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From Antitrust Law Daily, March 5, 2014

Supreme Court asked to consider Microsoft’s refusal to deal with Novell

By Jeffrey May, J.D.

Novell, Inc. has asked the U.S. Supreme Court to review a decision of the U.S. Court of Appeals in Denver, rejecting its refusal to deal claims against Microsoft Corporation for conduct—dating back to the 1990s—that negatively impacted Novell’s WordPerfect word processing applications and efforts to create the PerfectOffice “office suite.” Novell filed a petition for certiorari with the Court on February 28 (Novell, Inc. v. Microsoft Corp., Dkt. 13-1042).

According to Novell, the case arose from Microsoft’s monopoly maintenance in the Intel-compatible personal computer (PC) operating systems market. Microsoft purportedly sought to eliminate the threat to its monopoly power posed by Novell. Microsoft allegedly destroyed the competitive viability of Novell’s PerfectOffice applications suite and WordPerfect word processing application—the only significant competitor to Microsoft Word—by inducing Novell to rely on certain features of Microsoft’s operating system and then withdrawing access to those features. In its suit, Novell contended that Microsoft had an affirmative duty to continue sharing its intellectual property and that the firm’s decision to withdraw that assistance amounted to an unlawful refusal to deal.

Last September, the Tenth Circuit held that Microsoft’s unilateral refusal to deal with independent software vendors, such as Novell, did not amount to unlawful monopolization (2013-2 Trade Cases ¶78,523). Judgment as a matter of law in favor of Microsoft (2012-2 Trade Cases ¶77,979) was affirmed.

Novell presented no evidence from which a reasonable jury could infer that Microsoft’s discontinuation of the voluntary and profitable relationship with Novell suggested a willingness to sacrifice short-term profits in a manner that was irrational but for its tendency to harm competition, the appellate court held. Microsoft’s decision appeared to have come about as a result of a desire to maximize the company’s immediate and overall profits.

In its petition, Novell contends that the Tenth Circuit’s decision establishes antitrust immunity for a monopolist that refuses to deal without a legitimate business justification, as long as the conduct is immediately profitable and does not entail any short-term sacrifice of profits by the monopolist. This short-term profit sacrifice test conflicts with the U.S. Supreme Court’s decision in Aspen Skiing Co. v. Aspen Highlands Skiing Corp. (472 US 585, 1985-2 Trade Cases ¶66,653) and other Supreme Court precedent, Novell suggests. The decision also creates a split among the circuit, because the Tenth Circuit decision conflicts with decisions of the First, Second, and Eleventh Circuits, which do not require short-term profit sacrifice as a prerequisite to liability. According to Novell, under Aspen Skiing, a defendant’s willingness to sacrifice short-term profit is merely one type of evidence that can be offered to show that the defendant’s exclusionary conduct lacked any legitimate business justification and was anticompetitive. In addition, the District of Columbia Circuit has expressly rejected the Tenth Circuit’s conclusion that gains in a separate market can immunize otherwise anticompetitive conduct in the operating systems market from antitrust scrutiny, according to Novell.

“By adding the requirement that a plaintiff prove that the defendant sacrificed short-term profit, the Tenth Circuit’s standard will make it difficult for plaintiffs to prevail—a ‘narrow-eyed needle’ that a plaintiff must pass through to obtain recovery in refusal to deal cases,” Novell argues.

Novell presents two questions to the Court: (1) when a monopolist maintains its monopoly power, not by competition on the merits, but by ending a voluntary and profitable course of dealing in order to exclude rivals without a legitimate business justification, whether the monopolist’s anticompetitive conduct is immune from antitrust liability merely because it was immediately profitable; and (2) if a showing of short-term profit sacrifice beyond the termination of a voluntary and profitable course of dealing is a required element of liability in a refusal to deal case, whether anticompetitive conduct that maintained the monopolist’s power in one market is immune from antitrust scrutiny merely because it was immediately profitable in another market solely as a result of reducing competition in such other market.

Attorneys: David Boies (Boies, Schiller & Flexner LLP) for Novell, Inc.

Companies: Microsoft Corp.; Novell, Inc.

MainStory: TopStory Antitrust

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