In re Microsoft Corp. Antitrust Litigation, MDL 1332.

• Citation: 127 F.Supp.2d 728
• Decision Date: 12 January 2001
• Docket Number: No. MDL 1332.,MDL 1332.
• Parties: In re MICROSOFT CORP. ANTITRUST LITIGATION Gravity, Inc., et al., v. Microsoft Corp.
• Court: U.S. District Court — District of Maryland

127 F.Supp.2d 728

In re MICROSOFT CORP. ANTITRUST LITIGATION Gravity, Inc., et al., v. Microsoft Corp.

No. MDL 1332.

United States District Court, D. Maryland.

January 12, 2001.

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 case is one of the sixty-four antitrust actions against Microsoft Corporation that have been consolidated by the Multi-District Litigation Panel. It is different from all of the others in that it names as defendants, in addition to Microsoft, three original equipment manufacturers ("OEMs"), Compaq Computer Corporation, Dell Computer Corporation, and PB Electronics, Inc. (formerly Packard Bell NEC). Plaintiffs, Gravity, Inc., and Mark H. Dickson, allege that the four defendants conspired with one another to restrain trade unreasonably and to maintain Microsoft's monopolies in various markets.¹

Plaintiffs seek to represent two classes. One of the classes is composed of U.S. purchasers, between October 20, 1993, and the present, of Microsoft Windows or MS-DOS operating software installed and sold with personal computers compatible with Intel x86/Pentium architecture, purchased directly from one of the three OEM defendants. The other class consists of U.S. purchasers, between October 20, 1993, and the present, of Microsoft word processing software and/or Microsoft spreadsheet software installed and sold with personal computers compatible with Intel x86/Pentium architecture, purchased directly from one of the three OEM defendants. Gravity also asserts an individual claim against Microsoft alone for monopolization of case management and litigation support software.

Defendants have moved to dismiss all of the claims. The motion will be granted except for the individual claim asserted against Microsoft by Gravity.

I.

Plaintiffs' allegations against Microsoft in the class action claims are essentially the same as those made by the plaintiffs in the other MDL cases. Those allegations are summarized in Part I(A) of the companion opinion I am issuing today ("MDL Microsoft I"). I will not repeat them here. The additional allegations pertain to the asserted conspiratorial conduct of the three OEM defendants. According to plaintiffs, this conduct consisted primarily of those defendants entering into a variety of restrictive agreements with Microsoft, including per-processor licensing fees, long-term distribution contracts, the bundling of Microsoft operating system software with Internet Explorer to exclude browser and Java competition, and the bundling of Microsoft operating system software and application software.² (First Amended Complaint ("FAC") ¶ 61.) In addition, Microsoft and the three OEM defendants allegedly agreed not to alter the Windows 95 boot-up sequence, thereby giving Microsoft an unfair advantage over competing browser suppliers. (FAC ¶ 90.) The overall purpose and effect of the restrictive agreements between Microsoft and the OEM defendants is alleged to be the preservation of Microsoft's monopolies in the operating system software market and in the word processing and spreadsheet software markets. As a result, plaintiffs are alleged to have suffered injury by defendants' raising the prices plaintiffs have paid for Microsoft's operating system and application software above competitive levels and by defendants' "denying them competitive choice, including the benefits of software innovation." (FAC ¶ 58.)

The specific benefits that plaintiffs allege the OEM defendants received from conspiring unlawfully with Microsoft are: "(a) inducements offered by Microsoft to enter into anticompetitive agreements; (b) the co-conspirators' capacity to charge mark-ups on monopoly software prices secure in the knowledge they would not be undercut by rivals; (c) the co-conspirators' capacity to compel their customers to purchase operating and application software secure in the knowledge they would not be undercut by rivals; and (d) the co-conspirators' capacity to compel their customers to purchase more memory and other hardware than would be necessary or desirable under full and vigorous software competition." (FAC ¶ 3.)

II.

In the First Amended Complaint, plaintiffs allege two conspiracies, one in violation of section 1, and the other in violation of section 2, of the Sherman Act. 15 U.S.C. §§ 1 & 2. However, as accurately noted by plaintiffs' counsel during oral argument, the two conspiracies "coalesce," because the alleged conspirators are accused of having only one goal, the perpetuation of Microsoft's monopolies. Thus, this is a case in which the alleged section 1 and section 2 conspiracies are entirely coterminous with one another. With the possible exception of the per-processor licensing fees and long-term distribution contracts that expired near the beginning of the class period, plaintiffs allege no actual or intended restraint of trade short of monopolization.³

Accordingly, the sufficiency of plaintiffs' allegations must be gauged by the elements of a section 2 claim. Otherwise, plaintiffs could circumvent the requirements of a conspiracy to monopolize claim, including the requirement that a defendant be shown to have acted with the specific intent to monopolize, simply by characterizing their claim as one arising under section 1, whose elements of proof are not as stringent.⁴ Plaintiffs do not seriously argue to the contrary. They contend, however, that since the issue of intent ultimately presents a question of fact, the specific intent element of their conspiracy claims cannot be challenged until summary judgment, when an evidentiary record has been established. I do not agree. In a case such as this, a plaintiff's "factual allegations must be specific enough to justify `drag[ging] a defendant past the pleading threshold'.... The price of entry, even to discovery, is for the plaintiff to allege a factual predicate concrete enough to warrant further proceedings, which may be costly and burdensome." DM Research, Inc. v. Coll. of Am. Pathologists, 170 F.3d 53, 55 (1st Cir.1999) (citation omitted) (emphasis added); Kramer v. Pollock-Krasner Found., 890 F.Supp. 250, 255-56 (S.D.N.Y.1995).

In the context of this case, what does "specific intent" mean? It signifies something more than willing, voluntary, and knowing participation in the illegal course of conduct that Microsoft is alleged to have pursued. It means participating in that course of conduct for the specific, shared purpose of maintaining Microsoft's monopolies. SuperTurf, Inc. v. Monsanto Co., 660 F.2d 1275, 1283 (8th Cir.1981); see also Northeastern Tel. Co. v. AT & T Co., 651 F.2d 76, 85 (2d Cir.1981) ("The essence of [conspiracy to monopolize] is an agreement entered into with the specific intent of achieving monopoly ...."). Thus, it is not enough to establish a section 2 conspiracy that the OEM defendants, confronted with demands made upon them by Microsoft by virtue of its monopoly power, decided to accede to those demands in order to gain advantage over their rivals in the markets in which they competed. Rather, what plaintiffs must prove is that when confronted with Microsoft's demands, the OEM defendants stepped back and concluded that maintaining Microsoft's monopolies was a goal that they themselves desired to accomplish. That is an element of plaintiffs' case, and they are under an obligation to plead facts from which it can reasonably be inferred that the OEM defendants formulated that intent.

Defendants argue not only that plaintiffs have failed to meet that obligation, but also that the conspiracy they charge is inherently implausible. It would be irrational, defendants contend, for them, as purchasers, to seek to maintain monopolies that Microsoft, their supplier, possessed. See TV Communications Network, Inc. v. Turner Network Television, Inc., 964 F.2d 1022, 1026-27 (10th Cir.1992); Stephen Jay Photography, Ltd. v. Olan Mills, Inc., 903 F.2d 988, 994 (4th Cir.1990) ("[A]ppellants have articulated no motive the [defendants] might have to engage in such a conspiracy. Indeed, logically the converse is true because the [defendants] benefit when [suppliers] aggressively compete for contracts."); Coastal Transfer Co. v. Toyota Motor Sales, 833 F.2d 208, 211 (9th Cir.1987) ("[S]uch an intention ... would have been illogical because a restriction on competition in the [given] market would have raised prices in a market in which [the defendant] purchased services."); Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1109-10 (7th Cir.1984) ("[T]he plaintiffs are alleging, in essence, that [the defendant] conspired to injure itself."). Those monopolies enabled Microsoft to control the prices at which the OEM defendants had to buy operating system and application software for installation in the computers they manufactured. A rise in those prices would cut into the OEM defendants' profits since those defendants sell their goods in an extremely competitive market. Citing such cases as Spectators' Communication Network v. Colonial Country Club, 231 F.3d 1005 (5th Cir. 2000), plaintiffs counter that what may seem irrational in the abstract may not be so in fact, and that their allegations that the OEM defendants benefitted from their ready acquiescence to Microsoft's monopolistic demands make their charge of conspiracy plausible.⁵

The fallacy in plaintiffs' contention is that although plausibility is necessary for an antitrust conspiracy claim, it is not sufficient. Cf. 6 Phillip E. Areeda, Antitrust Law ¶ 1412g (1986). Plaintiffs have suggested motives that, at least in theory, might have led the OEM defendants to accept, willingly and voluntarily, the imposition of Microsoft's restrictive agreements. Plaintiffs have not, however, identified any facts to support their conclusory...