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Affirming the dismissal of a lawsuit against Microsoft Corp., a New York state appellate court has ruled that private class actions cannot be brought under state antitrust law. The ruling, one of two unanimous decisions on the subject rendered last week by the New York Supreme Court’s Appellate Division, 1st Department, marks the first time a New York appellate court has addressed the rights of consumers under a recent amendment to the Donnelly Act, the state’s antitrust law. The court’s decision is also a defeat for the attorney general’s office, which had argued in an amicus brief that a strict interpretation of the Donnelly Act and the state’s class action law would “effectively nullify” the rights of consumers to sue for antitrust violations. The dispute in the case arose from a 1998 amendment to the Donnelly Act, passed in response to a U.S. Supreme Court decision, Illinois Brick v. Illinois, 31 U.S. 720 (1977), that limited class action lawsuits alleging antitrust violations to plaintiffs who have purchased goods directly from a manufacturer. In the case before the 1st Department, the plaintiffs were indirect purchasers who obtained Microsoft products through third parties. The plaintiffs and the attorney general’s office had argued that the intention of the Donnelly amendment was to protect the rights of consumers, especially indirect consumers, and should be interpreted liberally. In its brief, the attorney general urged the court to overrule a lower court’s decision, which, if upheld, “would erect a substantial obstacle to enforcement of the state’s antitrust laws.” But the 1st Department disagreed, finding in Cox v. Microsoft Corp., 4239, that the amendment did not specifically authorize the use of a class action to recover damages for violation of the Donnelly Act. In New York, a class action cannot be used to recover a penalty unless a statute specifically authorizes such a proceeding, pursuant to Civil Procedure Law and Rules � 901(b). The 1st Department found that the Donnelly Act’s mandatory treble damages remedy constitutes a penalty. “It has long been recognized that a provision for the trebling of damages is penal and subject to strict construction,” the court wrote. The attorney general had contended that treble damages did not constitute a penalty, and that the Legislature never envisioned applying �901(b) to the Donnelly Act. J. Douglas Richards of Milberg Weiss Bershad Hynes & Lerach in New York, who represented the plaintiffs, described the court’s ruling as “very far-reaching” and contrary to the intent of the Donnelly Act amendment. “Consumers in New York are out of luck in a class action, but in California they can recover, and they do,” Richards said. About 17 states have passed legislation that allows indirect consumers to sue for antitrust violations under state laws, and suits against Microsoft continue to go forward in those states. Richards said he planned to file for leave to appeal to the New York Court of Appeals. In a companion case to the Microsoft suit, Asher v. Abbott Laboratories, 4310N, the court made identical findings. In that suit, consumers had alleged that an agreement between Abbott Laboratories, which had a patent on the drug Hytrin, and generic drug maker Geneva Pharmaceuticals amounted to an antitrust violation because it delayed the introduction of a cheaper product. Wayne A. Cross and Robert A. Milne of Dewey Ballantine in New York represented Geneva Pharmaceuticals. Jason L. Solotaroff of Stamell & Schager in New York represented the plaintiffs. Joseph E. Neuhaus of Sullivan & Cromwell in New York represented Microsoft. The appellate panel on the Microsoft case comprised Justices Eugene L. Nardelli, Peter Tom, Richard T. Andrias, Israel Rubin and George D. Marlow. On the panel in the Abbott Laboratories case were Justices Tom, Rubin, Betty Weinberg Ellerin, Richard W. Wallach and John T. Buckley. Cerisse Anderson contributed to this article.

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