Johnson v. Microsoft Corp.

• Decision Date: 05 October 2005
• Docket Number: No. 2004-0304.,2004-0304.
• Citation: 106 Ohio St.3d 278,834 N.E.2d 791,2005 Ohio 4985
• Parties: JOHNSON, Appellant, v. MICROSOFT CORPORATION, Appellee.
• Court: Ohio Supreme Court

Page 791

834 N.E.2d 791

106 Ohio St.3d 278

2005-Ohio-4985

JOHNSON, Appellant, v. MICROSOFT CORPORATION, Appellee.

No. 2004-0304.

Supreme Court of Ohio.

Submitted February 15, 2005.

Decided October 5, 2005.

COPYRIGHT MATERIAL OMITTED

Waite, Schneider, Bayless & Chesley Co., L.P.A., Stanley M. Chesley, Cincinnati, Paul M. De Marco, and Robert Heuck II; Barrett & Weber, L.P.A., and Michael R. Barrett, Cincinnati; Markovits & Greiwe Co., L.P.A., and W.B. Markovits, for appellant.

Dinsmore & Shohl, L.L.P., Gregory Harrison, and John Luken, Cincinnati; Sullivan & Cromwell, L.L.P., David P. Tulchin, and Richard C. Pepperman II, for appellee.

Bricker & Eckler, L.L.P., Kurtis A. Tunnell, Edward A. Matto, and Anne Marie Sferra, Columbus; Taft, Stettinius & Hollister, L.L.P., R. Joseph Parker, William J. Seitz, and Jeanne M. Bruns, Cincinnati, urging affirmance for amici curiae Ohio Manufacturers' Association, Ohio Chapter of National Federation of Independent Business, Ohio Chemistry Technology Council, and Ohio Chamber of Commerce.

Jim Petro, Attorney General, Douglas R. Cole, State Solicitor, Stephen P. Carney, Senior Deputy Solicitor, and Jennifer L. Pratt, Assistant Attorney General, urging reversal for amicus curiae Attorney General of Ohio.

Weinstein, Kitchenoff, Scarlato, Karon & Goldman Ltd. and Daniel R. Karon, urging reversal for amici curiae National Consumers League, Consumer Action, and Organization for Competitive Markets.

Norman Hawker and Albert A. Foer; Benesch, Friedlander, Coplan & Aronoff, L.L.P., and Mark D. Tucker, Columbus, urging reversal for amicus curiae American Antitrust Institute.

O'DONNELL, J.

{¶ 1} The principal issue for our consideration on this appeal concerns whether plaintiff-appellant, Maria Johnson, who purchased a computer from Gateway, Inc., containing a Microsoft Windows 98 operating system, may file a class action lawsuit against Microsoft Corporation for monopolistic pricing of its software in violation of the Ohio Valentine Act. After careful consideration, we have concluded that Johnson, as an indirect purchaser of Microsoft's operating system, may not assert a Valentine Act claim for alleged violations of state antitrust law.

Factual Background and Procedural History

{¶ 2} The record before us reveals that in April 1999, Maria Johnson purchased a computer from Gateway, Inc., a retailer, with a preinstalled Microsoft Windows 98 operating system. Microsoft develops and licenses operating systems, which allow the components of a personal computer to function with each other and to execute other software applications. It then distributes these operating systems to retailers such as IBM, Gateway, and Dell, where the software is installed and then sold with the computers to consumers.

{¶ 3} On May 25, 2000, Johnson filed an amended class action lawsuit in Hamilton County Common Pleas Court, alleging that Microsoft violated the Ohio Valentine Act, Ohio common law, and the Ohio Consumer Sales Practices Act ("CSPA") by engaging in monopolistic pricing practices with respect to its operating systems. Microsoft moved to dismiss the complaint, asserting that Johnson, as an indirect purchaser of Microsoft's operating system, could not state a claim, and the trial court granted that motion.

{¶ 4} The court of appeals affirmed the trial court's dismissal, concluding that Ohio follows federal antitrust law, and because Illinois Brick Co. v. Illinois (1977), 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707, prohibits indirect purchasers from bringing federal antitrust actions, Johnson could not assert a Valentine Act claim against Microsoft. In addition, the court held that Johnson lacked standing to bring any common-law restitution or unjust-enrichment claims because she never conferred any direct benefit upon Microsoft. And it ruled that Johnson could not maintain a CSPA claim based on monopolistic pricing practices because the Valentine Act, not the Consumer Sales Practices Act, provides the exclusive remedy for such conduct.

{¶ 5} The cause is now before this court upon the acceptance of a discretionary appeal.

Standard of Review

{¶ 6} When reviewing an order dismissing a complaint for failure to state a claim for relief, an appellate court must accept the material allegations of the complaint as true and make all reasonable inferences in favor of the plaintiff. Maitland v. Ford Motor Co., 103 Ohio St.3d 463, 2004-Ohio-5717, 816 N.E.2d 1061, ¶ 11. For the moving defendant to prevail, it must appear from the face of the complaint that the plaintiff can prove no set of facts that would justify a court in granting relief. Vail v. Plain Dealer Publishing Co. (1995), 72 Ohio St.3d 279, 280, 649 N.E.2d 182; State ex rel. Hanson v. Guernsey Cty. Bd. of Commrs. (1992), 65 Ohio St.3d 545, 548, 605 N.E.2d 378. Therefore, we review the applicable law for each cause of action before us to determine whether the facts Johnson alleges in her complaint entitle her to relief. Maitland, 103 Ohio St.3d 463, 2004-Ohio-5717, 816 N.E.2d 1061, ¶ 12.

The Valentine Act

{¶ 7} Johnson argues that the Valentine Act, R.C. 1331.01 et seq., permits an indirect purchaser to maintain an antitrust claim in Ohio and that even if the Act bars such a claim, she became a direct purchaser by entering into an end-user licensing agreement with Microsoft. Microsoft argues that since Ohio follows federal antitrust law, and since Illinois Brick, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707, prohibits indirect purchasers from asserting federal antitrust claims, Johnson—who never purchased any product directly from Microsoft—should not be able to maintain an Ohio Valentine Act claim. In addition, Microsoft urges that a consumer does not become a direct purchaser under the Illinois Brick rule by executing a software licensing agreement because the immediate economic transaction constituting the purchase occurs between the consumer and the retailer—in this case, between Johnson and Gateway, and not between Johnson and Microsoft.

A. Indirect Purchaser

{¶ 8} Regarding the issue of whether the Valentine Act allows indirect purchasers to maintain antitrust claims in Ohio, we recognize that the Ohio General Assembly patterned Ohio's antitrust provisions in accordance with federal antitrust provisions. Compare and contrast, for example, R.C. 1331.08, which governs the status of those who may bring a state-law antitrust action, with Section 4 of the Clayton Act, codified at Section 15, Title 15 U.S.Code.¹ Due to the similarity of these provisions, Ohio has long followed federal law in interpreting the Valentine Act. See C.K. & J.K., Inc. v. Fairview Shopping Ctr. Corp. (1980), 63 Ohio St.2d 201, 204, 17 O.O.3d 124, 407 N.E.2d 507, where we considered the application of R.C. 1331.01 to 1331.14 in connection with a liquor-permit dispute and held that "[t]hese statutes, known as the Valentine Act, were patterned after the Sherman Antitrust Act, and as a consequence this court has interpreted the statutory language in light of federal judicial construction" of the federal antitrust statutes. Accordingly, we will review the status of federal law with respect to who may properly assert an antitrust action.

{¶ 9} The United States Supreme Court has interpreted federal antitrust statutes as prohibiting an indirect purchaser of goods or services from bringing a private action against a seller engaged in allegedly monopolistic practices in the sale of those goods or services. See Illinois Brick, 431 U.S. at 746-747, 97 S.Ct. 2061, 52 L.Ed.2d 707. In that case, the state of Illinois and 700 local government entities sued several concrete-block manufacturers for price fixing—a practice prohibited by Section 1 of the Sherman Act, codified at Section 1, Title 15, U.S.Code, and for which a remedy is provided in Section 4 of the Clayton Act, Section 15, Title 15, U.S.Code. Although they did not directly purchase the concrete blocks from the manufacturers, the governmental entities alleged that the manufacturers passed on the cost of the overcharge to indirect purchasers such as themselves. The Supreme Court concluded that only the overcharged direct purchasers, not others in the chain of distribution, are considered injured parties under the Clayton Act, regardless of any amount those direct purchasers may have passed on to their customers. Accordingly, the court held that only direct purchasers may assert federal antitrust claims. Illinois Brick, 431 U.S. at 729, 97 S.Ct. 2061, 52 L.Ed.2d 707.

{¶ 10} In reaching its decision, the court relied on its decision in Hanover Shoe, Inc. v. United Shoe Machinery Corp. (1968), 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231. There, Hanover Shoe, the retailer, asserted an antitrust claim against United Shoe Machinery Corporation, the manufacturer. United Shoe Machinery claimed that because Hanover Shoe passed on overcharges to its ultimate consumers, Hanover Shoe itself suffered no injuries from the allegedly monopolistic pricing practice. The court rejected United Shoe Machinery's defense, holding that the right to assert the claim belonged to Hanover Shoe, the retailer who paid the overcharge, regardless of whether Hanover Shoe passed the cost of the overcharge to its customers. The court's position in Hanover Shoe is consistent with its holding in Illinois Brick because in both cases the court determined that the right to assert a federal antitrust claim belonged to the injured party—the retailer who contracted directly with the manufacturer and paid the overcharge.

{¶ 11} Our research indicates that courts in at least 15 states have incorporated Illinois Brick's direct-purchaser requirement into their antitrust decisions either by relying on statutes directing courts to follow federal case law or by adopting the rationale of the Illinois Brick decision.² By way of contrast, some 18 states and the District of Columbia have enacted statutes explicitly rejecting Illinois Brick and permitting...