In a Fourth Circuit opinion, the court upheld the standing to sue of a plaintiff (former owner of WordPerfect) assertedly injured by defendant as a means to inflict harm to competition in the defendant’s market (operating systems) even though plaintiff did not participate in defendant’s market.  The court also rejected defendant’s proposed bright-line rule that only consumers or competitors in the relevant market have standing to sue.  Novell, Incorporated v. Microsoft Corporation, 505 F.3d 302 (4th Cir. 2007).

In a Second Circuit opinion, defendant manufacturer allegedly had acquired its only manufacturing rival; refused to continue to sell to plaintiff distributor; and integrated vertically to the distribution level.   The court held that the terminated distributor lacked standing to sue for monopolization at the manufacturing level.  The court also ruled that the distributor had failed to state a claim as defendant’s competitor at the distribution level, holding that plaintiff had pleaded no facts, as implicitly required by Twombly, that took defendant’s vertical integration out of the lawful category.  Port Dock & Stone Corp. v. Oldcastle Northeast, Inc., 507 F.3d 117 (2d Cir. 2007).

Fourth Circuit

In Novell, Incorporated v. Microsoft Corporation, 505 F.3d 302 (4th Cir. 2007), plaintiff Novell had owned WordPerfect and Quattro Pro, referred to as "office-productivity applications" or "applications."  Novell alleged that defendant Microsoft’s conduct "injured competition in the market for PC operating systems, a market in which Novell’s products did not directly compete."  Novell, at 304.[1]

Microsoft assertedly took a number of steps to prevent or limit plaintiff’s application from remaining viable for use with the operating systems of others and of Microsoft.  Plaintiff alleged that this injured competition in the operating systems market because its application "offered competing operating systems the prospect of surmounting the applications barrier to entry and breaking the Windows monopoly."  Novell, at 308 (footnote omitted).  Plaintiff cited an email by a senior Microsoft official who allegedly described the applications barrier to entry as a "’moat’ that protects the operating systems business."  Novell, at 317.

Microsoft brought a motion to dismiss, asserting that plaintiff lacked antitrust standing.  First, it argued that plaintiff lacked standing under defendant’s proposed "bright-line rule that only consumers and competitors in the relevant market have standing to bring private treble-damages claims under § 4."  Novell, at 311.  The Novell court rejected defendant’s proposal, stating that it is virtually impossible to announce a black-letter rule that will dictate the result in every case.  Citing, e.g., Assoc. Gen Contractors v. Cal. State Council of Carpenters, 459 U.S. 519, 536 (1983), and Blue Shield v. McCready, 457 U.S. 465, 479 (1982).

The allegations that Microsoft injured Novell in order to maintain an alleged applications barrier to entry in the PC operating system were, in the court’s view, sufficient to confer standing.  The court found that Novell’s injury was sufficiently direct, and that issues regarding identifying and apportioning damages did not preclude standing.

Second Circuit

The Second Circuit Court of Appeals held that a terminated distributor (1) lacked antitrust injury and (2) failed to state a claim when suing its former supplier under Section 2 of the Sherman Act and Section 7 of the Clayton Act.  Port Dock & Stone Corp. v. Oldcastle Northeast, Inc., 507 F.3d 117 (2d Cir. 2007).  Plaintiff was a former aggregate (crushed stone) distributor.   Defendant, plaintiff’s former supplier, was a manufacturer of aggregate.

Defendant allegedly acquired its only significant manufacturing competitor and refused to sell to plaintiff, thereby depriving plaintiff of any source of supply.  Defendant integrated vertically into the distribution market.  Plaintiff claimed that it was forced to sell its assets to defendant at a sacrifice.

Plaintiff contended that it had standing as both a customer and a competitor of defendant.  The court first affirmed the dismissal of plaintiff’s claim as a customer for lack of any antitrust injury.  The court held that where "a defendant is alleged to have acquired other firms in order to achieve monopoly power at the manufacturing level of a product market, dealers and distributors terminated in the aftermath do not have standing to assert claims under section 2 of the Sherman Act or Section 7 of the Clayton Act for monopolization at the manufacturing level."  Port Dock, at 123.

The court then turned to plaintiff’s claim that defendant had monopolized the distribution level by vertically expanding into that level and refusing to deal with plaintiff.  The court affirmed the district court’s dismissal for failure to state a claim, stating that, "Vertical expansion by a monopolist, without more, does not violate section 2 of the Sherman Act."  Port Dock, at 124.  "[V]ertical expansion into another level of the same product market will ordinarily be for the purpose of increasing its efficiency, which is a prototypical valid business purpose."  Port Dock, at 124.

Because the court viewed the alleged activity to be presumptively lawful, it held that plaintiff had failed to meet the pleading test required by Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1966 (2007).   Plaintiff had failed to allege that defendant had engaged in anticompetitive conduct that would remove defendant’s vertical integration from the lawful category.  Port Dock, at 125 ("it was incumbent upon [plaintiff] to plead further facts ‘plausibly suggesting’ an anticompetitive aspect to the refusal to deal").

Authored by:

Thomas D. Nevins


[1]           Plaintiff’s claims of injury to competition in the "office-productivity applications" market were barred by the statute of limitations.  Plaintiff’s claims of injury to the operating system market were found to be tolled by the government’s prior action against Microsoft because that prior action had also concerned operating systems.  See 15 U.S.C. § 16(i).  "Applications" were not at issue in the government’s suit.