In re Microsoft Corp. Antitrust Litigation

• Citation: 355 F.3d 322
• Decision Date: 15 January 2004
• Docket Number: No. 03-1817.,03-1817.
• Parties: IN RE: MICROSOFT CORPORATION ANTITRUST LITIGATION Kloth, et al. v. Microsoft Corp. Netscape Communications Corp. v. Microsoft Corp. Burst.com, Inc. v. Microsoft Corp. (MDL No. 1332)
• Court: U.S. Court of Appeals — Fourth Circuit

355 F.3d 322

IN RE: MICROSOFT CORPORATION ANTITRUST LITIGATION

Kloth, et al. v. Microsoft Corp.

Netscape Communications Corp. v. Microsoft Corp.

Burst.com, Inc. v. Microsoft Corp. (MDL No. 1332)

No. 03-1817.

United States Court of Appeals, Fourth Circuit.

Argued: October 29, 2003.

Decided: January 15, 2004.

Appeal from the United States District Court for the District of Maryland, J. Frederick Motz, J.

COPYRIGHT MATERIAL OMITTED

ARGUED:

David Bruce Tulchin, Sullivan & Cromwell, L.L.P., New York, New York, for Appellant. John Bucher Isbister, Tydings & Rosenberg, L.L.P., Baltimore, Maryland, for Appellees.

ON BRIEF:

Richard C. Pepperman, II, Marc De Leeuw, Sullivan & Cromwell, L.L.P., New York, New York; Robert A. Rosenfeld, Matthew L. Larrabee, Heller, Ehrman, White & McAuliffe, L.L.P., San Francisco, California; Michael F. Brockmeyer, Jeffrey D. Herschman, Piper Rudnick, L.L.P., Baltimore, Maryland; Charles W. Douglas, Sidley, Austin, Brown & Wood, Chicago, Illinois; Thomas W. Burt, Richard L. Wallis, Linda K. Norman, Steven J. Aeschbacher, Microsoft Corporation, Redmond, Washington, for Appellant. Thomas M. Wilson, III, Tydings & Rosenberg, L.L.P., Baltimore, Maryland; Lloyd R. Day, Jr., James R. Batchelder, Robert M. Galvin, Day, Casebeer, Madrid & Batchelder, L.L.P., Cupertino, California; Michael A. Schlanger, Kirk R. Ruthenberg, Sonnenschein, Nath & Rosenthal, Washington, D.C.; Spencer Hosie, Bruce J. Wecker, Hosie, Frost, Large & McArthur, San Francisco, California; Parker C. Folse, III, Ian B. Crosby, Edgar G. Sargent, Susman Godfrey, L.L.P., Seattle, Washington; Stephen D. Susman, James T. Southwick, Susman Godfrey, L.L.P., Houston, Texas; Christopher Lovell, Victor E. Stewart, Jody Krisiloff, Peggy Wedgworth, Lovell, Stewart & Halebian, L.L.P., New York, New York; Stanley M. Chesley, Waite, Schneider, Bayless & Chesley, Cincinnati, Ohio; Robert Yorio, Carr & Ferrell, L.L.P., Palo Alto, California; Michael D. Hausfeld, Cohen, Milstein, Hausfeld & Toll, P.L.L.C., Washington, D.C., for Appellees.

Before WIDENER, NIEMEYER, and GREGORY, Circuit Judges.

Reversed and remanded by published opinion. Judge NIEMEYER wrote the opinion, in which Judge WIDENER joined. Judge GREGORY wrote a separate opinion concurring in part and dissenting in part.

OPINION

NIEMEYER, Circuit Judge:

In 1998, the United States and several of the States filed a civil action against Microsoft Corporation in the District of Columbia for violations of the Sherman Act. The district court in that action found that Microsoft (1) illegally maintained a monopoly in the market of "licensing of all Intel-compatible PC operating systems worldwide," (2) attempted to monopolize a "putative browser market," and (3) entered into an illegal tying arrangement by bundling its Internet Explorer web browser with its Windows operating system, in violation of §§ 1 and 2 of the Sherman Act. The Court of Appeals for the D.C. Circuit affirmed, with limitations, the district court's conclusion that Microsoft illegally maintained a monopoly in the PC operating systems market but reversed the district court's other conclusions. United States v. Microsoft Corp., 253 F.3d 34 (D.C.Cir.2001).

Based in large part on the factual findings made in that District of Columbia litigation, the plaintiffs in the cases now before this court have asserted a broad range of antitrust violations against Microsoft. On the plaintiffs' motions to foreclose Microsoft from relitigating 356 factual findings made by the district court in the District of Columbia litigation, the district court in these actions entered a pretrial order applying the doctrine of "offensive collateral estoppel" to preclude Microsoft from relitigating 350 of the factual findings. The district court made its decision about each finding by determining that the finding was "supportive of" the judgment affirmed by the Court of Appeals for the D.C. Circuit. In re Microsoft Corp. Antitrust Litig., 232 F.Supp.2d 534, 537 (D.Md.2002). On appeal, Microsoft contends that the standard that the district court used to apply offensive collateral estoppel to factual findings from the District of Columbia litigation was too broad, unfairly denying Microsoft an opportunity to litigate those facts in this action.

Because the "supportive of" standard is not the appropriate standard for applying collateral estoppel, we reverse and remand, directing the district court to give preclusive effect only to factual findings that were necessary — meaning critical and essential — to the judgment affirmed by the D.C. Circuit.

I

Several competitors of Microsoft — Netscape Communications Corporation, Sun Microsystems, Inc., Burst.com, Inc., and Be Incorporated — as well as a class of consumers commenced these actions against Microsoft for various violations of the antitrust laws and related laws, and in April 2002 these actions were transferred to the District of Maryland under multidistrict litigation procedures. See 28 U.S.C. § 1407.

In August 2002, several of the plaintiffs filed pretrial motions under Federal Rule of Civil Procedure 16(c) to foreclose Microsoft, under the doctrine of collateral estoppel, from relitigating 356 of the 412 factual findings made by the district court in the District of Columbia litigation. See United States v. Microsoft Corp., 84 F.Supp.2d 9 (D.D.C.1999). The district court granted the motions with respect to 350 of those findings. In re Microsoft Corp. Antitrust Litig., 232 F.Supp.2d 534 (D.Md.2002). In reaching its conclusion, the court recognized that it could foreclose Microsoft from relitigating only those facts that were "necessary to the prior judgment," id. at 537, but it concluded that the doctrine "is sufficiently served by requiring that a specific finding be supportive of the prior judgment," id. (emphasis added).

On Microsoft's motion, the district court certified for review under 28 U.S.C. § 1292(b) its interlocutory order, which the court characterized as a ruling that "facts found by Judge Jackson [for the District of Columbia District Court] that were supportive of (rather than indispensable to) the liability judgment against Microsoft in the government case should be given collateral estoppel effect in the cases encompassed in this MDL proceeding." By order dated July 3, 2003, we granted Microsoft leave to appeal.

II

Under the traditional rubric of res judicata, once a matter — whether a claim, an issue, or a fact — has been determined by a court as the basis for a judgment, a party against whom the claim, issue, or fact was resolved cannot relitigate the matter. Judicial efficiency and finality have demanded such a policy.

The doctrine of "collateral estoppel" or "issue preclusion," which the district court applied in this case, is a subset of the res judicata genre. Applying collateral estoppel "forecloses the relitigation of issues of fact or law that are identical to issues which have been actually determined and necessarily decided in prior litigation in which the party against whom [collateral estoppel] is asserted had a full and fair opportunity to litigate." Sedlack v. Braswell Servs. Group, Inc., 134 F.3d 219, 224 (4th Cir.1998) (internal quotation marks and citation omitted). To apply collateral estoppel or issue preclusion to an issue or fact, the proponent must demonstrate that (1) the issue or fact is identical to the one previously litigated; (2) the issue or fact was actually resolved in the prior proceeding; (3) the issue or fact was critical and necessary to the judgment in the prior proceeding; (4) the judgment in the prior proceeding is final and valid; and (5) the party to be foreclosed by the prior resolution of the issue or fact had a full and fair opportunity to litigate the issue or fact in the prior proceeding. See id.; Polk v. Montgomery County, Maryland, 782 F.2d 1196, 1201 (4th Cir.1986) (using "necessary, material, and essential" for the third prong); Tuttle v. Arlington County Sch. Bd., 195 F.3d 698, 703-04 n. 6 (4th Cir.1999) (using "critical and necessary"); C.B. Marchant Co. v. Eastern Foods, Inc., 756 F.2d 317, 319 (4th Cir.1985) (using "necessary and essential"); see also Restatement (Second) of Judgments § 27 & cmt. h (1982) (using "essential to the judgment," meaning that the judgment must be "dependent upon the determinations").

When a plaintiff employs the doctrine of collateral estoppel or issue preclusion "to foreclose the defendant from litigating an issue the defendant has previously litigated unsuccessfully in an action with another party," it is known as "offensive collateral estoppel." Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n. 4, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979). And when a defendant employs the doctrine "to prevent a plaintiff from asserting a claim the plaintiff has previously litigated and lost against another defendant," it is known as "defensive collateral estoppel." Id. Recognizing a greater possibility for unfairness from the use of offensive collateral estoppel, the Supreme Court has held that in lieu of prohibiting its use altogether, district courts should be granted "broad discretion to determine when it should be applied." Id. at 331, 99 S.Ct. 645. But this discretion should not be exercised to permit the use of offensive collateral estoppel "where a plaintiff could easily have joined in the earlier action or where ... the application of offensive estoppel would be unfair to a defendant," particularly in several specified ways. Id. Thus, when exercising its discretion, a court should consider the following nonexclusive factors: (1) whether the plaintiff could have easily joined in the action against the defendant in the earlier action, (2) whether the defendant had an incentive in the prior action to have defended the action fully and vigorously; (3) whether the defendant had won litigation other than the prior action that determined the same issues or facts favorably to the defendant; (4) whether...