Novell, Inc. v. Microsoft Corp., 06-1134.

• Decision Date: 15 October 2007
• Docket Number: No. 06-1238.,No. 06-1134.,06-1134.,06-1238.
• Parties: NOVELL, INCORPORATED, Plaintiff-Appellee, v. MICROSOFT CORPORATION, Defendant-Appellant. Novell, Incorporated, Plaintiff-Appellant, v. Microsoft Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

505 F.3d 302

NOVELL, INCORPORATED, Plaintiff-Appellee, v. MICROSOFT CORPORATION, Defendant-Appellant.

Novell, Incorporated, Plaintiff-Appellant, v. Microsoft Corporation, Defendant-Appellee.

No. 06-1134.

No. 06-1238.

United States Court of Appeals, Fourth Circuit.

Argued: December 1, 2006.

Decided: October 15, 2007.

ARGUED:

Steven Lyon Holley, Sullivan & Cromwell, New York, New York, for Appellant/Cross-Appellee. Charles Justin Cooper, Cooper & Kirk, P.L.L.C., Washington, D.C., for Appellee/Cross-Appellant.

ON BRIEF:

Thomas W. Burt, Steven J. Aeschbacher, Microsoft Corporation, Redmond, Washington; Robert A. Rosenfeld, Heller, Ehrman, White & McAuliffe, L.L.P., San Francisco, California; David B. Tulchin, Sullivan & Cromwell, New York, New York; G. Stewart Webb, Venable, L.L.P., Baltimore, Maryland, for Appellant/Cross-Appellee. R. Bruce Holcomb, Jeffrey M. Johnson, Milton A. Marquis, David L. Engelhardt, Dickstein, Shapiro, Morin & Oshinsky, L.L.P., Washington, D.C.; David H. Thompson, Howard C. Nielson, David M. Lehn, Cooper & Kirk, P.L.L.C., Washington, D.C., for Appellee/Cross-Appellant.

Before WIDENER¹ SHEDD, and DUNCAN, Circuit Judges.

Affirmed by published opinion. Judge Duncan wrote the opinion, in which Judge Shedd joined.

OPINION

DUNCAN, Circuit Judge:

We are asked here to review cross appeals from two interlocutory orders in an antitrust action by Novell, Inc. ("Novell") against Micro-soft Corp. ("Microsoft"). Novell seeks treble damages under § 4 of the Clayton Act, 15 U.S.C. § 15, for injuries allegedly suffered as a result of Microsoft's anticompetitive conduct in violation of §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. In its suit filed in the District of Utah and transferred by the Judicial Panel on Multidistrict Litigation to the District of Maryland, Novell made six specific claims for damages to software applications it owned between 1994 and 1996. Two of the six claims allege that Microsoft's conduct injured competition in the market for PC operating systems, a market in which Novell's products did not directly compete. The district court declined to dismiss these claims over Microsoft's objection that Novell, as neither a consumer nor a competitor in the relevant market, lacks antitrust standing to bring them. Microsoft appeals the denial of this motion to dismiss.

The remaining four claims allege harm to competition in the software-application market, in which Novell did compete. The district court dismissed these claims as untimely, and Novell appeals.

For the reasons that follow, we affirm both rulings.

I.

A.

Novell is a software company that owned WordPerfect, a word-processing application,² and Quattro Pro, a spreadsheet application,³ from 1994 until 1996.⁴ WordPerfect and Quattro Pro are "office-productivity applications," which Novell marketed together as an office-productivity package called "PerfectOffice." Microsoft is a software company that owns Windows, a personal-computer ("PC") operating system, as well as office-productivity applications of its own.⁵ An operating system is software that controls the computer's resources, including memory, disk space, keyboards, and the central processing unit. An operating system also facilitates communication between the computer's resources and software applications, including word-processing and spreadsheet applications. United States v. Microsoft Corp. ("Microsoft II"), 253 F.3d 34, 53-55, 60, 74 (D.C.Cir.2001) (en banc); United States v. Microsoft Corp. ("Microsoft I"), 84 F.Supp.2d 9, 12 (D.D.C.1999). Therefore, computer users need an operating system to serve as a "platform" for the applications they wish to run.⁶ Microsoft II, 253 F.3d at 53. At one time, PCs were used primarily for word-processing, and even today, office-productivity applications remain among the most widely used types of applications available for PCs.

Although Microsoft overwhelmingly dominates the PC operating-systems market,⁷ other operating systems exist.⁸ Because these operating systems work differently from each other, software developers must create separate versions of their applications for each operating system in order for the applications to function properly on it. Modifying an application written for one operating system so that it can run on another is time-consuming and costly. Because of this, a new or less popular operating system faces significant obstacles to gaining market share. As the D.C. Circuit has explained,

the "applications barrier to entry" — stems from two characteristics of the software market: (1) most consumers prefer operating systems for which a large number of applications have already been written; and (2) most developers prefer to write for operating systems that already have a substantial consumer base. This "chicken-and-egg" situation ensures that applications will continue to be written for the already dominant Windows, which in turn ensures that consumers will continue to prefer it over other operating systems.

Microsoft II, 253 F.3d at 55 (internal citations omitted).

In Microsoft II, the United States government and the governments of several states challenged activities by Microsoft that allegedly harmed competition in the PC operating-system market.⁹ The United States Department of Justice filed a complaint against Microsoft on May 18, 1998 (the "DOJ complaint"). The DOJ complaint is based on allegations of anticompetitive conduct in violation of §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, by Microsoft in two product markets: the market for PC operating systems and the market for Internet browsers. J.A. 343 (DOJ Compl. ¶ 53). In a per curiam opinion, the D.C. Circuit, sitting en banc, found that Microsoft was not liable for attempted monopolization of the market for Internet browsers because the government had failed to carry its burden in two ways: (1) it failed to define the relevant market and (2) it failed to demonstrate that such a market could be monopolized, i.e., "that a hypothetical monopolist in that market could enjoy market power" because substantial barriers to entry protect it. Microsoft II, 253 F.3d at 81. Nevertheless, the court affirmed liability with respect to the claim that Microsoft unlawfully maintained a monopoly in the PC operating-system market. Id. at 58-80.

The government litigation in Microsoft II forms the basis of Microsoft's statute-of-limitations challenge to two of Novell's claims, as discussed below.

B.

Novell pursues six claims on appeal. Four of these, styled Counts II, III, IV, and V, allege monopolization or attempted monopolization of the markets for office-productivity applications. Novell's products, Word Perfect and Quattro Pro, directly competed in such markets. The other two claims, Counts I and VI, are based on the same alleged conduct as Counts II through V and seek recovery for damage to the same Novell products, but are predicated on the theory that Microsoft's conduct injured competition in the market for PC operating systems, a market in which Novell did not directly compete.¹⁰

All six of Novell's claims arose prior to March 1996, when Novell sold WordPerfect and Quattro Pro to Corel Corporation. The statute of limitations for federal antitrust claims is four years. See 15 U.S.C. § 15b. Therefore, all of Novell's claims asserted in its November 2004 complaint are time-barred unless the statute of limitations is tolled by the filing of the DOJ complaint in May 1998. See 15 U.S.C. § 16(i). Section 5(i) of the Clayton Act provides that government anti-trust proceedings toll the statute of limitations for private antitrust actions "based in whole or in part on any matter complained of" by the government. Id.

Novell's Counts I and VI are indeed based on Microsoft's anticompetitive conduct in the PC operating-systems market, which was at issue in the DOJ complaint. Novell's four other Counts, however, allege Microsoft's monopolization or attempted monopolization of the markets for office-productivity applications, which conduct was not specifically alleged in the DOJ complaint.

Microsoft moved to dismiss all six Counts in the complaint. Because Counts II through V allege injury that is not specifically alleged in the DOJ complaint, Microsoft argued these claims were not tolled by the DOJ complaint and thus were time-barred. Microsoft sought dismissal of Novell's claims of injury to competition in the PC operating-systems market (the same market at issue in the DOJ complaint) in Counts I and VI on different grounds. Microsoft contended that Novell did not have antitrust standing to raise such claims and also that Novell did not own these claims.

The district court agreed with Microsoft regarding Counts II through V and dismissed those claims as untimely. However, the district court rejected Microsoft's arguments regarding antitrust standing and ownership of the claims and declined to dismiss Counts I and VI.

The district court certified its antitrust-standing and ownership rulings on Counts I and VI pursuant to 28 U.S.C. § 1292(b),¹¹ and Microsoft petitioned this court for leave to appeal. We granted the petition with respect to the antitrust-standing issue only. Thereafter, Novell cross-appealed the dismissal of Counts II through V. We address, in turn, the issues of whether Novell has antitrust standing to bring Counts I and VI and the timeliness of Novell's claims in Counts II through V.

II.

We review de novo the district court's rulings on a motion to dismiss under Rule 12(b)(6). See Holly v. Scott, 434 F.3d 287, 288-89 (4th Cir.2006). In assessing rulings on dismissals under Rule 12(b)(6), we accept the allegations of the plaintiff's complaint as true. Advanced Health-Care Servs., Inc. v. Radford Cmty. Hosp., 910 F.2d 139, 143-44 (4th Cir.1990).

We first review the district court's ruling that Novell has antitrust standing to bring Counts I and VI.

A.

Novell concedes that its products did not directly compete in the market for PC...