In re Microsoft Corp. Antitrust Litigation

127 F.Supp.2d 702

In re MICROSOFT CORP. ANTITRUST LITIGATION

No. MDL 1332.

United States District Court, D. Maryland.

January 12, 2001.

COPYRIGHT MATERIAL OMITTED

Daryl Andrew Libow, Sullivan & Cromwell, Washington, DC, for Microsoft Corp.

William D. Coston, Venable, Baetjer & Howard, Washington, DC, for Compaq Computer Corp.

W. Stephen Smith, Morrison & Foerster, Washington, DC, for Dell Computer.

OPINION

MOTZ, District Judge.

This multi-district litigation involves sixty-four antitrust actions, sixty-one of which were transferred to this district pursuant to 28 U.S.C. § 1407.¹ After the transfers to this Court, plaintiffs filed a consolidated class action complaint that supersedes the federal claims asserted in all of the transferred actions except (In re Microsoft Corp. Antitrust Litigation); Gravity, Inc. v. Microsoft Corp., 127 F.Supp.2d 728.² Microsoft has filed a motion to dismiss or for summary judgment as to (1) the monetary damages claims of all plaintiffs who did not purchase any software products directly from Microsoft, (2) the foreign plaintiffs' claims, and (3) certain state law claims. The plaintiffs also have filed a motion to remand certain actions to the state courts in which they originally were filed.

This opinion is divided into six parts. The first part sets forth plaintiffs' allegations. The second part addresses what may be loosely described as "Illinois Brick issues" relating to Microsoft's motion to dismiss or for summary judgment as to plaintiffs' monetary damages claims. The next three parts discuss, respectively, the claims of the foreign plaintiffs, plaintiffs' motion to remand, and Microsoft's motion to dismiss or for summary judgment as to certain of the state law claims. The sixth and final part briefly sets forth the reasons why I intend to certify my rulings for interlocutory appeal pursuant to 28 U.S.C. § 1292.

I. PLAINTIFFS' ALLEGATIONS

In their memorandum opposing Microsoft's motion, plaintiffs summarize the allegations made in the Consolidated Class Action Complaint ("CAC"). I have copied these allegations almost verbatim to assure nothing is lost in translation.

A.

During the mid-1980s, consumers could not perform word processing, spreadsheet or other applications on their personal computer ("PC") unless the word processing or other application's software was compatible and could work with the operating system software of the PC. (CAC ¶¶ 91-107.) The license to use the operating system of the PC was, thus, an essential facility both for the consumer to be able to perform applications and for the application software writers to be able to offer a marketable product for consumers. (CAC ¶¶ 143-47.)

During the mid-1980s, Microsoft had a monopoly over licensing operating systems for Intel-compatible PCs (CAC ¶ 1), and many scores of software applications would work only with the Microsoft operating system. However, the demand of the consumer (or "end user") for Microsoft's operating system for a PC derives primarily from the operating system's ability to enable the consumer to enjoy software applications that the consumer could not enjoy without the operating system. See, e.g., CAC ¶¶ 92, 95, 133. Thus, demand for Microsoft's operating system would decline (and Microsoft's revenues would decline) if a sufficient number of consumers could choose to perform the applications they desire on their PC with a non-Microsoft operating system or a new technology other than an operating system.

For eleven years, Microsoft has abused its operating system licensing monopoly power so as to anticompetitively deprive consumers of a sufficiently available non-Microsoft operating system or any new technology that would permit consumers to perform their applications without the Microsoft operating system. (CAC ¶¶ 1, 2, 99-139.) To achieve its unlawful mission, Microsoft logic has been simple: anticompetitively deprive consumers of readily available products and deprive products of readily available consumers. (CAC ¶¶ 88, 122, 164.)

B.

Microsoft does not sell its software to anyone. (CAC ¶ 84.) Instead, it parcels out different bundles of rights with respect to its software. Id. These rights, bundled together as a "license," are the only "products" that Microsoft conveys. (CAC ¶¶ 81-88.) Microsoft retains the title and all rights to its software except for those rights which Microsoft expressly conveys through one of these licenses. Id.

Microsoft enters one type of license with the OEMs. (CAC ¶ 84.) The "specified purposes" of the license with OEMs permit "them to pre-install [the software] on PCs sold to end users." Microsoft provides a wholly "different" license, known as the end-user license agreement ("EULA"), to end users. (CAC ¶ 84.) Specifically, Microsoft grants the right to "use the software on the PCs" to and only to end users. Id. Microsoft's end-user license is a "take it or leave it" proposition and not a product of negotiation. (CAC ¶¶ 84-88.) The EULA states: "By installing, copying, downloading, accessing or otherwise using the software product, you agree to be bound by the terms of this [Agreement]." Thus, the end user accepts the EULA by "clicking" agreement on the computer or taking other action to indicate acceptance of Microsoft's offer of license rights. The end user "chooses" to enter the EULA license with Microsoft only when the end user first begins to use the operating system and not at the times of purchase, payment, or other incidents of the transaction. (CAC ¶ 88.)

C.

Between 1995 and the present, OEMs have had no "other viable choice [and Microsoft has] ... effectively forced OEMs to pre-install Microsoft operating systems on their PCs and to act as Microsoft's agents in offering end-user licenses for acceptance or rejection by customers under terms strictly and exclusively dictated by Microsoft." (CAC ¶ 86.) Like OEMs, retailers and others also acted as agents to convey Microsoft's offer to enter the EULA. (CAC ¶¶ 85, 89.) The retailers also did not purchase or receive title to the end-use rights or other aspects of the product, namely, the EULA. Id. In fact, the EULA conveyed by retailers expressly provides that it is between Microsoft and the end user, and that Microsoft would provide refunds to prospective end users who did not agree to the "take-it-or-leave-it" terms of Microsoft's EULA. (CAC ¶¶ 88-89.)

D.

Microsoft intentionally caused end users to suffer unique injury as a direct result of Microsoft's restrictive and exclusionary practices. End users were deprived of the benefits of competition including, but not limited to, technological innovation, market choice, product variety, and substitutable supply, and were also forced to purchase multiple copies of Microsoft's operating systems. (CAC ¶ 164.)

E.

Microsoft engaged in approximately fifteen types of exclusionary, predatory, or anticompetitive acts (CAC ¶ 116a-116o) in order to deprive consumers of Digital Research's technologically superior and lower cost DR-DOS operating system (CAC ¶ 115) and IBM's technologically superior OS/2 operating system (CAC ¶ 125). Such anticompetitive acts deprived consumers of readily available products (namely, DR-DOS and OS/2) and deprived products of readily available consumers. Id. Such anticompetitive conduct also led to a complaint in 1994 by the Department of Justice ("DOJ"). (CAC ¶¶ 11-12.)

The DOJ accused Microsoft of abusing its monopoly power in violation of the Sherman Act. (CAC ¶¶ 11-19.) The DOJ and Microsoft entered a sweeping settlement agreement in which Microsoft agreed not to engage in at least eight separate types of the anticompetitive, exclusionary, or predatory abuse that it had used effectively to eliminate the foregoing competitive products. Compare CAC ¶¶ 116a-116o with CAC ¶¶ 118-20. By the time the judgment on that settlement was entered in 1995, the lower cost, technologically superior DR-DOS, the technologically superior OS/2, and numerous other prospective competitive products had all been denied to consumers and effectively eliminated as competitors of Microsoft. (CAC ¶¶ 12-14, 111-25.)

Two of the other products that Microsoft's violations denied consumers during the early 1990s were the Mirrors product by Micrographx and Borland's C + + programming language Object Windows Library ("OWL"). (CAC ¶¶ 123-28.) Mirrors permitted application programs written for Windows to be ported to or used on IBM's OS/2. (CAC ¶ 123.) OWL went further: it permitted porting not just to OS/2 but to the Windows, Macintosh, and Unix systems "with virtually no conversion effort." (CAC ¶ 126.)

The OWL and Mirrors innovations could have created market conditions in which Microsoft's "applications barrier to entry" could have been lessened. (CAC ¶¶ 91-101.) This would have greatly benefitted consumers by, among other things, permitting them to enjoy the thousands of applications available for Microsoft's operating system on PCs with a non-Microsoft operating system. Id.

F.

During 1995 and continuing through November 10, 1995 (when the Class Period starts), Microsoft expanded its antitrust violations. For example, in connection with Microsoft's end-user licenses prior to the Class Period and in the software markets generally, end users had numerous rights. End users had the right to reuse the license on another PC. (CAC ¶ 90.) End users had the right to resell the license. Id. And end users enjoyed the right to return the license and obtain a refund if they did not want to accept the license. Id. However, with the lower cost or technologically superior DR-DOS and OS/2 operating systems and numerous other products no longer being marketed in the margins of the market, Microsoft was "freed up" during the Class Period to charge a higher profit-maximizing price and impose far more anticompetitive restrictions on end users.

Microsoft did so. (CAC ¶¶ 90, 160-64.) It tripled its prices and, contrary to software industry practice and what had been...