[Am-info] Microsoft wins an Indiana antitrust appeal (long)
Doug Masson
dmasson@well.com
Wed, 17 Apr 2002 06:47:51 -0700 (PDT)
I just stumbled across this opinion and thought I'd share with the list.
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FOR PUBLICATION
ATTORNEYS FOR APPELLANT: ATTORNEY FOR APPELLEE:
DARRELL M. AUXIER WILLIAM C. BARNARD
Jenner & Auxier Law Offices GAYLE A. REINDL
Madison, Indiana Sommer & Barnard, P.C.
Indianapolis, Indiana
STANLEY M. CHESLEY
ROBERT HEUCK II
Waite Schneider Bayless & Chesley Co., LPA
Cincinnati, Ohio
W.B. MARKOVITS
Markovits & Greiwe Co., LPA
Cincinnati, Ohio
IN THE COURT OF APPEALS OF INDIANA
JEFFREY A. BERGHAUSEN, )
)
Appellant-Plaintiff, )
)
vs. ) No. 10A01-0106-CV-230
)
MICROSOFT CORPORATION, )
)
Appellee-Defendant. )
APPEAL FROM THE CLARK CIRCUIT COURT
The Honorable Daniel F. Donahue, Judge
Cause No. 10C01-0001-CP-12
March 13, 2002
OPINION - FOR PUBLICATION
MATTINGLY-MAY, Judge
Jeffrey Berghausen appeals the dismissal of his amended class action
complaint against Microsoft Corporation. He raises four issues on
appeal, which we consolidate and restate as:
1. Whether Berghausen, as an indirect purchaser, had standing to
bring his antitrust claim against Microsoft;
2. Whether Berghausen's allegation of degradation of his computer's
performance states a claim of an "antitrust injury"; and
3. Whether Berghausen stated a claim of unjust enrichment or
violation of the Indiana Deceptive Consumer Sales Act.
We affirm.
FACTS AND PROCEDURAL HISTORY
Berghausen sued Microsoft, alleging he purchased a computer from the
Micro Center computer store, which computer contained an inoperable
copy of Windows 98 software provided by Microsoft. The complaint
alleged Microsoft distributes Windows through computer manufacturers
who are licensed by Microsoft to load copies of the operating system
onto the computers they manufacture. After Berghausen bought the
computer, he entered into an end-user licensing agreement that allowed
him to use Windows on his computer. He alleged Microsoft monopolized
the market for computer operating systems and as a result he paid a
monopoly price for his copy of Windows. Berghausen also alleged
Microsoft unlawfully bundled its internet browser with Windows, which
bundling caused his computer to run more slowly.
Berghausen sought restitution and damages from Microsoft for its
alleged monopolization in violation of Ind. Code =A7 24-1-2-2 ("the
Indiana Act") and Ind. Code =A7 24-5-0.5-1 ("the Deceptive Sales Act").
Microsoft moved to dismiss for failure to state a claim on which
relief could be granted, and the trial court granted the motion.
DISCUSSION AND DECISION See footnote
Standard of Review
A Rule 12(B)(6) motion to dismiss tests the legal sufficiency of the
complaint. When reviewing a 12(B)(6) motion to dismiss, we view the
pleadings in the light most favorable to the nonmoving party and we
draw every reasonable inference in favor of that party. We will affirm
a successful T.R. 12(B)(6) motion when a complaint states a set of
facts that, even if true, would not support the relief requested in
that complaint. Further, we will affirm the trial court's grant of a
motion to dismiss if it is sustainable on any theory or basis found in
the record. Right Reason Publications v. Silva, 691 N.E.2d 1347, 1349
(Ind. Ct. App. 1998).
1. Application of the Indiana Act to Indirect Purchasers
Berghausen did not allege in his complaint that he purchased the
Windows software directly from Microsoft. Rather, he alleged the
software was installed on a computer he purchased and that before he
could operate the computer he was required to enter into a licensing
agreement with Microsoft. Because Berghausen was not a direct
purchaser of the Microsoft product, we find he lacks standing to sue
for damages under the Indiana Act and his complaint was therefore
properly dismissed.
The Indiana Act was modeled after section two of the Sherman Antitrust
Act, 15 U.S.C. 2, ("the Federal Act") and has been interpreted
consistent with the federal law interpreting the Federal Act. Rumple
v. Bloomington Hosp., 422 N.E.2d 1309, 1315 n.1. (Ind. Ct. App. 1981).
The federal decisions addressing the question whether the Federal Act
permits an action by an indirect purchaser of a product consistently
hold that it does not. While Berghausen correctly notes there are no
Indiana decisions that explicitly hold an indirect purchaser may not
bring such an action, we believe the reasoning supporting the federal
decisions is sound and we adopt it in interpreting the Indiana Act.
A person who monopolizes any part of the trade or commerce within this
state commits a Class A misdemeanor. Ind. Code =A7 24-1-2-2. The Indiana
Act goes on to provide a private right of action for such violations:
Any person who shall be injured in his business or property by any
person or corporation by reason of the doing by any person or persons
of anything forbidden or declared to be unlawful by this chapter may
sue therefor in the circuit or superior court of any county in which
the defendant or defendants, or any of them, reside or are found
without respect to the amount in controversy, and shall recover a
penalty of threefold the damages which may be sustained, together with
the costs of suit, including a reasonable attorney's fee.
Ind. Code =A7 24-1-2-7. See footnote
The United States Supreme Court has concluded that "the legislative
purpose in creating a group of 'private attorneys general' to enforce
the antitrust laws under =A7 4 is better served by holding direct
purchasers to be injured to the full extent of the overcharge paid by
them than by attempting to apportion the overcharge among all that may
have absorbed a part of it." Illinois Brick Co. v. Illinois, 431 U.S.
720, 748 (1977) (citation omitted).
In that case, a number of government entities that had purchased
buildings from general contractors sued concrete block manufacturers,
alleging the manufacturers had illegally fixed prices for their
product. The manufacturers had sold their concrete blocks to masonry
contractors, who performed masonry work on the buildings and charged
the general contractors, who in turn sold the buildings to the
government. So, "[t]he only way in which the antitrust violation
alleged could have injured respondents is if all or part of the
overcharge was passed on by the masonry and general contractors to
respondents, rather than being absorbed at the first two levels of
distribution." Id. at 727. The Court determined the plaintiffs, as
indirect purchasers of the block, could not recover damages because
they were not injured in their business or property as contemplated by
the Act. Id. at 729.
The Court acknowledged that its rule "elevating direct purchasers to a
preferred position as private attorneys general" denies recovery to
those indirect purchasers who may have been actually injured by
antitrust violations. Id. at 746. Still, it held
[W]e are unwilling to carry the compensation principle to its logical
extreme by attempting to allocate damages among all those within the
defendant's chain of distribution because we question the extent to
which such an attempt would make individual victims whole for actual
injuries suffered rather than simply depleting the overall recovery in
litigation over pass-on issues. Many of the indirect purchasers barred
from asserting pass-on claims under the Hanover Shoe rule have such a
small stake in the lawsuit that even if they were to recover as part
of a class, only a small fraction would be likely to come forward to
collect their damages. And given the difficulty of ascertaining the
amount absorbed by any particular indirect purchaser, there is little
basis for believing that the amount of the recovery would reflect the
actual injury suffered.
Id. at 746-47 (footnote and internal quotation omitted). See footnote
Berghausen correctly notes, citing California v. ARC America
Corp., 490 U.S. 93, 98 n.3 (1989), that some states "have allowed
recovery for antitrust injury, regardless of whether it was incurred
`directly or indirectly.'" The ARC America Court indicated that some
fifteen states had enacted statutes that expressly allow indirect
purchasers to sue for antitrust injury. Indiana has not enacted such a
statute.
Because we hold the Indiana Act does not provide a cause of action
to indirect purchasers who allege they were harmed by an antitrust
injury, we cannot say the trial court erred to the extent it dismissed
Berghausen's claim on that ground. See footnote
a. The License Agreement
Even if the Indiana Act does not allow an indirect purchaser to bring
an action for antitrust injury, Berghausen asserts, he has standing to
bring such an action as a direct licensee of Microsoft. This "direct
contractual relationship with Microsoft" (Appellant's Br. at 11), he
asserts, gives him standing even absent any allegation that he paid
Microsoft directly for the license to use Windows.
We disagree, and believe the Illinois Brick reasoning does not support
standing on the part of a licensee who is not a direct purchaser:
[W]e are unwilling to . . . attempt[] to allocate damages among all
those within the defendant's chain of distribution because we question
the extent to which such an attempt would make individual victims
whole for actual injuries suffered rather than simply depleting the
overall recovery in litigation over pass-on issues . . . given the
difficulty of ascertaining the amount absorbed by any particular
indirect purchaser, there is little basis for believing that the
amount of the recovery would reflect the actual injury suffered.
431 U.S. at 746-47. The damage absorbed by a direct licensee in
Berghausen's position is no less difficult to ascertain than that
suffered by an indirect purchaser; we therefore decline to hold that a
direct licensee who did not directly pay the licensor for the use of
the software has standing to bring an action for antitrust injury.
Whether the consumer buys the software or just the license to use it,
"the immediate economic transaction constituting the purchase occurs
between the consumer and [computer manufacturer] or retail seller." In
re Microsoft Corp. Antitrust Litigation, 127 F. Supp. 2d 702, 709 (D.
Md. 2001). The trial court properly dismissed Berghausen's complaint
despite Berghausen's allegation that he was a direct licensee of
Microsoft.
2. The Tying Claims
Berghausen next asserts Microsoft was guilty of illegally "tying"
its Internet Explorer browser to its Windows 98 operating system, and
that the tying acts directly injured him and the other class members.
Therefore, he asserts, Illinois Brick does not deprive him of
standing. Because Berghausen does not allege "antitrust injury," his
complaint was properly dismissed. See footnote
A "tie" under antitrust law is an arrangement whereby a seller
agrees to sell one product only on the condition that the purchaser
also buy a second product. Rumple, 422 N.E.2d at 1318. In order to
prove an illegal tying arrangement, a plaintiff must show that there
are two separate and distinct products; that the defendant has
sufficient economic power in the market for the tying product to
impose significant restrictions in the tied product market; and the
amount of commerce affected in the tied product market is not
insubstantial. Id. In addition, the plaintiff must prove an "injury of
the type the antitrust laws were intended to prevent and that flows
from that which makes defendants' acts unlawful. The injury should
reflect the anticompetitive effect either of the violation or of
anticompetitive acts made possible by the violation. It should, in
short, be `the type of loss that the claimed violations . . . would be
likely to cause.'" City of Auburn Through Bd. of Public Works and
Safety v. Mavis, 468 N.E.2d 584, 586 (Ind. Ct. App. 1984), quoting
Zenith Radio Corp. v. Hazeltine Research, 395 U.S. 100, 125 (1969).
Berghausen appears to be alleging consumers are injured by the
tying of Windows 98 and Internet Explorer because they must either
"pay the high cost of having Internet Explorer uninstalled"
(Appellant's App. at 13) or leave Internet Explorer on the computer
causing performance degradation, increased risk of bugs and security
breaches, and increased support costs. These allegations do not
constitute "antitrust injury."
"Only harm stemming from a reduction in competition qualifies as an
injury cognizable under the anti-trust laws." Adams v. Pan Am World
Airways, Inc., 828 F.2d 24, 26 (D.C. Cir. 1987) (emphasis supplied).
So, a plaintiff may recover only if the loss stems from "a
competition-reducing aspect or effect of the defendant's behavior."
Ford Motor Co. v. Lane, 86 F. Supp. 2d 711, 714 (E.D. Mich. 2000).
Degradation of computer performance resulting from the tying of
Windows 98 and Internet Explorer is "only incidentally related to the
alleged anticompetitive behavior," Microsoft Corp. Antitrust Litig.,
127 F. Supp. 2d at 712, and does not demonstrate antitrust injury. Id.
We cannot say the trial court erred to the extent it dismissed the
complaint on that ground.
3. The Deceptive Sales Act
Berghausen alleged Microsoft's conduct violated the Deceptive
Sales Act, Ind. Code =A7 24-5-0.5-1 to -12, in part because Microsoft
"implicitly represented to consumers that its prices were fair and
competitive when in fact the prices were supra-competitive, monopolist
prices that far exceeded the prices consumers would have paid if
Microsoft had not engaged in the aforesaid conduct." (Appellant's App.
at 18). Berghausen specifically alleges violation of two sections of
the Act.
He first appears to assert that Microsoft violated Ind. Code =A7
24-5-0.5-3(a)(6), which defines as a "deceptive act" a representation
that a "specific price advantage exists as to such subject of a
consumer transaction, if it does not and if the supplier knows or
should reasonably know that it does not." Berghausen does not state a
claim under that section; it applies, by its own terms, only to
representations "made either orally or in writing by a supplier." Id.
=A7 24-5-0.5-3(a). See footnote Berghausen alleges no such oral or
written representations, nor does he offer argument explaining why
Microsoft's "implicit representations" would fit within the definition
of deceptive acts. His complaint was therefore properly dismissed.
Next, Berghausen asserts a violation of Ind. Code =A7
24-5-0.5-10(b), which provides that
A supplier commits an unconscionable act that shall be treated the
same as a deceptive act under this chapter if the supplier solicits a
person to enter into a contract or agreement:
(1) that contains terms that are oppressively one sided or harsh;
(2) in which the terms unduly limit the person's remedies; or
(3) in which the price is unduly excessive;
and there was unequal bargaining power that led the person to enter
into the contract or agreement unwillingly or without knowledge of the
terms of the contract or agreement. There is a rebuttable presumption
that a person has knowledge of the terms of a contract or agreement if
the person signs a written contract.
(Emphasis supplied).
Berghausen offers no argument supporting his assertion that his
allegations regarding this section "fall squarely within the
boundaries of the Deceptive Consumer Sales Act," and we are therefore
unable to address it on appeal. See Young v. Butts, 685 N.E.2d 147,
150 (Ind. Ct. App. 1997). Notwithstanding Berghausen's waiver of this
allegation of error, we note that his complaint does not appear to
allege the type of solicitation to enter into a contract or agreement
that the statute explicitly requires.
CONCLUSION
Berghausen lacked standing to bring the antitrust claim against
Microsoft because he was an indirect purchaser of the Microsoft
product and because he suffered no "antitrust injury." Nor did he
state a claim under the Indiana Deceptive Consumer Sales Act. The
trial court properly dismissed his complaint, and we affirm.
SULLIVAN, J., and BARNES, J., concur.
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Footnote: Microsoft requested oral argument. We deny the request.
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Footnote: The corresponding provision of the Federal Act, 15 U.S.C. =A7
15, provides in pertinent part:
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.
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Footnote: Berghausen also asserts his action is not precluded by the
Illinois Brick rule because two exceptions to Illinois Brick apply. We
disagree.
Berghausen first asserts "[t]he Supreme Court said in Illinois Brick
that indirect purchasers would be allowed to sue under federal law in
situations where the amount of the unlawful overcharge was determined
`without reference to the interaction of supply and demand.'"
(Appellant's Br. at 18, quoting Illinois Brick, 431 U.S. at 736.)
Illinois Brick articulated no such broad exception, and we admonish
Berghausen's counsel to more accurately characterize the precedent on
which he relies. Instead, it noted that the prior case law had cited,
as the only example of a situation where the defense might be
permitted, a pre-existing cost-plus contract. In such a situation, the
purchaser is insulated from any decrease in its sales as a result of
attempting to pass on the overcharge, because its customer is
committed to buying a fixed quantity regardless of price. The effect
of the overcharge is essentially determined in advance, without
reference to the interaction of supply and demand that complicates the
determination in the general case.
Id. Berghausen's complaint alleges no such "pre-existing cost-plus
contract" and that exception to Illinois Brick therefore does not
serve as a basis for reversal.
Berghausen next asserts the "control exception" (Appellant's Br. at
19) to Illinois Brick might apply. He does not favor us with an
explanation of what the "control exception" is, but argues "OEMs and
others may be demonstrated to be, functionally, Microsoft's agents in
supplying licenses for Microsoft's operating systems." Id.
The Illinois Brick Court noted that "[a]nother situation in which
market forces have been superseded and the pass-on defense might be
permitted is where the direct purchaser is owned or controlled by its
customer." 431 U.S. 720, 736 n.16. The "control exception" applies
when a defendant actually owns or exercises direct control over the
direct purchaser through "interlocking directorates, minority stock
ownership, loan agreements that subject the wholesalers to the
manufacturers' operating control, trust agreements, or other modes of
control separate from ownership of a majority of the wholesalers'
common stock. In re Brand Name Prescription Drugs Antitrust Litig.,
123 F.3d 599, 605-06 (7th Cir. 1997). Berghausen does not allege that
Microsoft owned or directly controlled Micro Center, and we
accordingly find no error on that ground.
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Footnote: Berghausen's complaint also asserted a common law claim for
restitution. A claim for restitution on behalf of indirect purchasers
in an antitrust case implicates the same issues of multiple liability
and duplicative recovery that were of concern in Illinois Brick, see
Federal Trade Comm'n v. Mylan Labs. Inc., 62 F. Supp. 2d 25, 43
(D.D.C. 1999), on reconsideration 99 F. Supp. 2d 1 (D.D.C. 1999). The
Illinois Brick decision was also premised in part on "the difficulty
of ascertaining the amount absorbed by any particular indirect
purchaser"; given that difficulty, "there is little basis for
believing that the amount of the recovery would reflect the actual
injury suffered." 431 U.S. at 747. To prevail on a restitution claim,
a plaintiff must show that a measurable benefit has been conferred on
the defendant. Bayh v. Sonnenburg, 573 N.E.2d 398, 408 (Ind. 1991).
Dismissal of Berghausen's restitution claim on this basis was not
error.
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Footnote: Because we find Berghausen did not suffer "antitrust
injury," we need not address his argument that the Indiana Act did not
require him to allege Microsoft's anticompetitive conduct took place
"within this state." See Ind. Code =A7=A7 24-1-2-2, 24-1-2-1.
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Footnote: While Berghausen's counsel quotes the statutory language of
=A7 (a)(6), he does not acknowledge the explicit statutory requirement
of a written or oral representation. We again admonish counsel to
fairly and accurately represent the authority on which he relies.
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