CAREY M. ARNOLD, INDIVIDUALLY, SITUATED; AND THOMAS C. HECTUS, INDIVIDUAL, & ON BEHALF OF ALL SIMILARLY SITUATED v. MICROSOFT CORPORATION
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RENDERED:
November 21, 2001; 10:00 a.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
2000-CA-002144-MR
CAREY M. ARNOLD, INDIVIDUALLY,
& ON BEHALF OF ALL SIMILARLY
SITUATED; AND THOMAS C. HECTUS,
INDIVIDUAL, & ON BEHALF OF ALL
SIMILARLY SITUATED
v.
APPELLANTS
APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE JUDITH E. MCDONALD-BURKMAN, JUDGE
ACTION NO. 00-CI-000123
MICROSOFT CORPORATION
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
DYCHE, GUIDUGLI, AND KNOPF, JUDGES.
KNOPF, JUDGE:
The appellants, Carey M. Arnold and Thomas C.
Hectus sought to bring a class action pursuant to CR 23 against
Microsoft Corporation (Microsoft) for violations of the Kentucky
Consumer Protection Act.
The trial court granted Microsoft’s
motion to dismiss, concluding that the appellants lacked standing
to pursue their anti-trust claims, and that the appellants had
failed to otherwise state a claim under the Act.
error, we affirm.
Finding no
The facts underlying this action are not in dispute.
Microsoft is a corporation organized under the laws of the state
of Washington.
Microsoft primarily focuses on developing and
licencing computer software.
In particular, Microsoft developed
and licences the most commonly used operating system for Intelbased personal computers in the United States: the “Windows”
operating system.
When this action was filed, “Windows 98" was
the most current version of the operating system then in use.
Microsoft distributed Windows 98 through original
equipment manufacturers (OEMs), who install the software on
personal computers, and through software retailers.
However,
Microsoft does not “sell” its software to OEMs, retailers or to
the public.
to the users.
Rather, the company licences the use of its software
As a condition to the use of Windows 98,
purchasers are required to accept Microsoft’s “End User License
Agreement” (EULA).
In summary, the EULA prohibits end-users from
copying, modifying or transferring the software, and it sets out
the scope of Microsoft’s warranty of the product.
The long-running Federal Court proceedings involving
Microsoft, while not directly relevant to this appeal, are
instructive for their discussion of the relevant issues.
In
summary, the United States Department of Justice filed suit
against Microsoft in 1994, claiming that Microsoft unlawfully
maintained a monopoly in the operating system market through
anti-competitive means.
Although the parties entered into a
consent decree, the Justice Department brought a civil contempt
action, alleging that Microsoft had violated the decree’s
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provisions.
In 1998, the Justice Department and the Attorneys
General for nineteen individual states brought an action against
Microsoft for violations of the Sherman Anti-Trust Act,1 and
under analogous state laws.
The matter proceeded to a
trifurcated trial before the United States District Court for the
District of Columbia.
In November, 1999, the District Court entered its
findings of fact.
The Court found that Microsoft enjoys a
monopoly position with its Windows operating system.
The Court
further found that Microsoft maintained its monopoly power by
anti-competitive means, and further had used that position to
obtain a monopoly in the internet browser market.2
Based upon
these findings, the Federal District Court thereafter concluded
that Microsoft violated §§ 1 and 2 of the Sherman Act.3
To
remedy these violations, the court directed Microsoft to submit a
proposed plan of divestiture, with the company to be split into
an operating systems business and an applications business.4
Recently, on appeal, the United States Court of Appeals
for the District of Columbia Circuit affirmed in part, reversed
in part and remanded for further proceedings.5
The Federal
Circuit Court agreed that Microsoft possessed monopoly power over
1
15 U.S.C. §§ 1 et. seq. (hereafter, “the Sherman Act”)
2
United States v. Microsoft Corp., 84 F. Supp. 2d 9 (D.D.C., 1999) (Findings of Fact).
3
United States v. Microsoft Corp., 87 F.Supp.2d 30 (D.D.C., 2000) (Conclusions of
4
United States v. Microsoft Corp., 97 F.Supp.2d 59 (D.D.C.,2000) (Final Judgment).
Law).
5
United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir., 2001).
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the relevant market and that it had engaged in certain anticompetitive conduct to preserve that monopoly.
However, the
Court reversed the District Court’s finding that Microsoft had
unlawfully attempted to extend its monopoly into the internet
browser market.
The Circuit Court also reversed the District
Court’s finding that Microsoft had unlawfully tied its “Internet
Explorer” browser to its Windows 98 operating system, and the
Court remanded the matter to the District Court for further
findings.
For substantive and procedural reasons, the Court
reversed the portion of the Final Judgment directing that
Microsoft be split into separate companies.
Finally, the Court
found that the trial judge had engaged in impermissible ex parte
contacts with members of the media and had made public comments
about Microsoft which gave rise to an appearance of partiality.
Accordingly, the Circuit Court directed that the trial judge be
recused from any further proceedings.
The United States Supreme
Court denied Microsoft’s petition for a writ of certiorari.6
Although the present case arose separately from the
Federal litigation, it is based on many of the same facts and
allegations developed in those cases.
In January of 2000, Arnold
and Hectus brought an action against Microsoft based upon
6
Microsoft Corp. v. United States, 2001 U.S. LEXIS 9509, 70 U.S.L.W. 3267 (U.S.,
Oct. 9, 2001). At this writing, the Justice Department and Microsoft have reached a settlement of
the Federal action, and they have submitted the settlement to the trial court for approval. See
United States v. Microsoft Corp., No. 98-1232, Stipulation filed November 2, 2001.
<http://news.findlaw.com/cnn/docs/microsoft/msstipprpfnljd110201.pdf> Nine states (including
Kentucky) have agreed to join with the Justice Department in a revised settlement.
<http://news.findlaw.com/cnn/docs/microsoft/prpsrvsfnljdg110601.pdf> To date, the remaining
nine states and the District of Columbia have not agreed to join in the settlement and will be
pursuing further remedies before the Federal District Court.
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Kentucky’s Consumer Protection Act, KRS 367.170, and KRS 367.175,
Kentucky’s version of the Sherman Act.7
In the complaint,
Arnold alleged that, in June 1998, she purchased a Windows 98 CD
ROM disk from a retail outlet for $89.00.
Likewise, Hectus
alleged that he had purchased a new Intel-based personal computer
from an OEM.
Windows 98 had been installed as the operating
system on that computer.
They alleged that they had been damaged
by Microsoft’s monopolistic practices and predatory pricing
schemes.
In lieu of an answer, Microsoft filed a motion to
dismiss the complaint for failure to state a claim.8
After a
full briefing and argument, the trial court granted Microsoft’s
Based upon Illinois Brick Co. v. Illinois,9
motion to dismiss.
the court concluded that KRS 367.175, like the Sherman Act, does
not permit indirect purchasers such as Arnold and Hectus to bring
a claim for anti-trust violations.
The trial court further found
that the allegations in the complaint did not state a claim under
the KRS 367.170.
Arnold and Hectus now appeal from the trial
court’s order dismissing their complaint.
On a motion to dismiss, the trial court must take every
well-pleaded allegation of the complaint as true and construe
each allegation in the light most favorable to the party against
7
15 U.S.C. §§ 1 & 2.
8
CR 12.02.
9
431 U.S. 720, 52 L. Ed. 2d 707, 97 S. Ct. 2061 (1977).
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whom the motion is made.10
In this case however, the issue of
standing can be decided as a matter of law based upon the
applicable statutes.
On review, this Court will confine itself
to a determination of whether the matters alleged in the
complaint establish appellant's standing to bring the action or
whether it is without a "substantial interest" in the subject
matter of the controversy.11
Furthermore, because they involve questions of law, the
issues of standing and the interpretation of statutes are subject
to de novo review.
This Court is not required to give deference
to the trial court's decision on these issues.12
The role of the
Court in construing a legislative act is to carry out the intent
of the legislature.13
A statute should be interpreted according
to the plain meaning of the language, and a court is not free to
add or subtract words.14
At the same time, a statute must be
read in light of the mischief to be corrected, the evil intended
to be remedied, and the policy and purpose of the statute.15
10
City of Louisville v. Stock Yards Bank & Trust Co., Ky., 843 S.W.2d 327, 328 (1992)
11
Id.
12
Commonwealth v. Montaque, Ky., 23 S.W.3d 629, 631 (2000)(quoting Floyd County
Board of Education v. Ratliff, Ky., 955 S.W.2d 921, 925 (1997)); Bob Hook Chevrolet Isuzu,
Inc. v. Commonwealth, Ky., 983 S.W.2d 488 (1998).
13
Magic Coal Co. v. Fox, Ky., 19 S.W.3d 88, 94 (2000).
14
Commonwealth v. Frodge, Ky., 962 S.W.2d 864, 866 (1998); Commonwealth v. Allen,
Ky., 980 S.W.2d 278, 280 (1998).
15
Springer v. Commonwealth, Ky., 998 S.W.2d 439, 448 (1999); Sisters of Charity
Health Systems, Inc., v. Raikes, Ky., 984 S.W.2d 464, 469 (1998).
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Arnold and Hectus first argue that the trial court
erred in finding that indirect purchasers lack standing to bring
an action under KRS 367.175(2).
In particular, they contend that
the trial court should not have applied the reasoning of Illinois
Brick Co. v. Illinois to interpret Kentucky’s version of the
Sherman Act.
In Illinois Brick, the State of Illinois brought
suit on its own behalf and on behalf of a number of local
governmental entities seeking treble damages under § 4 of the
Clayton Act16 for an alleged conspiracy to fix the price of
concrete block in violation of § 1 of the Sherman Act.17
The
State and the local governments were all indirect purchasers of
concrete block--that is, they did not purchase concrete block
directly from the price-fixing defendants but rather purchased
products or contracted for construction into which the concrete
block was incorporated by a prior purchaser.
The United States Supreme Court held that, with limited
exceptions, only overcharged direct purchasers, and not
subsequent indirect purchasers, were persons "injured in business
or property" within the meaning of § 4, and that therefore the
State of Illinois was not entitled to recover under federal law
for the portion of the overcharge passed on to it.18
However,
the Supreme Court has since held that nothing in the Sherman Act
or in Illinois Brick precludes the states from allowing indirect
16
15 U. S. C. § 15(a).
17
15 U. S. C. § 1.
18
431 U.S. at 729, 52 L. Ed. 2d at 729, 97 S. Ct. at 2066.
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purchasers to bring an anti-trust action.19
Thus, as the trial
court noted, the United States Supreme Court’s interpretation of
the Sherman Act is not controlling over our interpretation of KRS
367.175.
Nevertheless, we, like the trial court, find the
reasoning of Illinois Brick to be highly persuasive.
KRS 367.175
is identical to the Sherman Act except that the phrase “among the
several states” was replaced by “in this Commonwealth.”20
Because there are no Kentucky cases interpreting KRS 367.175 and
because that statute is based upon the Sherman Act, the
interpretation of the Sherman Act given by the United States
Supreme Court is highly instructive.21
Arnold and Hectus first note that KRS 367.175 was
enacted in 1976, one year prior to the holding of the United
States Supreme Court in Illinois Brick.
Prior to Illinois Brick,
they claim that indirect purchasers were entitled to recover
under the Sherman Act.
As a result, they argue that the General
Assembly never intended to adopt the United States Supreme
Court’s interpretation of the Sherman Act.
We disagree.
19
California v. ARC America Corp., 490 U.S. 93, 101-02, 104 L. Ed. 2d 86, 95, 109 S.
Ct. 1661, 1665 (1989).
20
The relevant portion of the statute, KRS 367.175(2), provides as follows: “It shall be
unlawful for any person or persons to monopolize, or attempt to monopolize or combine or
conspire with any other person or persons to monopolize any part of the trade or commerce in
this Commonwealth”.
21
See e.g. Palmer v. International Association of Machinists and Aerospace Workers,
AFL-CIO, Ky., 882 S.W.2d 117 (1994); Kreate v. Disabled American Veterans, Ky. App. 33
S.W.3d 176 (2000).
-8-
As noted by the trial court, Hanover Shoe, Inc. v.
United Shoe Machinery Corp.,22 was the precedent that the Court
in Illinois Brick relied upon and affirmed.
dated KRS 367.175.
Hanover Shoe pre-
In Hanover Shoe, the Supreme Court rejected
the defense that indirect purchasers rather than direct
purchasers were the parties injured by anti-trust violations.
The Court held that the proof necessary to trace the effects of
the overcharge on the purchaser's prices, sales, costs, and
profits, and of showing that these variables would have behaved
differently without the overcharge, would unduly complicate such
actions.23 A second reason for barring the pass-on defense was
the Court's concern that only direct purchasers would have a
sufficient incentive to bring an action.24
The Court in Illinois
Brick applied this reasoning to the opposite situation: to bar
indirect purchasers from bringing a claim under the Sherman
Act.25
The General Assembly was undoubtedly aware of this long-
standing interpretation of the Sherman Act when it adopted KRS
367.175.
Arnold and Hectus next contend that KRS 367.175, unlike
the Sherman Act, permits indirect purchasers to bring an action
for anti-trust violations.
The Consumer Protection Act defines
the words “trade” and “commerce” to mean
22
392 U.S. 481, 20 L. Ed. 2d 1231, 88 S. Ct. 2224 (1968).
23
Id., at 492-493. 20 L. Ed. 2d at 1241.
24
Id., at 494. 20 L. Ed. 2d at 1241-42.
25
See also Kansas v. Utilicorp United, Inc., 497 U.S. 199, 11 L. Ed. 2d 169, 110 S. Ct.
2807 (1990).
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the advertising, offering for sale, or
distribution of any services and any
property, tangible or intangible, real,
personal or mixed, and any other article,
commodity, or thing of value, and shall
include any trade or commerce directly or
indirectly affecting the people of this
Commonwealth.(Emphasis Added)
In addition, KRS 466.070 permits a person injured by
the violation of any statute to recover from the offender such
damages as he or she sustained by reason of the violation.
Based
upon these two statutes, Arnold and Hectus claim that they are
entitled to bring an action for damages under KRS 367.175.
The provisions cited by Arnold and Hectus do not afford
the standing which they claim.
First, the definition of the
terms “trade” and “commerce” uses the phrase “directly or
indirectly” to define the scope of the Consumer Protection Act’s
jurisdiction.
Thus, the Act applies to any “trade or commerce”
which directly or indirectly affects the people of this
Commonwealth.
The definition does not purport to define the
class who are entitled to bring an action under the Act.26
Furthermore, the Consumer Protection Act does not
expressly afford civil remedies to private plaintiffs for
violations of KRS 367.175.27
Where the statute both declares the
26
KRS 367.175 prohibits monopolization of “trade or commerce in this Commonwealth.”
The trial court took the position that statute creates a cause of action only for conduct which
occurs wholly within this state. We decline to reach the merits of this issue because it is not
necessary to the holding of this case.
27
In contrast, a number of states expressly allow indirect purchasers to bring an action for
anti-trust violations. See e.g Ala. Code § 6-5-60(a); Cal. Bus. & Prof. Code § 16750(a); D.C.
Code § 28-4509(a); Haw. Rev. Stat. § 480-14(c); 740 Ill. Comp. Stat. 10/7; Kan. Stat. Ann. § 50161(b); Md. Com. Law Code § 11-209(b)(2)(ii); Mich Comp. Laws § 445.778(8); Minn. Stat §
(continued...)
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unlawful act and specifies the civil remedy available to the
aggrieved party, the aggrieved party is limited to the remedy
provided by the statute.28
Civil money penalties for violations
of KRS 367.175 are available, but only on petition of the
Attorney General.29
KRS 446.070 provides a private right of action for
anyone injured by the violation of any statute.
However, this
statute merely codifies the common law concept of negligence per
se.
It applies only if the alleged offender has violated a
statute and the plaintiff was in the class of persons which that
statute was intended to protect.30
Consumer Protection Act.
KRS 367.175 is part of the
As consumers, Arnold and Hectus are
within the general class which the Act was designed to protect.31
27
(...continued)
325D.57; Miss. Code § 75-21-9; S.D. Codified Laws § 37-1-33 ; Wis. Stat. § 133.18(1)(a). A
number of other states have adopted statutes which allow “any person” who has been injured or
damaged by an anti-trust violation to bring an action for damages. See e.g. Colo. Rev. Stat. § 64-108; Mo. Rev. Stat. § 416.121; N.C. Gen. Stat § 75-16; Tenn. Code Ann.§ 47-25-106; Wash.
Rev. Code § 19.86.090. While these statutes do not expressly allow indirect purchasers to bring
an action for damages, appellate courts in North Carolina and Tennessee have held that Illinois
Brick does not apply to actions by indirect purchasers under their anti-trust laws. Hyde v. Abbott
Laboratories, Inc., 123 N.C. App. 572, 473 S.E.2d 680 (1996) and Blake v. Abbott Laboratories,
Inc., 1996 Tenn. App. LEXIS 184 (1996). But conversely, other state appellate courts have
interpreted very similar statutes as prohibiting actions by indirect purchasers. See Duvall v.
Silvers, Asher, Sher & McLaren, 998 S.W.2d 821 (Mo. App., 1999); Blewett v. Abbott
Laboratories, 86 Wash. App. 782, 938 P.2d 842 (1997); and Stifflear v. Bristol-Myers Squibb
Co., 931 P.2d 471 (Colo. App., 1996).
28
Grzyb v. Evans, Ky., 700 S.W.2d 399, 401 (1985).
29
KRS 367.990(8).
30
Davidson v. American Freightways, Inc., Ky. 25 S.W.3d 94, 99-100 (2000).
31
In KRS 367.120(1), the legislative intent of the Consumer Protection Act is set out as
(continued...)
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But it is not clear that they are within the class of persons
which KRS 367.175 was designed to protect.
Yet even if they are, they remain indirect purchasers.
Arnold and Hectus agree that they have not been directly injured
by Microsoft’s conduct.
KRS 446.070 does not give a right of
action to every person against any one violating a statute, but
only to persons suffering injury as the direct and proximate
result thereof, and then only for such damage as they may
sustain.32
Arnold and Hectus contend that KRS 446.070 allows a
person who has been indirectly injured to bring an action for
damages based upon the violation of a statute.
Mutual Automobile Insurance Co.
In State Farm
v. Reeder,33 the Kentucky
Supreme Court recognized that KRS 446.070 allows a third party to
bring a cause of action based upon a violation of the Unfair
31
(...continued)
follows:
The General Assembly finds that the public health, welfare and
interest require a strong and effective consumer protection program
to protect the public interest and the well-being of both the
consumer public and the ethical sellers of goods and services;
toward this end, a Consumers' Advisory Council and a Division of
Consumer Protection of the Department of Law are hereby created
for the purpose of aiding in the development of preventive and
remedial consumer protection programs and enforcing consumer
protection statutes.
32
Shields v. Booles, 238 Ky. 673, 38 S.W.2d 677, 681 (1931).
33
Ky. 763 S.W.2d 116 (1989).
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Claims Settlement Practices Act (UCSPA).34
Even though the
injured third party was not in direct privity with the insured or
the insurer, the Court held that the third party had standing
under KRS 446.070 to bring an action based upon the UCSPA,
However, in Reeder, the Court held that the Insurance
Code was designed to protect not only the insured party, but also
persons who are entitled to recover from the insured.
Under the
UCSPA, an insurance company is required to deal in good faith
with a claimant, whether an insured or a third-party, with
respect to a claim which the insurance company is contractually
obligated to pay.35
The breach of that duty results in a direct
injury to the third party.
Consequently, Reeder does not hold
that a party who has only been indirectly injured by the
violation of a statute may bring an action under KRS 446.070.
Arnold and Hectus also argue that they have privity
with Microsoft by virtue of the EULA, and therefore are direct
buyers.
Thus, they assert that they have standing to bring an
action against Microsoft under Illinois Brick.
The trial court’s
reasoning rejecting this argument is sound, and we adopt the
following portion of the trial court’s opinion:
Before analysis of this issue, a review
of the purpose and effect of Microsoft’s
licensing scheme as postulated by Plaintiffs
is warranted.
‘Under the federal copyright law, the
owner of a particular copy . . . is entitled,
without the authority of the copyright owner,
to sell or otherwise dispose of the
possession of that copy. This is known as
34
KRS 304.12-230.
35
Davidson v. American Freightways, Inc., 25 S.W.3d at 100.
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the “first sale doctrine.” Under that
doctrine, if Microsoft were to sell copies of
Windows 98 to any person or entity, those
sales would terminate Microsoft’s authority
to restrict sale or rental of those
copies.’36 . . . The consequence would be
that after one copy of software were sold (as
opposed to licensed) the buyer could now sell
copies to anyone, (or just post it on the
internet for free and legal downloading by
the rest of the world).
‘If Microsoft relinquished its copyright
control of Windows 98 by selling copies, then
Microsoft could not maintain its own monopoly
pricing of Windows 98. . . . As to Windows
98, Microsoft’s chain of distribution
culminates with its EULA that directly binds
consumers who use that software. The EULA is
thus the culmination and an essential aspect
of Microsoft’s use of federal copyright law
to prevent erosion of its monopoly pricing of
Windows 98.’37 . . .
Plaintiff’s concede that Microsoft is
entitled to copyright protection but, because
they are unlawful monopolists, and because
they used copyright law to protect that
monopoly, their licensing scheme is subject
to scrutiny. ‘If Microsoft were not an
unlawful monopolist, its licensing scheme
would not be open to question.’
The Court is not distracted by the word
‘scheme.’ A scheme was once a plan or an
idea. But the word has taken on a sinister
overtone since its adoption in political
circles. It is usually preceded by the word
‘risky.’
Microsoft’s licensing scheme is just a
licensing agreement. It is similar to the
licensing agreement all software
manufacturers require and is a product of the
wording of federal copyright laws as opposed
to a special contractual relationship that
provides some unique benefit to Microsoft.
The licencing agreement is merely a
reiteration that in return for using
Microsoft’s copyrighted intellectual
property, the user is not going to infringe
on Microsoft’s copyright. It is a license to
36
Quoting Plaintiffs’ Memorandum In Opposition to Defendant’s Motion to Dismiss,
Record on Appeal (ROA) at 738-777, p. 27.
37
Quoting Id. at 28.
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use the product in perpetuity, in return for
a single fixed payment. It is the functional
equivalent of a sale. The license does not
create a legal relationship where the parties
are now in privity encompassing all of
Microsoft’s activities, nefarious or
otherwise. Indeed, it would be hard to
assess the scope of such a policy on other
forms of licenses.38
Arnold and Hectus also argue that there is no basis for
applying Illinois Brick based upon the unique circumstances of
this case.
The Court in Illinois Brick reasoned that allowing an
indirect purchaser to recover under the Sherman Act would create
a risk of double liability for anti-trust defendants because the
direct purchaser would still be able to recover the full amount
of the overcharge.39
Arnold and Hectus contend that there is no
risk of double recovery in this case because the direct
purchasers (retailers and OEMs) have not brought an action
against Microsoft.
In addition, the Court in Illinois Brick noted the
difficulty of tracing the amount of the overcharge to the end
user.40
However, the Court suggested that an indirect purchaser
may still recover under the Sherman Act in circumstances where
the effect of the overcharge can be determined “without reference
to the interaction of supply and demand that complicates the
determination in the general case.”41
Arnold and Hectus assert
38
Opinion and Order, July 21, 2000, ROA at 1402-20, pp. 7-8.
39
431 U.S. 730-31, 52 L. Ed. 2d at 715-16, 97 S. Ct. at 2067
40
Id. at 731, 52 L. Ed. 2d at 716, 97 S. Ct. at 2067.
41
Id. at 736, 52 L. Ed. 2d at 719, 97 S. Ct. at 2070.
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that their claims do not present difficult problems of tracing
and apportionment.
We find these arguments unconvincing.
A recovery by
indirect purchasers such as Arnold and Hectus would still leave
the direct purchasers free to bring an action against Microsoft
for the same anti-trust violations.
Thus, Microsoft remains
subject to the risk of double recovery.
Likewise, we find no
support for Arnold and Hectus’s assertion that it will not be
difficult to trace the effect of Microsoft’s overcharge to the
price which they paid for Windows 98.
To the contrary, as noted
by the trial court, Microsoft’s monopolistic behavior was
directed at business rivals, not at consumers.
Any calculation
of the damages suffered by the ultimate users of the product
would entail the very sort of complex assumptions which the Court
in Illinois Brick sought to avoid.
As the trial court concluded:
Plaintiffs may feel that Microsoft’s
behavior has inhibited others from entering
the market. Maybe so. The essence of that
behavior has been predatory pricing to keep
potential rivals out. Plaintiffs are the
beneficiaries, not the victims.
To postulate that such predatory action
creates future injury is speculation, and not
suitable for judicial remedy in this action.
In summary, Microsoft may have done
wrong, but not to these Plaintiffs.42
The trial court also dismissed the claims brought by
Arnold and Hectus under KRS 367.170.
That statute provides that
“[u]nfair, false, misleading, or deceptive acts or practices in
the conduct of any trade or commerce are hereby declared
unlawful.”
42
The trial court concluded that KRS 367.170 does not
Opinion and Order, July 21, 2000, pp. 17-18.
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apply to the monopolistic practices alleged in the complaint.
Arnold and Hectus argue that they are entitled to bring their
claims against Microsoft under this section based upon the
warranty provisions in the EULA.
Furthermore, they contend that
Microsoft’s monopolistic pricing behavior constitutes the sort of
conduct which KRS 367.170 was designed to prevent.
We disagree with both contentions.
First, the
legislature specifically provided a remedy in KRS 367.175 for
monopolistic practices.
As the more specific section, KRS
367.175 controls over the more general provisions of KRS
367.170.43
Furthermore, KRS 367.170 does not allow a person who is
not in privity with the seller or lessor to bring an action for
violations of the statute.44
The Consumer Protection Act is
remedial legislation enacted to give consumers broad protection
from illegal actions.45
However, to maintain an action alleging
a violation of the Act, an individual must fit within the
protected class of persons defined in KRS 367.220.
That section
allows any person who “purchases or leases goods or services
primarily for personal, family or household purposes and thereby
suffers any ascertainable loss of money or property, real or
personal, as a result of the use or employment by another person
of a method, act or practice declared unlawful by KRS 367.170,”
43
Withers v. University of Kentucky, Ky., 939 S.W.2d 340, 345 (1997).
44
Skilcraft Sheetmetal, Inc. v. Kentucky Machinery, Inc., Ky. App., 836 S.W.2d 907,
909 (1992).
45
Stevens v. Motorists Mutual Insurance Co., Ky., 759 S.W.2d 819, 821 (1988).
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to bring an action against the seller or lessor.
A person who is
not in privity with the seller is not within the class of persons
which the Consumer Protection Act was designed to protect.
The EULA sets out the scope of Microsoft’s warranty of
Windows 98 to the end user.
Arnold and Hectus have not brought
any claims based upon that warranty, nor do their claims arise
out of the warranty.
We agree with the trial court that the
warranty does not create privity with Microsoft for all purposes.
In conclusion, we agree with the trial court that
indirect purchasers such as Arnold and Hectus are not entitled to
bring an action for anti-trust violations under KRS 367.175.
Rather, the holding of Illinois Brick interpreting the Sherman
Act is equally applicable to KRS 367.175.
Similarly, Arnold and
Hectus cannot bring an action under that section based upon KRS
446.070 or through the warranty provisions of the EULA.
Finally,
we agree with the trial court that Arnold and Hectus have failed
to state a claim under KRS 367.170.
Therefore, the trial court
properly dismissed the complaint.
Accordingly, the judgment of the Jefferson Circuit
Court is affirmed.
ALL CONCUR.
-18-
BRIEF FOR APPELLANTS:
BRIEF FOR APPELLEE:
Wesley P. Adams, Jr.
Alfred J. Welsh
Adams, Hayward, Nicolas &
Welsh
Louisville, Kentucky
John E. Selent
Michael M. Him
R. Kenyon Meyer
Dinsmore & Shohl, LLP
Louisville, Kentucky
Tom Scheuneman
Corona Del Mar, California
ORAL ARGUMENT FOR APPELLEE:
ORAL ARGUMENT FOR APPELLANT:
Greg Harrison
Dinsmore & Shol, LLP
Cincinnati, Ohio
Wesley P. Adams, Jr.
Louisville, Kentucky
-19-
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