Microsoft, as it said it would, has filed a motion to dismiss the antitrust litigation brought by Novell. Here is the Motion and the Memorandum in support.
With regard to Count I, Microsoft's Motion asserts two grounds for dismissal:
1. Novell does not own the claim, because in 1996 it sold to Caldera, Inc. any claims it had against Microsoft and is not therefore "a real party in interest". The settlement was paid to Caldera, and they claim a substantial portion of the claim was given to Novell.
2. Novell isn't seeking damages for any Novell products that competed in the PC OS market; it only asserts injury to products in other markets. A private antitrust plaintiff lacks standing to recover to injuries to products not competing in the "allegedly restrained market".
With regard to the rest, it says this:
3. Novell sold its word processing and spreadsheet applications to Corel in 1996. There is a statute of limitations of four years for such claims, so unless there is some valid ground for tolling, Novell's claims are time-barred. Novell claims that the DOJ litigation tolled. But MS asserts that the DOJ complaint made no claims about word processing or spreadsheet applications. That difference in markets is fatal to Novell's effort to toll the statute of limitations with respect to Counts II through VI . . . "
Novell's complaint is here, if you wish to review. The various counts go like this: - Count I is Monopolization Of The Intel-Compatible Operating
Systems Market;
-
Count II is Monopolization Of The Market For Word Processing
Applications;
-
Count III is Monopolization Of The Market For Spreadsheet
Applications;
-
Count IV is Attempted Monopolization Of The Market For Word
Processing Applications;
-
Count V is Attempted Monopolization Of The Market For
Spreadsheet Applications; and
-
Count VI is Exclusionary Agreements In Unreasonable Restraint Of
Trade.
If you have forgotten, the Statute of Limitations is explained here. And if you would like to compare the legal filing with Microsoft's press release, you can find it here.
What stands out to me is that the press release says: "Given that Novell hasn’t owned WordPerfect for eight years, their claims should be barred by the legal doctrine called the Statute of Limitations." I was therefore expecting that they would say the entire complaint, all the claims, were time-barred. They don't. Claim I is evidently not time-barred. They have asked that it be dismissed on two other distinct grounds.
*****************************************
David B. Tulchin
Steven L. Holley
Joseph J. Reilly
Jennifer L. Murray
SULLIVAN & CROMWELL LLP
[address, phone]
James S. Jardine (A1647)
Mark M. Bettilyon (A4798)
John W. Mackay (A6923)
Mark W. Pugsley (A8253)
RAY QUINNEY & NEBEKER
[address, phone]
Thomas W. Burt
Steven J. Aeschbacher (A4257)
MICROSOFT CORPORATION
[address, phone]
Robert A. Rosenfeld
Kit A. Pierson
HELLER EHRMAN WHITE & McAULIFFE LLP
[address, phone]
Attorneys for Microsoft Corporation
January 7, 2005
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
NOVELL, INC
Plaintiff
vs.
MICROSOFT CORPORATION
Defendant
|
MICROSOFT'S MOTION TO DISMISS NOVELL'S COMPLAINT
Case No. 2:04CV1045TS
Judge Ted Stewart
|
Microsoft Corporation hereby moves pursuant to Fed. R. Civ. P. 12(b)(6)
to dismiss the Complaint filed by Novell, Inc. ("Novell") on November
12,
2004. In accordance with Local Rule 7-1(a), Microsoft sets forth herein
the "specific
grounds for the relief sought." For a complete treatment of those
topics, please see Microsoft's
Memorandum in Support of Its Motion to Dismiss Novell's Complaint,
which Microsoft also is filing
today.
Grounds for the Relief Sought
The Complaint seeks to recover for antitrust injuries to Novell's
WordPerfect word processing application and its Quattro Pro spreadsheet
application. Count I of the Complaint alleges that Microsoft harmed the
Novell products by
unlawfully maintaining a monopoly in the market for "Intel-compatible
Personal Computer
operating systems" (the "PC operating system" market). Counts II
through VI allege that Microsoft
harmed the Novell products by unlawfully monopolizing, attempting to
monopolize or
otherwise injuring asserted markets for "word processing applications"
and "spreadsheet
applications."
1. Dismissal of Count I
Microsoft moves for dismissal of Count I on two grounds. First,
Novell
does not own the claim. See Fed. R. Civ. P. 17(a) (providing that an
action may
only be prosecuted by the "real party in interest"). In 1996, Novell
sold to a third party,
Caldera, Inc. ("Caldera"), any claims it had against Microsoft for
direct or indirect harm relating to
PC operating systems, and required Caldera to allege such harm in a
suit against Microsoft.
Caldera later obtained a substantial settlement payment from Microsoft,
a large portion of which
went to Novell, and in exchange Caldera released Microsoft from the
claims Novell now seeks to
assert in Count I.
Second, Count I does not seek damages for any Novell products that
competed in the PC operating system market; it only asserts injury to
Novell
products in distinct markets. Because a private antitrust plaintiff
lacks "antitrust standing" to recover for injuries to products that did
not compete in the allegedly restrained market, Count I must
be dismissed.
2. Dismissal of Counts II through VI
The remaining counts in the Complaint - Counts II through VI - all
concern asserted markets for "word processing applications" or
"spreadsheet
applications." These claims arose no later than March 1996, when Novell
sold its "word processing
applications" and "spreadsheet applications" products to Corel
Corporation. Since the
limitations period on antitrust claims is four years, 15 U.S.C. §
15b, these claims are
time-barred unless there is some valid ground for tolling.
Novell's tolling theory rests on 15 U.S.C. § 16(i), which
suspends
the limitations period for private claims "based in whole or in part on
any matter
complained of' in an antitrust action brought by the federal government
during the pendency of that
action and for one year thereafter. According to Novell, Section 16(i)
tolled its claims upon
the filing of a complaint by the United States Department of Justice
against Microsoft on May 18,
1998 (the "DOJ Complaint"). But the DOJ Complaint made no claims
pertaining to
purported markets for "word processing applications" or "spreadsheet
applications." Indeed, the DOJ
Complaint mentions word processing and spreadsheet applications only
once, and then only
in contradistinction to PC operating systems, which are said to
"control and direct" such applications. (DOJ Compl. ¶54.)
The difference in markets is fatal to Novell's effort to toll the
statute of limitations with respect to Counts II through VI, because in
an antitrust case the
relevant market is what provides the context in which allegations of
harm to competition must
be evaluated. Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447,
456 (1993). Thus, when a
comparison of the government complaint to the private claims "shows
that the government
and subsequent private suits ... arose in distinct markets, the statute
is not tolled." 2 Philip E. Areeda & Herbert Hovenkamp, ANTITRUST
LAW ¶321 a, at 241 (2d ed. 2000). Although the
disparity in markets is sufficient in and of itself, the DOJ Complaint
differs from Novell's
Complaint in many other respects as well. Counts 11 through VI are
time-barred.
CONCLUSION
For the foregoing reasons and those stated in more detail in
Microsoft's Memorandum in Support of Its Motion to Dismiss Novell's
Complaint, Microsoft requests that this Court grant the motion to
dismiss.
DATED this 7th day of January, 2005
Respectfully submitted,
By: [signature]
James S. Jardine (A1647)
Mark M. Bettilyon (A4798)
John W. Mackay (A6923)
Mark W. Pugsley (A8253)
RAY QUINNEY & NEBEKER
[address, phone]
Thomas W. Burt
Steven J. Aeschbacher (A4527)
MICROSOFT CORPORATION
[address, phone]
David B. Tulchin
Steven L. Holley
Joseph J. Reilly
Jennifer L. Murray
SULLIVAN & CROMWELL LLP
[address, phone]
Robert A. Rosenfeld
Kit A. Pierson
HELLER EHRMAN WHITE & McAULIFFE LLP
[address, phone]
CERTIFICATE OF SERVICE
I hereby certify that on January 7, 2005, I caused a true and
correct copy of the foregoing to be served upon the following by
overnight mail:
Max D. Wheeler
Stanley J. Preston
Maralyn M. Reger
[address]
R. Bruce Holcomb
Jeffrey M. Johnson
Milton A. Marquis
David L. Engelhardt
Dickstein Shapiro Morin & Oshinsky LLP
[address]
[signature]
************************************
David B. Tulchin
Steven L. Holley
Joseph J. Reilly
Jennifer L. Murray
SULLIVAN & CROMWELL LLP
[address, phone]
James S. Jardine (A1647)
Mark M. Bettilyon (A4798)
John W. Mackay (A6923)
Mark W. Pugsley (A8253)
RAY QUINNEY & NEBEKER
[address, phone]
Thomas W. Burt
Steven J. Aeschbacher (A4257)
MICROSOFT CORPORATION
[address, phone]
Robert A. Rosenfeld
Kit A. Pierson
HELLER EHRMAN WHITE & McAULIFFE LLP
[address, phone]
Attorneys for Microsoft Corporation
January 7, 2005
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
NOVELL, INC
Plaintiff
vs.
MICROSOFT CORPORATION
Defendant
|
MICROSOFT'S MEMORANDUM IN SUPPORT OF ITS MOTION TO DISMISS NOVELL'S COMPLAINT
Case No. 2:04CV1045TS
Judge Ted Stewart
|
TABLE OF CONTENTS |
Page |
INTRODUCTION |
1 |
STATEMENT OF ISSUES
|
3
|
BACKGROUND AND UNDISPUTED FACTS
|
3
|
A. Novell
|
3
|
1. Novell's
Applications Software Business
|
3
|
2. Novell's PC
Operating System Business
|
4
|
B. Novell's Current
Complaint Against Microsoft
|
6
|
1. The Allegedly
Wrongful Conduct
|
6
|
2. The Claims
|
7
|
C. The DOJ Action
|
9
|
1. The DOJ Complaint
|
9
|
(a)
Relevant Markets
|
9
|
(b)
The DOJ's Theory of Harm to Competition in the
Operating System and Internet Browser Markets
|
10
|
2. The Ensuing
Proceedings in the DOJ Case
|
11
|
D. Procedural History
of this Action
|
12
|
SUMMARY OF ARGUMENT
|
12
|
ARGUMENT
|
14
|
I. Count I of the Complaint
is Fatally Flawed
|
15
|
A.Count I Should be Dismissed Because Novell does not Own the Claim
|
15
|
B.
Count I Should be Dismissed for the Independent Reason that Novell
lacks Antitrust Standing to Pursue It
|
17
|
II. Counts II Through VI are
Time-Barred
|
20
|
A.
The Applicability of Section 16(i)
|
22
|
B.
Counts II Through VI Bear no "Real Relation" to the DOJ Complaint
|
23
|
1. The Difference in Markets Alone is Fatal
|
23
|
2. The Time Periods are Different
|
25
|
3. The Competitors are Different
|
25
|
4. The Products are Different
|
26
|
5. Differences in Anticompetitive Conduct Alleged
|
26
|
(a) The DOJ Complaint did not Allege That Microsoft Withheld Technical
Information About Windows
|
26
|
(b) Novell's Allegation That Microsoft Withheld Information About
"Browser Extensions" has no Analogue in the DOJ Complaint
|
27
|
6. The Methods of Proof would be Different
|
29
|
CONCLUSION
|
31
|
TABLE OF AUTHORITIES
Cases |
Page |
|
|
Aaron Presform Mold Co. v. McNeil Corp., 496 F.2d 230 (6th
Cir. 1974) |
21
|
Associated General Contractors v. Cal. State
Council of Carpenters, 459 U.S. 519 (1983) |
18, 19
|
Audio-Visual Marketing Corp. v. Omni Corp., 545
F.2d 715 (10th Cir. 1976) |
15
|
Boisjoly v. Morton Thiokol, Inc., 706 F. Supp.
795 (D. Utah 1988) |
18
|
Brunswick Corp. v. Pueblo Bowl-O-Mat, 429 U.S.
477 (1977) |
18, 28
|
Caldera, Inc. v. Microsoft Corp., 72 F. Supp. 2d
1295 (D. Utah 1999)
|
4
|
Charley's Tour & Transport Co. v.
lnterisland Resorts, Ltd., 618 F. Supp. 84 (D. Haw. 1985) |
21, 22, 24
|
Cortec Industries v. Sum Holding, L.P., 949 F.2d
42 (2d Cir. 1991) |
6
|
Eastern Shore Markets, Inc. v. J.D. Associates
L.P., 213 F.3d 175 (4th Cir. 2000) |
14
|
General Refractories Co. v. Stone Container
Corp., No. 98-3543, 1999 WL 14498 (N.D. Ill. Jan. 8, 1999) |
15
|
Greyhound Corp. v. Mt. Hood Stages, Inc., 437
U.S. 322 (1978) |
9, 22
|
Grynberg v. Koch Gateway Pipeline Co., 390 F.3d
1276 (10th Cir. 2004) |
6
|
Hackford v. Babbitt, 14 F.3d 1457 (10th Cir.
1994) |
14
|
Hall v. Virginia, 385 F.3d 421 (4th Cir. 2004) |
6
|
Holmes v. Securities Investor Protection Corp,
503 U.S. 258 (1992) |
18, 20
|
In re: Coordinated Pretrial Proceedings in
Petroleum Prods. Antitrust Litigation, 782 F. Supp. 481 (C.D. Cal.
1991) |
23
|
In re: Maco Homes, Inc., 180 F.3d 163 (4th Cir.
1999) |
15
|
In re: Microsoft Corp. Antitrust Litigation, 274
F. Supp. 2d 743 (D. Md. 2003) |
7, 19 |
In re: Microsoft Corp. Antitrust Litigation, 214
F.R.D. 371 (D. Md. 2003) |
23, 29
|
Klehr v. A.O. Smith Corp., 521 U.S. 179 (1997) |
21
|
Lantec, Inc. v. Novell, Inc., 146 F. Supp. 2d
1140 (D. Utah 2001), aff'd, 306 F.3d 1003 (10th Cir. 2002) |
24, 29
|
Legal Econ. Evaluations, Inc. v. Metropolitan
Life Insurance Co., 39 F.3d 951 (9th Cir. 1994) |
19
|
Leh v. General Petroleum Corp, 382 U.S. 54 (1965) |
15, 22, 23, 25
|
Novell Inc. v. Canopy Group, 92 P.3d 768 (Utah
Ct. App. 2004) |
4, 5, 17
|
Ostrzenski v. Seigel, 3 F. Supp. 2d 648 (D. Md.
1998) |
14
|
Peto v. Madison Square Garden Corp., 384 F.2d
682 (2d Cir. 1967) |
22, 24, 25
|
Pocahontas Supreme Coal Co. v. Bethlehem Steel
Corp, 828 F.2d 211 (4th Cir. 1987) |
18, 20
|
SAS of Puerto Rico, Inc. v. Puerto Rico
Telegraph Co., 48 F.3d 39 (1st Cir. 1995) |
19
|
Sharp v. United Airlines, Inc., 967 F.2d 404
(10th Cir. 1992) |
18, 20
|
Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447
(1993) |
2, 14, 24
|
Supporters to Oppose Pollution, Inc. v. Heritage
Group, 973 F.2d 1320 (7th Cir. 1992) |
17
|
United States v. Microsoft Corp., 84 F. Supp. 2d
9 (D.D.C. 1999) |
11, 28
|
United States v. Microsoft Corp., 87 F. Supp. 2d
30 (D.D.C. 2000) |
11
|
United States v. Microsoft Corp., 253 F.3d 34
(D.C. Cir. 2001) |
10, 11, 24, 27, 29
|
Walker Process Equipment, Inc. v. Food Machinery
& Chemical Corp, 382 U.S. 172 (1965) |
24
|
White v. Rockingham Radiologists, 820 F.2d 98
(4th Cir. 1987) |
18
|
Zenith Radio Corp. v. Hazeltine Research,
Inc., 401 U.S. 321 (1971) |
21
|
|
|
Statutes and Rules
|
Page(s)
|
|
|
15 U.S.C. § 15b |
1, 13
|
11 U.S.C. § 16 |
passim
|
28 U.S.C. § 1407 |
12
|
Fed. R. Civ. P. 12 |
6
|
Fed.. R. Civ. P. 17 |
12, 15
|
Fed.. R. Civ. P. 41 |
21
|
|
|
Other Authorities |
|
|
|
2 Philip E. Areeda & Herbert Hovenkamp,
Antitrust Law ¶ 321a (2d ed. 2000) |
2, 14, 17, 24
|
2 James W. Moore, et al., Moore's Federal
Practice
§ 12 (3d ed. 2004) |
5
|
4 James W. Moore, et al., Moore's Federal
Practice § 17 (3d ed. 2004) |
15
|
8 James W. Moore, et al., Moore's Federal
Practice
§ 41 (3d ed. 2004) |
21
|
RESTATEMENT (SECOND) OF JUDGMENTS § 24(1)
(1982) |
21
|
INTRODUCTION
In its Complaint against Microsoft, Novell, Inc. ("Novell") seeks to
recover under the Sherman and Clayton Acts for alleged antitrust
injuries to
WordPerfect word processing software and "other office productivity
applications, including the
Quattro Pro spreadsheet" (Compl. ¶¶ 2, 4-5) that Novell owned
for a short period
of time in the mid-1990s. The Complaint contains six "counts," five of
which claim injury in
purported markets for "word processing applications" or "spreadsheet
applications." (Id. ¶¶ 56-77.) It is indisputable that these
claims - numbered Counts II through VI - arose prior to March
1996, when Novell sold it word processing and spreadsheet applications
to Corel Corporation
("Corel") (Id. 112, 150), and therefore that this action was commenced
more than 8.5 years after
those claims accrued.
The applicable statute of limitations, 15 U.S.C. § 15b, bars
federal antitrust claims bought more than four years after they
accrued. As a result, Counts II
through VI of the Complaint are time-barred unless they are saved by 15
U.S.C. §
16(i). That section of the Clayton Act tolls the four-year statute of
limitations during the
pendency of an antitrust action bought by the federal government and
for one year thereafter, but only
if the claims raised in the private action are "based in whole or in
part on any matter complained
of" in the government suit. In that connection, Novell relies
exclusively on the complaint
filed by the United States Department of Justice ("DOJ") against
Microsoft on May 18, 1998 (the
"DOJ Complaint," submitted herewith as Exhibit A). The DOJ
Complaint made no claims
pertaining to purported markets for "word processing applications" or
"spreadsheet
applications." Indeed, the DOJ Complaint mentions word processing and
spreadsheet applications only
once, as examples of soft ware that personal computer ("PC") operating
systems "control and
direct." (DOJ Compl. ¶54.)
The difference in markets is fatal to Novell's effort to toll the
statute of limitations with respect to Counts II through VI, because in
an antitrust case the relevant market is what provides the context in
which allegations of harm to competition must be evaluated. Spectrum
Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993). Thus, when a
comparison of the government complaint to the private
claims "shows that the government and subsequent private suits ...
arose in distinct markets, the statute is not tolled." 2
Philip E. Areeda & Herbert Hovenkamp, Antitrust Law 1 321 a, at 241
(2d ed. 2000). Although the
disparity in markets is sufficient in and of itself, the DOJ Complaint
differs
from Novell's Complaint in other respects as well. Counts II through VI
are time-barred.
Count I of the Complaint must also be dismissed, although for
different
reasons. Count I, Novell alleges harm to the market for
"Intel-compatible PC
operating systems." The market for PC operating systems was the focus
of the DOJ Complaint and
thus Section 16(i) might arguably come into play. Nevertheless, Count I
is otherwise
defective, for two independent reasons.
First, Novell does not own the claim. In July 1996, Novell sold its PC
operating system business and any claims it had against Microsoft
"associated
directly or indirectly with" its PC operating systems to Caldera, Inc.
("Caldera"). In return, Novell
received a portion of the recovery that Caldera obtained from Microsoft
in settlement of those
claims.
Second, Count I seeks damages not with respect to any Novell
products
that competed in the PC operating system market, but instead for
alleged
injury to word processing and spreadsheet applications that competed in
entirely different markets.
As a result, Novell lacks "antitrust standing" to assert Count I.
STATEMENT OF ISSUES
As to Count I of the Complaint:
a. Whether a plaintiff that in July 1996 sold all of
its rights to sue a specific defendant for injuries relating to a given
market may
nevertheless bring a suit against
the defendant in which it asserts the same claims that it sold (and
later indirectly recovered).
b. Whether a plaintiff that does not allege injury to
any of its products that competed or potentially competed in a defined
market may
nonetheless recover for injuries to it solely because the same conduct
that allegedly injured it also
allegedly inflicted
uncompetitive harm on other vendors' products in that market.
2. As to Counts II through VI of the Complaint:
Whether private antitrust claims brought long after the expiration of
the applicable four-year limitations period may benefit from tolling
for
claims "based in whole or in part on any matter complained of" in a
suit brought by
the federal government, where the private claims and the government
complaint involve different markets, time
periods that overlap only slightly, different competitors, different
products and different
methods of proof.
BACKGROUND AND UNDISPUTED FACTS
A. Novell
Novell is a software company with headquarters in Waltham,
Massachusetts. Its principal products have long been server operating
systems used to
provide file and print services and user and group administration
services to PCs in local area networks.
Although Novell sought in the mid-1990s to diversify its product line
by acquiring
applications from other companies, those efforts were quickly abandoned.
1. Novell's Applications Software Business
Prior to 1994, Novell did not develop or market word processing
applications or spreadsheet applications, and thus did not compete in
the purported
markets referred to in Counts IT through VI. (Compl. 11 37, I50.) This
changed on June 24,
1994, when Novell acquired (a) WordPerfect Corporation and its
WordPerfect word
processing application, and (b) the Quattro Pro spreadsheet application
from Borland. (Id. ¶ 37.)
Novell remained in the word processing and spreadsheet businesses for
less than two years. In
March 1996, Novell sold WordPerfect and Quattro Pro products - what
Novell calls its "office
productivity
applications" - to Corel.1 (Id. ¶¶ 2, 24.)
2. Novell's PC Operating System Business
From 1991 to 1996, Novell also owned a PC operating system that it
acquired om Digital Research. (Compl. ¶ 144; see id.
¶¶ 134-48.) This
product,
which competed directly with Microsoft's PC operating systems, was
originally known as
DR-DOS (Compl. ¶ 44), and was re-named "Novell DOS" in December
1993. See Caldera, Inc.
v. Microsoft rp., 72 F. Supp. 2d 1295, 1304 (D. Utah 1999).
In July 1996, just four months after it sold its office productivity
applications to Corel, Novell sold to Caldera both its (a) PC operating
system business
and (b) any rights it had bring any antitrust claims against Microsoft
for harm relating
"directly or indirectly" to its PC operating systems.2 In
exchange, Caldera agreed to pay Novell, among
other things, a portion of any recovery it obtained from Microsoft on
those claims. 3
Caldera subsequently asserted Novell's antitrust claims against
Microsoft, alleging that Microsoft had harmed "competition in the
manufacture, sale
and distribution of [PC] operating system software," and that
Microsoft's conduct had
injured Novell DOS and DR-DOS.4 The parties settled that
case in January 2000,
with Caldera (a) stipulating to dismissal of its complaint with
prejudice and (b) releasing Microsoft from all
liability "associated directly or indirectly" with any of the PC
operating systems that Caldera had
purchased from Novell and liability "relate[d] directly or indirectly
to the facts alleged in"
the Caldera action.5
That was not, however, the end of litigation relating to the
antitrust
claims pertaining to the PC operating system business that Novell sold
to
Caldera. Novell later sued Caldera's successor, The Canopy Group,
alleging that Novell had not
received its bargained-for share of Caldera's recovery from Microsoft.
On appeal, a Utah appellate
court found that by its contract with Novell, Caldera had been
obligated to sue Microsoft, and
that Caldera's undertaking "to pay Novell a percentage of its recovery"
was "the
central purpose of, and impetus for creating," the Novell-Caldera
transaction. Novell, Inc. v.
Canopy Group, 92 P.3d
7 8, 773 (Utah Ct. App. 2004). Novell has already recovered on the
antitrust claims it sold to Caldera pertaining to PC operating systems
- the claims set out in
Count I of the Complaint - and Microsoft has been released from all
such claims.6
B. Novell's Current Complaint Against Microsoft
1. The Allegedly Wrongful Conduct
The Complaint contends that Microsoft's anticompetitive conduct
toward Novell began between 1987 and 1990. (Compl. 11 31, 32.) There
are no allegations of wrongful conduct toward Novell after March 1996,
when Novell sold WordPerfect and its other "office productivity
applications" to Corel. (Id. ¶ 2.) The purportedly wrongful
conduct directed to Novell's word processing and spreadsheet
applications - the only conduct relevant to Novell's claims - is very
different from the Microsoft conduct challenged in the DOJ Complaint.
Novell devotes more than 50 paragraphs of its Complaint to
allegations that Microsoft wrongfully "Withh[eld] Technical Information
About Its Monopoly Windows
Platform." (Compl. p. 24; see id. ¶¶ 56-111.)
For example, Novell alleges that Microsoft retract[ed] the
documentation of browsing extensions" for Windows 95; "refuse[d] to
publish the APIs that were used to place items on the Windows
Clipboard"; "withh[eld] the RTF [rich text format] specifications from
Novell"; and "refuse[d] to disclose technical specifications that were
required to overcome ... the 64k ... memory limitation." (Id.
¶¶ 74, 80, 92, 97.) The DOJ Complaint, in contrast, contains
no allegations that Microsoft wrongfully withheld technical information
about Windows from application software developers such as Novell.7
See pp. 26 - 27, infra. For a more comprehensive
description of the many other differences between the DOJ Complaint and
the Novell Complaint, see pp. 23-30, infra.
2. The Claims
Novell's Complaint defines three "relevant" antitrust markets: "the
market for Intel-compatible PC operating systems, the market for word
processing applications, and the market for spreadsheet applications."
(Compl. ¶ 24.) The latter two purported markets are sometimes
referred to in the Complaint as "office productivity applications
markets." (Id.) The PC operating system market and the office
productivity applications market are mutually exclusive, i.e., word
processing or spreadsheet applications do not compete with PC operating
systems and vice versa. For example, the Complaint distinguishes the
two types of products by
explaining that operating systems "control PCs and provide the basic
'platform' for developing applications such as WordPerfect." (Id.
¶ 3.) The Complaint further explains that an "operating system ...
manages the execution of software applications, such as word processors
and spreadsheets." (Id. ¶ 25.) In contrast to PC operating
systems, the Complaint defines "word processing applications" as
"software that creates, edits, prints, and stores text-based documents"
(id. ¶ 27), and "spreadsheet applications" as "software
that electronically organizes, displays, and manipulates numerical and
other data." (Id. ¶ 28.) In Novell's own view, the two
types of products are very different.
The Complaint sets forth six causes of action. Count I alleges harm
to Novell in the PC operating system market - a market in which it once
competed, but not with the word processing or spreadsheet products
that, according to the Complaint, were injured by Microsoft's conduct.
(Compl. ¶¶ 151-55 ("Monopolization of the Intel-Compatible
Operating System[] Market").) The remaining five counts assert harm to
Novell in purported markets for word processing and spreadsheet
applications. (Id., Count II ¶¶ 156-60
("Monopolization of the Market for Word Processing Applications"),
Count III ¶¶ 161-65 ("Monopolization of the Market for
Spreadsheet Applications"), Count IV ¶¶ 166-69 ("Attempted
Monopolization of the Market for Word Processing Applications"), Count
V ¶¶ 170-73 ("Attempted Monopolization of the Market for
Spreadsheet Applications"), and Count VI ¶¶ 174-77
("Exclusionary Agreements in Unreasonable Restraint of Trade," i.e.,
agreements that "restrict[ed] the access of Novell's office
productivity applications to significant channels of distribution").)
These markets were not involved or mentioned in the DOJ Complaint.
C. The DOJ Action
1. The DOJ Complaint
(a) Relevant Markets
Novell's Complaint is highly different from the DOJ Complaint. Most
notably, the DOJ Complaint contains no allegation of harm to any market
for word processing applications or spreadsheet applications.8
The DOJ Complaint pertained solely to "two relevant product markets:
The market for personal computer operating systems, and the market for
Internet browsers." (DOJ Compl. ¶ 53; see also id. 11
54-56.) The DOJ Complaint refers to office productivity applications
only once, and then only in contradistinction to PC operating systems,
which are said to "control and direct" such applications. (Id.
¶ 54.) Novell is not mentioned at all in the DOJ Complaint, and
there is likewise no mention of WordPerfect, Quattro Pro or any other
applications ever owned by Novell. Instead, the DOJ Complaint asserts
that the targets of Microsoft's conduct were Netscape and Sun
Microsystems, and their Navigator and Java software products. (Id.
¶¶ 7-9, 66-68.) Further, the DOJ Complaint is based on
allegations of anticompetitive conduct by Microsoft in the period 1995
through 1998 (id. ¶¶ 69-123), while Novell's Complaint
covers a roughly nine-year period ending in 1996; and the focus of the
DOJ Complaint is Windows 98 (which was released in June 1998, more than
two years after Novell sold the products at issue in this case) while
the focus of the allegations in Novell's Complaint relating to PC
operating systems is Windows 95. In short, the two complaints are
vastly different.
(b) The DOJ's Theory of Harm to Competition in
the Operating System and Internet Browser Markets
The theory of the DOJ Complaint was that Microsoft's alleged monopoly
in the operating system market existed because it was protected by a
barrier to entry created "by the number of software applications that
must run on an operating system in order to make the operating system
attractive to end users." (DOJ Compl. ¶ 3.) According to the DOJ
Complaint, "[b]ecause end users want a large number of applications
available, because most applications today are written to run on
Windows, and because it would be prohibitively difficult,
time-consuming and expensive to create an alternative operating system
that would run the programs
that run on Windows, a potential new operating system entrant faces a
high barrier to successful entry." (Id. ¶ 3.) This concept
is often referred to as the "applications barrier to entry." United
States v. Microsoft Corp., 253 F.3d 34, 55 (D.C. Cir. 2001). Under
the theory of the DOJ Complaint, it was very much in Microsoft's
interest to have applications such as WordPerfect available to run on
Windows because that would help maintain the popularity of Microsoft's
PC
operating system.
The DOJ Complaint alleged that Microsoft engaged in anticompetitive
conduct against Netscape's Navigator web browsing software and Sun
Microsystems' Java software (DOJ Compl. ¶¶ 7-9, 66-68), two
products referred to in the case as "middleware." United States v.
Microsoft, 253 F.3d at 53-55. According to the DOJ Complaint,
Navigator and Java might someday evolve into threats to Windows because
they ran on
multiple operating systems and exposed their own application
programming interfaces ("APIs") to software developers. (DOJ Compl. 11
7-9, 66-68.) The theory was that if enough software developers wrote
applications to run on such cross-platform middleware, these
"alternative platform[s]" might "threaten[] to reduce or eliminate [the
applications] barrier [to entry] protecting Microsoft's operating
system monopoly." (Id. ¶ 9; see also id.
¶¶ 7, 66-68.) The DOJ Complaint made no allegation - or even
suggestion - that word processing or spreadsheet applications had any
"middleware" potential.
2. The Ensuing Proceedings in the DOJ Case
Following a bench trial, the district court issued Findings of Fact,
United States v. Microsoft Corp., 84 F. Supp. 2d 9 (D.D.C.
1999), and Conclusions of Law, United States v. Microsoft Corp.,
87 F. Supp. 2d 30 (D.D.C. 2000).
On appeal, the United States Court of Appeals for the D.C. Circuit
"drastically altered the District Court's conclusions on liability." United
States v. Microsoft, 253 F.3d at 105. The Court of Appeals reversed
the district court's conclusion that Microsoft was liable for attempted
monopolization of the purported market for web browsing software and
found that the DOJ had failed even to prove the existence of such a
market. Id. at 81-84. It also rejected the district court's
conclusion that Microsoft's alleged tying of Internet Explorer to
Windows was per se unlawful and remanded that claim for a new trial
under a rule of reason test designed to
take account of the special characteristics of platform software such
as Windows. 253 F.3d at 84-97. The D.C. Circuit affirmed liability only
with respect to the claim that Microsoft unlawfully maintained a
monopoly in the PC operating system market, and did so on grounds
substantially narrower than those relied upon by the district court.
Id. at 58-80. None of the twelve acts that the D.C. Circuit found to be
anticompetitive had anything to do with Novell or its word processing
or spreadsheet applications.
D. Procedural History of this Action
In its Complaint, Novell asserts that the DOJ case against Microsoft
ended on November 12, 2002 and, therefore, that Section 16(i) of the
Clayton Act suspended the four-year statute of limitations through
November 12, 2003. (Compl. ¶¶ 15, 16.) Shortly before
November 12, 2003, Microsoft and Novell entered into a tolling
agreement. (Id. 1 22.) Pursuant to that agreement, as
subsequently amended, Microsoft consented to tolling from November 2003
to November 2004, but not retroactively to any period prior to November
2003.
On November 12, 2004, Novell filed its Complaint in this Court, and
that same day filed a "Notice of Potential 'Tag-Along' Action" with the
Judicial Panel on Multidistrict Litigation (the "Panel"), explaining
that its lawsuit shared common questions of fact with other private
antitrust actions against Microsoft that the Panel had transferred to
the U.S. District Court for the District of Maryland pursuant to 28
U.S.C. § 1407(a). As a result, the Panel issued a conditional
transfer order on December 14, 2004, but - in a change of position -
Novell thereafter notified the Panel that it intended to oppose
transfer to Maryland. Novell's motion to vacate the Panel's conditional
transfer order should be fully briefed by February 8, 2005.
SUMMARY OF ARGUMENT
Count I
Count I of the Complaint, the only cause of action that alleges harm
in the market for PC operating systems, is defective for two
independent reasons. First, Novell does not own the claim. See Fed. R.
Civ. P. 17(a) (providing that an action may only be prosecuted by the
"real party in interest"). Novell sold its PC operating system business
to Caldera in 1996, a sale that included any claim Novell had against
Microsoft for direct or indirect harm relating to its PC operating
systems. Caldera sued Microsoft on the antitrust claims it acquired
from Novell and obtained a substantial settlement, a good portion of
which went to Novell. In return, Caldera released Microsoft from the
claims Novell seeks to assert in Count I.
Second, although Count I complains of Microsoft's alleged
monopolization in the PC operating system market, that Count only
asserts injury to Novell's "office productivity applications" (Compl.
¶¶ 153, 155), which Novell concedes are distinct products
from PC operating systems. (Id. ¶¶ 3, 25.) Because a
plaintiff does not have antitrust standing to recover for injuries to
products that did not compete in the market allegedly affected by
anticompetitive conduct, Count I must be dismissed.
Counts II - VI
A civil antitrust suit "shall be forever barred unless commenced
within four years after the cause of action accrued." 15 U.S.C. §
15b. Novell's causes of action accrued no later than March 1996, when
Novell sold to Corel the products allegedly harmed by Microsoft's
conduct - WordPerfect word processing software and "other office
productivity applications, including the Quattro Pro spreadsheet."
(Compl. ¶ 2.) As a result, the "four years" to which Section 15b
refers expired no later than March 2000, unless there is some valid
ground for tolling.
Novell's tolling theory rests on 15 U.S.C. § 16(i), which
suspends the four-year statute of limitations for private claims "based
in whole or in part on any matter complained of' in an antitrust action
brought by the federal government during the pendency of that action
and for one year thereafter: According to Novell, Section 16(i) tolled
its claims against Microsoft upon the filing of the DOJ Complaint on
May 18, 1998. Counts II through VI of the Novell Complaint concern the
purported markets for word processing applications and spreadsheet
applications. Of course, the DOJ Complaint contains no allegations
relating to such markets.
This difference in markets is fatal to Novell's argument that the
statute of limitations was tolled as to Counts II through VI, for it is
fundamental that "[w]hen [a]
comparison" of the government complaint to the private claims "shows
that the government and subsequent private suits ... arose in distinct
markets, the statute is not tolled." 2 Philip E. Areeda & Herbert
Hovenkamp, Antitrust Law 1 321 a, at 241 (2d ed. 2000); see
Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993)
(explaining the central role that market definition and analysis play
in antitrust cases). There are many other salient differences between
Counts II through VI and the DOJ Complaint, meaning that the claims in
Counts II through VI are all time-barred.
ARGUMENT
On a motion to dismiss under Rule 12(b)(6), a court will construe
factual allegations in the nonmoving party's favor and will treat them
as true. Hackford v. Babbitt, 14 F.3d 1457, 1465 (10th Cir.
1944). That said, courts "are not bound by conclusory allegations,
unwarranted inferences, or legal conclusions." Id.; Eastern Shore
Markets, Inc. v. J.D. Assocs. L.P., 213 F.3d 175, 180 (4th Cir.
2000) (same). Novell has inserted into its Complaint many such
conclusory allegations, unwarranted inferences, and legal conclusions,
particularly as to the purported applicability of Section 16(i).
In ruling on a motion to dismiss, courts are also entitled to reject
allegations that are "devoid of any reference to actual events," Ostrzenski
v. Seigel, 3 F. Supp. 2d 648, 650 (D. Md. 1998), and need not
"ignore facts set forth in the complaint that undermine the plaintiffs'
claims." Gen. Refractories Co. v. Stone Container Corp., No.
98-3543, 1999 WL 14498, at *2 (N.D. Ill. Jan. 8, 1999).
I. Count I of the Complaint is Fatally Flawed.
Given that Count I is the only cause of action in the Complaint that
alleges harm to a market addressed in the DOJ Complaint - PC operating
systems - it might arguably benefit from Section 16(i).9
Nonetheless, Count I should be dismissed for each of the two
independent reasons discussed below.
A. Count I Should Be Dismissed Because
Novell Does Not Own the Claim.
Only the "real party in interest" may prosecute a claim, Fed. R.
Civ. P. 17(a), and it is well-settled that a potential plaintiff loses
its "real party" status by assigning its right to sue to another
entity. In re Maco Homes, Inc., 180 F.3d 163, 165-66 (4th Cir.
1999); Audio-Visual Marketing Corp. v. Omni Corp., 545 F.2d
715, 719 (10th Cir. 1976); 4 James W. Moore, et al., Moore's Federal
Practice § 17.111 [a] (3d ed. 2004) ("Under a valid assignment,
the assignee of a claim becomes the real party in interest for that
claim."). Claims brought by someone other than the real party in
interest are subject to dismissal on a Rule 12(b)(6) motion. Id.
§ 17.12[2][a].
As noted previously, in 1996 Novell sold to Caldera its right to
bring a claim against Microsoft for harm in the PC operating system
market. The Novell-Caldera contract "grante[d] ... to Caldera all of
Novell's right, title, and interest in and to any and all claims or
causes of action held by Novell [as of July 23, 1996] and associated
directly or indirectly with" DR-DOS, Novell DOS and related Novell
products and technologies, "including ... any claims [for] damages....
whether any such claim is matured or unmatured." (Ex. B, Asset Purchase
Agreement § 3.1.) Thus, Novell long ago sold to Caldera the claim
that Novell seeks to assert in
Count I, for at least two reasons.
First, although Count I does not seek recovery for injuries to any
Novell product that competed in the PC operating system market,10
the Complaint alleges that WordPerfect was harmed by Microsoft's
"suppression of... Novell's own DR-DOS." (Compl. ¶ 144.) Because
Count I is a "claim ... associated directly ... with" DR-DOS, it is
clearly a claim that Novell assigned to Caldera.
Second, even if Novell had alleged harm in the PC operating system
market without mentioning DR-DOS, that would not salvage Count I. Under
the plain language of Paragraph 3.1 of the contract, Novell assigned to
Caldera "all claims" even "indirectly" relating to PC operating
systems. Given the breadth of the assignment, Novell retained no right
to sue Microsoft for any alleged harm to or misconduct in the PC
operating system market.
Furthermore, as a matter of equity, Novell should be estopped from
denying that it transferred the claims. The Utah courts have determined
that Novell engaged in deceptive conduct to hide its role in the
Caldera action. Indeed, one of the "main purposes of' Novell's transfer
of the claims was "to obfuscate Novell's role in the action against
Microsoft." Novell, Inc. v. Canopy Group, 92 P.3d 768, 770
(Utah Ct. App. 2004). "To accomplish this, Novell and Caldera executed
two separate documents," id., "deal[t] with Novell's
entitlement [to a portion of a recovery] in very broad, general terms,"
and purposefully omitted from the written contracts the requirement
that Caldera "sue Microsoft." Id. at 772. Thus, it would be
fundamentally inequitable to allow Novell to prosecute a second action
through Count I.11
B. Count I Should Be Dismissed for the
Independent Reason that Novell Lacks Antitrust Standing to Pursue It.
Unlike the federal government, "a private antitrust plaintiff must
show 'standing' to sue." 2 Philip E. Areeda & Herbert Hovenkamp,
Antitrust Law I 335a at 286 (2d ed. 2000). While some courts use terms
other than antitrust standing to identify the showing a private
plaintiff must make, all courts recognize the need "to put principled
limits on the literally unbounded reach of the threefold damage remedy
authorized by § 4 of the Clayton Act." Pocahontas Supreme Coal
Co, v. Bethlehem Steel Corp., 828 F.2d 211, 219 (4th Cir. 1987); see
Sharp v. United Airlines, Inc., 967 F.2d 404, 409 (10th Cir. 1992)
(noting that if standing rules
were not enforced, "there would be no principled way to cut off a
myriad" of antitrust claims).
To survive a motion to dismiss, a private antitrust plaintiff must
plead, at a minimum, (1) that it suffered "antitrust injury,"
which means "injury of the type the antitrust
laws were intended to prevent and that flows from that which makes the
defendant's acts unlawful," Brunswick Corp. v. Pueblo Bowl-O-Mat, 429
U.S. 477, 489 (1977); and (2) that such antitrust injury is not unduly
"remote" from the alleged violation, a "proximate cause" requirement
similar to the one applicable in tort cases. Associated Gen.
Contractors v. Cal. State Council of Carpenters, 459 U.S. 519, 545
& n.2 (1983); see Holmes v. Securities Investor Protection Corp.,
503 U.S. 258, 268-69 & n.15 (1992) (explaining that "antitrust
injury" and "proximate cause" are both "requirement[s] of Clayton Act
causation").
With rare exception, only a plaintiff who is a consumer or a
competitor in the allegedly affected market can satisfy the antitrust
injury and proximate cause requirements of antitrust standing, as
Judge Winder of this Court has explained. Boisjoly v. Morton
Thiokol, Inc., 706 F. Supp. 795, 804 (D. Utah 1988) ("Courts have
generally allowed standing only to direct purchasers of the subject
product or competitors in the relevant market. . . ."). The Supreme
Court clarified the importance of this principle in its landmark
standing case, Associated General Contractors, which denied antitrust
standing to a plaintiff that "was neither a consumer nor a competitor
in the market in which trade was restrained." 459 U.S. at 539; see
White v. Rockingham Radiologists, 820 F.2d 98, 104 (4th Cir. 1987)
(holding that plaintiff could not prevail on his claim that defendant
monopolized a market for medical and surgical hospital services
"because he is neither a provider nor a consumer of these services").
Count I does not seek recovery for any harm suffered by Novell as a
consumer or competitor in the market for PC operating systems. See p.
16 & n.10, supra. Consequently, Novell is not a "proper
party to bring a private antitrust action" alleging harm in that
market. Associated Gen. Contractors, 459 U.S. at 535 n.31, 544.
Novell cannot overcome this hurdle by arguing that absent allegedly
anticompetitive conduct by Microsoft, Novell's WordPerfect application
would have sparked
competition in the market for PC operating systems. (Compl. ¶ 52.)
In the words of the district judge presiding over the multidistrict
litigation proceedings against Microsoft, there is a "logical flaw at
the fundament of" this theory.12 More importantly, the
theory provides no basis for concluding that Novell has antitrust
standing. Even plaintiffs whose products are the alleged targets of
anticompetitive conduct do not have antitrust standing unless those
products competed in the affected market. See, e.g., SAS of Puerto
Rico, Inc. v. Puerto Rico Tel. Co., 48 F.3d 39, 44-46 (1st Cir.
1995); Legal Econ. Evaluations, Inc. v. Metro. Life Ins. Co., 39
F.3d 951, 954-56 (9th Cir. 1994). In SAS of Puerto Rico, for
instance, plaintiff had developed an attachment for pay phones that
allegedly "threatened" the monopoly of defendant, the local telephone
company, in the market for long distance service from pay phones in
Puerto Rico. 48 F.3d at 41, 44. Accepting as true plaintiff's
allegation that defendant had engaged in anticompetitive conduct that
harmed plaintiff, the court nevertheless dismissed the complaint
because plaintiff was merely a supplier to competitors in the market as
opposed to being a competitor itself. Id. at 44. Thus, even if
WordPerfect was a target of Microsoft's allegedly anticompetitive
conduct, Count I must be dismissed.
In another part of its Complaint, Novell advances a different theory
about how Microsoft's allegedly anticompetitive conduct injured Novell.
In this second iteration,
Microsoft's "suppression" of competition in the PC operating system
market caused derivative harm to WordPerfect by decreasing Novell's
opportunities to write versions of WordPerfect for PC operating systems
other than Windows. (Compl. ¶ 244.) This alternative formulation
does nothing to remedy Novell's lack of antitrust standing.
As an initial matter, the second theory does not alter WordPerfect's
status as a product that competed outside the allegedly restrained
market. Moreover, "a plaintiff who complain[s] of harm flowing merely
from the misfortunes visited upon a third person by the defendant's
acts" has not alleged proximate causation. Holmes, 503 U.S. at
268. Novell cannot recover for purely derivative injury to WordPerfect
resulting from allegedly anticompetitive conduct by Microsoft directed
toward PC operating systems. See Pocahontas Supreme Coal Co.,
828 F.2d at 219-20. Such derivative injury is "too remote and indirect"
to give rise to antitrust standing. Id. at 219; Sharp,
967 F.2d at 409. As a result, Count I of the Complaint must be
dismissed.
II. Counts II Through VI Are Time-Barred.
Because the allegedly wrongful conduct toward Novell occurred at
least 8.5 years before the Complaint was filed, Counts II through VI
are time-barred unless they were tolled by the DOJ Complaint pursuant
to 15 U.S.C. § 16(i). Novell bears the burden of establishing that
Section 16(i) applies to its claims. Charley's Tour & Transp.
Co. v. Interisland Resorts, Ltd., 618 F. Supp. 84, 86 (D. Haw.
1985) ("plaintiff bears the burden of showing that the two suits are
based in whole or in part on the same matter"); see Akron Presform
Mold Co. v. McNeil Corp., 496 F.2d 230, 233 (6th Cir. 1974)
(holding that "[a]ll presumptions are against" an antitrust plaintiff
"seeking the benefit of... exceptions" to the four-year limitations
period on antitrust claims).13
A. The Applicability of Section 16(i)
While Section 16(i) is not to be given a "niggardly construction"
when evaluating a plaintiffs argument for suspension, Leh v. Gen.
Petroleum Corp., 382 U.S. 54, 59 (1965), the Supreme Court has
cautioned that in light of the expressed "congressional policy" against
"undue prolongation" of antitrust cases, Section 16(i) must be
interpreted as "a statute of repose." Greyhound Corp. v. Mt. Hood
Stages, Inc., 437 U.S. 322, 334 (1978) (internal quotation marks
omitted). The test adopted by the courts for determining the
applicability of Section 16(i) is whether the matters complained of in
a private antitrust claim "bear a real relation" to the matters
"complained of in the government suit." Leh, 382 U.S. at 59.
This test usually requires a court to examine the markets at issue in
the two cases, as well as factors such as the time period, competitors
and products involved and the methods of proving the respective claims.
Id. at 61-66; see also Peto v. Madison Square Garden Corp., 384
F.2d 682, 683 (2d Cir. 1967); Charley's Tour & Transp. Co., 618
F. Supp. at 86.
The "real relation" test "in general must be limited to a comparison
of the two complaints on their face." Greyhound, 437 U.S. at
331 (internal quotation marks omitted). This is because Section 16(i)
permits tolling of the normal four-year statute of limitations only
where the private claims are based on matters "complained of" by the
federal government. Id. (quoting § 16(i)). This limitation
also effectuates the legislative preference for "certainty and
predictability in [Section 16(i)'s] application." Greyhound,
437 U.S. at 335.
The rule that complaints must be compared on their face does not
mean, however, that a plaintiff can insert gratuitous references to a
prior government action or allege whatever it thinks will be
superficially useful. The Supreme Court has cautioned that courts
should be "concern[ed] that" any "invocation of [Section 16(i)] be made
in good faith," and emphasized that "care must be exercised to insure
that reliance upon the government proceeding is not mere sham." Leh,
382 U.S. at 59.
B. Counts II through VI of the Complaint
Bear No "Real Relation" to the DOJ Complaint.
Counts II through VI of the Complaint bear no "real relation" to the
DOJ Complaint because they address different markets, different time
periods, different competitors, different products, different allegedly
anticompetitive conduct, and implicate different methods of proof.
1. The Difference in Markets Alone Is Fatal.
Counts II through VI only allege harm to two purported markets: one
for word processing applications and one for spreadsheet applications,
The DOJ Complaint concerns two entirely different purported markets:
"The market for personal computer operating systems, and the market for
Internet browsers." (DOJ Compl. ¶ 53.) Novell concedes there is no
overlap between the alleged markets for word processing and spreadsheet
applications on the one hand, and the alleged markets for PC operating
systems and web browsing software, on the other. (Compl. ¶¶
25-28.) In a related context, the district court hearing the consumer
class action cases against Microsoft agreed that office productivity
applications and PC operating systems are in "separate markets." In
re: Microsoft Corp. Antitrust Litig., 214 F.R.D. 371, 374 (D. Md.
2003).
The disparity in markets involved in Counts II through VI of the
Complaint versus the DOJ Complaint is fatal to Novell's claims. Courts
have held that the statute of
limitations is not tolled for private claims concerning markets
different from those at issue in a prior government case. In re:
Coordinated Pretrial Proceedings in Petroleum Prods. Antitrust Litig.,
782 F. Supp. 481, 486 (C.D. Cal. 1991) (FTC action defining relevant
market as area east of the Rocky Mountains did not suspend limitations
period for a private claim alleging anticompetitive conduct on West
Coast); Charley's Tour & Transp. Co., 618 F. Supp. at 86; see
also Peto, 384 F.2d at 683 (government action alleging conspiracy
to monopolize professional boxing did not toll limitations period for
private action alleging conspiracy to monopolize professional hockey).
Indeed, a leading commentator views such cases as establishing a bright
line rule: When a comparison of the two complaints "shows that the
government and subsequent private suits ... arose in distinct markets,
the statute is not tolled." 2 Philip E. Areeda & Herbert Hovenkamp,
Antitrust Law 1 321 a, at 241 (2d ed. 2000) (emphasis added).
This bright line rule is fully consistent with the indispensable
role that market definition and analysis play in antitrust cases, In
fact, the only "'way to measure"' harm to competition is by reference
to the effects of a defendant's conduct on a properly defined antitrust
market. Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456
(1993) (quoting Walker Process Equipment, Inc. v. Food Machinery
& Chemical Corp., 382 U.S. 172, 177 (1965)); see also
United States v. Microsoft, 253 F.3d at 81 (holding that the
"relevant market ... establishes a context for evaluating the
defendant's actions"). This Court, too, has instructed that "[w]ithout
a well-defined relevant market, an examination of a transaction's
competitive effects is without context or meaning," Lantec, Inc. v.
Novell, Inc., 146 F. Supp. 2d 1140, 1144 (D. Utah 2001) (Stewart,
J.), aff'd, 306 F.3d 1003 (10th Cir. 2002); see also id. at
¶¶ 49-50 (underlining Spectrum Sports' instructions that both
monopolization and attempted monopolization claims "`require inquiry
into the relevant product and geographic market and the defendant's
economic power in that market"' (quoting Spectrum Sports, 506
U.S. at 459) (emphasis in Lantec)).
If private antitrust claims involve different markets than a prior
government action, that typically means that other factors bearing on
the "real relation" test will be
significantly different as well. As shown below, that is certainly true
here.
2. The Time Periods Are Different.
The earliest conduct referenced in the DOJ Complaint occurred in May
1995 (DOJ Compl. ¶¶ 70-71), and the conduct central to the
DOJ's claims did not begin until "early 1996." (E.g., id. 1 76).
Counts II through VI, on the other hand, refer to conduct dating back
to the late 1980s (Compl. ¶¶ 31, 32), and many allegations
relate to conduct purportedly undertaken by Microsoft in 1994 or
earlier. (See Compl. ¶¶ 96-111, a section devoted entirely to
conduct relating to versions of Windows prior to Windows 95.) Moreover,
Novell does not - and could not - complain of any conduct engaged in by
Microsoft after March 1996, when Novell sold its word processing and
spreadsheet applications to Corel. Thus, there is an overlap of roughly
12 months out of the approximately 10-year period covered by the
combination of Counts II through VI of the Novell Complaint and the DOJ
Complaint. The dissimilarity in time periods is another reason not to
apply Section 16(i) in this case. See, e.g., Peto, 384 F.2d at
683 (refusing to toll statute of limitations after noting, among other
things, that private complaint and
government complaint involved "different periods of time").
3. The Competitors Are Different.
The DOJ Complaint focused on the competitive threat to Microsoft's
PC operating systems posed by two named competitors: Netscape and Sun
Microsystems. Novell's Complaint (in support of Counts II through VI)
contains a number of superfluous references to those two companies
(e.g., Compl. ¶¶ 134-43), but that is nothing more than a
"sham" effort to deceive the reader into believing that Counts II
through VI resemble the DOJ Complaint. Leh, 382 U.S. at 59.
Netscape and Sun Microsystems did not develop and market office
productivity applications during the time Novell did. That is why
Counts II through VI concern the fates of two very different Microsoft
competitors: Novell and WordPerfect. Neither Novell nor WordPerfect is
even mentioned in the DOJ Complaint.
4. The Products Are Different.
According to the DOJ Complaint, Netscape's Navigator web browsing
software and Sun's Java technologies could function as a "software
'layer' between operating systems and application programs," thus
offering "the potential to become alternative platforms" to Windows,
"on which software applications and programs could run." (DOJ Compl.
¶ 66.) Novell provides the same description of Netscape Navigator
and Sun's Java technology, stating that they could "function on
multiple operating systems" and "were potentially able to provide
platforms for end-use applications, which made them a threat to replace
Windows itself as such a platform." (Compl. ¶ 44.) The Complaint
does not allege that Novell's word processing and spreadsheet
applications posed a similar platform threat to Windows. Instead, those
products are accurately described as examples of "end-use
applications." (Compl. ¶¶ 44, 144.) Counts II through VI
involve products that bear no resemblance to the products at issue in
the DOJ Complaint.
5. Differences in Anticompetitive Conduct
Alleged
(a) The DOJ Complaint Did Not Allege That
Microsoft Withheld Technical Information About Windows.
The allegations of anticompetitive conduct in the DOJ Complaint are
focused and narrow, a point underscored by the DOJ's statement that it
was "challeng[ing] only ... tie-ins, exclusive dealing contracts, and
other anticompetitive agreements." (DOJ Compl. ¶ 36.) The vast
majority of Novell's allegations of anticompetitive conduct, however,
do not involve "tie-ins, exclusive dealing contracts," or other
"anticompetitive agreements." Instead, they accuse Microsoft of
"Withholding ... Technical Information About Its Monopoly Windows
Platform." (Compl., p. 24 (title for the section containing
¶¶ 56-111).) As noted previously, the DOJ Complaint does not
claim that Microsoft withheld technical information from vendors of
word processing software that they needed to make their products run on
Windows - indeed, such a claim is fundamentally inconsistent with the
DOJ's theory of an applications barrier to entry. See pp. 10-11, supra.
(b) Novell's Allegation That Microsoft Withheld
Information About "Browser Extensions" Has No Analogue in the DOJ
Complaint.
The Complaint prominently asserts that one category of allegations
about Microsoft's withholding of technical information does relate to
the DOJ Complaint, but Novell is wrong. According to Novell, its
allegation that Microsoft withheld information about the "integration
of browsing functions into" the initial version of Windows 95 relates
to the DOJ Complaint because "Microsoft was held liable in the
Government Suit" for precisely the same "anti-competitive integration
of browsing functions." (Compl. ¶ 78); see id. ¶ 77
(stating that alleged withholding of information about integration of
web browsing functionality ceased upon Microsoft's release of the
initial version of Windows 95); see also id. ¶¶ 4, 6,
7 (referring to these allegations three times in the two-and-a-half
page Section entitled "Nature of this Action" that introduces the
Complaint), ¶¶ 66-78 (describing these allegations in full).
Novell provides no citation to the D.C. Circuit's opinion for its
assertion that "Microsoft was held liable in the Government Suit" for
the "integration of browsing functions" into the initial version of
Windows 95, and for good reason: the opinion contains no such holding,
and the tying claim that existed in the DOJ case (involving Windows 98)
was reversed and remanded by the Court of Appeals and not pursued
further. United States v. Microsoft Corp., 253 F.3d 34, 84
(D.C. Cir. 2001).14 But even if Novell were accurately
characterizing what transpired in the DOJ case, the Novell Complaint's
allegations that Microsoft withheld information about "browser
extensions" would not aid Novell in establishing a "real relation"
between the two complaints.
As noted above, a private antitrust plaintiff must allege that the
actions taken by the defendant proximately caused "injury of the type
the antitrust laws were intended to prevent and that flows from that
which makes the defendant's acts unlawful." Brunswick Corp.,
429 U.S. at 489. To the extent Novell suffered "antitrust injury" as a
consequence of Microsoft's integration of web browsing functionality
into Windows - a highly dubious proposition - such injury allegedly
"flow[ed]" from Microsoft's alleged withholding of information about
that web browsing functionality. The DOJ Complaint alleges a completely
different type of antitrust injury. The DOJ charged that the mere fact
of Microsoft's integration of web browsing functionality into Windows -
not any lack of disclosure of technical information to software
developers about that integration - foreclosed competition in the
purported market for web browsing software, which in turn reduced the
threat that such web browsing software allegedly posed to Microsoft's
PC operating system monopoly. (E.g., DOJ Compl. ¶¶ 22,
117.) The allegations of anticompetitive conduct made by Novell,
therefore, have nothing to do with the allegations of anticompetitive
conduct made by the DOJ.
6. The Methods of Proof Would Be Different.
The methods of proving the claims in Counts II through VI would
necessarily be different from the proof adduced by the DOJ. This is
obvious from a review of only a few of the differences discussed above:
Novell seeks to prove a case about its own business and word processing
and spreadsheet applications in 1994-96 and Microsoft's conduct from
1987-96, whereas the DOJ Complaint concerned entirely different
companies and products and a later time period. The reasons for the
decline of WordPerfect and Quattro Pro would be central to the proof of
this case at trial, whereas the DOJ case had nothing to do with those
products or the
reasons for their failure in the marketplace.
Finally, there are the very distinct proofs required by the
difference in the allegedly injured markets. In re: Microsoft Corp.
Antitrust Litig., 214 F.R.D. at 374 ("The liability and damage[s]
issues presented by claims arising out of these separate markets [PC
operating systems and office productivity applications] are not the
same."). Proving that an antitrust market exists is a monumental
exercise, requiring a substantial amount of "resources" and
"evidentiary and theoretical rigor." United States v. Microsoft, 253
F.3d at 84. This Court has itself delineated some of the many factors
that must be considered in the analysis: "recognition of a separate
market" by "the industry or consumers," "consumer patterns or switching
costs in relation to such a market," "the costs of the various
products," and "how the consumer would react to a price increase in
such costs," i.e., "price sensitivity." Lantec, Inc. v. Novell, Inc.,
146 F. Supp. 2d 1140, 1148-49 (D. Utah 2001) (Stewart, J), aff'd, 306
F.3d 1003 (10th Cir. 2002). Novell's task differs entirely from the
DOJ's efforts to define and demonstrate competitive harm to the PC
operating system and Internet browser markets.
In sum, Counts II through VI cannot benefit from Section 16(i)
because they bear no "real relation" to the DOJ Complaint. The
four-year statute of limitations applies, meaning that the 8.5 year-old
claims asserted by Novell are time-barred and should be dismissed.
CONCLUSION
For the foregoing reasons Microsoft requests that this Court
grant
its motion to dismiss Novell's Complaint.
DATED this 7th day of January, 2005
Respectfully submitted,
By: [signature]
James S. Jardine (A1647)
Mark M. Bettilyon (A4798)
John W. Mackay (A6923)
Mark W. Pugsley (A8253)
RAY QUINNEY & NEBEKER
[address, phone]
Thomas W. Burt
Steven J. Aeschbacher (A4527)
MICROSOFT CORPORATION
[address, phone]
David B. Tulchin
Steven L. Holley
Joseph J. Reilly
Jennifer L. Murray
SULLIVAN & CROMWELL LLP
[address, phone]
Robert A. Rosenfeld
Kit A. Pierson
HELLER EHRMAN WHITE & McAULIFFE LLP
[address, phone]
1 Microsoft does not know whether, as part of this
transaction, Corel acquired the claims that Novell now seeks to assert
against Microsoft. As a result,
Microsoft reserves in full its rights as to this issue.
2 Asset Purchase Agreement between Novell, Inc. and
Caldera, Inc., dated July 23, 1996 (the "Asset Purchase Agreement"),
submitted herewith as Exhibit B, ¶
3.1.
3 Novell, Inc. v. Canopy Group, 92 P.3d 768, 770,
773
(Utah Ct. App. 2004) (citing to a Novell-Caldera "license agreement,"
signed on the same date as the Asset
Purchase Agreement, and obligating Caldera to pay Novell "royalties,"
including "a percentage
of any recoveries from lawsuits").
4 First Amended Complaint ¶¶ 2, 74-75, in
Caldera, Inc. v. Microsoft
Corp., No. 2:96CV645B (D. Utah filed Feb. 12, 1998), submitted herewith
as
Exhibit C. Caldera's pleading conceptualizes the operating system
market as consisting of two
"relevant markets" - "DOS Market" and a "market for graphical user
interfaces that run on
top of DOS Software" - but the distinction is irrelevant to the instant
motion because
Caldera accused Microsoft of unlawfully using monopoly power in both
sub-markets. (Id. ¶¶ 64, 73, 79,
81.)
5 Settlement Agreement between Microsoft Corporation and
Caldera, Inc.,
dated Jan. 7, 2000 (the "Settlement Agreement"), submitted herewith as
Exhibit D (with
the amount of the settlement payment redacted, because it remains
confidential), Recital
& ¶ 6.
6 In ruling on this Rule 12(b)(6) motion, this Court may
consider the
documents cited by Microsoft herein because they all are subject to
judicial notice. 2
James W. Moore, et al., Moore's Federal Practice § 12.34[2) (3d
ed. 2004) ("In deciding
whether to dismiss, the court may consider ... matters of which the
judge may take judicial notice."); see, e.g., Hall v. Virginia,
385 F.3d 421, 424 n.3 (4th Cir. 2004); Grynberg v. Koch Gateway
Pipeline Co., 390 F.3d 1276, 1279 (l 0th Cir. 2004). Each of the
documents, which may be found in an Appendix to Exhibits submitted
herewith, has been filed publicly in a federal or state court save for
the Settlement Agreement (Ex. D); that document was central to the Novell
v. Canopy Group litigation and appears to have been filed therein,
though almost all the records of that case are under seal. Moreover,
Novell has "undisputed notice ... of the[] contents" of each of the
exhibits, a factor that would weigh in favor of permitting
consideration of the exhibits even if they had not been filed in court.
Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2nd
Cir. 1991) (noting that a "finding that plaintiff has had notice of
[non-public] documents used by defendant in a 12(b)(6) motion is
significant" in determining whether such documents may be considered).
In the event this Court determines that any of the documents
submitted by Microsoft may not be considered on a motion to dismiss,
Microsoft asks that, unless the pertinent Count of the Complaint is
dismissed for other reasons, the Court convert that aspect of the
motion to a motion for summary judgment. See Fed. R. Civ. P. 12(b)
(permitting conversion of motions under Rule 2(b)(6) to motions for
summary judgment under Rule 56).
7 Indeed, the federal district judge presiding over the
multidistrict litigation proceedings against Microsoft in Maryland
granted partial summary judgment against
the consumer plaintiffs with respect to their allegations that
Microsoft illegally withheld
technical information from developers of "word processing software" and
"spreadsheet software."
In re: Microsoft Corp. Antitrust Litig., 274 F. Supp. 2d 743,
744-46 & n. l (D. Md.
2003). Specifically, the court held that the essential facilities
doctrine does not apply to proprietary
information about Microsoft's PC operating systems, reasoning that "to
require one
company to provide its intellectual property to a competitor would
significantly chill innovation." Id. at 745. In
addition, the court held that even if the essential facilities doctrine
did apply, there was
insufficient evidence that information a allegedly withheld by
Microsoft from developers of word processing
and spreadsheet applications was "necessary for them to compete in the
applications
software development market." 274 F. Supp. 2d at 744 n.l, 745.
8 A complaint filed by certain state attorneys general
made a claim of harm to a purported market for "office productivity"
applications. (Complaint filed in New
York v. Microsoft Corp. ¶¶ 88-95, 98, 117-19, No. 98-1233
(D.D.C. filed May 18, 1998), submitted
herewith as Exhibit E.) The allegations of that complaint are not
relevant to the
instant motion, however, cause Section 16(i) of the Clayton Act applies
only to actions
"`instituted by the United States."' Greyhound Corp. v. Mt. Hood
Stages, Inc., 437 U.S. 322,
335-36 (1978) (quoting U.S.C. § 16(i)). In any event, two months
after filing their
action, the state attorneys general
abandoned their claim relating to office productivity applications.
(First Amended Complaint filed in New York v. Microsoft Corp.,
No. 98-1233 (D.D.C. filed July 17,
1998), submitted herewith as Exhibit F.)
9 Even Count I is time-barred, A comparison of Count I to
the DOJ Complaint reveals that Novell's claim involves different
competitors, different products that allegedly were injured and
differences in the anticompetitive conduct alleged. The degree of
market similarity, too, is suspect, given that the DOJ Complaint is
primarily focused on Microsoft's behavior with respect to Windows 98,
an operating system that was released two years after Novell sold the
products at issue in this case.
Moreover, there is a real question as to whether Count I should be
viewed as eligible for tolling regardless of its relationship to the
DOJ Complaint. Courts are required to determine, as a threshold matter,
whether a plaintiffs "reliance upon the government proceeding is not
mere sham." Leh v. Gen. Petroleum Corp., 382 U.S. 54, 59
(1965). The decision to bring a claim that Novell does not own and has
no standing to assert raises the issue of whether Novell is bringing it
only because Count I is the sole vehicle through which it can make
references to a market addressed in the DOJ Complaint.
10 The Complaint makes reference to Novell's PC operating
systems (e.g., DR-DOS) (Compl. 1 144), and to a technology called
"AppWare" that allegedly possessed "middleware" characteristics (Compl.
¶¶ 50-51), but Count I seeks damages only for purported
injuries to Novell's "WordPerfect word processing application and its
other office productivity applications." (Compl. ¶ 153.)
11 Microsoft does not now know whether Novell, in
addition to mandating the Caldera suit against Microsoft, retaining a
substantial equity stake in its outcome, and actually receiving a
portion of the payment Microsoft made in exchange for a full release,
also controlled the prosecution of the case to an extent that Microsoft
has meritorious defenses of collateral estoppel or accord and
satisfaction. Cf. Supporters to Oppose Pollution, Inc. v. Heritage
Group, 973 F.2d 1320, 1327 (7th Cir. 1992) (Easterbrook, J) (If
"suit # 1" is by "the cat's paw" and "suit # 2" is by "the cat," then
"cat and cat's paw are the same, and the second suit must be
dismissed."). As a, result, Microsoft reserves in full its rights as to
this issue.
12 In re Microsoft Antitrust Litig., 274 F.
Supp. 2d 743, 746 (D. Md. 2003). Like Novell, plaintiffs in the
consumer class actions alleged that Microsoft deliberately impeded
development of non-Microsoft "word processing software" and
"spreadsheet software." Id. at 744-46 & n.l. The "logical
flaw" of such a charge is that if it were true, Microsoft "would have
been undermining the structure upon which its operating system monopoly
was based." Id. at 746. That structure "depends upon Microsoft
encouraging ISVs [independent software developers] to choose the
Windows operating system." Id.
13 As a separate point, Novell contends that it is
entitled to recover for all "harm" suffered after May 18, 1994 - four
years before the date the DOJ Complaint was filed - as a result of
"every act that Microsoft" committed "prior to" that date. (Compl.
¶ 22.) This entitlement allegedly exists because "Microsoft's
entire course of conduct" since "at least the early 1990s" constitutes
"a continuing violation" of the antitrust laws. (Id.¶ 22.)
This is incorrect for two reasons.
First, while the continuing violation doctrine as applied to the
antitrust laws does allow a plaintiff in some circumstances to allege
conduct prior to the limitations period in order to establish a
defendant's liability, it does not allow a plaintiff to recover for
additional harm during the limitations period that results from such
pre-period conduct. The right to recover all "damages that will flow in
the future" from a given act accrues as soon as a plaintiff feels any
adverse impact from that act. Zenith v. Hazeltine Research, Inc.,
401 U.S. 321, 338 (1971); see also Klehr v. A.O. Smith Corp., 521
U.S. 179,190 (1997) (antitrust plaintiffs may not use conduct within
the limitations period "as a bootstrap to recover for injuries caused
by other earlier predicate acts that took place outside the limitations
period").
Second, on October 19, 1993 Novell's predecessor in interest,
WordPerfect, voluntarily dismissed with prejudice under Fed. R. Civ. P.
41(a)(1) an action it had brought against Microsoft asserting claims
relating to unfair competition in word processing applications. A copy
of the order of dismissal in WordPerfect Corp. v. Microsoft Corp., 93
Civ. 7127 (LMM) (S.D.N.Y.), as well as WordPerfect's complaint and a
simultaneously filed application for injunctive relief in that case,
are submitted herewith as Exhibits G.1, G.2, and G.3, respectively.
WordPerfect's application for injunctive relief specifically directed
the court's attention to federal antitrust enforcement investigations
regarding Microsoft's "anticompetitive practices." Ex. G.3 at 3 &
n.1. Because voluntary dismissals with prejudice have "the same res
judicata effect as a final adjudication on the merits favorable to the
defendant," 8 James W. Moore, et al., Moore's Federal Practice
§§ 41.33[6][c], 41.34[6][c] (2004), the dismissal precludes
Novell from suing for alleged anticompetitive conduct toward
WordPerfect prior to October 19, 1993. Restatement (Second) Of
Judgments § 24(1) (1982).
14 Moreover, Novell's entire discussion of the
"integration of browsing" functionality into Windows is highly
misleading. For example, the Complaint says that the alleged conduct
directed toward Novell ceased upon release of the initial version of
Windows 95 (Compl. ¶ 77), an event that occurred in August 1995, United
States v. Microsoft Corp., 84 F. Supp. 2d 9, 41 (D.D.C. 1999)
("Findings of Fact"). Yet, Novell's description of the integration of
web browsing functionality into Windows is based on verbatim quotations
from the written direct testimony of a senior Microsoft executive that,
on their face, concern either "Windows 95 starting with the OSR 2.0
version" (Compl. ¶ 67), which was not released until August 1996 -
after Novell's sale to Corel and one year after the alleged conduct
toward Novell stopped, Findings of Fact, 84 F. Supp. 2d at 50, 1161, or
Windows 98 (Compl. ¶ 67), which was not released until almost
three years after the alleged conduct toward Novell ceased. Findings of
Fact, 84 F. Supp. 2d at 31 (Windows 98 released in June 1998).
CERTIFICATE OF SERVICE
I hereby certify that on January 7, 2005, I caused a true and
correct copy of the foregoing Memorandum in Support of Microsoft's
Motion to Dismiss Novell's Complaint, as well as the separately bound
Appendix of Exhibits, to be served upon the following by overnight mail:
Max D. Wheeler
Stanley J. Preston
Maralyn M. Reger
[address]
R. Bruce Holcomb
Jeffrey M. Johnson
Milton A. Marquis
David L. Engelhardt
Dickstein Shapiro Morin & Oshinsky LLP
[address]
[signature]
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