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A state judge on March 30 certified a class of Minnesota end users and indirect purchasers of the Microsoft Operating System (OS) to proceed in an antitrust action against the software giant ( Daniel Gordon v. Microsoft Corp., No. 00-5994, Minn. Dist., Hennepin Co.). Microsoft Corp., in opposing class certification, had argued that the plaintiffs would be unable to prove classwide injury and that damages would have to be determined on a case-by-case basis, necessitating many mini-trials. Plaintiffs in the case met their burden, however, Hennepin County District Court Judge Bruce A. Peterson held. Although the methodology for proving injury and damages proposed by plaintiffs is “hotly disputed,” it would nonetheless be “adequate” for use at trial, Judge Peterson stated. Under the terms of the certification, all Minnesotans who acquired software products that contain MS-DOS or Windows after May 18, 1994, are eligible to participate in the suit. Judge Peterson suggests in his order that “tens or even hundreds of thousands of people” could be affected by the litigation. REPEALER STATUTE The plaintiffs allege that Microsoft established a monopoly in the market for operating software by committing various anticompetitive acts, maintained its grip by stifling innovation and abused its power by overcharging customers. The conduct has deprived purchasers the benefits of a free market, according to the class. In dissecting the issue of superiority, Microsoft pointed out that because the Legislature in Minnesota — as one of 10 states to enact an Illinois Brick repealer statute — made it possible in 1984 for indirect purchasers to sue raising antitrust claims, state courts have denied class certification motions in five cases because of manageability concerns. The assertion was rejected by Judge Peterson, however, as on that “would be contrary to legislative intent.” “Despite the consistency of prior decisions, certainly no established rule exists in Minnesota against certification of indirect purchaser classes … As a practical matter, denying class certification usually constitutes the functional dismissal of a consumer antitrust lawsuit. Denying class certification based merely on economic complexity would effectively abrogate the indirect purchaser provision altogether, since economic complexity is inherent in indirect purchaser actions,” Judge Peterson said. PRIOR CASES In addition, according to Judge Peterson, the five cases referenced by Microsoft differed materially from the case at hand. Also, each denial of certification came on narrow grounds and not as a result of a general rule, Judge Peterson held. In each of the cases, which had defendants ranging from infant formula manufacturers to cigarette retailers, certification was denied after plaintiffs failed to propose a viable method for proving classwide fact of injury, the amount of individual damages or both. Such would not be the case in a suit against Microsoft, according to the judge, because the software giant would be the only defendant, because the suit concerns only two basic products – Microsoft Windows and MS-DOS – and because more than likely plaintiffs will have purchased the products just once, unlike the frequency with which cigarettes and baby formula are consumed. “Determination of amount of individual damages is more readily subject to calculation here than in these earlier cases, and, unlike in any of the other cases, Plaintiffs have actually produced a time-consuming but apparently workable method for calculating damages,” Judge Peterson held. LEFFLER METHOD Citing the testimony of Dr. Keith Leffler, identified as an authority in the field of antitrust economics, the plaintiffs’ proposal for estimating Microsoft’s overcharge to its buyers relies on a “three yardsticks” model. According to the opinion, the first yardstick is a “comparison price from a comparable market that was not affected by the anticompetitive activity” by which the prices for Microsoft OS would be compared to those of equally competitive high-tech markets, such as fax or anti-virus software sellers. The second yardstick is “based on margins earned by sellers in a comparable market free from antitrust violations” and the third measures the “price in the market at issue during a period free from anticompetitive conduct.” Under Dr. Leffler’s methodology, after determining a “benchmark” price from one of the yardsticks, the figure is deducted from the price paid to determine the amount of overcharge to a direct purchaser. Once the determination has been made, plaintiffs must establish that some of the overcharge was passed through to all class members to prove fact of injury, according to the judge. Microsoft objects to the method because personal computers with preinstalled Microsoft OS sell for a wide range of prices, because rebates affect the price at different times during the class period and because inclusion of Web-browsing capabilities outweighs the harm caused by a potential overcharge. Under Dr. Leffler’s proposal, however, a cost increase to distributors almost always results in a price increase for consumers, particularly when a product has no close substitutes, which satisfied Judge Peterson. “This economic theory – that as a general matter a non-negligible cost increase to all distributors at the beginning of a distribution system would, in a highly competitive market, eventually work its way through to a price increase to the consumers at the end of the system – appears well developed enough to entitle Plaintiffs to an opportunity to prove it at trial,” the judge held in granting certification. The plaintiffs are represented by Richard M. Hagstrom and Thomas M. Sobol of Zelle, Hofmann, Voebel, Mason & Gette in Minneapolis. David B. Tulchin of Sullivan & Cromwell in New York represents Microsoft. (c) Copyright 2001 Mealey Publications, Inc.

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