Arthur v. Microsoft Corp.
| Decision Date | 19 March 2004 |
| Docket Number | No. S-01-1325.,S-01-1325. |
| Citation | 267 Neb. 586,676 N.W.2d 29 |
| Parties | Jill A. ARTHUR and Nancy Waters, on behalf of themselves and all others similarly situated, appellants, v. MICROSOFT CORPORATION, a Washington corporation, appellee. |
| Court | Nebraska Supreme Court |
Robert M. Hillis, Nicholas J. Lamme, and Timothy M. Schulz, of Yost, Schafersman, Lamme, Hillis, Mitchell & Schulz, P.C., L.L.O., Fremont, for appellants.
Norman M. Krivosha, Lincoln, Robert M. Slovek, and Todd C. Kinney, of Kutak Rock, L.L.P., Omaha, and David B. Tulchin, Joseph E. Neuhaus, Anastasia A. Angelova, and Richard C. Pepperman II, of Sullivan & Cromwell, L.L.P., for appellee.
Jill A. Arthur and Nancy Waters, the plaintiffs, filed a class action against Microsoft Corporation in the district court for Dodge County. The plaintiffs brought the action on behalf of themselves and others similarly situated, alleging a violation of Nebraska's Consumer Protection Act (Act), Neb.Rev.Stat. § 59-1601 et seq. (Reissue 1998 & Cum.Supp.2000), and Neb. U.C.C. § 2-302 (Reissue 2001). The district court sustained Microsoft's demurrer and dismissed the action without leave to amend, finding that the plaintiffs failed to state a cause of action. On appeal, we affirmed by an equally divided court. Subsequently, we granted the plaintiffs' motion for rehearing. Today, we affirm in part, and in part reverse the judgment of the district court and remand the cause for further proceedings. The memorandum opinion filed June 25, 2003, is withdrawn.
When an appeal calls for statutory interpretation or presents questions of law, an appellate court must reach an independent, correct conclusion irrespective of the determination made by the court below. Jacobson v. Solid Waste Agency of Northwest Neb., 264 Neb. 961, 653 N.W.2d 482 (2002).
In reviewing an order sustaining a demurrer, an appellate court accepts the truth of the facts which are well pled, together with the proper and reasonable inferences of law and fact which may be drawn therefrom, but does not accept the conclusions of the pleader. Cole v. Isherwood, 264 Neb. 985, 653 N.W.2d 821 (2002).
In their amended petition, the plaintiffs alleged that Microsoft is a for-profit corporation organized and existing under the laws of the State of Washington. It is the leading supplier of operating systems for personal computers, and it markets and licenses its Windows 98 operating system throughout the United States, including Nebraska.
For purposes of this action, a personal computer is a digital information-processing device for use by one person and includes desktop and laptop models. "Intel based" personal computers, or computers designed for compatibility with Intel Corporation's "Pentium" family of microprocessors, are the dominant type of personal computers sold and used in the United States. Microsoft has licensed its Windows 98 operating system for Intel-based personal computers.
The plaintiffs' class is defined as all end user licensees of Windows 98 residing in Nebraska for whom Microsoft has an electronic mail or surface address that is accessible by Microsoft. The plaintiffs are informed and believe that the membership of the class is well in excess of 4,000, the exact number being known to Microsoft.
As of June 1998, more than 90 percent of new Intel-based personal computers had been shipped with a version of Windows preinstalled in the computer. The plaintiffs further alleged that Microsoft possesses a dominant and increasing share of the market for operating systems, which share over the decade leading up to the filing of the plaintiffs' petition exceeded 90 percent. During the 2 years leading up to the filing of the plaintiffs' petition, Microsoft's share was at least 95 percent, and it was projected that Microsoft's share would increase in the years immediately following the filing of the petition.
On June 7, 1999, Waters purchased a personal computer from Gateway Direct Computer Sales, a computer distributor. In addition to the computer hardware purchased from Gateway Direct Computer Sales, Waters acquired a license to use the Windows 98 operating system which had been placed on CD-ROM by Microsoft and copied to the hard drive of the computer. On June 4, 2000, Arthur acquired a Windows 98 operating system CD-ROM from CompUSA, a computer distributor, and installed it on her computer. As a precondition to loading and using the Windows 98 operating system, both Waters and Arthur were required to accept an end-user license agreement. The plaintiffs alleged that upon accepting the agreement, both Waters and Arthur became end-user licensees of Microsoft as to Windows 98.
The plaintiffs further alleged that Microsoft's pricing behavior demonstrated that it possessed monopoly power in the market for operating systems for Intel-based personal computers and that Microsoft unlawfully and willfully maintained its monopoly power by anticompetitive and unreasonably exclusionary conduct. They claimed that as a consequence of Microsoft's monopoly, it was able to exercise unfettered discretion in setting the price for a Windows 98 license. The plaintiffs contended that Microsoft licensed Windows 98 at a monopoly price in excess of the amount it would have been able to charge in a competitive market.
The plaintiffs brought their claim pursuant to the Act and § 2-302. The plaintiffs alleged that they and all others similarly situated incurred a monopoly price charged by Microsoft for the use of Windows 98. The plaintiffs alleged that they were entitled to damages according to proof as to the difference between a competitive price and the monopoly price that they incurred as end-user licensees for their use of Windows 98.
Microsoft's demurrer to the plaintiffs' amended petition was sustained as to the antitrust claim. Relying upon Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), the district court held that the plaintiffs, as indirect purchasers, could not bring suit under the Act. The court then dismissed the plaintiffs' amended petition without leave to further amend, finding that the plaintiffs failed to state a cause of action for both the antitrust claim and the claim alleging an unconscionable contract. The plaintiffs timely appealed, and we affirmed, by an equally divided court, the judgment of the district court via a memorandum opinion filed June 25, 2003. We subsequently granted the plaintiffs' motion for rehearing.
The plaintiffs assign that the district court erred (1) in holding that this case is controlled by Illinois Brick Co. and that the plaintiffs failed to state a cause of action, (2) in holding that the plaintiffs are indirect purchasers and thus failed to state a cause of action, and (3) in holding that the plaintiffs' claim based upon unconscionable contract terms and § 2-302 failed to state a cause of action.
We first consider whether the plaintiffs have standing to bring a cause of action under the Act. The Act provides: "It shall be unlawful for any person to monopolize, or attempt to monopolize or combine or conspire with any other person or persons to monopolize any part of trade or commerce." § 59-1604. "Any person who is injured in his business or property by a violation of sections 59-1602 to 59-1606... may bring a civil action in the district court to enjoin further violations, to recover the actual damages sustained by him, or both, together with the costs of the suit ...."§ 59-1609.
Federal antitrust law contains provisions corresponding to §§ 59-1604 and 59-1609: "Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States ... shall be deemed guilty of a felony...." 15 U.S.C. § 2 (2000). Pursuant to 15 U.S.C. § 15(a) (2000), any person who shall be injured in his business or property because of a violation of the antitrust laws may bring a civil action for treble damages.
Neb.Rev.Stat. § 59-829 (Reissue 1998) provides: "When ... any provision of Chapter 59 is the same as or similar to the language of a federal antitrust law, the courts of this state in construing ... any provision of Chapter 59 shall follow the construction given to the federal law by the federal courts." In dismissing the plaintiffs' antitrust claim, the district court determined that § 59-829 required it to accept the construction of the federal courts in federal antitrust actions in determining who has standing to bring an action under the Act. The district court concluded that the issue of standing was controlled by Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), which held that under federal law, indirect purchasers are not entitled to sue for damages for a violation of the Sherman Act, 15 U.S.C. § 1 et seq. (2000).
In Illinois Brick Co., the State of Illinois brought suit against concrete block manufacturers, alleging a violation of the Clayton Act. Pursuant to § 4 of the Clayton Act, codified at 15 U.S.C. § 12 et seq. (2000), any person injured by reason of anything forbidden in the antitrust laws may bring suit to recover damages sustained by him. The U.S. Supreme Court held that the state was an indirect purchaser because it did not buy concrete blocks directly from the manufacturers. The Court explained that the "direct purchaser, and not others in the chain of manufacture or distribution, is the party `injured in his business or property'" within the meaning of § 4 of the Clayton Act. See Illinois Brick Co., 431 U.S. at 729, 97 S.Ct. 2061. Therefore, the Court concluded that federal antitrust law barred claims by indirect purchasers. In Kansas v. UtiliCorp United Inc., 497 U.S. 199, 110 S.Ct. 2807, 111 L.Ed.2d 169...
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