Class Certification in the Microsoft Indirect Purchaser Litigation

• Author: William H. Page
• Pages: 165-207

165

CLASS CERTIFICATION IN THE

MICROSOFT INDIRECT PURCHASER

LI TI GAT ION

William H. Page*

A. introduction

The government’s monopolization case against Microsoft has spawned a

myriad of private proceedings in the United States seeking treble dam-

ages.1 This article examines an important subset of those proceedings: the

class actions brought under state law on behalf of indirect purchasers of

Microsoft’s software, mostly consumers and businesses who bought the

software along with new computers from original equipment manufactur-

ers like Compaq, Gateway, and Dell. Although the rule in Illinois Brick

Co. v. Illinois2 denies indirect purchasers the right to sue under federal

antitrust laws, many states have authorized these proceedings under

state antitrust or consumer protection law.3 Before the Microsoft cases,

however, courts in the “Illinois Brick repealer” states had refused, more

often than not, to certify indirect purchaser claims as class actions on

the grounds that issues specific to the individual plaintiffs, particularly

the issue of impact, “predominated” over issues common to the class.4 In

these courts’ “sceptical” view, the complexities of proving whether and

* Marshall M. Criser Eminent Scholar, University of Florida Levin College of

Law; e-mail: page@law.ufl.edu. I am grateful to John Lopatka, Ronald Cass,

Chuck Casper, and the participants in a workshop at the University of Florida

for helpful comments on earlier drafts of this article. I also benefited from

the comments of Spencer Waller and Samuel Issacharoff at the Western Law

symposium. Finally, I thank Diego Puig for his research assistance. This article

will also appear in the Journal of Competition Law and Economics (Oxford

University Press).

1 See Section C below.

2 431 U.S. 720 (1977) [Illinois Brick].

3 See below notes 14 and 15.

4 See generally William H. Page, “The Limits of State Indirect Purchaser Suits:

Class Certification in the Shadow of Illinois Brick” (1999) 67 Antitrust L.J. 1.

166 LITIGATING CONSPIRACY: AN ANALYSIS OF COMPETITION CLASS ACTIONS

by how much the direct purchasers had passed on the overcharge to the

plaintiffs would likely overwhelm any common issues, like questions of

liability, and thus make the cases unsuitable for trial as class actions. The

courts in the Microsoft indirect purchaser cases, however, have certified

them as class actions much more frequently. Of the fourteen decisions in

these cases, three (two in Michigan and one in Maine) denied certifica-

tion,5 while eleven granted it.6 In this article, I explore possible explana-

tions for this disparity in the rate of certification and consider tentatively

whether the experience in these cases helps us decide whether indirect

purchaser class actions are in the consumer interest.

Antitrust law, at both the state and federal levels, is ostensibly about

protecting the consumer interest from private conduct that reduces com-

petition.7 Courts, for example, interpret the substantive law to prohibit

conduct that harms consumers rather than conduct that harms only

competitors or small businesses.8 Paradoxically, however, consumers

5 A & M Supply Co. v. Microsoft Corp., 654 N.W.2d 572 (Mich. Ct. App. 2002)

[A&M]; Fish v. Microsoft Corp., No. 00-031126-NZ (Mich. Cir. Ct. Wayne

County 8 April 2004) [Fish]; Melnick v. Microsoft Corp., [2001] WL 1012261

(Me. Super. Ct. Cumberland County) [Melnick].

6 See Bellinder v. Microsoft Corp., [2001] WL 1397995 (Kan. Dist. Ct. Johnson

County) [Bellinder]; Capp v. Microsoft Corporation, No. 00-CV-0637 (Wis. Cir.

Ct. Dade County 12 September 2001); Comes v. Microsoft Corp., No. CL82311

(Iowa Dist. Ct. Polk County 16 September 2003) [Comes]; Coordination

Proceedings, Microsoft I-V Cases, No. J.C.C.P. 4106 (Cal. Super. Ct. San

Francisco County 29 August 2000); In re Florida Microsoft Antitrust Litigation,

[2002] WL 31423620 (Fla. Cir. Ct. Miami-Dade County) [Florida Microsoft];

Gordon v. Microsoft Corp., [2001] WL 366432 (Minn. Dist. Ct. Hennepin

County) [Gordon I]; Gordon v. Microsoft Corp., [2003] WL 23105552 (Minn.

Dist. Ct. Hennepin County) [Gordon II] (applications software); Gordon

v. Microsoft Corp., No. MC00-5994 (Minn. Dist. Ct. Hennepin County 15

December 2003) (refusing to decertify); Howe v. Microsoft Corp., 656 N.W.2d

285 (N.D. 2003) [Howe]; In re New Mexico Indirect Purchasers Microsoft

Antitrust Litigation, No. D-0101-CV-2000-1697 (N.M. Dist. Ct. Santa Fe County

2 October 2002) [New Mexico Microsoft]; Sherwood v. Microsoft Corp., No. 99C-

3562 (Cal. Cir. Ct. Davidson County 20 December 2002); In re South Dakota

Microsoft Antitrust Litigation, 657 N.W.2d 668 (S.D. 2003) [South Dakota

Microsoft]; Friedman v. Microsoft Corp., CV2000-000722 (Ariz. Super. Ct.

Maricopa County 15 November 2000). Final settlements have been approved

in California, Montana, North Dakota, South Dakota, Tennessee, West Virginia,

Florida, and Kansas.

7 See, for example, Seacoast Motors of Salisbury, Inc. v. DaimlerChrysler Motors

Corp., 271 F.3d 6 (1st Cir. 2001) at 9: “The central aim of the antitrust laws is

to protect consumers against certain abusive business practices — especially

price-fixing and monopoly.”

8 See John E. Lopatka & William H. Page, “Monopolization, Innovation, and

certification in microsoft indirect purchaser litigation 167

often cannot sue for the harms they suffer as a result of federal antitrust

violations.9 Although they have the right to sue under federal law for

their antitrust injuries,10 most are foreclosed from doing so by the rule

in Illinois Brick, which denies indirect purchasers the right to sue for

damages from monopolistic overcharges. Consumers are usually indirect

purchasers, because they do not often buy monopolized or cartelized

products directly from the offenders.

However, the absence of a remedy for consumers is not necessarily

inconsistent with the goal of protecting the consumer interest. Whether

a statute protects a class is a separate question from whether it would be

efficient for that class to have a private right of action. Many federal stat-

utes, such as the Federal Trade Commission Act,11 are designed to protect

consumers but do not accord them a private right to sue, presumably

because to do so would not be the most efficient mechanism for secur-

ing compliance with substantive standards.12 Similarly, the United States

Supreme Court in Illinois Brick reasoned that concentrating the right to

recovery in direct purchasers would ensure more effective deterrence.13 It

would, for example, be very difficult to apportion the overcharge among

the various levels of a chain of distribution. Although the theory behind

the pass-through of an overcharge is clear, the theory depends on assump-

tions of facts that usually cannot be established and thus that are rarely

met.

Nevertheless, to critics of Illinois Brick it seemed anomalous that

direct purchasers who had passed on most of the overcharge could recover

treble damages for all of it, while consumers, to whom at least a share of

the overcharge was passed on, could recover nothing. This anomaly was

sufficiently disturbing to cause a political backlash. Many states, under

the banner of compensating consumers, have enacted so-called Illinois

Brick repealer statutes that allow indirect purchasers to sue in state

courts for passed-on overcharges.14 Other states’ courts have interpreted

Consumer Welfare” (2001) 69 Geo. Wash. L. Rev. 367 at 373–76.

9 See, for example, Leider v. Ralfe, [2003] WL 22339305 (S.D.N.Y.), denying fed-

eral antitrust standing to consumers as indirect purchasers of diamonds.

10 Reiter v. Sonotone Corp., 442 U.S. 330 (1979) at 340.

11 U.S.C. 15 §§ 41–51 (1914).

12 Alfred Dunhill, Ltd. v. Interstate Cigar Co., Inc., 499 F.2d 232 (2d Cir. 1974) at

237, holding that “the Federal Trade Commission Act may be enforced only by

the Federal Trade Commission” [citations omitted] and not by competitors or

consumers.

13 Illinois Brick, above note 2 at 734.

14 See, for example, Edward D. Cavanagh, “Illinois Brick: A Look Back and a Look