A & M SUPPLY CO. v. Microsoft Corp.
Decision Date | 13 November 2002 |
Docket Number | Docket No. 236598. |
Citation | 654 N.W.2d 572,252 Mich. App. 580 |
Parties | A & M SUPPLY COMPANY, Individually, and as Representatives of all Persons Similarly Situated, Plaintiff-Appellee, v. MICROSOFT CORPORATION, Defendant-Appellant. |
Court | Court of Appeal of Michigan — District of US |
Burchfield, Park & Heddon, P.C. (by David L. Park), Barnow and Goldberg, P.C. (by Ben Barnow), and Humphrey, Farrington & McClain, P.C. (by Ralph K. Phalen), Brighton, Chicago, IL, Independence, MO, for the plaintiff.
Kerr, Russell and Weber, PLC (by William A. Sankbeil, Joanne Geha Swanson, and Fred K. Herrmann), and Sullivan & Cromwell (by David B. Tulchin and Richard C. Pepperman, II), (Montgomery, McCracken, Walker & Rhoads, LLP by Charles B. Casper, Hagens Berman by Steve W. Berman and Thomas W. Burt, Richard Wallis, and Steven J. Aeschbacher, of Counsel), Detroit, New York, NY, Philadelphia, PA, Seattle, WA, Redmond, WA, for the defendant.
Before: WHITBECK, C.J., and O'CONNELL and METER, JJ.
In this action under the Michigan Antitrust Reform Act (MARA), M.C.L. § 445.771 et seq., plaintiff A & M Supply Company alleges that defendant Microsoft Corporation illegally monopolized the personal computer software market in Michigan, harming A & M and many other residents of this state who purchased certain Microsoft products. In August 2001, the trial court entered an opinion and order certifying this matter as a class action. Microsoft appeals that order by leave granted. We reverse and remand.
Generally speaking, there are two types of private antitrust lawsuits. The first type of action is a direct purchaser action in which the plaintiff purchases a product directly from the purported monopolist and sues for the injuries sustained.1 The second type of action is an indirect, or "pass-on," action in which the plaintiff is one or more steps removed from the direct purchaser, essentially purchasing the product after it has changed hands through middlemen.2 This case is a pass-on lawsuit.
That state law forms the basis for this suit is no coincidence. In Hanover Shoe, Inc. v. United Shoe Machinery Corp.3 and Illinois Brick Co v. Illinois,4 the United States Supreme Court barred indirect purchaser suits in federal courts. However, the Court did not foreclose states from allowing indirect purchaser actions. Accordingly, in 1984,5 the Michigan Legislature passed an Illinois Brick repealer law when it enacted MARA subsection 8(2), which states:
Any other person threatened with injury or injured directly or indirectly in his or her business or property by a violation of this act may bring an action for appropriate injunctive or other equitable relief against immediate irreparable harm, actual damages sustained by reason of a violation of this act, and, as determined by the court, interest on the damages from the date of the complaint, taxable costs, and reasonable attorney's fees. If the trier of fact finds that the violation is flagrant, it may increase recovery to an amount not in excess of 3 times the actual damages sustained by reason of a violation of this act.[6]
The dispositive issue in this case revolves around injury, which MARA subsection 8(2) makes so critical in providing a basis for recovering "actual damages." Microsoft argues that, in an indirect purchaser case, a plaintiff who asserts that each putative class member actually sustained the "fact of injury" must demonstrate two factors with common proof. Under this analytical construct, the plaintiff must first prove that the prices the defendant charged the direct purchasers were consistently higher than the prices it would have charged in a competitive environment. We label this an "overcharge" requirement. Second, the plaintiff must prove that the overcharge, or some portion thereof, passed through the chain of distribution to indirect purchasers. We label this a "pass-on" requirement. We agree with Microsoft that proving overcharge and pass-on are essential to succeeding in an indirect purchaser suit under MARA, and therefore adopt this construct.
Without using this terminology, the trial court, when it certified the class action, concluded that A & M had met its burden with respect to the overcharge and pass-on requirements. As we explain in more detail, the trial court's approach to the overcharge requirement may have been correct. However, that is an issue we need not reach because the trial court erred in concluding that A & M satisfied the pass-on requirement; this element of the trial court's reasoning requires us to reverse and remand.
James Barnard originally filed this case in December 1999 in Livingston County. Barnard sought to hold Microsoft liable to consumers who purchased Windows operating systems and Internet Explorer software for alleged damages attributable to Microsoft's monopolistic posture and antitrust violations in Michigan. The complaint consisted of a single count alleging that Microsoft had violated MARA.
The case was first assigned to Livingston Circuit Judge Daniel Burress. In an opinion and order entered on May 4, 2000, Judge Burress certified a class comprised of all individuals who purchased, leased, or licensed a copy of Windows 95 or Windows 98 from an entity other than Microsoft.7 Microsoft then filed a motion in the Michigan Supreme Court for superintending control. This motion prompted the Michigan Supreme Court to issue Administrative Order No.2000-5,8 which transferred all cases brought in this state's trial courts against Microsoft for violating MARA to the Wayne Circuit Court to coordinate both pretrial and trial proceedings. As a result, this case moved from the Livingston Circuit Court to the Wayne Circuit Court, which is the trial court that made the decision at issue in this appeal.
In the trial court, Microsoft moved to set aside Judge Burress' certification order, arguing that there had been no discovery before that judge decided the motion and because, in Microsoft's view, the decision to certify the class was itself erroneous. The trial court granted the motion, vacating the previous certification order. The trial court then gave the parties time to conduct further discovery and granted Barnard leave to amend his complaint.
When Barnard filed his amended complaint, he added A & M as the class representative because A & M had allegedly purchased more Microsoft products than Barnard, including Microsoft NT, Microsoft Windows 95, Microsoft Windows 98, Microsoft Word, Microsoft Excel, Microsoft Office, Microsoft Outlook, and Internet Explorer; Barnard had purchased only Internet Explorer and one version of the Windows operating system. In the amended complaint, A & M claimed that Microsoft had violated MARA in three ways. The first two counts in the complaint implicated MARA § 3, which makes unlawful "[t]he establishment, maintenance, or use of a monopoly, or any attempt to establish a monopoly, of trade or commerce in a relevant market by any person, for the purpose of excluding or limiting competition or controlling, fixing, or maintaining prices."9 The third count relied on MARA § 2, which simply declares that "[a] contract, combination, or conspiracy between 2 or more persons in restraint of, or to monopolize, trade or commerce in a relevant market is unlawful."10
Underlying these three counts was A & M's theory that, since the mid-1980s, Microsoft had used monopolistic and anticompetitive means to dominate production of operating systems and software for personal computers. According to A & M, Microsoft, through its predatory conduct, was able to eliminate its competition in the operating systems market. As a result, A & M claimed, consumers have had no viable choices for an alternative operating system for their personal computers since 1994. A & M also alleged that Microsoft engaged in the same conduct regarding its word processing, spreadsheet, and office suite software. A & M asserted that Microsoft's behavior allowed it to raise its prices for its products above competitive pricing levels in Michigan, creating artificially high prices consumers cannot escape. As support for these allegations, A & M cited findings and conclusions made against Microsoft in other federal and state antitrust cases.
On August 21, 2001, about a month after oral arguments, the trial court issued a written opinion and order certifying the class. In explaining its decision, the trial court focused on the disputed issue, which it determined to be whether A & M could show a common method or means of proving injury and damages to the class members. The trial court concluded that the three methods A & M advanced for demonstrating the injury Microsoft's actions allegedly...
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