Go Computer, Inc. v. Microsoft Corp.

• Decision Date: 19 November 2007
• Docket Number: No. 06-2278.,06-2278.
• Parties: GO COMPUTER, INCORPORATED, a Washington corporation; S. Jerrold Kaplan, an individual, Plaintiffs-Appellants, v. MICROSOFT CORPORATION, a Washington corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

508 F.3d 170

GO COMPUTER, INCORPORATED, a Washington corporation; S. Jerrold Kaplan, an individual, Plaintiffs-Appellants, v. MICROSOFT CORPORATION, a Washington corporation, Defendant-Appellee.

No. 06-2278.

United States Court of Appeals, Fourth Circuit.

Argued: September 26, 2007.

Decided: November 19, 2007.

ARGUED: Sean Abram Lev, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, D.C., for Appellants. David Bruce Tulchin, Sullivan & Cromwell, New York, New York, for Appellee. ON BRIEF: Michael K. Kellogg, Steven F. Benz, Priya R. Aiyar, Daniel A. Loeffler, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, D.C., for Appellants. Thomas W. Burt, Steven J. Aeschbacher, Microsoft Corporation, Redmond, Washington; Robert A. Rosenfeld, Jessica S. Pers, Heller Ehrman, L.L.P., San Francisco, California; Amanda F. Davidoff, Sullivan & Cromwell, L.L.P., New York, New York; G. Stewart Webb, Jr., Venable, L.L.P., Baltimore, Maryland, for Appellee.

Before WILKINSON, Circuit Judge, HAMILTON, Senior Circuit Judge, and T.S. ELLIS, III, Senior United States District Judge for the Eastern District of Virginia, sitting by designation.

Affirmed by published opinion. Judge WILKINSON wrote the opinion, in which Senior Judge ELLIS joined. Senior Judge HAMILTON wrote an opinion concurring in part and concurring in the judgment.

OPINION

WILKINSON, Circuit Judge:

Plaintiffs Jerry Kaplan and GO Computer sued Microsoft in 2005 for antitrust injuries that allegedly drove GO out of business in 1994. The four year statutory limitations period that Congress specified has long since run, and Mr. Kaplan and GO seek to combine no fewer than four separate tolling arguments to sidestep it. A necessary link in the chain is plaintiffs' claim that fraudulent concealment delayed the ticking of the clock. Affirming the district court, we hold that Mr. Kaplan and GO were on inquiry notice of their claims as of 1992, when enough red flags had flown that a reasonably diligent person would have investigated and acted.

I.

Twenty years ago, in 1987, Jerry Kaplan founded GO Corporation to bring to market a handheld computer that could be operated by writing directly on its screen with a stylus, and an operating system, "PenPoint," for use with that or other touch screen computers. The technology was promising and, initially, GO was on the rise, winning funding and plans for a public endorsement from Intel and catching the attention of other major players in the digital market. As part of its business strategy, GO reached out to software developers — Microsoft among them — to persuade them to write programs for PenPoint. It likewise approached original equipment manufacturers like Compaq, Fujitsu, and Toshiba to get them to build their own stylus-operated computers based on PenPoint.

According to the complaint, Microsoft saw PenPoint as a threat to its dominance of the operating system market and took anticompetitive steps against GO to extinguish the threat. Specifically, Microsoft pressured Intel to withhold its endorsement and funding; forced other hardware and software developers either not to build products for PenPoint or to pay exorbitant licensing fees if they did so; withheld technical information to ensure that Microsoft's own software would be incompatible with PenPoint; and stole GO's trade secrets to create a faux competitor to PenPoint, "PenWindows," that Microsoft would pull from the market as soon as GO was gone. The pressure was too much; GO closed its doors in January 1994, almost fourteen years ago. The complaint adds that even after GO closed, manufacturers sold hardware based on PenPoint through 2002, and Microsoft still markets products based on trade secrets it stole from GO.

GO's assets passed to EO Corporation, a former GO spinoff that was trying to develop a hybrid between stylus-based computers and cell phones — another technology that would have its day in time. EO ceased development of PenPoint and functionally shut down in July 1994, when its chief shareholder, AT & T, withdrew funding. A few months later, Microsoft withdrew PenWindows from the market. In 1997, EO was formally dissolved and its assets passed to Lucent Technologies, Inc., which owns PenPoint to this day.

This case might have ended there, with no lawsuit at all, but for the Department of Justice's May 18, 1998, filing against Microsoft. Twice before the federal government had taken action. The Federal Trade Commission had launched a multi-year investigation of Microsoft in the early 1990s, which it ended in 1993 by declining to pursue an antitrust action. The Department of Justice had compelled Microsoft to sign a consent decree in 1994, prohibiting certain restrictive licensing practices. The Department's latest suit concluded in the district court with a new consent decree in November 2002, see United States v. Microsoft Corp., 231 F.Supp.2d 144 (D.D.C. 2002), and concluded on appeal when the U.S. Court of Appeals for the D.C. Circuit affirmed the entry of the decree in June 2004, Massachusetts v. Microsoft Corp., 373 F.3d 1199 (D.C.Cir.2004).

In 2005, Mr. Kaplan, along with a new corporate entity he had recently formed, co-plaintiff GO Computer, Inc.,¹ went to Lucent with a proposal: In exchange for 30% of any judgment or settlement GO and Kaplan might win, Lucent would assign its "legal interest in any federal and state antitrust claims" that Lucent "acquired from AT & T" and that AT & T "had previously acquired from GO." The deal was struck in April 2005. On June 29, 2005 — a day short of a year after the D.C. Circuit affirmed the consent decree in Massachusetts v. Microsoft — GO filed parallel complaints against Microsoft in federal and state court, the one under federal antitrust law and the other under state antitrust law. Microsoft met GO's federal complaint with a motion to dismiss or (in the alternative) for summary judgment on statute of limitations grounds.

The merits of GO's antitrust allegations were never at issue in the district court; argument centered wholly on the limitations period. The statute of limitations for federal antitrust claims bars any action "unless commenced within four years after the cause of action accrued," plus any tolling. 15 U.S.C. § 15b (2000). "Generally, a cause of action accrues and the statute begins to run when a defendant commits an act that injures a plaintiff's business." Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 338, 91 S.Ct. 795, 28 L.Ed.2d 77 (1971). All of the injuries alleged in GO's complaint occurred before GO closed in January 1994, with the exception of GO's reference to PenPoint licensing into 2002 and trade secret theft even after 2002. Thus the issues before the district court were GO's four arguments for why the statute of limitations did not expire in the eleven and a half years between GO's closing and filing.

First, GO invoked fraudulent concealment doctrine, claiming that Microsoft had effectively hidden its wrongdoing until 2002. See Supermarket of Marlinton, Inc. v. Meadow Gold Dairies, Inc., 71 F.3d 119, 122 (4th Cir.1995) (starting the clock for concealed injuries from the date they are discovered rather than the date they were committed). Second, GO argued that the federal government's suit against Microsoft tolled the clock from the date of filing, May 18, 1998. See 15 U.S.C. § 16(i) (2000) (tolling the clock on private antitrust suits "during the pendency" of related suits by the federal government and "for one year thereafter"). Third, GO argued that the federal case did not come to an end with the district court's entry of the consent decree in 2002, but only with the D.C. Circuit's affirmance of that decree in 2004. See Russ Togs, Inc. v. Grinnell Corp., 426 F.2d 850, 857 (2d Cir.1970) (holding that the "pendency" of a government antitrust action continues through appeal). Fourth, GO claimed that Microsoft continued to commit antitrust violations involving PenPoint technology through at least 2002. Zenith Radio, 401 U.S. at 338, 91 S.Ct. 795 (stating that each new injurious act in a continuing antitrust conspiracy starts a new limitations clock as to that act).

In June 2006, the district court, construing Microsoft's motion as one for summary judgment, rejected GO's arguments. GO Computer, Inc. v. Microsoft Corp., 437 F.Supp.2d 497 (D.Md.2006). As to fraudulent concealment, the court concluded that enough red flags were up by 1992 to put GO, as a matter of law, on inquiry notice of its claims. The limitations period therefore ran out before United States v. Microsoft was ever filed. Id. at 503. In the alternative, the district court reasoned that GO was certainly on inquiry notice as of July 1994, when the Department of Justice and Microsoft filed their first consent decree. Since July 1994 is just a few months short of four years before May 1998, this alternative view did require engaging GO's United States v. Microsoft tolling argument. But the court held that United States v. Microsoft ended for tolling purposes in 2002, when the district court entered the consent decree, not in 2004, when the appellate court affirmed it. Id. at 504. The tolling period therefore expired in 2003, two years before GO filed.

Finally, as to the continuing violations argument, the district court pointed out that the language assigning to GO "antitrust claims . . . that AT & T had previously acquired from GO" plainly excludes any antitrust claim arising after GO closed in 1994. GO's continuing violations argument thus rested on injuries to Lucent that GO had no right to allege. GO itself had apparently realized the problem, and, after filing its complaint, had signed two amended assignments with Lucent to fix the original assignment's language. Neither Microsoft nor the district court were told of the two follow-up assignments, or saw any of the three assignments until a hearing in March 2006, when GO's counsel produced the third...