Source: http://www.techlawjournal.com/courts/msftatr/19991119com.htm
Timestamp: 2017-11-21 10:16:29
Document Index: 188648393

Matched Legal Cases: ['§ 2', '§ 2', '§ 2', '§ 1331', '§ 26', '§ 2', '§ 15', '§ 22', '§1391', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2']

Document: Original Complaint in eLeaders v. Microsoft, 11/19/99.
Original Complaint in eLeaders v. Microsoft.
A class action antitrust suit.
U.S. District Court, D.C., Case No. 99-3090.
Date filed: November 19, 1999.
Source: Clerk of the Court.
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eLEADERS, INC., a corporation
with its principal offices at 200
Old Country Road, Mineola, NY
a corporation with its principal
executive offices at One Microsoft
Way, Redmond, Washington
98052-6399,
) Case No. _______
Plaintiff, eLeaders Inc., on behalf of itself and all others similarly situated, brings this action for treble damages under the federal antitrust laws, Section 2 of the Sherman Antitrust Act of 1890, 15 U.S.C. § 2 ("Sherman Act"), and alleges on information and belief, except as to paragraph 5 that pertains to Plaintiff and its counsel, which are based upon personal knowledge. Plaintiff s information and belief is based upon, inter alia, the investigation made by and through its attorneys. Each and every factual allegation contained in this Complaint either has evidentiary support or, alternatively, is likely to have evidentiary support after a reasonable opportunity for further discovery.
1. This action asserts claims under the Sherman Antitrust Act of 1980, 15 U.S.C. § 2 et seq. ("Sherman Act"). This Court has jurisdiction over this action under 15 U.S.C. § 2 and 28 [begin page 2] U.S.C. § 1331 and under Section 16 of the Clayton. Act, 15 U.S.C. § 26, to recover damages for and to restrain a continuing violation by Microsoft Corporation of Section 2 of the Sherman Act, 15 U.S.C. § 2, and Section 4 of the Clayton Act, 15 U.S.C. § 15.
2. Venue is proper in this District, pursuant to Sections 12 of the Sherman Act, 15 U.S.C. § 22, and 28 U.S.C. §1391(b), (c), because Microsoft Corp. transacts business in the District of Columbia and/or the claims arose at least in part in the District of Columbia. Defendant regularly and continuously conducts business in interstate commerce between and among the several states. The interstate trade and commerce described herein has been carried out, in part, within the District of Columbia.
3. The relevant product market that pertains to Plaintiff's claims herein is the product market for Intel-compatible personal computer ("PC") operating systems.
4. The product market for Intel-compatible PC operating systems consists of operating systems written for the Intel x86/Pentium class of microprocessors. These microprocessors perform central processing unit ("CPU") functions for the vast majority of personal computers, and their operating systems manage the interaction between the CPU and the various pieces of hardware, such as a monitor or printer, attached to such computers. Operating systems also control and direct the interaction between applications, such as word processing or spreadsheet programs, and the CPU. No other product duplicates or fully substitutes for the operating system. The geographic market for PC operating systems is worldwide. Because of the complex interactions among operating system software, applications software, and the hardware attached to the PC, an operating system written for one class of microprocessors typically will [begin page 3] not work on another class of microprocessors without significant modification. Thus, consumers do not consider an operating system that runs a non-Intel-based personal computer to be an effective substitute for an operating system that runs an Intel-based personal computer.
5. Plaintiff, eLeaders Inc., is a corporation, organized and existing under the laws of the State of New York, with its principal place of business at 200 Old Country Road, Mineola, NewYork 11501. Plaintiff purchased Windows 98 upgrade products from Microsoft.
6. Microsoft Corporation ("Microsoft") is a corporation organized and existing under the laws of the State of Washington, with its principal place of business at One Microsoft Way, Redmond, Washington 98052-6399. Microsoft sells and licenses PC operating systems throughout the United States and the world and delivers copies of its operating systems to original equipment manufacturers ("OEMs") and retail customers across state lines and international borders. Microsoft is engaged in, and its activities substantially affect, interstate and foreign commerce.
7. "Operating System" is defined as a software program that controls the allocation and use of a computer's resources (such as central processing, disk space, main memory space, and input/output channels). The operating system also supports the functions of software programs or "applications," that perform specific user-oriented tasks. Because it supports applications while interacting more closely with the PC system's hardware, the operating system is said to serve as a "platform."
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8. "Windows 95", released by Microsoft in 1995, is defined as the first operating system for Intel-compatible PCs that exhibited the same type of integrated features as the Mac OS system which is manufactured by Apple Computer, Inc.
9. "Windows 98" is defined as the successor to Windows 95 released in June 1998.
10. "OEM" is defined as original equipment manufacturer[s] who are manufacturers of PCs, such as the IBM PC Company and the Compaq Computer Corporation. An OEM typically installs a copy of Windows onto one of its PCs before selling the package to a consumer under a single price.
11. A "PC" or "personal computer" is defined as a digital information processing device designed for use by one person at a time. A typical PC consists of central processing components (e.g., a microprocessor and main memory) and mass data storage (such as a hard disk). A typical PC system consists of a PC, certain peripheral input/output devices (including a monitor, a keyboard, a mouse, and a printer), and an operating system.
12. From at least 1995 to the date of trial, (hereinafter defined as the "Class Period") Microsoft was, and continues to be, the predominant producer and seller of operating systems in the United States.
13. Microsoft sold and shipped millions of dollars of operating systems products to customers and others throughout the United States.
[begin page 5]
14. Throughout the Class Period, there was a continuous and uninterrupted flow in interstate commerce of defendant's operating systems throughout the United States and elsewhere, to customers and others throughout the United States.
15. Defendant's unlawful activities have been within the flow of, an substantially affected, interstate commerce.
16. On November 5, 1999, Judge Thomas Penfield Jackson of the United States District Court for the District of Columbia issued his Findings of Fact in the consolidated civil antitrust actions entitled United States v. Microsoft Corp., Civil Action No. 98-1232(TPJ) and State of New York, et al. v. Microsoft Corp., Civil Action no 98-1233(TPJ). The Findings were entered after a trial to the Court, sitting without a jury, between October 19, 1998 and June 24, 1999.
17. The Findings of Fact indicate that Microsoft has monopolized and attempted to monopolize the market for Intel-compatible PC operating systems ("OS").
18. The following allegations of fact are based on the above-referenced Findings of Fact.
19. In 1991, Microsoft released its first version of an OS, called MS-DOS, became the predominant operating system sold for use with Intel-compatible PCs.
20. In 1985, Microsoft released Windows, originally as a user interface or shell of MS-DOS, and added more operating system functionality to it over time.
21. In 1995, Microsoft released Windows 95, a full blown integrated operating system and graphical user interface for Intel-compatible PCs.
22. In June 1998, Microsoft released Windows 98, the successor to Windows 95.
23. Microsoft licenses copies of its software programs directly to consumers as well as to OEMs who install it on the PCs they sell to consumers.
24. The relevant market for determining Microsoft's market power is the licensing of all Intel-compatible PC operating systems worldwide. There are currently no products, and are likely to be no products in the near future, that consumers could substitute for Intel-compatible operating systems without incurring substantial costs.
25. Microsoft has monopoly power in the relevant market such that it could charge a price for Windows substantially above that which would prevail in a competitive market for an extended period of time without losing an unacceptable amount of sales to competitors.
26. Microsoft's share of the relevant market is dominant, persistent and increasing. For each of the last ten years, Microsoft's share of the Intel-compatible PC operating system market has been above ninety percent, and for the last two years at least ninety-five percent, and the share is projected to be even higher in the next few years.
27. Microsoft's dominant market share is protected by the applications barrier to entry. The cost to a potential new entrant into the operating system market of generating enough [begin page 7] full-featured application support to attract significant consumer demand is prohibitive given that Windows supports over 70,000 applications. The substantial applications barrier prevented effective competition against Windows from IBM's OS/2 Warp operating system which, despite the expenditure of tens of millions of dollars, was unable to obtain significant market share or applications support and is now relegated to a niche market where it is priced two-and-one-half times the price of Windows 98. Similarly, despite support of more than 12,000 applications, Apple's MacOS does not present effective competition to Microsoft, even if the MacOS were regarded as being in the relevant market. The applications barrier to entry also prevents other fringe operating systems from drawing a significant percentage of customers away from Windows.
28. Microsoft's market power is directly evidenced by the fact that OEMs pre-install Windows on the vast majority of PCs they sell and believe that there are no commercially viable alternatives to which they could switch. Microsoft did not consider the prices of other Intel-compatible PC operating systems when it set the price of Windows 98.
29. Microsoft engages in anticompetitive acts and practices to maintain, enhance and extend its monopoly power in the Intel-compatible PC operating system market.
30. Microsoft's licenses prohibit its software from being transferred by the user to another PC. Microsoft also causes OEMs to pre-install on new PCs the most current versions of its operating systems, in part, by increasing the price to OEMs of older versions of Windows. Thus, customers buying a new PC must buy a new copy of Windows, even though the older versions never wear out. Microsoft compelled OEMs to ship Windows 98 rather than the older [begin page 8] version in order to maintain and extend the applications barrier to entry. Microsoft would not have raised the price of Windows 95 to the extent that it did if it were concerned with actual or potential competition from other operating system vendors.
31. Microsoft also warns OEMs that they will be charged a higher price for Windows unless they drastically limit the number of PCs sold without an operating system pre-installed. This has the effect of maximizing the Windows-installed user base and maintaining and enhancing the applications barrier to entry.
32. Microsoft exercised substantial discretion, unimpeded by competition, in setting the price of the Windows 98 upgrade product sold to existing Windows 95 users. A Microsoft study from November 1997 shows that the company could have profitably charged $49 for the upgrade, but identified $89 as the revenue-maximizing price. Because of its monopoly in the relevant market, Microsoft charged the higher price.
33. Microsoft charges different OEMs different prices for Windows depending on the extent of their cooperation in Microsoft's efforts to preserve the applications barrier to entry.
34. Microsoft uses its monopoly power to impose restrictions and conditions on, and to offer inducements to, its OEM customers designed to maintain, enhance and prolong its monopoly power. For example, its Windows licenses restrict the ability of OEMs to promote other software that could weaken the applications barrier to entry. Microsoft charges lower prices to OEMs who agree that all of their PCs will be powerful enough to run Windows NT for Workstations. It charges lower prices to OEMs who agree to ship all but a small fraction of their PCs with an operating system pre-installed.
35. Microsoft also uses its monopoly power in a variety of ways to thwart the entry of new software products, generically called middleware, that threaten to weaken the applications barrier to entry, including Netscape's Web browser, Navigator, and Sun's Java.
36. Microsoft took a number of steps to prevent Netscape and Java from eroding the applications barrier to entry which would have threatened Microsoft's operating system monopoly. Initially, Microsoft attempted to persuade Netscape not to distribute platform-level browsing software for Windows. When this failed, Microsoft withheld critical technical information to prevent Netscape from completing its Windows 95 version of Navigator in time for the release of Windows 95.
37. Microsoft similarly used its monopoly power to pressure other firms to stop development of software that would weaken the applications barrier or compete with Microsoft, including Intel, Apple, RealNetworks, and IBM.
38. Microsoft continued its attack against Netscape's Navigator by using its monopoly power to ensure that its own Web browser, Internet Explorer, and not Navigator, would become the dominant browser. In order to increase Explorer's market share at the expense of Navigator, Microsoft decided to give away Explorer as a component of Windows at no charge and to induce and pressure other firms to promote Explorer at the expense of Navigator.
39. Among other things, in order to ensure that Explorer would win out in usage share over Navigator, Microsoft (a) did not charge other firms for licenses to distribute Explorer separately from Windows; (b) bartered valuable Windows desktop space for commitments from other firms, including America On Line, a principal competitor to Microsoft's MSN service, to [begin page 10] promote and distribute Explorer, to inhibit promotion and distribution of Navigator, and to induce Web sites to rely on Microsoft internet technologies rather than those provided by Navigator; (c) offered to compensate Internet Access Providers ("IAPs") for amounts they owed to Netscape for browser licenses; (d) reduced the referral fees paid by IAPs under the Internet Referral Service of Windows in exchange for their efforts to convert their subscribers from Navigator to Explorer; (e) contracted with AOL to pay a bounty for every subscriber it converted to Explorer from Navigator; and (f) offered monetary incentives to OEMs who agreed to promote Explorer and, in some cases, abstain from promoting Navigator.
40. Microsoft also used its monopoly power to exclude Navigator from the important distribution channels of OEM pre-installation and IAP bundling by, among other things, (a) binding Internet Explorer to Windows through the use of shared code that made it more difficult to remove Internet Explorer, and at the same time, complicated the experience of using Navigator or another browser; (b) including a term in OEM licenses prohibiting OEMs from modifying or deleting Internet Explorer prior to shipment; (c) removing the user's ability to uninstall Internet Explorer from Windows 98; (d) causing Windows 98 to override the user's choice of a different default browser in certain, unexpected circumstances; (e) refusing, since July 1995, to offer OEMs a version of Windows without the Internet Explorer browser included; (f) threatening to terminate licenses of OEMs that removed Internet Explorer from the desktop or start menu or that added promotion of third-party software to the Windows "boot" sequence and adding license restrictions on the ability of OEMs to reconfigure the Windows desktop and boot sequence; (g) using incentives and threats to pressure OEMs to promote Internet Explorer to the exclusion of Navigator; and (h) using incentives and restrictions to induce IAPs to distribute Internet Explorer [begin page 11] with their access software, to promote Internet Explorer, to upgrade existing subscribers to Internet Explorer, and to restrict the distribution and promotion of non-Microsoft browsers.
41. Microsoft took similar anti-competitive actions to induce internet content providers, internet software vendors, and Apple to promote and enhance Internet Explorer's usage share at the expense of Navigator.
42. Since 1996, as a result of Microsoft's use of its monopoly power and monopoly profits, there has been a large increase in the usage share of Microsoft's browsing technologies and a concomitant decrease in Navigator's share.
43. By using its monopoly power to prevent Navigator from becoming the standard software for browsing the Web, Microsoft has used its monopoly power to maintain, extend and increase the applications barrier to entry that protects its monopoly position in the Intel-compatible PC operating system market.
44. Microsoft's abuses of its monopoly power have harmed Plaintiff and other purchasers of its Windows operating systems by, among other things, causing purchasers to pay prices for Windows software that are and were higher than the prices that would have prevailed in a competitive market; depriving purchasers of the choice of an operating system without an installed browser; offering to purchasers only the combination of an operating system bound to Internet Explorer which, as a result, is of lesser and degraded utility and value; and depriving purchasers of the benefits of competition and innovation in the market for Intel-compatible PC operating systems.
45. Plaintiff brings this action on behalf of itself and all other members of a proposed class ("Plaintiff Class") defined as:
All businesses or other persons who purchased the Windows 95 Operating System or the Windows 98 Operating System, including any upgrades or revisions thereof from Microsoft Corporation from 1995 to the date of trial.
46. Excluded from the Plaintiff Class are Microsoft, any entity in which Microsoft has a controlling interest, any employees, officers, or directors of Microsoft, and any legal representatives, heirs, successors, or assigns of Microsoft.
47. This action has been brought and may properly be maintained as a class action under Rule 23(a)(1)-(4) and Rule 23(b)(1)(a) or (2) or (3) of the Federal Rules of Civil Procedure and caselaw thereunder.
48. Numerosity of the Class -- Fed. R. Civ. P. 23(a)(1). The Class members are so numerous that their individual joinder is impractical. At least thousands of businesses and others have purchased Microsoft's Operating Systems directly from Microsoft. The precise number of Class members and their addresses are unknown to Plaintiff. Class members may be notified of the pendency of this action by mail, supplemented (if deemed necessary or appropriate by the Court) by published notice.
49. Existence and Predominance of Common Questions of Fact and Law -- Fed. R. Civ. P. 23(a)(2); 23(b)(3). Common questions of law and fact exist as to all members of the [begin page 13] Class. These questions predominate over the questions affecting only individual Class members. These common legal and factual questions include:
(a) whether Microsoft possesses monopoly power in the relevant market and has abused such monopoly power, which, in turn, has led to the artificial raising of prices paid by members of the Plaintiff Class for Microsoft operating systems;
(b) whether Microsoft, by its establishment and control of the sale of its operating systems, has unlawfully maintained its monopoly position and otherwise restrained trade;
(c) whether Microsoft's unlawful restraints of trade and commerce cause and are continuing to cause Plaintiff and members of the Plaintiff Class to suffer damages;
(d) whether Microsoft's unlawful monopolization, and/or its attempts to monopolize the relevant market have caused and are continuing to cause Plaintiff and members of the Plaintiff Class to suffer damages;
(e) whether Plaintiff and the Plaintiff Class are entitled to injunctive relief to remedy defendant's continuing violations of the antitrust laws;
(f) whether Microsoft's conduct caused and continues to cause injury to the business and property of Plaintiff and the Plaintiff Class, and if so, the proper measure of damages; and
(g) whether Plaintiff and the members of the Plaintiff Class are entitled to recover treble damages as a result of defendant's violations of the antitrust laws.
50. Typicality -- Fed. R. Civ. P. 23(a)(3). Plaintiff s claims are typical of the claims of the members of each Class, because Plaintiff, like all other Class members, was the purchaser from Microsoft of a Microsoft Operating System and paid inflated prices for that system.
51. Adequacy -- Fed. R. Civ. P. 23(a)(4). Plaintiff is an adequate representative of the Plaintiff Class, because its interests do not conflict with the interests of the Class members it seeks to represent, and it has retained counsel competent and experienced in complex class actions and antitrust litigation. The interests of the Class members will be adequately protected by Plaintiff and its counsel.
52. Superiority - Fed. R. Civ. P. 23(b)(3). A class action is superior to other available means for the fair and efficient adjudication of this dispute. The damages suffered by each individual Class member may be small, especially given the burden and expense of individual prosecution of the complex and extensive litigation necessitated by Microsoft's unlawful conduct. Furthermore, it would be virtually impossible for the Class members individually to redress effectively the wrongs done to them. Moreover, even if the Class members themselves could afford such individual litigation, the court system could not. Individualized litigation presents a potential for inconsistent or contradictory judgments. Individualized litigation increases the delay and expense to all parties and the court system presented by the complex legal and factual issues of this case. By contrast, the class action device presents far fewer management difficulties, and provides the benefits of single adjudication, economy of scale, and comprehensive supervision by a single court.
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53. In the alternative, the Class may be certified under the provisions of Fed. R. Civ. P. 23(b)(1) and/or 23(b)(2) because:
(a) the prosecution of separate actions by individual Class members would create a risk of inconsistent or varying adjudication with respect to individual Class members which would establish incompatible standards of conduct for Microsoft; or
(b) Microsoft has acted or refused to act on grounds generally applicable to the Class, thereby making appropriate final and injunctive relief with respect to the Class members as a whole.
FOR VIOLATIONS OF SECTION 2 OF THE SHERMAN ANTITRUST ACT 15 U.S.C. § 2 - MONOPOLIZATION OF TRADE
54. Plaintiff incorporates by reference and realleges each of the foregoing paragraphs as if fully set forth herein, and further alleges as follows:
55. From at least as early as 1995, Microsoft has willfully maintained a monopoly in the United States market for PC operating systems, and abused its monopoly power in the relevant markets, by, inter alia, acting in the manner hereinbefore alleged, in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2.
56. Microsoft has acted with the specific intent to achieve, maintain and exercise its monopoly power.
[begin page 16]
57. As a direct and proximate result of the violations alleged herein, Plaintiff and members of the Plaintiff Class have been unable to, and will continue to be unable to purchase PC operating systems at prices determined by free and open competition, and Plaintiff and members of the Plaintiff Class have been damaged, and will continue to be damaged, by their respective purchases of PC operating systems at prices higher than they would have otherwise paid, absent defendant's unlawful conduct.
58. Microsoft possesses monopoly power in the market for PC operating systems. Through the anticompetitive conduct described herein, Microsoft has willfully maintained, and unless restrained by the Court, will continue to willfully maintain that power by anticompetitive and unreasonably exclusionary conduct. Microsoft has acted with an intent to illegally maintain its monopoly power in the PC operating system market, and its illegal conduct has enabled it to do so, in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2.
59. Plaintiff and the Plaintiff Class have no adequate remedy at law and defendant's unlawful conduct will continue unless enjoined.
60. Defendant's unlawful restraints of trade violate Section 2 of the Sherman Act. Accordingly, Plaintiff and the Plaintiff Class seek three times their damages caused by defendant's violations of Section 2 of the Sherman Act and a permanent injunction enjoining defendant's continuing violation of Section 2 of the Sherman Act, 15 U.S.C. § 2.
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FOR VIOLATIONS OF SECTION 2 OF THE SHERMAN ANTITRUST ACT 15 U.S.C. § 2 - ATTEMPT TO MONOPOLIZE TRADE
61. Plaintiff incorporates by reference and realleges each of the foregoing paragraphs as if fully set forth herein, and further alleges as follows:
62. Microsoft has acted with the specific intent to achieve, maintain and exercise its monopoly power.
63. Microsoft's conduct, as averred, raised and continues to raise a dangerous probability of achieving unlawful monopoly power.
64. Microsoft has attempted to acquire and misuse monopoly power in the relevant market in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2.
65. As a direct and proximate result of the violations alleged herein, Plaintiff and members of the Plaintiff Class have been unable to, and will continue to be unable to, purchase PC operating systems at prices determined by free and open competition, and Plaintiff and members of the Plaintiff Class have been damaged, and will continue to be damaged, by their respective purchases of PC operating systems at prices higher than they would have otherwise paid, absent defendant's unlawful conduct.
66. Plaintiff and the Plaintiff Class have no adequate remedy at law and defendant's unlawful conduct will continue unless enjoined.
[begin page 18]
67. Defendant's unlawful restraints of trade violate Section 2 of the Sherman Act. Accordingly, Plaintiff and the Plaintiff Class seek three times their damages caused by defendant's violations of Section 2 of the Sherman Act and a permanent injunction enjoining defendant's continuing violation of Section 2 of the Sherman Act, 15 U.S.C. § 2.
WHEREFORE, Plaintiff requests:
1. That the Court certify this action to proceed as a class action pursuant to Rule 2 of the Federal Rules of Civil Procedure and denominating Plaintiff as a representative for the Plaintiff Class and its counsel as counsel for the Plaintiff Class.
2. That the Court adjudge and decree that Microsoft (a) unlawfully acted to maintain a monopoly, and (b) attempted to monopolize, all in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2
3. That the Court grant a permanent injunction enjoining defendant from continuing its violation of Section 2 of the Sherman Act.
4. That Plaintiff and each and every member of the Plaintiff Class recover compensatory damages, as provided by law, determined to have been sustained as to each of them, and that judgment be entered against Defendant in favor of the Plaintiff and each and every member of the Plaintiff Class.
5. That Plaintiff and each and every member of the Plaintiff Class recover damages as provided by law.
[begin page 19]
6. That Plaintiff and the other members of the Plaintiff Class recover their costs of this suit, including attorneys' fees, as provided by law.
7. That the Court grant such further relief as to the Court may seem just and proper.
Plaintiff demands trial by jury pursuant to Rule 38(b) of the Federal Rules of Civil Procedure as to all issues so triable as a matter of right.
Dated: November 19,1999
Copyright Tech Law Journal
Douglas G. Thompson, Jr.
Douglas G. Thompson, Jr. (D.C. Bar No. 172387)
1055 Thomas Jefferson Street, N.W., Suite 601
Telephone: (202) 337-8000
Facsimile: (202) 337-8090
GOODKIND LABATON RUDOFF
& SUCHAROW
Telephone: (212) 907-0700
Facsimile: (212) 818-0477
Facsimile: (610) 649-3633
Jennifer W. Sprengel
MILLER FAUCHER CAFFERTY
and WEXLER LLP
Telephone: (312) 782-4880
Facsimile: (312) 782-4485
Attorneys for Plaintiff eLeaders Inc.