$1 Billion Antitrust Complaint Over Microsoft Multi-User Software Dismissed

by Tara Arick on April 2, 2013 · 0 comments

in Intellectual Property

- From LexisNexis® Mealey’s™ Daily Legal News.

By imposing a new single-user limitation on its Windows operating systems, Microsoft Corp. was enacting “an entirely valid exercise” of its intellectual property rights, a New York federal judge ruled March 28, dismissing a rival software firm’s antitrust claims against it (MiniFrame Ltd. v. Microsoft Corp., No. 1:11-cv-07419, S.D. N.Y.).

License Agreements

In 2007, Microsoft released a new version of Windows.

In previous versions of Windows, Microsoft’s license agreement restricted the number of computers that could run its software at the same time but not the number of users. Thus, multiple users could access one copy of Windows if they did so from one computer.

Beginning with Windows 2007, Microsoft changed the license agreement to restrict the use of its operating system to just one user per copy.

In 2003, Israeli firm MiniFrame Ltd. developed a line of programs called SoftXpand, by which Windows users could access and use a single Windows operating system that was installed on a single computer. Based on the pre-2007 license agreement, this use was permissible. However, after 2007, each individual user had to license his or her own copy of the Windows software.

Antitrust Allegations

In 2010, Microsoft released its own multi-user software called Windows MultiPoint Server (MPS). MiniFrame claimed that because MPS was less expensive than its SoftXpand when combined with the necessary multiple user licenses, Microsoft customers “practically have no choice but to purchase [MPS] for any shared PC system.”

MiniFrame sued Microsoft in the U.S. District Court for the Southern District of New York in October 2011, alleging violation of the Sherman Act, New York’s Donnelly Act and Washington Revised Code Sections 19.86.040 and 19.86.020, as well as common law claims for unfair competition and tortious interference with business relationships.

In March 2012, Microsoft moved to dismiss. Oral arguments were heard in May.

Intellectual Property Rights

MiniFrame asserted that the license agreement “modification created an ‘unlawful barrier to entry for any competition to develop against [Microsoft in] the server operating system market.’” Microsoft’s offering of MPS constituted a refusal to deal with MiniFrame and its customers “on commercially responsible and non-discriminatory terms,” MiniFrame said.

Judge Richard J. Sullivan disagreed, noting that “a patent holder is under no obligation to license its technology to rivals.” He also said that “patent holders . . . may within broad limits curb the development of a derivative market by refusing to license their technology or doing so only in a limited manner.” As such, the judge held that “Microsoft is free to license – or not license – these products as it sees fit within the bounds of its patents.”

Microsoft’s decision to change its license agreements in 2007 cannot be viewed as anticompetitive conduct, Judge Sullivan said, in light of the fact that PC-sharing software was not developed until 2003 or 2004, as MiniFrame even states.

Duty To Deal

Even if intellectual property law did not apply, Judge Sullivan found that the Sherman Act claim failed because Microsoft had no duty to deal with MultiFrame as a competitor. The judge stated that there can be “narrow circumstances” when a corporation may have to deal with a rival, such as when it previously cooperated and then later refused to do so and if the corporation sacrificed short-term profits to do so.

Neither circumstance is present here, the judge said. “MiniFrame feebly argues that Microsoft’s pre-2007 licensing agreements . . . established a prior course of dealing from which [it] could not unilaterally depart,” the judge said. But such a prior course of dealing is not equivalent to prior cooperation with a rival, the judge held, citing LiveUniverse Inc. v. MySpace Inc. (304 F.App’x 554, 556 [9th Cir. 2008]). Also, MiniFrame has not shown that Microsoft has sacrificed any short-term profits, Judge Sullivan, but has instead pleaded the opposite in its complaint.

MiniFrame has also not established any predatory pricing under the Sherman Act, Judge Sullivan found. Although MiniFrame alleged that Microsoft bundled MPS with other of its server products, the judge stated that this alleged discount does not establish that Microsoft suffered any losses on this pricing scheme.
 
State Law Claims

Judge Sullivan ruled that the state law claims failed for most of the same reasons that the Sherman Act claims failed, since these laws are patterned after the federal act.

The Donnelly Act requires that a plaintiff “show a conspiracy or reciprocal relationship between two or more entities,” the judge said. MiniFrame does not allege this, the judge said, but instead alleges only “unilateral monopolization and attempted monopolization” under the act. Although MiniFrame contends that Microsoft “coerced cooperation” from users who were “forced” to not use SoftXpand, Judge Sullivan said that “MiniFrame cannot by sleight of hand transform a unilaterally imposed licensing agreement into a cooperative conspiracy,” finding no facts pleaded to show a conspiracy.

The judge said the common law unfair competition claim fails because under New York law, this requires a showing of bad faith misappropriation of a competitor’s commercial advantage. The complaint “does not allege a single fact in support of the assertion that Microsoft misappropriated MiniFrame’s multi-user technology,” Judge Sullivan said.

The judge also dismissed the tortious interference claim, finding that MiniFrame did not plead any facts to support a malicious motive by Microsoft. “[I]t is apparent that even a broad view of ‘extreme and unfair’ economic pressure would not encompass Microsoft’s behavior,” Judge Sullivan held, granting Microsoft’s motion in its entirety.

MiniFrame is represented by Robert W. Morris, Timothy J. Helwick, Albert B. Chen, Francesca C. Burtnick and Richard D. Allison of Kramer Levin Naftalis & Frankel in New York. Microsoft is represented by Richard S. Goldstein of Orrick, Herrington & Sutcliffe in New York, Robert A. Rosenfeld and Howard M. Ullman of Orrick Herrington in San Francisco and David F. Smutny of Orrick Herrington in Washington, D.C.

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