Omnibus Order Regarding Issues
`Pertaining to Several Motions for Summary Judgment, 3:10-md-02143-RS, Dkt. 2706, at 7-8
`(N.D. Cal. Dec. 12, 2017) (Seeborg, J.) (“ODD”). A copy of the decision is enclosed herewith.
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`ODD addressed, in relevant part,1 the defendants’ motions for summary judgment against
`certain direct action plaintiffs that alleged the defendants engaged in a conspiracy that targeted the
`plaintiffs’ alleged U.S. based procurement processes. See ODD at 8. In that context, Judge
`Seeborg correctly applied Ninth Circuit precedent to hold that neither the import commerce
`exclusion nor the domestic effects exception to the Foreign Trade Antitrust Improvements Act, 15
`U.S.C. § 6a (“FTAIA”), prevent recovery for claims arising from foreign purchases where a
`nonconspirator imports the goods into the U.S. ODD at 7-8 (citing U.S. v. Hui Hsiung, 778 F.3d
`738, 751 (9th Cir. 2015) and In re Cathode Ray Tube (CRT) Antitrust Litig., No. C-07-5944 JST,
`2016 WL 5725008 (N.D. Cal. Sept 30, 2016)). On the contrary, plaintiffs may recover for foreign
`purchases where the defendants’ conduct targets the U.S. and the products purchased abroad are
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`1
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` ODD also addressed the FTAIA’s application to California state law. ODD at 3. Because Flex
`voluntarily dismissed its state law claims, this portion of ODD is irrelevant.
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`233 South Wacker Drive, Suite 6100  Chicago, Illinois 60606  P: 312.443.3200  F: 312.630.8500  www.willmont.com
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`Case 3:14-cv-03264-JD Document 2001 Filed 01/05/18 Page 2 of 5
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`January 5, 2018
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`subsequently shipped to the U.S., either as standalone products or as components of products
`manufactured abroad. Id. Straightforward application of ODD and the authority on which it relies
`thus commends denial of Defendants’ motion for summary judgment, which seeks judgment as to
`all foreign purchase claims unless a Defendant shipped the purchased capacitor to the U.S. See
`Motion, at 1.2
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`A. Background
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`Plaintiffs in ODD purchased optical disk drives both in the U.S. and abroad. ODD at 2.
`Some of the ODDs purchased abroad were incorporated into laptops and other electronic goods
`and shipped to the U.S. Id. Judge Seeborg dubbed these “Category 2” purchases. Other ODDs
`purchased abroad were incorporated into electronic goods and then shipped to non-U.S. locations.
`Id. The Court deemed these “Category 1” purchases. Id. The direct purchaser (class) plaintiffs’
`expert proposed that ODDs typically constituted about 3.5% of the sales price of a computer. See
`In re Optical Disk Drive Antitrust Litig., Case No. 3:10-md-2143 RS, Dkt. 1444, at 16, n.8 (N.D.
`Cal. 2014) (Seeborg, J.).
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`The ODD plaintiffs presented “evidence that Defendants engaged in acts in furtherance of
`the conspiracy in the United States, and that Defendants knew that the ODDs they sold abroad
`would be sold for the purpose of incorporation into Dell and HP computers sold here.” ODD at 8.
`Certain defendants also relied on U.S.-based account managers to assist in obtaining information
`from competitors and to assist in negotiating and setting the plaintiffs’ prices. Id. The ODD
`plaintiffs’ global prices were set at procurement events where global prices for plaintiffs and their
`subsidiaries were agreed upon. Id. It is not clear whether all of those procurement events took
`place in the U.S., but plaintiffs generally alleged that their U.S. management oversaw global
`pricing. Id. Actual regional price variations are not apparent from the record. Id.
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`Like the ODD plaintiffs, Flex purchases both domestically and abroad. Many capacitors
`purchased overseas are used in the manufacture of products shipped to the U.S. See Flextronics’
`Opposition to Defendants’ Motion for Partial Summary Judgment Dismissing Flextronics’
`Sherman Act and California Law Claims for Foreign Transactions (“Opposition”), Dkt. 1722-4 at
`8-9. Other capacitors are used to manufacture products shipped abroad.3 Id. Defendants targeted
`both the United States market generally and Flex’s U.S. price-setting process specifically. See id.
`at 9-11.4 Defendants knew Flex to be a U.S.-based electronic manufacturing services company
`that built goods for U.S. corporations. Id. at 8. Defendants also knew that many of the capacitors
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`2
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` Defendants also declined to seek summary judgment as to claims arising from purchases billed
`or shipped to Flex facilities in Mexico.
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`3
` The percentage of Flex purchases in each category and Flex’s regional pricing uniformity are
`anticipated to be the subject of expert testimony.
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` 4
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` The ODD defendants, unlike Defendants here, targeted certain large purchasers rather than the
`entire U.S. market. ODD, at 2. This does not impact the FTAIA analysis applicable to Flex.
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`sold to Flex would be incorporated into electronic goods sold into the U.S. market to U.S
`consumers. Id. at 8-9. Defendants engaged in acts in furtherance of the conspiracy in the U.S.,
`including meeting with Flex senior management in the U.S. to discuss terms of sale. Id. at 10-11.
`As in ODD, certain Defendants, such as Nichicon, Nippon Chemi-Con, and AVX, relied on U.S.
`based personnel to set global prices for Flex. Id. at 11. In addition, many Defendants have pleaded
`guilty to conspiratorially targeting the U.S. market. Id. at 9. See also, e.g., United States v.
`Nichicon Corp., Plea Agreement, 4:17-cr-00368-JD, Dkt. 19, at 4 (N.D. Cal. Nov. 09, 2017).
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`Unlike the ODD plaintiffs, however, Flex does not rely on procurement events. Rather,
`Flex’s U.S. management determines the prices at which Flex and its affiliates may purchase
`capacitors, regardless of the location of purchase or the ultimate destination of products
`manufactured using the capacitors. Opposition, at 9-11. Flex’s foreign affiliates may not
`renegotiate prices once approved by Flex’s U.S. management. Id. at 11. In sum, the prices Flex’s
`foreign affiliates pay for capacitors do not simply “correlate” with the prices set by U.S.
`management, they are the prices set by U.S. management.
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`B. The Import Commerce Exclusion (“Category 2 Purchases”).
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`As Judge Seeborg noted, “conduct involving import commerce or trade is exempt from the
`FTAIA and therefore within the reach of the antitrust laws.” ODD at 4. Because conduct involving
`import trade is entirely outside the FTAIA, once the Court has determined that Defendants’
`conduct involved import trade or commerce, the Court need not conduct the proximate cause
`inquiry mandated by the direct effects exception. Id. The relative value of the price-fixed
`component to finished goods containing the component is therefore irrelevant to the import
`commerce analysis, and was not an aspect of Judge Seeborg’s decision. See ODD at 2-8.
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`The ODD defendants’ import commerce arguments mirror Defendants’ arguments here.
`The ODD defendants argued the import commerce exclusion did not apply because: (1) the
`plaintiffs or third parties rather than defendants imported the products; (2) the products imported
`were manufactured goods containing ODDs rather than the ODDs themselves; and (3) the Ninth
`Circuit has not endorsed a targeting theory of import commerce. ODD at 7.
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`Judge Seeborg correctly dismissed the first two arguments because they have been
`“addressed and rejected in this Circuit.” ODD at 7. In this Circuit, “it is not necessary that the
`defendant have been the importer of the good in question; negotiation with United States
`companies on U.S. soil to sell a price-fixed product is surely import trade or commerce.” CRT,
`2016 WL 5725008, at *4, citing Hui Hsiung, 778 F.3d at 756. Judge Seeborg similarly rejected
`Defendants’ suggestion that targeting evidence was irrelevant, citing, inter alia, this Court’s ruling
`on Phase I Summary Judgment. See ODD at 7-8, citing Phase I Order at 8.
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`Straightforward application of ODD to the facts of this action mandates denial of
`Defendants’ summary judgment motion. Defendants targeted the U.S. and Flex’s U.S. price-
`setting mechanisms, predictably inflating the price of capacitors imported to the U.S., either as
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`standalone products or as components of manufactured goods. Defendants’ conduct thus falls
`squarely within the import commerce exclusion.
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`C. The Domestic Effects Exception (“Category 1 Purchases”)
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`Judge Seeborg’s conclusion that the FTAIA precludes claims arising from Category 1
`purchases, in which products purchased abroad are shipped abroad after purchase, would not be
`justified by the facts here. ODD at 11-12. Judge Seeborg correctly noted that distorting U.S.
`prices is a domestic effect that can give rise to a Sherman Act claim. See ODD at 11 (“‘maintaining
`super-competitive prices in the United States’ and not the actual payment of those higher prices
`(which here occurred abroad) was the relevant domestic effect at issue.’”), quoting Empagram S.A.
`v. F. Hoffman La Roche Ltd., 417 F.3d 1267, 1271 (D.C. Cir. 2005) (“Empagram II”). Judge
`Seeborg’ approach was thus consistent with Judge Illston’s analysis in Motorola II, which
`considered Defendants’ distortion of the U.S. market the relevant “domestic effect” for purposes
`of the domestic effect analysis. See In re TFT-LCD (Flat Panel) Antitrust Litig., 785 F. Supp. 835,
`843 (N.D. Cal. 2011) (relevant domestic effect was the setting of a “global, anticompetitive price
`for all LCD panels sold to Motorola”).
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`Judge Seeborg nevertheless determined that the ODD plaintiffs’ claims could not satisfy
`the “gives rise to” prong of the domestic effects exception, relying on Empagram II, In re
`Monosodium Glutamate Antitrust Litig., 477 F.3d 1267 (D.C. Cir. 2005) (“MSG”), and Den Norske
`Stats Oljeselskap As v. HeereMac Vof, 241 F.3d 420, 427 (5th Cir. 2001) (“Den Norske”). See
`ODD, at 11. As Judge Illston noted in Motorola II, however, Empagram II and MSG are
`distinguishable, because in those cases the plaintiffs relied on the purported interconnectedness of
`domestic and foreign markets rather than specific evidence that foreign prices were in fact dictated
`by U.S. management that was targeted by Defendants’ conspiracy. See Motorola II, 785 F. Supp.
`at 989. Den Norske is no different: plaintiff there argued that the FTAIA’s domestic effects prong
`was satisfied because defendants could maintain their monopolistic pricing in the U.S. only by
`virtue of their worldwide market allocation agreement. Den Norske, 241 F.3d at 423.
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`Here, in contrast, Flex has presented evidence sufficient for a reasonable jury to find that
`Defendants targeted and distorted the price at which Flex’s U.S. management authorized Flex’s
`foreign affiliates to purchase capacitors. There is no intermediate causation or market force that
`attenuates the Defendants’ domestic price-fixing and the Flex foreign entities’ agreement to pay
`super-competitive prices abroad.5 Simply put, Flex affiliates paid higher prices abroad because
`Defendants’ distorted Flex’s U.S. price-setting mechanisms. If this causal connection is
`insufficient to meet the requirement that the domestic effect give rise to a foreign claim, then it is
`difficult to imagine circumstances that would.
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`5 The direct connection between Flex’s U.S. price-setting processes and its affiliates’ foreign
`purchases also distinguishes this case from both Sun Microsystems Inc. v. Hynix Semiconductor
`Inc. (“Sun III”), 608 F. Supp. 2d. 1166 (N.D. Cal. 2009), the DPP Class’s “global pricing” theory
`that this Court rejected in the Phase I Order. See Opposition at 23-24 (discussing both Sun III and
`DPPs global pricing theory).
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`Case 3:14-cv-03264-JD Document 2001 Filed 01/05/18 Page 5 of 5
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`January 5, 2018
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`Respectfully submitted,
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`/s/ Charles E. Tompkins
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`Charles E. Tompkins
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