Vacco v. Microsoft Corp.

• Decision Date: 16 April 2002
• Docket Number: (SC 16566)
• Citation: 260 Conn. 59,793 A.2d 1048
• Parties: ANDREW VACCO v. MICROSOFT CORPORATION.
• Court: Connecticut Supreme Court

260 Conn. 59

793 A.2d 1048

ANDREW VACCO v. MICROSOFT CORPORATION.

(SC 16566)

Supreme Court of Connecticut.

Argued November 1, 2001.

Officially released April 16, 2002.

Sullivan, C. J., and Norcott, Palmer, Vertefeuille and Zarella, Js. Ben A. Solnit, with whom, on the brief, were William H. Champlin III and Richard W. Bowerman, for the appellant (plaintiff).

David B. Tulchin, pro hac vice, with whom were Joseph E. Neuhaus, pro hac vice, and, on the brief, James Sicilian, Mario R. Borelli and Mark M. Rembish, for the appellee (defendant). Richard Blumenthal, attorney general, and Steven M. Rutstein and Roger F. Reynolds, assistant attorneys general, filed a brief for the office of the attorney general as amicus curiae.

Robert M. Langer and Erika L. Amarante filed a brief for the Connecticut Business and Industry Association, Inc., et al. as amici curiae.

Opinion

ZARELLA, J.

This appeal raises two significant issues.¹ First, as a matter of first impression, we must determine whether the plaintiff, Andrew Vacco,² as an end user licensee³ of a software product manufactured by the defendant, Mircosoft Corporation, may maintain a claim against the defendant pursuant to the Connecticut Antitrust Act (Antitrust Act), General Statutes § 35-24 et seq. Second, we must determine whether the plaintiff may maintain a claim, predicated on the same factual allegations underlying the antitrust claim, pursuant to the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq. We conclude that the plaintiff, as an indirect purchaser of the defendant's software product, may not recover under the Antitrust Act. We also conclude that the plaintiff is barred from bringing a claim under CUTPA because his alleged injuries are too remote with respect to the defendant's alleged conduct. We, therefore, affirm the judgment of the trial court.

The following facts and procedural history are relevant to this appeal. In September, 1999, the plaintiff purchased from a retail store⁴ in Wallingford an Intel-based personal computer⁵ onto which Windows 98⁶ had been preinstalled. As a precondition to using Windows 98, the plaintiff was required to enter into an end user licensee agreement with the defendant specifying that Windows 98 was licensed, as opposed to sold, to the end user.⁷ Thereafter, the plaintiff brought this action against the defendant,⁸ alleging violations of the Antitrust Act and CUTPA.⁹ The gravamen of the plaintiff's complaint is that the defendant wielded monopoly power in the computer operating systems market and, in wielding that power, "knowingly licensed its Windows 98 operating system for Intel-based [personal computers] . . . without regard to competition, at a monopoly price in excess of what [the defendant] would have been able to charge in a competitive market."

The defendant moved to strike the plaintiff's complaint on the ground that the plaintiff had failed to state a claim upon which relief could be granted. Specifically, the defendant contended that the plaintiff was an indirect purchaser of Windows 98 who was ineligible to recover under the Antitrust Act and who, in the absence of a cause of action under the Antitrust Act, also was ineligible to recover under CUTPA. The trial court agreed with the defendant and granted the defendant's motion to strike the plaintiff's complaint. The trial court thereafter rendered judgment in favor of the defendant, from which the plaintiff appealed to the Appellate Court.¹⁰ We transferred the appeal to this court pursuant to General Statutes § 51-199 (c) and Practice Book § 65-1.

I ANTITRUST ACT

The plaintiff first claims that the trial court, in applying Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S. Ct. 2061, 52 L. Ed. 2d 707 (1977) (Illinois Brick), improperly concluded that the plaintiff was an indirect purchaser of Windows 98 and, therefore, was barred from bringing an antitrust action pursuant to General Statutes § 35-35¹¹ to recover damages for the defendant's allegedly anticompetitive practices.¹² We agree with the trial court.

Before addressing the merits of the plaintiff's claim, we set forth the standard of review applicable to an appeal challenging the trial court's granting of a motion to strike. "A motion to strike challenges the legal sufficiency of a pleading, and, consequently, requires no factual findings by the trial court. As a result, our review of the court's ruling is plenary. Napoletano v. CIGNA Healthcare of Connecticut, Inc., 238 Conn. 216, 232-33, 680 A.2d 127 (1996), cert. denied, 520 U.S. 1103, 117 S. Ct. 1106, 137 L. Ed. 2d 308 (1997). We take the facts to be those alleged in the complaint that has been stricken and we construe the complaint in the manner most favorable to sustaining its legal sufficiency. Bohan v. Last, 236 Conn. 670, 674, 674 A.2d 839 (1996); see also Mingachos v. CBS, Inc., 196 Conn. 91, 108-109, 491 A.2d 368 (1985). Thus, [i]f facts provable in the complaint would support a cause of action, the motion to strike must be denied. Waters v. Autuori, 236 Conn. 820, 826, 676 A.2d 357 (1996)." (Internal quotation marks omitted.) Jewish Home for the Elderly of Fairfield County, Inc. v. Cantore, 257 Conn. 531, 537-38, 778 A.2d 93 (2001).

A

General Statutes § 35-44b provides: "It is the intent of the General Assembly that in construing sections 35-24 to 35-46, inclusive, the courts of this state shall be guided by interpretations given by the federal courts to federal antitrust statutes." We, therefore, begin our analysis of the plaintiff's antitrust claim with a discussion of federal antitrust law. Section 4 of the Clayton Act, 15 U.S.C. § 15, as amended, the statute on which § 35-35 is modeled, provides in relevant part that "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee. . . ." 15 U.S.C. § 15 (a) (2000). The United States Supreme Court has interpreted § 4 of the Clayton Act as precluding an indirect purchaser of goods or services from bringing a private action against the seller who engages in anticompetitive practices in the sale of those goods or services. Kansas v. Utilicorp United, Inc., 497 U.S. 199, 207, 110 S. Ct. 2807, 111 L. Ed. 2d 169 (1990); California v. ARC America Corp., 490 U.S. 93, 103, 109 S. Ct. 1661, 104 L. Ed. 2d 86 (1989); see Illinois Brick Co. v. Illinois, supra, 431 U.S. 730, 746-47; Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 490-94, 88 S. Ct. 2224, 20 L. Ed. 2d 1231 (1968) (Hanover Shoe). Only those who purchase directly from such a seller may recover under the federal antitrust statutes. See, e.g., Kansas v. Utilicorp United, Inc., supra, 207 (in distribution chain, indirect purchasers are not "immediate buyers" of antitrust defendant).

In Hanover Shoe, the defendant manufacturer and distributor of shoe making machinery argued that the plaintiff shoe manufacturer, though a direct purchaser, did not suffer a legally cognizable injury because the plaintiff had passed on the defendant's allegedly illegal overcharge to the individual purchasers of the plaintiff's shoes. Hanover Shoe, Inc. v. United Shoe Machinery Corp., supra, 392 U.S. 493, 487-88. We note that the term "`[p]ass on' is [used to describe] the process by which a middleman in the chain of distribution who has been overcharged by a manufacturer or by a producer adjusts his prices upward so as to pass on his increased costs to his own customers." Annot., 55 A.L.R. Fed. 919, 922 n.3 (1981). An antitrust defendant who asserts the pass on theory defensively attempts to prove that its allegedly illegal overcharge for goods or services did not cause the plaintiff a legally cognizable injury because the plaintiff had passed the overcharge onto the next economic actor in the vertical chain of distribution. See Hanover Shoe, Inc. v. United Shoe Machinery Corp., supra, 487-88; see also Illinois Brick Co. v. Illinois, supra, 431 U.S. 724.

In Hanover Shoe, the court rejected the defendant's use of the pass on theory. Hanover Shoe, Inc. v. United Shoe Machinery Corp., supra, 392 U.S. 494. In so deciding, the court dismissed the defendant's contention that its anticompetitive practices did not cause the plaintiff injury, reasoning that "[a]s long as the seller continues to charge the illegal price, he takes from the buyer more than the law allows. At whatever price the buyer sells, the price he pays the seller remains illegally high, and his profits would be greater were his costs lower." Id., 489; see also New York v. Hendrickson Bros., Inc., 840 F.2d 1065, 1079 (2d Cir. 1988), cert. denied, 488 U.S. 848, 109 S.Ct. 128, 102 L.Ed.2d 101 (1988) ("[i]n general, the person who has purchased directly from those who have fixed prices at an artificially high level in violation of the antitrust laws is deemed to have suffered the antitrust injury . . . and hence may recover the entire amount of the illegal overcharge even if some or all of the overcharge may have been passed on to others").

The court's rejection of the defensive use of the pass on theory in Hanover Shoe rested on several fundamental concerns relating to the efficient enforcement of antitrust law. See generally Hanover Shoe, Inc. v. United Shoe Machinery Corp., supra, 392 U.S. 490-94. The court understood that the defense would lead to an "insuperable difficulty" in measuring the extent to which the illegal overcharge has impacted the price of goods at each stage of distribution. Id., 492-93. In this regard, the court was especially mindful of the various factors influencing each company's respective pricing policies. Id., 492. As the court stated, "[n]ormally the...