Addamax Corp. v. Open Software Foundation, Inc.

• Decision Date: 19 May 1995
• Docket Number: Civ. A. No. 91-11152-JLT.
• Citation: 888 F. Supp. 274
• Parties: ADDAMAX CORPORATION, Plaintiff, v. OPEN SOFTWARE FOUNDATION, INC., Digital Equipment Corporation, and Hewlett-Packard Company, Defendants.
• Court: U.S. District Court — District of Massachusetts

888 F. Supp. 274

ADDAMAX CORPORATION, Plaintiff, v. OPEN SOFTWARE FOUNDATION, INC., Digital Equipment Corporation, and Hewlett-Packard Company, Defendants.

Civ. A. No. 91-11152-JLT.

United States District Court, D. Massachusetts.

May 19, 1995.

COPYRIGHT MATERIAL OMITTED

Samuel Adams, Ralph T. Lepore, III, Keith C. Long, Warner & Stackpole, Boston, MA, James V. O'Gara, Alan R. Kusinitz, Patricia Oveis Kahn, Kelley, Drye & Warren, New York City, for Addamax Corp.

James C. Burling, Michelle D. Miller, Charles J. Gray, Peter A. Spaeth, Hale & Dorr, Boston, MA, for Open Software Foundation, Inc.

William L. Patton, Eric Jaeger, Ropes & Gray, Boston, MA, Richard H. Alpert, Digital Equipment Corp., Maynard, MA, for Digital Equipment Corp.

Robert W. Sutis, Hewlett-Packard Co., Palo Alto, CA, Robert A. Skitol, Drinker, Biddle & Reath, Washington, DC, Brian A. Davis, Robert S. Frank, Jr., Kevin P. Light, Nicholas J. Nesgos, Choate, Hall & Stewart, Boston, MA, for Hewlett-Packard Co., Inc.

James B. Conroy, Donnelly, Conroy & Gelhaar, Boston, MA, for G2 Computer Intelligence, Inc.

MEMORANDUM

TAURO, Chief Judge.

This dispute unfolds against the backdrop of the multi-million dollar market for operating systems, the machine language programs that coordinate the activities of a computer's hardware components.¹ Plaintiff Addamax Corporation, a producer of security systems for the computer industry, is suing Hewlett-Packard ("H-P"), the Digital Equipment Corporation ("Digital"), and the Open Software Foundation ("OSF"), alleging violations of federal and state antitrust laws. The complaint alleges that Digital and H-P led an attempt to influence the market for operating systems technology by illegally combining the buying power of the industry's largest competitors.

The defendants have moved for summary judgment, arguing that Addamax's case fails with respect to several elements essential to any antitrust claim. In applying an old statute to new technology, the court examines these issues with an eye to the underlying purpose of the antitrust laws: the efficient functioning of competitive markets. Ocean State Physicians Health Plan, Inc. v. Blue Cross and Blue Shield of Rhode Island, 883 F.2d 1101, 1110 (1st Cir.1989) (citing Standard Oil Co. v. Federal Trade Commission, 340 U.S. 231, 248-49, 71 S.Ct. 240, 249-50, 95 L.Ed. 239 (1951)), cert. denied, 494 U.S. 1027, 110 S.Ct. 1473, 108 L.Ed.2d 610 (1990); P. AREEDA, H. HOVENKAMP, J. SOLOW & D. TURNER, ANTITRUST LAW, ¶ 104.

I. BACKGROUND

In considering a motion for summary judgment, the court must view the record "in the light most hospitable to the party opposing summary judgment, indulging all reasonable inferences in that party's favor." Griggs-Ryan v. Smith, 904 F.2d 112, 115 (1st Cir. 1990). The following statement of facts is drawn accordingly.

A. The Market for Operating Systems.

Operating systems coordinate the activities of the computer's hardware components, allowing it to "run" applications software. The systems are designed to "fit" specific hardware. Software is in turn manufactured to be compatible with certain operating systems. The industry's three-tier system (hardware, software, and operating systems) has produced a complex market shaped by licensing agreements and compatibility concerns.

The Babel-like character of the market for operating systems has produced periodic calls for the harmonization of operating system specifications. This lawsuit revolves around a joint venture, the Open Software Foundation, ostensibly formed for this purpose.

B. the Formation of the OSF Joint Venture.

The Open Software Foundation ("OSF"), was formed in 1988 by a group of eight computer manufacturers.² OSF exists as a not-for-profit joint venture, and is registered as such under federal law.³

OSF membership is open to corporations, non-profits, academic institutions, governmental agencies, and "other business entities." (Defendants' Memorandum in Support, Appendix III, Tab 2, By-Laws of Open Software Foundation, Inc., Article 3). OSF by-laws provide for two classes of participation. The founding corporations are referred to as "sponsors." Sponsors retain exclusive voting rights in the foundation. All other participants, (some three hundred and fifty at the time this suit was filed) are referred to as "members."

OSF's sponsors include many of the major competitors in the market for computer systems. The list includes several of the largest computer companies in the world, including H-P, Digital, IBM, and Bull Systems. According to the complaint, these companies compete with one another in two separate markets. First, they compete in the purchasing of systems technology from independent developers like Addamax. Second, they compete in the sale of finished systems on the downstream market for operating systems. The sponsors, in other words, compete both "in markets where they are sellers and in markets where they are buyers." (Plaintiff's First Amended Complaint, ¶ 20.)

OSF's statement of purpose indicates that the organization was formed to "undertake cooperative research, experimentation and development activities ... to allow users to more easily mix and match computers and software from different suppliers." 53 Fed. Reg. 34594 (1988). To this end, OSF and the OSF Research Institute indicated an intent to engage in a wide array of activity, including "the production and marketing of the software or other proprietary information or technology produced through the venture including the granting of licenses." Id. at 34594.

C. OSF's Procurement Process.

OSF, in keeping with its corporate charter, became involved in the development of new operating systems. In developing its first such operating system, later baptized OS-1, OSF chose to assemble the package by fusing existing technology. As a result, most of OSF's efforts were directed towards purchasing and integrating existing component programs.

OSF's gathered technology for the OS-1 system through a competitive bidding process called a Request for Technology, or "RFT." Companies specializing in a particular area were informed of the process and encouraged to submit bids.

With respect to Addamax, the bid involved a security program⁴ for the new operating system. Two companies responded to the bid: Addamax and SecureWare. After an evaluation of the competing bids, a panel of experts appointed by OSF selected the Secureworks package.

D. Addamax's Allegations

Addamax is now claiming that they lost the bid for reasons unrelated to the price and quality of their product. More importantly, Addamax is alleging that the entire OSF concept is an illegal joint venture designed to influence the market for operating systems technology.

Addamax makes two charges with respect to OSF's strategy. First, Addamax asserts that OSF has rigged its procurement system to favor specific companies and technologies. Second, Addamax claims that OSF forces suppliers to sell their product to OSF and its sponsors under disadvantageous conditions.

With respect to the Request for Technology process, Addamax asserts that OSF ran a suspect contest. Addamax claims that internal OSF documents named SecureWare as the security system component several months before the bids were submitted. (OSF Goethe Project Journal, July 7, 1989, Plaintiff's Appendix I, Volume II, Tab 107, at F055653).

With respect to OSF's effect on prices, Addamax alleges that the joint venture forced competitors to offer their products at below-market prices and under disadvantageous conditions.⁵ Companies are forced to do this, Addamax claims, because failure to win the bid excludes the developer from a huge segment of the market. The loser sees his technology left out of a new system that automatically becomes an industry standard. A firm that fails in an OSF bid looses the chance to sell its product, not only to OSF, but to all OSF members. In this way, Addamax claims, OSF functions as a joint purchasing agreement, or buyers' cartel.

On the basis of these alleged activities, Addamax brought suit against OSF and two of its sponsors, Digital and H-P. The complaint contains claims under federal and state anti-trust law, the state unfair trade practices act, and state common law. The defendants have moved for summary judgment with respect to each claim.

II. SUMMARY JUDGMENT IN ANTI-TRUST CASES

In Poller v. Columbia Broadcasting, 368 U.S. 464, 82 S.Ct. 486, 7 L.Ed.2d 458 (1962), the Supreme Court warned that "summary procedures should be used sparingly in complex antitrust litigation where motive and intent play leading roles, the proof is in the hands of alleged conspirators, and hostile witnesses thicken the plot." Id. at 473, 82 S.Ct. at 491 (citations omitted).

The admonition in Poller notwithstanding, antitrust suits are not immune from summary judgment, and rule 56(c) is routinely used in antitrust actions. See Capital Imaging, P.C. v. Mohawk Valley Medical Associates, 996 F.2d 537, 541 (2nd Cir.), cert. denied, ___ U.S. ___, 114 S.Ct. 388, 126 L.Ed.2d 337 (1993); Midwest Radio v. Forum Publishing, 942 F.2d 1294, 1296 (8th Cir.1991).

III. OVERVIEW OF THE SHERMAN ACT, § 1.⁶

The Sherman Act, 15 U.S.C. § 1 et seq., prohibits:

every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce ...

15 U.S.C. § 1. This simple phrase reveals the basic components of every § 1 claim: a conspiracy and its anticompetitive effect.

The essence of every § 1 claim is "a combination or some form of concerted action between at least two legally distinct entities." Capital Imaging, P.C. v. Mohawk Valley Medical Assoc., 996 F.2d 537 (2nd Cir.), cert. denied, ___ U.S. ___, 114 S.Ct. 388, 126 L.Ed.2d 337 (1993). Section 1, in other words, does not apply to "unilateral conduct on the part of a single person or enterprise." Id.

Not every agreement, however, constitutes a violation of the Sherman Act. After establishing the...