Deiter v. Microsoft Corp.

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

PAUL A. DEITER; GARY LEACH; 

FRANKLIN L. DEJULIUS,

Plaintiffs-Appellants,

and

LINDA DAMERON KLOTH; BLAINE

COX; DEBRA CUNNINGHAM; ERIC

FERRELL; ELIZABETH STRICKLAND;

RENE GONZALEZ; CLAY TYLER; PETER

HAKLAR; ERIC S. LAZARUS; HAROLD

A. PHILLIPS; PRECISION BILLING

SERVICES, INCORPORATED; MSC

SYSTEMS, INCORPORATED; O’SULLIVAN,

HICKS & PATTON; CARL C. CONRAD;

PAUL L. HOWARD; THOMAS

MCCALEB; VICKI MCCALEB; JAMES

WOODS; LEYTON T. BROWN; GALE  No. 04-1633

RUFFIN; RYAN D. REYNOLDS; JAY S.

QUIGLEY; JOHN W. REDMANN; KEVIN

HUDDELL; ELEADERS, INCORPORATED;

JOHN GLASE; BRUCE WRIGHT; KBS-

NET, SA; EVANGELOS KRITIKOS;

WALTER LORELL; RENALDO VELTRI;

JOHANNA M. MCWHINNEY; JODI

MARKS; JUDD GOODMAN;

SILVERWARE, LIMITED; DATA UNIT

AG; DATACROWN, LIMITED, On

Behalf of Themselves and All

Others Similarly Situated; WAYNE

MIMS; GRAVITY, INCORPORATED; 403

WEST LOOP 820 N; TO THE RESCUE

COMPREHENSIVE COMPUTER SERVICES;



2 DEITER v. MICROSOFT CORP.

D’S PET SUPPLIES, INCORPORATED; 

DAVID BACH; THE RUBBRIGHT GROUP;

JAMES M. BURT; RECLAIM CENTER,

INCORPORATED; STEVEN NIELSEN;

RAYMOND PRYOR; SEASTROM

ASSOCIATES LTD; CHRIS CAMPBELL;

DENISE DAVENPORT; SARA

CHEESEMAN; RONALD RODJENSKI;

HAROLD PHILLIPS; MATTHEW W.

O’NEILL; ROBERT WEINKE; IDY

KLEIN; DAVID JAFFEE; AVI MANDEL;

SOUTH DAKOTA ASSOCIATION OF

PLUMBING, HEATING AND COOLING

CONTRACTORS; JOHNNIE MOON;

ROBERT LEE COLEBANK; BRYAN K.

MANSON; FRED LUCE; EDWARD

MICHAEL O’BRIEN; GOLF O’BRIEN

COMPANY; CYNTHIA M. AIKENS; 

CLAIR FALGOUST; CARLTON

FALGOUST; MANUAL KNIGHT;

WEBSTER T. KNIGHT; JAMES RUDASIL;

AUBREY BERNARD; GERALDINE GUICE;

WILLIAM BRAND PRYOR; PACIFIC

COAST SYSTEMS; TERI GORDON;

MICHAEL SHEVEKOV; MARTIN HAGAN;

ELHAM SHIRZAI; DAWN BRANDT;

DONALD J. GIANNI; MARIO

TRAFFICHINI; JOHN F. SIEGENTHALER;

CAREN M. MCCALL; LARRY A.

PENIX; PRYCE M. HAYNES, II; JOHN

K. HEIDLAGE; RYAN D. REYNOLDS;

DANIEL C. RAY; GTI SYSTEM

INTEGRATORS; TZIRI FINE; DEREK M.

PRENTICE; KURT C. CARTER;



DEITER v. MICROSOFT CORP. 3

JAMES T. BREMS; TIM APPELGATE; 

JULIE TINKHAM; STEVEN MASTER;

THOMAS INFANTE; TURNER

CORPORATION; JOHN A. SUPERNOVICH;

MARLENE K. SUPERNOVICH;

SHERWOOD; AUTOMATIK DESIGN,

INCORPORATED; STATE OF WEST

VIRGINIA, ex rel Darrell V. McGraw,

Jr., Attorney General; NETSCAPE

COMMUNICATIONS CORPORATION; SUN

MICROSYSTEMS; BE INCORPORATED;

BURST.COM, INCORPORATED; IVAX

CORPORATION; KEITH COOPER;

CONWAY, MACKENZIE & DUNLEAVY,

PC; CHRISTINE BARTON; RHODA

HENNING; KAREN GREEN; RENAE

LUCAS; JOHN ROBY; JOHN DOES 1-50; 

MICHAEL LEWIS; HENRY MASCAGNI;

HAYLEY J. GARDNER; STEVE GRUBB;

LINDA STEWART; MURLINE

ADDINGTON; TRAVIS D. MCHANN, JR.;

BILLY LEWIS; BOOKER T. BAILEY, JR.;

JAMES PIGG; ANGELA BRINKLEY;

DELANIOUS HARRIED; GERTRUDE

GREEN; CAMELIA CALVERT; MARY

WYATT; EMMA WALTON; HETHA

GREEN; REALNETWORKS,

INCORPORATED; PRADEEP SUJAN,

Plaintiffs,

v.

MICROSOFT CORPORATION,

Defendant-Appellee.



4 DEITER v. MICROSOFT CORP.

Appeal from the United States District Court

for the District of Maryland, at Baltimore.

J. Frederick Motz, District Judge.

(CA-00-1332-MDL; CA-00-2117-JFM)

Argued: October 28, 2005

Decided: February 7, 2006

Before WIDENER, NIEMEYER, and GREGORY, Circuit Judges.

Affirmed by published opinion. Judge Niemeyer wrote the opinion,

in which Judge Widener and Judge Gregory joined.

COUNSEL

ARGUED: Daniel A. Small, COHEN, MILSTEIN, HAUSFELD &

TOLL, Washington, D.C., for Appellants. David Bruce Tulchin,

SULLIVAN & CROMWELL, New York, New York, for Appellee.

ON BRIEF: Michael D. Hausfeld, Michael W. Byrne, COHEN,

MILSTEIN, HAUSFELD & TOLL, Washington, D.C.; Stanley M.

Chesley, Robert Heuck, II, WAITE, SCHNEIDER, BAYLESS &

CHESLEY, Cincinnati, Ohio; Dianne M. Nast, Michael Nast, RODA

& NAST, Lancaster, Pennsylvania; Douglas Thompson, William But-

terfield, FINKELSTEIN, THOMPSON & LOUGHRAN, Washing-

ton, D.C.; Frank C. Dudenhefer, CUMMINGS, CUMMINGS &

DUDENHEFER, New Orleans, Louisiana; James R. Malone, CHIMI-

CLES & TIKELLIS, L.L.P., Birmingham, Alabama; Elwood S.

Simon, John P. Zuccarini, ELWOOD SIMON & ASSOCIATES, Bir-

mingham, Alabama; Robert A. Skirnick, MEREDITH, COHEN,

GREENFOGEL & SKIRNICK, P.C., New York, New York; William

Markovits, MARKOVITS& GREIWE, Cincinnati, Ohio; Lynn L.

Sarko, Mark Griffin, Raymond Farrow, KELLER ROHRBACK,

L.L.P., Seattle, Washington; Christopher Lovell, LOVELL, STEW-

ART & HALEBIAN, L.L.P., New York, New York; Melissa H. Max-

man, DUANE MORRIS, L.L.P., Philadelphia, Pennsylvania; William

DEITER v. MICROSOFT CORP. 5

Kerschaw, KERSCHAW, CUTTER, RATINOFF & YORK, Sacra-

mento, California; James Patrick Ulwick, KRAMON & GRAHAM,

Baltimore, Maryland, for Appellants. Michael F. Brockmeyer, Jeffrey

D. Herschman, PIPER RUDNICK, L.L.P., Baltimore, Maryland;

Richard J. Wallis, Steven J. Aeschbacher, MICROSOFT CORPORA-

TION, Redmond, Washington; Daryl A. Libow, Richard C. Pepper-

man, II, Sharon L. Nelles, SULLIVAN & CROMWELL, L.L.P., New

York, New York; Charles B. Casper, Peter Breslauer, MONTGOM-

ERY, MCCRACKEN, WALKER & RHOADS, L.L.P., Philadelphia,

Pennsylvania, for Appellee.

OPINION

NIEMEYER, Circuit Judge:

In this antitrust litigation, the district court entered an order dated

May 27, 2003, certifying a class of consumers seeking damages

against Microsoft Corporation allegedly caused by Microsoft’s use of

monopoly power to overcharge purchasers of Microsoft’s Windows

operating system software during the period between February 1999

and April 2003. Plaintiffs Paul A. Deiter, Franklin L. DeJulius, and

Gary L. Leach, who made their purchases on the Internet or by tele-

phone during the class period, were appointed class representatives.

The district court excluded from the class businesses who were direct

purchasers of software from Microsoft through its "Enterprise Pro-

gram" because these "Enterprise customers" purchased bundles of

various Microsoft software in large volume and for negotiated prices.

The court concluded that the representative parties’ claims were not

"typical" of the claims that the Enterprise customers might have. See

Fed. R. Civ. P. 23(a)(3). The court concluded in the alternative that

certifying a class consisting of both individuals and Enterprise cus-

tomers would not be "superior" to other methods of proceeding with

the Enterprise customers’ potential claims. See Fed. R. Civ. P.

23(b)(3).

On appeal of the certification order, we affirm.

I

In the wake of the United States’ suit against Microsoft Corpora-

tion, in which Microsoft was found to have maintained an illegal

6 DEITER v. MICROSOFT CORP.

monopoly in the worldwide market for licensing Intel-compatible PC

operating systems, see United States v. Microsoft Corp., 253 F.3d 34

(D.C. Cir. 2001), dozens of class action lawsuits were filed against

Microsoft in courts across the country. The plaintiffs in these actions

contended that as a result of Microsoft’s violations, they were over-

charged for operating system software and applications software.

They sought damages and injunctive relief under the Clayton and

Sherman Acts. See 15 U.S.C. § 2, 15, 26. On April 25, 2000, the Judi-

cial Panel on Multidistrict Litigation transferred all such cases pend-

ing in federal district courts to the District of Maryland pursuant to

28 U.S.C. § 1407. Shortly thereafter, 39 plaintiffs filed a superseding

consolidated complaint in which they purported to represent multiple

classes of consumers. Following Microsoft’s motion to dismiss or for

summary judgment, the district court dismissed the damages claims

of all plaintiffs who did not buy software directly from Microsoft pur-

suant to Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). The court

also dismissed the claims of foreign plaintiffs under the Foreign Trade

Antitrust Improvements Act of 1982, 15 U.S.C. § 6a.

On September 5, 2001, the remaining plaintiffs filed a motion with

the district court to certify four classes of persons who had "acquired"

Microsoft operating system or applications software anytime after

November 10, 1995. Two purported classes were defined by those

requesting injunctive relief — one for direct purchasers of operating

systems and one for direct purchasers of applications software. The

other two were defined by those claiming monetary damages —

again, one for operating systems and one for applications software.

By order dated May 27, 2003, the district court certified a single class

under Federal Rule of Civil Procedure 23(b)(3) for claims seeking

monetary damages, which it defined as:

All persons and entities in the United States who acquired

directly from Microsoft through the shop.microsoft.com

Web site (by ordering on line or by calling the toll free num-

ber provided there) a license, other than for re-sale or re-

licensing, for Microsoft single-user operating system soft-

ware, including upgrades, compatible with x86 computers,

but not including Windows 2000 or Windows NT, from

February 22, 1999 through April 30, 2003.

DEITER v. MICROSOFT CORP. 7

The court designated Paul Deiter, Franklin DeJulius, and Gary Leach

as representative parties. Each had acquired a copy of Windows oper-

ating system from Microsoft’s shop.microsoft.com website in 1999 or

2000. In its order, the court denied the plaintiffs’ motion for class cer-

tification in all other respects. By order dated July 28, 2003, the court

expanded the scope of the class "to include persons who purchased

Microsoft operating system software as ‘Full Packaged Product’ in

direct marketing campaigns during the class period."

In defining the class, the district court rejected the plaintiffs’

request to certify a class of persons who acquired applications soft-

ware because none of the class representatives ever purchased such

software from Microsoft. The court found that the different software

programs were sold in different markets. Because the liability and

damage issues presented by claims arising out of different markets

were inherently different, the court held that the representatives who

only purchased operating system software did not have claims that

were typical of the claims belonging to purchasers who bought Micro-

soft applications software. See Fed. R. Civ. P. 23(a)(3).

The court also excluded from the class businesses that purchased

large quantities of Microsoft software licenses through Microsoft’s

Enterprise Program. Under the Enterprise Program, which began on

October 1, 2001, Microsoft sold software licenses directly to custom-

ers who wanted to purchase at least 250 licenses for its operating sys-

tem or applications software. In making these sales, Microsoft

negotiated individual three-year agreements to provide both software

and upgrades to the software at lower prices. The district court con-

cluded that the representative parties could not represent the Enter-

prise customers because the Enterprise customers purchased "licenses

of a myriad of software products through an entirely different line of

distribution within Microsoft." As with the applications software pur-

chases, the court based its decision on Rule 23(a)(3). The court held

in the alternative that the class action method was not "superior to

other available methods for the fair and efficient adjudication of the

[Enterprise customers’] controvers[ies]," Fed. R. Civ. P. 23(b)(3),

because the Enterprise customers "have substantial claims" and,

hence, have an incentive to file individual actions. The court noted in

addition that no Enterprise customer had ever sued Microsoft for anti-

trust violations, concluding therefore that the class action device

8 DEITER v. MICROSOFT CORP.

would not be "a valuable management device" for the efficient resolu-

tion of numerous lawsuits.

Following class certification, Microsoft and the class settled their

disputes, and the district court approved the settlement on April 16,

2004. The only issue presented on appeal is whether the district court

erroneously restricted the scope of the class in its May 27, 2003 order

to exclude Enterprise customers.

II

We review class certification orders for abuse of discretion. See

Gunnells v. Healthplan Servs., Inc., 348 F.3d 417, 424 (4th Cir.

2003).

The plaintiffs contend that the district court abused its discretion in

concluding that they did not satisfy the typicality requirement of Fed-

eral Rule of Civil Procedure 23(a)(3) with respect to the claims of

Enterprise customers. They argue that the district court’s reliance on

the distinction between plaintiffs’ purchases and the Enterprise cus-

tomers’ purchases was irrelevant. They assert:

The only relevant fact . . . is that both the named plaintiffs

and the Enterprise customers purchased operating system

software directly from Microsoft. Thus, both have damages

claims against Microsoft under federal antitrust law for

unlawful monopolization. This identity of claims satisfies

Rule 23(a)(3)’s typicality requirement.

Microsoft contends that plaintiffs’ claims were not typical of the

potential claims of Microsoft’s Enterprise customers. They assert:

Enterprise customers [are] large businesses that individually

negotiate high-volume, long-term deals with Microsoft for

a number of very different software products. Proof that the

class representatives were overcharged would by no means

necessarily establish that Enterprise customers were over-

charged, and Enterprise customers should not have their

claims put in the hands of "representatives" who lack the

knowledge or incentive to pursue them.

DEITER v. MICROSOFT CORP. 9

The typicality requirement of Rule 23(a)(3) is but one of a number

of threshold requirements that plaintiffs must satisfy to justify their

representation of a class. Other portions of Rule 23 require plaintiffs

to demonstrate at the outset that the class members whom they pur-

port to represent are so numerous that traditional joinder is impracti-

cal; that their claims or defenses present common issues of law or

fact; and that they are able to represent the class members’ interests

fairly and adequately. See Fed. R. Civ. P. 23(a)(1), (2), (4). Even

when these requirements are met, the plaintiffs must also demonstrate

fulfillment of the requirements of Rule 23(b)(1), 23(b)(2), or 23(b)(3).

See Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 614 (1997) ("In

addition to satisfying Rule 23(a)’s prerequisites, parties seeking class

certification must show that the action is maintainable under Rule

23(b)(1), (2), or (3)"); id. at 621 (same).

The class action device, which is "designed as an exception to the

usual rule that litigation is conducted by and on behalf of the individ-

ual named parties only," Gen. Tel. Co. of Southwest v. Falcon, 457

U.S. 147, 155 (1982) (internal quotation marks omitted), allows

named parties to represent absent class members when, inter alia, the

representative parties’ claims are typical of the claims of every class

member. To be given the trust responsibility imposed by Rule 23, "a

class representative must be part of the class and possess the same

interest and suffer the same injury as the class members." Id. at 156

(internal quotation marks omitted). That is, "the named plaintiff’s

claim and the class claims [must be] so interrelated that the interests

of the class members will be fairly and adequately protected in their

absence." Id. at 157 n.13. The essence of the typicality requirement

is captured by the notion that "as goes the claim of the named plain-

tiff, so go the claims of the class." Broussard v. Meineke Discount

Muffler Shops, Inc., 155 F.3d 331, 340 (4th Cir. 1998) (quoting

Sprague v. Gen. Motors Corp., 133 F.3d 388, 399 (6th Cir. 1998)

(internal quotation marks omitted)).

The typicality requirement goes to the heart of a representative par-

ties’ ability to represent a class, particularly as it tends to merge with

the commonality and adequacy-of-representation requirements. See

Amchem, 521 U.S. at 626 n.20; Gen. Tel., 457 U.S. at 157 n.13. The

representative party’s interest in prosecuting his own case must simul-

taneously tend to advance the interests of the absent class members.

10 DEITER v. MICROSOFT CORP.

For that essential reason, plaintiff’s claim cannot be so different from

the claims of absent class members that their claims will not be

advanced by plaintiff’s proof of his own individual claim. That is not

to say that typicality requires that the plaintiff’s claim and the claims

of class members be perfectly identical or perfectly aligned. But when

the variation in claims strikes at the heart of the respective causes of

actions, we have readily denied class certification. See, e.g., Brous-

sard, 155 F.3d at 340-44 (holding that plaintiffs could not sustain a

class action based on a theory of collective breach of contract because

variations in the claims undermined typicality); Boley v. Brown, 10

F.3d 218, 223 (4th Cir. 1993) (affirming the district court’s denial of

class certification when the resulting harm was dependent on consid-

erations of each class member’s unique circumstances). In the lan-

guage of the Rule, therefore, the representative party may proceed to

represent the class only if the plaintiff establishes that his claims or

defenses are "typical of the claims or defenses of the class." Fed. R.

Civ. P. 23(a)(3) (emphasis added).

Thus, it follows that the appropriate analysis of typicality must

involve a comparison of the plaintiffs’ claims or defenses with those

of the absent class members. To conduct that analysis, we begin with

a review of the elements of plaintiffs’ prima facie case and the facts

on which the plaintiff would necessarily rely to prove it. We then

determine the extent to which those facts would also prove the claims

of the absent class members.

To establish an antitrust violation, a plaintiff would have to prove

"(1) a violation of the antitrust law, (2) direct injury to the plaintiff

from such violations, and (3) damages sustained by the plaintiff."

Windham v. Am. Brands, 565 F.2d 59, 65 (4th Cir. 1977). Specifi-

cally, to prove a violation of § 2 of the Sherman Act, which prohibits

monopolization or attempted monopolization of a relevant market, a

plaintiff would have to demonstrate that the defendant possesses

monopoly power in the relevant market and "willfully acquired or

maintained that power as distinguished from growth or development

as a consequence of a superior product, business acumen, or historic

accident." Cavalier Telephone v. Verizon, Virginia, 330 F.3d 176, 183

(4th Cir. 2003) (internal quotation marks and citation omitted);

Advanced Healthcare Servs., Inc. v. Radford Community Hosp., 910

F.2d 139, 147 (4th Cir. 1990). Finally, the plaintiff would have to

DEITER v. MICROSOFT CORP. 11

prove that antitrust injury, i.e. injury to competition, that resulted

from the illegal acquisition or maintenance of monopoly power in that

the plaintiff was overcharged in its purchases because of the injury to

or absence of competition. Advanced Healthcare, 910 F.2d at 147.

Describing how proof of their claims would be typical of the proof

of the claims of absent class members, the plaintiffs asserted to the

district court:

The representative plaintiffs, like the absent class members,

acquired Microsoft licenses for operating systems or office

suite software for their own use at a price determined by

Microsoft. All class members, including the named plain-

tiffs, were injured because the price they paid was artifi-

cially inflated as a result of Microsoft’s monopolization of

the relevant markets in violation of § 2 of the Sherman Act.

J.A. 1421-22. But this argument was made at an unacceptably general

level. Examining typicality at a more directly relevant level, the dis-

trict court found meaningful differences between plaintiffs’ claims

and those of Enterprise customers. The plaintiffs purchased operating

system software in 1999 and 2000 from Microsoft either on-line or by

telephone, paying the fixed prices that Microsoft posted as part of its

offer to sell. They claimed that they purchased individual copies of

Windows at Microsoft’s "estimated retail price," which they con-

tended was as much as twenty percent higher than the prices charged

by retail stores and other on-line retailers. They argue that Microsoft

could demand and receive that price because of its monopoly power.

In proving their case, however, the plaintiffs would hardly prove

a case on behalf of Microsoft’s Enterprise customers. These custom-

ers, who purchased at least 250 licenses, did not purchase on-line or

by telephone, nor did they pay prices established in advance by

Microsoft. The prices that Enterprise customers paid were negotiated

and, as a consequence, were both discounted and unique to each

transaction. In addition, Enterprise customers purchased different

products: their agreements were three-year deals that included

upgrades for the software covered by their agreements and sometimes

included applications software in addition to operating system soft-

12 DEITER v. MICROSOFT CORP.

ware. Thus, plaintiffs’ proof that Microsoft overcharged them would

hardly prove that Microsoft overcharged the Enterprise customers.

Moreover, to prove that Microsoft overcharged the Enterprise cus-

tomers would require new and different proof because the Enterprise

customers were able to negotiate their deals in a different competitive

context from that involving the plaintiffs. Thus, with respect to the

Enterprise deals, the plaintiffs would have to define and prove a rele-

vant market and then injury to competition in that market. The plain-

tiffs themselves seem to recognize a difference in this proof for they

have alleged different markets for the sale of operating system soft-

ware and applications software. But the differences may be even

greater because evidence would be required to demonstrate how

Microsoft’s monopoly powers caused Enterprise customers to be

overcharged in negotiated deals involving bundles of products other-

wise sold in two different markets. Because of these factual dissimi-

larities as to market, injury to competition, and causation, the district

court’s conclusion that there would be a substantial gap between what

plaintiffs proved for their individual cases and what would be

required proof for the Enterprise customers’ claims was a reasonable

one.

Thus, in concluding that the representative parties’ claims are not

typical of the claims of Microsoft’s Enterprise customers, the district

court did not err, and in refusing to include Enterprise customers as

part of the certified class represented by these plaintiffs, the court did

not abuse its discretion. See Gunnells, 348 F.3d at 424.

Because we affirm the district court’s reliance on Rule 23(a)(3) to

deny the representative parties’ representation of Enterprise custom-

ers, we do not reach the additional reason given by the district court

based on Rule 23(b)(3), that a class action would not be superior over

other methods of proceeding.

AFFIRMED