A&M SUPPLY COMPANY V MICROSOFT CORPORATION
Annotate this Case
Download PDF
STATE OF MICHIGAN
COURT OF APPEALS
A&M SUPPLY COMPANY, Individually, and as
Representatives of all Persons Similarly Situated,
FOR PUBLICATION
August 27, 2002
9:00 a.m.
Plaintiff-Appellee,
v
No. 236598
Wayne Circuit Court
LC No. 00-031123-NZ
MICROSOFT CORPORATION,
Defendant-Appellant.
Updated Copy
November 8, 2002
Before: Whitbeck, C.J., and O'Connell and Meter, JJ.
WHITBECK, C.J.
In this action under the Michigan Antitrust Reform Act (MARA), MCL 445.771 et seq.,
plaintiff A&M Supply Company alleges that defendant Microsoft Corporation illegally
monopolized the personal computer software market in Michigan, harming A&M and many
other residents of this state who purchased certain Microsoft products. In August 2001, the trial
court entered an opinion and order certifying this matter as a class action. Microsoft appeals that
order by leave granted. We reverse and remand.
I. Legal Overview
Generally speaking, there are two types of private antitrust lawsuits. The first type of
action is a direct purchaser action in which the plaintiff purchases a product directly from the
purported monopolist and sues for the injuries sustained.1 The second type of action is an
indirect, or "pass-on," action in which the plaintiff is one or more steps removed from the direct
purchaser, essentially purchasing the product after it has changed hands through middlemen.2
This case is a pass-on lawsuit.
1
See Coutroulis and Allen, The pass-on problem in indirect purchaser class litigation, 44
Antitrust Bull 179 (March 22, 1999), available in 1999 WL 19535295 without page numbers.
2
Id.
-1-
That state law forms the basis for this suit is no coincidence. In Hanover Shoe, Inc v
United Shoe Machinery Corp3 and Illinois Brick Co v Illinois,4 the United States Supreme Court
barred indirect purchaser suits in federal courts. However, the Court did not foreclose states
from allowing indirect purchaser actions. Accordingly, in 1984,5 the Michigan Legislature
passed an Illinois Brick repealer law when it enacted MARA subsection 8(2), which states:
Any other person threatened with injury or injured directly or indirectly in
his or her business or property by a violation of this act may bring an action for
appropriate injunctive or other equitable relief against immediate irreparable
harm, actual damages sustained by reason of a violation of this act, and, as
determined by the court, interest on the damages from the date of the complaint,
taxable costs, and reasonable attorney's fees. If the trier of fact finds that the
violation is flagrant, it may increase recovery to an amount not in excess of 3
times the actual damages sustained by reason of a violation of this act.[6]
The dispositive issue in this case revolves around injury, which MARA subsection 8(2)
makes so critical in providing a basis for recovering "actual damages." Microsoft argues that, in
an indirect purchaser case, a plaintiff who asserts that each putative class member actually
sustained the "fact of injury" must demonstrate two factors with common proof. Under this
analytical construct, the plaintiff must first prove that the prices the defendant charged the direct
purchasers were consistently higher than the prices it would have charged in a competitive
environment. We label this an "overcharge" requirement. Second, the plaintiff must prove that
the overcharge, or some portion thereof, passed through the chain of distribution to indirect
purchasers. We label this a "pass-on" requirement. We agree with Microsoft that proving
overcharge and pass-on are essential to succeeding in an indirect purchaser suit under MARA,
and therefore adopt this construct.
Without using this terminology, the trial court, when it certified the class action,
concluded that A&M had met its burden with respect to the overcharge and pass-on
requirements. As we explain in more detail, the trial court's approach to the overcharge
requirement may have been correct. However, that is an issue we need not reach because the trial
court erred in concluding that A&M satisfied the pass-on requirement; this element of the trial
court's reasoning requires us to reverse and remand.
II. Basic Facts And Procedural History
3
Hanover Shoe, Inc v United Shoe Machinery Corp, 392 US 481, 491-493; 88 S Ct 86; 20 L Ed
2d 1231 (1968).
4
Illinois Brick Co v Illinois, 431 US 720, 730-735; 97 S Ct 2061; 52 L Ed 2d 707 (1977).
5
See 1984 PA 274, § 8.
6
MCL 445.778(2) (emphasis supplied).
-2-
James Barnard originally filed this case in December 1999 in Livingston County.
Barnard sought to hold Microsoft liable to consumers who purchased Windows operating
systems and Internet Explorer software for alleged damages attributable to Microsoft's
monopolistic posture and antitrust violations in Michigan. The complaint consisted of a single
count alleging that Microsoft had violated MARA.
The case was first assigned to Livingston Circuit Judge Daniel Burress. In an opinion and
order entered on May 4, 2000, Judge Burress certified a class comprised of all individuals who
purchased, leased, or licensed a copy of Windows 95 or Windows 98 from an entity other than
Microsoft.7 Microsoft then filed a motion in the Michigan Supreme Court for superintending
control. This motion prompted the Michigan Supreme Court to issue Administrative Order No.
2000-5,8 which transferred all cases brought in this state's trial courts against Microsoft for
violating MARA to the Wayne Circuit Court to coordinate both pretrial and trial proceedings.
As a result, this case moved from the Livingston Circuit Court to the Wayne Circuit Court, which
is the trial court that made the decision at issue in this appeal.
In the trial court, Microsoft moved to set aside Judge Burress' certification order, arguing
that there had been no discovery before that judge decided the motion and because, in Microsoft's
view, the decision to certify the class was itself erroneous. The trial court granted the motion,
vacating the previous certification order. The trial court then gave the parties time to conduct
further discovery and granted Barnard leave to amend his complaint.
When Barnard filed his amended complaint, he added A&M as the class representative
because A&M had allegedly purchased more Microsoft products than Barnard, including
Microsoft NT, Microsoft Windows 95, Microsoft Windows 98, Microsoft Word, Microsoft
Excel, Microsoft Office, Microsoft Outlook, and Internet Explorer; Barnard had purchased only
Internet Explorer and one version of the Windows operating system. In the amended complaint,
A&M claimed that Microsoft had violated MARA in three ways. The first two counts in the
complaint implicated MARA § 3, which makes unlawful "[t]he establishment, maintenance, or
use of a monopoly, or any attempt to establish a monopoly, of trade or commerce in a relevant
market by any person, for the purpose of excluding or limiting competition or controlling, fixing,
or maintaining prices."9 The third count relied on MARA § 2, which simply declares that "[a]
contract, combination, or conspiracy between 2 or more persons in restraint of, or to monopolize,
trade or commerce in a relevant market is unlawful."10
7
Microsoft previously filed an application for leave to appeal with this Court to challenge Judge
Burress' order denying its motion to stay these proceedings, but we declined to grant leave to
appeal. See Barnard v Microsoft Corp, unpublished order of the Court of Appeals, entered
March 31, 2000 (Docket No. 225694).
8
In re Microsoft Antitrust Litigation, 463 Mich cli (2000).
9
MCL 445.773.
10
MCL 445.772.
-3-
Underlying these three counts was A&M's theory that, since the mid-1980s, Microsoft
had used monopolistic and anticompetitive means to dominate production of operating systems
and software for personal computers. According to A&M, Microsoft, through its predatory
conduct, was able to eliminate its competition in the operating systems market. As a result,
A&M claimed, consumers have had no viable choices for an alternative operating system for
their personal computers since 1994. A&M also alleged that Microsoft engaged in the same
conduct regarding its word processing, spreadsheet, and office suite software. A&M asserted
that Microsoft's behavior allowed it to raise its prices for its products above competitive pricing
levels in Michigan, creating artificially high prices consumers cannot escape. As support for
these allegations, A&M cited findings and conclusions made against Microsoft in other federal
and state antitrust cases.
In March 2001, A&M became the sole named plaintiff. A&M subsequently filed a
motion asking the trial court to certify this matter as a class action. In its motion to certify the
class, A&M asked the trial court to certify a single class for consumers who acquired operating
systems software produced by Microsoft (MS-DOS, Windows 95, and Windows 98), dropping
its previous request to certify subclasses for consumers who purchased Microsoft's word
processing, spreadsheet, and office suite software. Therefore, under the language A&M
proposed, the class would consist of
[a]ll persons and entities who acquired for their own use, and not for further
selling, leasing or licensing, a license in Michigan from Microsoft, an agent of
Microsoft or an entity under Microsoft's control, for an Intel-compatible PC
version of MS-DOS, Windows 95, upgrades to higher MS-DOS versions,
upgrades to or of Windows 95, Windows 98, upgrades to or of Windows 98, or
other software products in which MS-DOS or Windows have been incorporated in
full or part ("Microsoft operating systems software") at any time during the class
period.
On August 21, 2001, about a month after oral arguments, the trial court issued a written
opinion and order certifying the class. In explaining its decision, the trial court focused on the
disputed issue, which it determined to be whether A&M could show a common method or means
of proving injury and damages to the class members. The trial court concluded that the three
methods A&M advanced for demonstrating the injury Microsoft's actions allegedly inflicted on
the class as a whole were sufficient to certify the class because A&M was required only to
demonstrate this factor through common proof that may have affected the class. The trial court
indicated that any lack of common proof of damages for class members was not fatal to
certification. Finally, the trial court concluded that handling this matter as a class action was
superior to other available methods.
III. Standard Of Review
-4-
This Court reviews a trial court's decision to certify a class to determine whether the trial
court clearly erred.11 "Generally speaking, factual findings are clearly erroneous if there is no
evidence to support them or there is evidence to support them but this Court is left with a definite
and firm conviction that a mistake has been made."12
IV. United States v Microsoft Corp
As is well known, the federal government and several states brought antitrust proceedings
against Microsoft in the United States District Court for the District of Columbia in the 1990s,
eventually consolidating most, but not all,13 suits under the name United States v Microsoft
Corp.14 The federal district court's 412 individual factual findings in that case are too numerous
to recount, even summarily.15 However, with respect to the legal questions involved in the case,
the federal district court determined that Microsoft violated §§ 1 and 2 of the Sherman Act,16 and
numerous analogous state antitrust laws, including MARA §§ 2 and 3.17 In June 2000, after
Microsoft and the many plaintiffs failed to negotiate a mutually agreeable settlement to remedy
Microsoft's antitrust violations,18 the federal district court ordered sweeping changes in
Microsoft, including a multiphase process of dividing the corporation into two entities, as well as
other efforts to ensure Microsoft's compliance with antitrust laws.19
Microsoft then asked the United States Supreme Court to hear its appeal, but the Supreme
Court denied certiorari,20 leaving Microsoft to appeal the federal district court's decision to the
United States Court of Appeals for the District of Columbia.21 The federal appeals court
reversed the federal district court's finding that Microsoft had violated the Sherman Act by
attempting to monopolize the Internet browser market.22
The federal appeals court also
11
Zine v Chrysler Corp, 236 Mich App 261, 270; 600 NW2d 384 (1999).
12
Id.
13
See Gravity, Inc v Microsoft Corp, 127 F Supp 2d 728 (D Md, 2001); In re Microsoft Corp
Antitrust Litigation, 127 F Supp 2d 702 (D Md, 2001).
14
See, e.g., United States v Microsoft Corp, 84 F Supp 2d 9 (D DC, 1999) (Microsoft I) (factual
findings); United States v Microsoft Corp, 87 F Supp 2d 30 (D DC, 2000) (Microsoft II) (legal
conclusions); United States v Microsoft Corp, 97 F Supp 2d 59 (D DC, 2000) (Microsoft III)
(remedy).
15
See Microsoft I, supra.
16
15 USC 1 and 2.
17
Microsoft II, supra at 56.
18
See Microsoft III, supra at 61.
19
See id. at 63-70.
20
Microsoft Corp v United States, 530 US 1301; 121 S Ct 25; 147 L Ed 2d 1048 (2000).
21
See United States v Microsoft Corp, 346 US App DC 330; 253 F3d 34 (2001) (Microsoft IV).
22
See id. at 342, 376-380.
-5-
remanded for determination by the federal district court of the issue whether Microsoft had
illegally tied its browser and operating systems.23 The federal appeals court, however, affirmed
the federal district court's findings that Microsoft had violated the Sherman Act by possessing
monopoly power and maintaining its monopoly in the operating systems software market through
anticompetitive means,24 noting that its "judgment extends to the District Court's findings with
respect to the state law counterparts of the plaintiffs' Sherman Act claims."25 Thus, the federal
appeals court affirmed the federal district court's findings that Microsoft had violated MARA
with respect to the operating systems software market, overturned the federal district court's
remedy, and assigned the task of determining the tying issue and new remedy to a different
federal district judge.26
After Microsoft's second attempt to bring this case to the United State Supreme Court
failed,27 the case returned to the federal district court, with a different judge presiding. The
United States decided not to pursue the tying claim on remand, leaving only the proper remedy in
dispute.28 In November 2001, Microsoft reached a settlement with the federal government and
nine states, including Michigan.29 This prompted the federal district court to "deconsolidate" the
action, separating the settling governmental entities from the nine states that, in addition to the
District of Columbia, continued to litigate the remedy phase of the case.30 The settlement, as it
concerns the federal government, has passed several preliminary thresholds, including the federal
district court's determination that the Tunney Act,31 which governs settlements between antitrust
violators and the United States government, applies in this case; however, the federal district
23
Id. at 342.
24
Id. at 347.
25
Id. at 342.
26
Id. at 342, 413-415.
27
Microsoft Corp v United States, ___ US ___; 122 S Ct 350; 151 L Ed 2d 264 (2001).
28
See United States v Microsoft Corp, unpublished memorandum opinion of the United States
District Court for the District of Columbia, issued July 2, 2002 (Docket No. 98-1232), slip op at
3, n 2 <http://www.dcd.uscourts.gov/98-1232ci.pdf> (Microsoft V).
29
See United States v Microsoft Corp, unpublished order of the United States District Court for
the District of Columbia, entered November 8, 2001 (Docket No. 98-1233)
<http://www.dcd.uscourts.gov/98-1232qq.pdf>; see also Ted Bridis, "Michigan accepts revised
Microsoft
settlement,"
Detroit
Free
Press,
November
7,
2001
<http://www.freep.com/money/tech/micro7_20011107.htm>.
30
See United States v Microsoft Corp, unpublished order of the United States District Court for
the District of Columbia, entered February 1, 2002 (Docket No. 98-1232)
<http://www.dcd.uscourts.gov/98-1232ae.pdf>.
31
15 USC 16(b) - (h).
-6-
court has yet to decide whether the settlement agreement satisfies the Tunney Act's
requirements.32
Regardless of the current procedural posture of Michigan's lawsuit in federal court, only
two aspects of the federal litigation are relevant to this case: the federal district court's factual
findings and legal conclusions.33 Those factual findings and legal conclusions, especially as they
relate to MARA,34 are the legs on which this case stands. Indeed, because the federal district
court held a bench trial to determine the facts in this case, A&M may rely on those facts not
affected by the federal appeals court's decision. As MARA § 10 states:
A final judgment or decree determining that a person has violated this act
in an action brought by the state under section 7, 8(1), or 9 [MCL 445.777,
445.778(1), or 445.779] other than a consent judgment or decree entered before
any testimony has been taken, is prima facie evidence against the person in any
other action against the person under section 8 [MCL 445.778] as to all matters
with respect to which the judgment or decree would be an estoppel between the
parties to the action. This section does not affect the application of collateral
estoppel or issue preclusion.[35]
The net effect of MARA § 10 is that the federal district court's findings that Microsoft is,
essentially, an illegal monopoly establishes that matter as a fact in this case.
V. Legal Framework For Indirect Purchaser Suits
Any discussion of indirect purchaser suits must start with a discussion of Hanover Shoe,
supra, because it "played a landmark role in defining the antitrust standing of private plaintiffs,"
eliminated the pass-on defense for antitrust defendants, and "prescribed a damage calculation."36
In broad terms, in Hanover Shoe the United States Supreme Court
announced a prudential federal rule that antitrust defendants could not try to show
that direct purchaser plaintiffs were not injured (and therefore had no damages
claim) because they had passed on the price increase they sustained to indirect
purchasers. Rather, irrespective of whether the direct purchasers pass on the price
increase, they could sue for the entire overcharge. The Court reasoned that it
should not further complicate already complex antitrust actions with attempts to
trace a price increase down the distribution chain[, stating]:
32
See Microsoft V, supra at 4-6, 36.
33
See Microsoft I & II.
34
See Microsoft II, supra at 54, n 7.
35
MCL 445.780.
36
See Blair and Herndon, A note on Hanover Shoe: (calculating damages due to monopoly), 43
Antitrust Bull 351 (1998), available in 1998 WL 16568463 without page numbers.
-7-
"A wide range of factors influences a company's pricing policies.
Normally the impact of a single change in the relevant conditions cannot be
measured after the fact; indeed a businessman may be unable to state whether, had
one fact been different (a single supply less expensive, general economic
conditions more buoyant, or the labor market tighter, for example), he would have
chosen a different price. Equally difficult to determine in the real economic world
rather than an economist's economic model, is what effect a change in a
company's price will have on its total sales. Finally, costs per unit for a different
volume of total sales are hard to estimate . . . . Since establishing the applicability
of the passing-on defense would require a convincing showing of each of these
virtually unascertainable figures, the task would normally prove
insurmountable."[37]
In Illinois Brick, supra, the Supreme Court amplified its perspective on indirect purchaser
suits, explaining that
[t]he principal basis for the decision in Hanover Shoe was the Court's perception of
the uncertainties and difficulties in analyzing price and output decisions "in the real
economic world rather than an economist's hypothetical model," and of the costs to
the judicial system and the efficient enforcement of the antitrust laws of attempting
to reconstruct those decisions in the courtroom. This perception that the attempt to
trace the complex economic adjustments to a change in the cost of a particular factor
of production would greatly complicate and reduce the effectiveness of already
protracted treble-damages proceedings applies with no less force to the assertion of
pass-on theories by plaintiffs than it does to the assertion by defendants. However
"long and complicated" the proceedings would be when defendants sought to prove
pass-on, they would be equally so when the same evidence was introduced by
plaintiffs. Indeed, the evidentiary complexities and uncertainties involved in the
defensive use of pass-on against a direct purchaser are multiplied in the offensive
use of pass-on by a plaintiff several steps removed from the defendant in the chain
of distribution. The demonstration of how much of the overcharge was passed on
by the first purchaser must be repeated at each point at which the price-fixed goods
changed hands before they reached the plaintiff.[38]
In light of the Court's statement on these issues, other commentators have described the Supreme
Court's decision in Illinois Brick as a reaction to three factors: the possibility of multiple liability
for defendants, the complexity and uncertainty of apportioning damages among participants in
37
Coutroulis, supra, quoting Hanover Shoe, supra at 492-493.
38
Ilinois Brick, supra at 731-733 (internal citations omitted).
-8-
the supply chain, and the advantage of enforcing antitrust laws more effectively through direct
purchaser suits.39
Notwithstanding this broad policy against federal pass-on suits, Illinois Brick did not
foreclose states from allowing indirect purchaser actions.40 As a result, following the Illinois
Brick decision, a number of states passed Illinois Brick repealer statutes to allow indirect
purchaser suits.41 Thus, in enacting this state's repealer law, the Michigan Legislature
incorporated language in MARA subsection 8(2) allowing suit by a direct or indirect purchaser,
such as an end user or licensee.
Though states have this freedom to allow indirect purchaser suits, some state courts still
grapple with the factors that concerned the United States Supreme Court in Hanover Shoe and
Illinois Brick. Consequently, state courts facing the indirect purchaser issue have either tended
toward a "skeptical" or a "sanguine" view.
The skeptical view, typified by the [Illinois Brick] majority, values
deterrence over compensation, efficiency over equity, and accuracy over
approximation. In this view, the purpose of antitrust remedies is to impose a
deterrent penalty on the wrongdoer, and only incidentally to provide
compensation to those harmed. The overcharge is initially paid by the direct
purchaser, who has most frequent dealings with the offenders and thus is most
likely to be aware of the illegal activity. While a portion of the overcharge may be
passed on to others the amount of the overcharge and hence the appropriate total
damage award remains the same. Allowing indirect purchasers to sue creates
costly satellite litigation over how to divide the common fund. It also creates a
risk that the right to sue will be divided among so many claimants that collective
action problems will prevent any suit from being filed. And it creates the risk of
duplicative damages if the sum of the awards to the various direct and indirect
purchasers exceeds the amount of the overcharge.[42]
In contrast to the concern for deterrence and the unmanageable nature of pass-on suits reflected
in the skeptical perspective,
the sanguine view, typified by the [Illinois Brick] dissent, values compensation
over deterrence; equity over efficiency, and approximation over accuracy. The
primary consideration in this view is the assumption that the consumer will bear
39
See Coutroulis, supra.
40
See California v ARC America Corp, 490 US 93, 101-102; 109 S Ct 1661; 104 L Ed 2d 86
(1989).
41
See Page, The limits of state indirect purchaser suits: Class certification in the shadow of
Illinois Brick, 67 Antitrust L J 1,2 (1999).
42
Page, supra at 17 (emphasis supplied).
-9-
the major part of the overcharge and should be compensated for it. According to
this view, because the initial overcharge to the direct purchaser is almost always
passed on, allowing direct purchasers to recover the full overcharge would give
them an unacceptable windfall.
The tax incidence theory and other
generalizations about passing on provide a reasonable basis for judicial
approximation of actual harms suffered by the various levels of distribution. "In
essence, estimating the amount of damages passed on to an indirect purchaser is
no different from and no more complicated than estimating what the middleman's
selling price would have been, absent the violation." Moreover, because
"reasoned estimation" is necessary in all antitrust damage cases, "lack of precision
in apportioning damages between direct and indirect purchasers is . . . plainly not
a convincing reason for denying indirect purchasers an opportunity to prove their
injuries and damages."[43]
Each of these theories has its own merit, particularly the dueling questions of efficiency and
equity. However, we need not adopt either a strictly sanguine or purely skeptical perspective on
the basis of theory alone. Instead, we take our cues about the necessary proof of damages from
our state court rules governing certification of a class action, MARA, and other relevant cases.
VI. Class Certification
A. The Factors In the Court Rules
The court rules define the factors relevant to a trial court's decision to certify a class.
Under MCR 3.501(A)(1), one or more members of a specific class may bring suit on behalf of
other members of the class only if:
(a) the class is so numerous that joinder of all members is impracticable;
(b) there are questions of law or fact common to the members of the class
that predominate over questions affecting only individual members;
(c) the claims or defenses of the representative parties are typical of the
claims or defenses of the class;
(d) the representative parties will fairly and adequately assert and protect
the interests of the class; and
43
Id. at 18-19 (emphasis added and citations to Justice Brennan's dissent in Illinois Brick
omitted). But see Coutroulis, supra (noting irony in the fact that since Illinois Brick, some
repealer states now bar class actions for indirect purchasers because of the same concerns that led
the United States Supreme Court to bar pass-on suits under federal law).
-10-
(e) the maintenance of the action as a class action will be superior to other
available methods of adjudication in promoting the convenient administration of
justice.
The word "and" following the semicolon in subsection d is critical because it reveals that the
action must meet all the requirements in MCR 3.501(A)(1); a case cannot proceed as a class
action when it satisfies only some, or even most, of these factors. Further, the plaintiff, when the
plaintiff is seeking to certify the class, has the burden of proving that the action satisfies every
one of the factors in MCR 3.501.44
B. Class Membership
The threshold question in any proposed class action is whether the proposed class
representative is a member of the class. "A plaintiff who cannot maintain the cause of action as
an individual is not qualified to represent the proposed class."45 A&M has alleged facts
sufficient to show that it purchased multiple Microsoft operating systems involved in Microsoft's
documented antitrust violations. Thus, assuming solely for the sake of analysis that there are no
other defects in A&M pleadings and proofs, A&M is an appropriate class representative because,
having purchased numerous Microsoft products, it fits the class definition of an indirect
purchaser that Microsoft's anticompetitive activity allegedly harmed.
C. Numerosity
According to MCR 3.501(A)(1)(a), the first specific class action factor is numerosity.
A&M alleged in its complaint that Microsoft distributed 300 million copies of its operating
systems in the United States, several million of which were distributed in Michigan. By the time
A&M moved for class certification, it had lowered this estimate to hundreds of thousands. Even
so, the class members are so numerous that their joinder would be impracticable, satisfying this
aspect of the court rule. Indeed, attempting to join hundreds of thousands of plaintiffs in a single
suit would border on the impossible.
D. Commonality
MCR 3.501(A)(1)(b) prescribes that, to certify a class action, there must be common
questions of law or fact that predominate over individual questions. Microsoft challenges the
trial court's finding that A&M satisfied this inquiry. This Court has explained that
[t]he common question factor is concerned with whether there "is a common issue
the resolution of which will advance the litigation." Sprague v General Motors
Corp, 133 F3d 388, 397 (CA 6, 1998), cert den 524 US 923; 118 S Ct 2312; 141
L Ed 2d 170 (1998). It requires that "the issues in the class action that are subject
44
See Neal v James, 252 Mich App 12, 16; ___ NW2d ___ (2002).
45
Zine, supra at 287.
-11-
to generalized proof, and thus applicable to the class as a whole, must
predominate over those issues that are subject only to individualized proof." Kerr
v West Palm Beach, 875 F2d 1546, 1557-1558 (CA 11, 1989).[46]
Still, there "is no requirement in the rule that all questions necessary for ultimate resolution be
common to the members of the class."47
A&M clearly showed that there are common issues and facts involved in its claim that
Microsoft engaged in anticompetitive and monopolistic activities, as the suit in the federal
district court proved with respect to MARA itself. Consequently, the pertinent question is
whether A&M can demonstrate with common proof that the members of the class have suffered a
common injury as indirect purchasers of Microsoft operating systems.48 Microsoft contends that
A&M lacks this proof.
Microsoft provides no authority suggesting that A&M had to prove actual damages to any
particular degree of certainty at this preliminary class certification stage. A&M nevertheless had
to provide some basis for the trial court to conclude that all members of the class had a common
injury that could be demonstrated with generalized proof, rather than evidence unique to each
class member.49 To be clear, the question is not whether each member of the class has sustained
an identical amount of damage because of a defendant's anticompetitive behavior, which can be
estimated,50 but, rather, whether "the common issues [that] determine liability predominate."51
Federal precedent applying Michigan law suggests that when a statutory scheme requires proof of
actual damages, as MARA subsection 8(2) does, this language necessarily entails the
individualized inquiry that is inconsistent with the commonality requirement, thus preventing a
class action. 52 Nevertheless, contrary federal precedent indicates that if a plaintiff proposes a
method or formula by which the court could determine that the defendant's conduct caused actual
damages or injury to each class member, even if the amount of damages due each party is later
46
Zine, supra at 289.
47
Grigg v Michigan Nat'l Bank, 405 Mich 148, 184; 274 NW2d 752 (1979).
48
See In re Polypropylene Carpet Antitrust Litigation, 178 FRD 603, 618 (ND Ga, 1997) ("[A]t
the class certification stage, Plaintiffs must show that antitrust impact can be proven with
common evidence on a classwide basis; Plaintiffs need not show antitrust impact in fact occurred
on a classwide basis.").
49
See In re Cardizem CD Antitrust Litigation, 200 FRD 326, 331 (ED Mich, 2001).
50
In re Domestic Air Transportation Antitrust Litigation, 137 FRD 677, 692 (ND Ga, 1991).
51
Bogosian v Gulf Oil Corp, 561 F2d 434, 456 (CA 3, 1977).
52
See Peters v Cars to Go, Inc, 184 FRD 270, 278 (WD Mich, 1998); Van Vels v Premier
Athletic Center of Plainfield, Inc, 182 FRD 500, 509 (WD Mich, 1998); McCoy v Salem
Mortgage Co, 74 FRD 8, 12 (ED Mich, 1976).
-12-
computed at a separate trial, then a class action is possible.53 We address this difficult issue in
detail in a following section.
E. Typicality
MCR 3.501(A)(1)(c) requires that the claims or defenses of representative parties be
typical of the claims or defenses of the class. The parties do not dispute this factor.
F. Adequacy
MCR 3.501(A)(1)(d), the fourth class action factor, requires the trial court to scrutinize
whether the representative parties will fairly and adequately assert and protect the interests of the
class. Similar to the typicality question, there is no dispute concerning this factor.
G. Superiority
MCR 3.501(A)(1)(e), the fifth and final class action factor, asks whether a class action,
rather than individual suits, will be the most convenient way to decide the legal questions
presented, making a class action a superior form of action. In deciding this factor, the court may
consider the practical problems that can arise if the class action is allowed to proceed.54 "The
relevant concern . . . is whether the issues are so disparate" that a class action would be
unmanageable.55 To determine whether a class action is a superior form of action, a trial court
must consider:
(a) whether the prosecution of separate actions by or against individual
members of the class would create a risk of
(i) inconsistent or varying adjudications with respect to individual
members of the class that would confront the party opposing the class with
incompatible standards of conduct; or
(ii) adjudication with respect to individual members of the class that would
as a practical matter be dispositive of the interests of other members not parties to
the adjudications or substantially impair or impede their ability to protect their
interests;
(b) whether final equitable or declaratory relief might be appropriate with
respect to the class;
53
In re Plywood Anti-Trust Litigation, 76 FRD 570, 583-584 (ED La, 1976).
54
Dix v American Bankers Life Assurance Co of Florida, 429 Mich 410, 414, n 6; 415 NW2d
206 (1987), discussing Grigg, supra.
55
Lee v Grand Rapids Bd of Ed, 184 Mich App 502, 504-505; 459 NW2d 1 (1989).
-13-
(c) whether the action will be manageable as a class action;
(d) whether in view of the complexity of the issues or the expense of
litigation the separate claims of individual class members are insufficient in
amount to support separate actions;
(e) whether it is probable that the amount which may be recovered by
individual class members will be large enough in relation to the expense and
effort of administering the action to justify a class action; and
(f) whether members of the class have a significant interest in controlling
the prosecution or defense of separate actions.[56]
Because this factor is intertwined with the class action factor concerning commonality,57 we also
address it in the following section.
VII. The Battle Of The Experts
A. Leffler I
A&M fired the opening salvo in the battle of the experts in this case by submitting Dr.
Keith B. Leffler's April 13, 2001, affidavit (Leffler I) to support its motion for class certification.
Dr. Leffler is an Associate Professor of Economics at the University of Washington. In his first
affidavit, Dr. Leffler indicated that A&M had asked him to describe the type of economic
analysis, evidence, and data he would likely use to determine the scope of the effect, if any,
Microsoft's alleged monopolization had on "Intel-PC compatible operating systems on Michigan
end-users." Additionally, A&M asked him to describe methods by which "any damages to
Michigan end-users can be calculated on a classwide basis." Clearly, this description focused on
the pass-on requirement, the second of the two steps in the analytical construct we set out at the
beginning of this opinion.
Nevertheless, most of Dr. Leffler's analysis in Leffler I concerned the first step in this
analytical construct, the overcharge requirement. Dr. Leffler described three alternative
"yardstick" approaches that could be used to estimate the overcharges. First is a "comparable
market yardstick," which is a comparison price from a comparable market that was not affected
by anticompetitive activity. Second is a "competitive market yardstick," which relies on margins
earned by sellers in a comparable market free from antitrust violations. Third is a "violationfree-period yardstick," which is a price in the market at issue during a period free of the
anticompetitive conduct.
56
MCR 3.501(A)(2).
57
See Zine, supra at 289, n 14.
-14-
This is not to say, however, that in Leffler I Dr. Leffler ignored the pass-on requirement.
Indeed, he referred to it numerous times, saying that
basic economic principles show that the proposed class members paid higher
prices during the class period for Microsoft operating system software whether
purchased as a software package or preinstalled on a PC because of Microsoft's
monopolization. Basic economic principles, therefore, can be used to show that
all proposed class members have been injured.
* * *
Damages to end user class members can be estimated using a class wide
statistical determination of the relationship between the costs faced by Microsoft's
customers and the prices paid by end users. The intense competition in the
distribution of Microsoft operating systems implies that a Microsoft overcharge
will affect a particular end user group the same regardless of the details of how the
operating system reaches the end-users through the distribution chain. It also
suggests a 100 percent pass-on is likely. Therefore, a class wide damage
methodology should be viable given the practical realities of the Microsoft
operating system market.
* * *
As a consequence, as in any indirect purchaser case, the issue arises of the
extent to which Microsoft's overcharges to OEMs [original equipment
manufacturers], distributors or retailers are reflected in the prices paid by the endusers of the operating system.
* * *
There is an [sic] extensive economics literature analyzing the relationship
between cost changes at one level of distribution and price changes downstream.
* * *
For the purposes of class certification, I am assuming, consistent with
Judge Jackson's finding, that consumers do not have access to close substitutes for
Microsoft's operating systems. The economics literature therefore demonstrates
that any overcharge by Microsoft is expected to result in all end-users (i.e. class
members) paying higher prices regardless of the specific point in the distribution
chain from which they purchased.
* * *
-15-
In my opinion, the data should be readily available to apply sound,
accepted economic and statistical methodologies to estimate the impact of
Microsoft's overcharges on the prices to end-users.
* * *
The analysis of the relationship between end user price and Microsoft
customer costs requires a relatively simple statistical estimation. The data for
such estimation should be readily available. The prices charged end users are
available from public sources and, likely, from third party discovery.
* * *
The impact of such actual cost reductions [the reduced costs of OEMs and
system builders for many components such as disk drives and hard drives] can be
statistically related through regression analysis to actual end users' prices. The
end-user price impact of different overcharges to Microsoft customers can then be
inferred from such regression analysis.
[T]he end-user prices of products of varying costs to the retailer or
distributor can be compared to infer statistically how such cost differences are
reflected in end-user prices. Again the end-user price impact of different
Microsoft overcharges to its customers can then be inferred from such statistical
analysis. . . . Modern computer systems and statistical tools can readily handle
such data analysis. I would expect that separate end-user overcharges and
damages could be estimated for each appropriate Microsoft customer channel
through use of a single statistical model.
* * *
[T]he economic expectation in competitive markets is that cost changes
will be fully reflected in the price to the end users.
* * *
Recent economic literature on the effect of taxes on prices also supports
the expectation that there will be a full pass on of a cost change as a consequence
of the elimination of a Microsoft operating system overcharge. Industry experts
also believe that cost changes in the PC industry are fully and rapidly reflected in
end user prices. Microsoft's expert in the government trial recognized that
changes in operating system costs will lead to congruent changes in the prices
paid by end users. Therefore, it is likely that only relatively simple analysis will
-16-
be required to confirm the strong expectation that there will be a full pass on to
end users of the Microsoft operating system overcharges.[58]
Dr. Leffler was also careful to note that "merits discovery" had not yet commenced and that he
had "not at this time actually performed the detailed careful economic and statistical work that
will be required to accurately determine class damages."
Most specialized fields—and some not so specialized—have their own esoteric terms and
particularized methods; the fields of law and economics come quickly to mind. Recognizing the
risk of oversimplification, we believe it fair to say that in Leffler I, Dr. Leffler adopted the "tax
incidence" theory as a method of determining whether Microsoft's alleged overcharge was
passed-on to indirect purchasers.59 As one commentator explains the tax incidence theory:
An overcharge to all of the firms at an intermediate level of distribution is
conventionally analogized to an excise tax imposed on each unit sold by the
overcharged firms. The "tax" results in a parallel upward shift in the direct
purchaser's marginal costs. Under the conventional assumptions of economics,
such a cost would lead the intermediate purchaser to increase its price to its
customers, and thus to transfer some part of the overcharge to them. Under those
assumptions, the relative share of the overcharge borne by the direct and the
indirect purchaser would depend upon the relative elasticities of supply and
demand in the resale market.
* * *
[T]he only circumstances in which the intermediate purchaser would not
pass on any of the overcharge would be when demand is perfectly elastic, or
horizontal, or when supply is perfectly inelastic, or vertical. In the former case,
the seller is unable to raise prices without losing all of its sales; in the latter case,
the seller is unable to alter its output in response to changes in the price of goods
that it purchases, so the price at retail must remain the same. Consequently, in
both cases the intermediate purchaser must absorb the entire price increase. Thus,
under the assumptions of the incidence model, the indirect purchaser will bear
some of the overcharge, except in extreme circumstances.[60]
This analysis assumes that "the retail market is perfectly competitive."61
58
Footnotes omitted throughout these passages.
59
In Leffler I, Dr. Leffler also referred to regression analyses that might determine the amount of
Microsoft's alleged overcharge passed on to indirect purchasers, although he provided no real
detail concerning how a regression analysis might function, and what it would actually reveal.
60
Page, supra at 13-14, 16.
61
Id. at 16.
-17-
B. Nichols Affidavit
Microsoft's responsive salvo came, basically, in the form of two affidavits.62 The first
affidavit was from Dr. Donald A. Nichols, dated June 8, 2001 (Nichols Affidavit). Dr. Nichols is
a Professor of Economics and Public Affairs at the University of Wisconsin-Madison. Dr.
Nichols indicated that he had been asked to do a survey of the prices in Michigan of personal
computers with the Windows operating system preinstalled and the prices of boxed Windows
operating systems offered for retail sale.
In his affidavit, Dr. Nichols described his data sources, survey ranges, and survey
methods. He concluded that, in general, there was substantial variation across Michigan retailers
in the prices quoted for the same computer model on any given date, with greater price variation
for only some models. He also concluded that it was clear from the data related to Michigan
retailers' prices for the Compaq Presario 12XL325 that some Michigan buyers paid different
prices for computers that had identical components while some Michigan buyers paid identical
prices for computers that retailers promoted as having different components. From other data
related to Internet prices for the Compaq Presario 12XL325, Dr. Nichols observed an even wider
variation of prices than in the retailer survey. Dr. Nichols also discussed "price points,"
specifically prices that end with $49.99 or $99.99. He found that a high percentage of Michigan
retailers' prices, after taking into account rebates, are within $1.00 of these price points.
C. Hausman I
Microsoft's second volley was an affidavit from Dr. Jerry A. Hausman (Hausman I),
submitted in opposition to the motion for class certification.63 Dr. Hausman is a Professor of
Economics at the Massachusetts Institute of Technology. In Hausman I, he indicated that he had
been asked to provide an expert opinion on whether, when using common proof, it is possible to
determine with any reasonable degree of certainty "whether Michigan end-users of Microsoft
PCs were in fact injured by the conduct of Microsoft" alleged in A&M's complaint. Microsoft
also asked him to determine whether "the damages sought for the members of the proposed
classes could be estimated with reasonable accuracy using common proof."
Although using different terminology, Dr. Hausman pointed out early in Hausman I that
A&M must demonstrate that Microsoft raised its prices as a result of illegal anticompetitive
actions (the overcharge requirement) and that the price increases were passed on through
intermediaries to the final purchasers (the pass-on requirement). Dr. Hausman's analysis was
wide-ranging, but, when concentrating on these two requirements, he concluded that
62
There were other affidavits filed in this case, but we believe the ones that we summarize here
are the critical ones.
63
The proof of service attached to Hausman I erroneously shows June 14, 2000, as the date for
the affidavit. Other documentation in the record and references in the affidavit itself make clear
that the proper date was June 14, 2001. Regardless, this date does not change our analysis.
-18-
economic theory does not provide any straightforward way to analyze passthrough without an individualized analysis that takes account of the diversity
among the thousands of affected manufacturers, distributors, and retailers.
* * *
The conclusion . . . is that the pass-through, if any, of an alleged
overcharge to the next level of distribution depends on the demand, costs, and
competition-related factors of the selling firm and the specific product subject to
the overcharge. In this case, one would need to know the demand, cost, and
competition-related factors for the thousands of firms in the distribution chain as
well as all of the Microsoft operating systems at issue.
[T]his undertaking would be infeasible using common proof in this case
because the large number of final purchasers, firms, and products, the highly
diverse business strategies used by firms, and the length of the proposed class
period produce numerous variations in the possibilities of any seller passing
through any portion of an overcharge.
Plaintiffs' expert Professor Leffler proposes several "yardsticks" against
which he claims the alleged overcharge on Microsoft operating systems could be
measured. . . . It is important to note that these proposals concern estimating the
overcharge to direct purchasers. None of these proposals addresses the essential
issue for the plaintiff: the more difficult problem of estimating the amount of the
overcharge that was passed through to final purchasers.
Moreover, all of Professor Leffler's proposed yardsticks are fundamentally
flawed, they are speculative, and they do not account for the economic realities of
this case.
Professor Leffler claims that to estimate pass-through, "there is no need to
model how the overcharge is passed on at each stage, rather the interest is only in
how an overcharge by Microsoft to its customers impacts the final price." . . . In
other words, Professor Leffler suggests that he need only econometrically analyze
the relationship between end user prices and Microsoft's prices. The economic
conditions in the intermediate stages of distribution are deemed "irrelevant" for
his analysis . . . resulting in "a relatively simple statistical estimation". . . .
However, Professor Leffler's assertions are inconsistent with generally accepted
econometric theory and practice in several ways.
Plainly, Dr. Hausman raised a number of objections to Dr. Leffler's "yardstick" methods for
calculating the alleged overcharge, but he concentrated his fire on Dr. Leffler's approach to the
pass-on requirement. There, Dr. Hausman asserted that "[t]he factors that enter into determining
whether a specific member of the proposed class was in fact harmed cannot be analyzed on a
-19-
class-wide basis" and that "determining with any degree of certainty who in fact was injured
would require detailed, individualized factual inquiries."
D. Leffler II
A&M's countervolley consisted primarily of a second affidavit from Dr. Leffler, dated
July 6, 2001 (Leffler II). At that time, Dr. Leffler noted that "data have not been produced in
discovery from which" he could "actually calculate damages." Consequently, he conceded, he
could "only evaluate in a conceptual rather than empirical way the likely class-wide methods of
damage calculations." For instance, Dr. Leffler explained in a footnote that
[l]icensing agreements for some OEMs [original equipment manufacturers] and
retailers are available. However, these agreements do not necessarily provide
information as to the actual prices paid by the OEMS or the retailers. The actual
cost to the OEMs and retailers that contract with Microsoft will be provided in
Microsoft databases that are not yet available. Some list price information for
distributors is also available, however, again, without the Microsoft database I
cannot know what the actual transactions prices were. Information as to the prices
charged end-users by OEMs and retailers is being obtained from third party
vendors and through third party discovery but these data are not yet available in
any systematic way.
Despite the absence of hard numbers to support A&M's claims, Dr. Leffler summarized his
position with respect to the overcharge requirement and the pass-on requirement:
Professor Hausman mischaracterizes my proposed yardstick damage
methodologies. He offers no conceptual methodological reasons that such
yardsticks cannot be implemented. Therefore, determination of Microsoft's
overcharge is amenable to standard economic yardsticks.
The damages plaintiff seeks to recover in this case are those suffered by
end-users. These damages can be estimated by a simple statistical determination
of the relationship between prices paid by Microsoft's customers and the prices
paid by end-users. Professor Hausman himself relies upon such a simple
approach. There is no economic reason to estimate a complete supply and
demand model for each seller at each level of the distribution chain. Professor
Hausman's extensive detailed description of myriad distribution channels is of no
relevance to proper estimation of the damages to end-users.
While Professor Hausman recognizes the intense competition in
distribution of Microsoft software, he ignores the implications of this intense
competition for the damage estimation. Intense competition in distribution
implies that a Microsoft overcharge will affect a particular end-user group the
same regardless of the details of how the operating system reaches the end-users
through the distribution chain. It also suggests a 100 percent pass-on is likely.
-20-
Therefore, a class-wide damage methodology should be viable given "the practical
realities of the case."
Dr. Leffler also responded to several of Dr. Hausman's specific points on the passon requirement:
I understand that plaintiff, having established the adverse impact on all
members of the class, is required to reasonably estimate damages to the class.
This is distinct from the estimation of the damages to each individual member of
the class. Professor Hausman's concern seems to focus on the allocation of the
class-wide damages among individuals. I believe it is premature to address this at
this time. Indeed, the answer may be manifest from the ultimate class-wide
methodology. For example, if a proper damage analysis demonstrates that there
was a 100% percent [sic] pass on of the Microsoft overcharge and the overcharge
was 50 percent of the Microsoft price, it would be a simple matter to determine a
specific individual's damage.
* * *
. . . However, to calculate the damages to end-users there is no need to
model how the overcharge is passed on at each stage. Rather, the goal is only to
determine how an overcharge by Microsoft to its customers impacts the price to
end-users. The supply and demand elasticities at each distribution stage are not
needed to predict how end-users are impacted. Rather, analysis of how the actual
prices charged end-users were impacted by actual cost changes to Microsoft's
customers will show how the overcharge damaged end-users. The analysis of
relationships between end-user price and Microsoft customer cost requires
relatively simple statistical estimation.
* * *
. . . Therefore, it is likely that relatively simple analysis will be required to
confirm the strong expectation that there will be a full pass on to end-users of the
Microsoft operating system overcharges.
E. Hausman II
The battle of the experts concluded with Dr. Hausman's second affidavit, dated July 17,
2001 (Hausman II). In Hausman II, Dr. Hausman summarized his critique of Leffler II:
Professor Leffler proposes an approach that "assumes away" the
fundamental problems with using recognized empirical economic methods to
establish antitrust impact on a classwide basis.
* * *
-21-
For instance, Professor Leffler's conclusions rely heavily on his
assumption that the PC industry is essentially perfectly competitive. In particular,
his conclusion that 100% of the alleged overcharge will be passed through to final
purchasers rests on this assumption . . . . However, his assumption of perfect
competition is not based on any analysis and, indeed, is inconsistent with the basic
economic characteristics of the PC industry, where the products are highly
differentiated, not homogenous [sic]; brand names are an important source of
competitive advantage; and firms face significant fixed costs.
Dr. Hausman also responded to several of Dr. Leffler's specific points on the pass-on
requirement:
In saying that computer retailing is "extremely competitive," Professor
Leffler appears to be claiming that computer retailing is essentially "perfectly
competitive," which provides the justification for his assumption that passthrough would be 100%. Perfect competition is a textbook economic construct
that is rarely, if ever, encountered in the real world.
* * *
Because OEMs compete with each other in the context of differentiated
products, not "perfect competition," Professor Leffler's assumption that the PC
industry is essentially perfectly competitive (and the implied assumption that pass
through would be 100%) is not valid. While Professor Leffler wants the situation
to be simple so that he could apply "very basic proposition[s] of introductory
economics" . . . the economic realities of the industry are much more complex and
thus a much more complex economic analyses [sic] must be performed.
VIII. Precedent regarding class certification in Indirect Purchaser Suits
A. Overview
There are no reported appellate cases in Michigan interpreting the indirect purchaser
provisions of MARA in the context of certifying a class action. Consequently, the proof
necessary to demonstrate commonality and superiority, the first and fifth class action factors, in
an indirect purchaser action presents an issue of first impression in our state at the appellate
level. In considering this matter, however, we examine trial court decisions in Michigan
involving class actions by indirect purchasers.
Our search of foreign case law has been slightly more fruitful, revealing some decisions
from appellate courts as well as trial courts in other states addressing class certification in
indirect purchaser suits against Microsoft.64 Those cases from foreign jurisdictions relying on
64
There are opinions that decline to certify class actions against Microsoft, but which are of
limited value in this case either because they do not come from Illinois Brick repealer
(continued…)
-22-
evidence similar to the evidence likely to be presented in this case are of particular interest to us.
Thus, we also examine these foreign cases to determine whether they might have components
persuasive to our decision in this case.
B. Michigan Trial Court Decisions
(1) Holmes v Abbott Laboratories
In Holmes v Abbott Laboratories,65 a case Microsoft submits is persuasive,66 the plaintiff
moved to certify a class action on behalf of consumers who purchased infant formula between
1980 and 1992, and for which the defendants had allegedly fixed the prices pursuant to a
conspiracy that implicated the way health care professionals helped advertise and market the
formula.67 At the hearing on the motion to certify the class, the plaintiff 's attorney argued that, in
demonstrating that there was common proof of impact, it was unnecessary to prove that
each purchaser bought [the infant formula] in the same manner from the same
seller or in the same quantity. Proof of impact for class certification does not
require that each purchase have the same size claim or even paid the same
amount. Proof of impact is whether or not there is a common basis to judge at a
preliminary stage that all purchases of the effective [sic] product were
impacted.[68]
This argument prompted the trial court to ask the plaintiff 's counsel to address a defense expert's
testimony concerning the infant formula prices, including delays and plateaus, in particular the
probability that "a person could get in and out of the market and never have experienced any kind
(…continued)
jurisdictions or because they involve statutes that protect consumers, but not necessarily on
antitrust grounds. See, e.g., Pomerantz v Microsoft, ___ P2d ___ (Colo App, 2002); Vacco v
Microsoft Corp, 260 Conn 59; 793 A2d 1048 (2002); Berghausen v Microsoft Corp, 765 NE2d
592 (Ind App, 2002); Davidson v Microsoft Corp, 143 Md App 43; 792 A2d 336 (2002); Arnold
v Microsoft Corp, unpublished opinion per curiam of the Kentucky Court of Appeals, issued
November 21, 2001 (Docket No. 2000-CA-002144-MR); O'Connell v Microsoft Corp,
unpublished memorandum opinion and order of the Massachusetts Superior Court, issued June
14, 2001 (Docket Nos. CIV.A 00-01743, CIV.A 00-02456); Daraee v Microsoft Corp,
unpublished order of the Oregon Circuit Court, entered June 27, 2000 (Docket No. 0004 03311).
Thus, because those cases are not particularly relevant, we do not examine them.
65
Holmes v Abbott Laboratories, Inc, unpublished order of the Calhoun Circuit Court, entered
July 10, 1995 (Docket No. 94-744-CP).
66
Microsoft has provided this Court with the transcripts of the class certification hearing in
Holmes, which the trial court in that case held on May 22, 1995. Because the trial court's order is
particularly brief, we refer to pages of the transcript.
67
Id. at 6, 75.
68
Id. at 8.
-23-
of pass through price increase."69 The plaintiff 's counsel responded that the defense would have
the court believe that the conspiracy was to fix prices over time, in which case comparing price
increases over time would reveal an overcharge as a step before determining whether consumers
eventually absorbed the overcharge.70 However, from the plaintiff 's perspective, examining a
change in price alone over time was too simplistic because it failed to answer the critical question
whether, absent the alleged conspiracy, the prices consumers paid would have been lower.71 In
other words, the plaintiff 's argument suggested that, while prices for many products may
naturally increase over time because of a variety of factors, not every price will increase, nor will
it necessarily increase at the rate that consumers experienced. Thus, it was possible that even
products that had a modest increase in price over a certain period might be passing an overcharge
to consumers that would not have existed in a competitive market.72
Turning to the evidence, the plaintiff 's attorney argued that it was possible to calculate a
common basis for overcharge and pass-on. Indeed, he contended, Dr. Beyer, the plaintiff 's
expert, had pointed to "benchmarks" to make the appropriate calculations.73 Though the
defendants challenged "the validity of those benchmarks," the plaintiff 's attorney countered that
whether a benchmark was valid was a "merits determination," not appropriate for the preliminary
questions addressed in the process of certifying a class.74 The plaintiff 's attorney conceded that
the trial court need not accept at face value the representation that the method of calculating
effect was appropriate, but that the plaintiff had to demonstrate by a preponderance of the
evidence75 on the record a method "that is a viable, rational method or that the method is not so
insubstantial that it amounts to no method at all."76 The plaintiff 's attorney then proceeded to
outline Dr. Beyer's methodology, highlighting the areas in which Dr. Beyer and the defense
expert agreed. In short, as the plaintiff 's attorney portrayed Dr. Beyer's earlier testimony, the
expert was able to demonstrate, partly by using pricing related to the infant formula used in the
Women Infants and Children (WIC) program,77 that the wholesale price the defendants charged
to retailers affected the price retailers then charged to consumers, connecting the initial
overcharge with the pass-on.78 Critically, by calculating the aggregate difference between what
the class actually paid and what it would have paid without the conspiracy, Dr. Beyer's method
69
Id.
70
Id. at 8-9.
71
Id. at 9.
72
See id. at 12.
73
Id. at 15.
74
Id.
75
Id. at 27.
76
Id. at 16.
77
Id. at 78.
78
Id. at 26.
-24-
avoided any need to calculate how much overcharge was passed-on to each individual class
member.79
Despite these arguments, the trial court remained unconvinced that the plaintiff had
satisfied her burden under MCR 3.501. Analyzing each class action certification factor, the trial
court found that the class was so numerous that joinder would be impracticable.80 Skipping to
the third factor, the trial court found that the evidence met the typicality requirement.81 The
plaintiff had also proved the fourth and fifth factors to the trial court's satisfaction because the
trial court had no doubt that the plaintiff would be an appropriate class representative and
because a class action would be the most efficient way to handle the legal interests of the tens of
thousands of individuals who purchased infant formula in the years at issue. However, returning
to the second factor concerning the common proofs of impact, the trial court noted the
inconsistency in Dr. Beyer's testimony, in which he once claimed that the overcharge had harmed
the retailers, which the trial court interpreted to exclude the possibility that the overcharge had
been passed-on to the proposed class.82 The trial court remarked that Dr. Beyer noted that
retailers did not pass-on overcharges consistently over time, or when compared to other
retailers.83 Dr. Beyer had also conceded that he did not interview any Michigan retailers, and
was unaware of any way to adjust his calculations for this inconsistent pass-on rate.84 Further,
acknowledging the actual damages requirement in MARA subsection 8(2), the trial court
observed that Dr. Beyer had discussed his methodology in terms of the "insight" it offered:
When Dr. Beyer says that the WIC data points provide the best insight
available in terms of what the price competition would have looked like and so on
and later says the WIC open market bid prices did offer among the various
benchmarks not only the best insight but in my judgment a good insight into what
price competition and so on, that falls short of clearly establishing class-wide a
means of determining damages.
Then we get to the point made by [the defense expert] that when you have
47 different types of products sold and more than a million consumers, we get to
[defense counsel's] point in his argument as it relates to manageability.[85]
Consequently, though the trial court found Dr. Beyer credible,86 it determined that the plaintiff
had "failed to establish by a preponderance of the evidence that there are questions of law and
79
Id. at 70.
80
Id. at 76.
81
Id. at 77.
82
Id. at 82-83.
83
Id. at 83.
84
Id.
85
Id. at 86.
-25-
fact common to the members of the class that predominate over questions of fact affecting only
individual [class] members."87 Therefore, the trial court denied the motion to certify the class.88
(2) Wilcox v Archer-Daniels-Midland Co
In Wilcox v Archer-Daniels-Midland Co,89 the plaintiff alleged that the defendants had
conspired to fix the price of high fructose corn syrup and citric acid.90 Corn syrup and citric acid
are ingredients in an enormous number of commercially prepared food products, such as "soft
drinks and breakfast cereals."91 Under the plaintiff 's theory, the defendants, who controlled "the
vast majority of the market" for producing these ingredients, conspired to raise the prices for
these products charged to the food manufacturers.92 In turn, the food manufacturers passed on
this overcharge to the consumers who bought the wide array of food products containing these
ingredients.93 Thus, as the trial court put it, the class the plaintiff proposed for certification
"would, in essence, consist of everyone residing in the state during" a two-year period starting
January 1, 1992, and ending December 31, 1994.94
The trial court, as was proper, then analyzed each of the factors relevant to class
certification under MCR 3.501. The trial court found that a class consisting of "nearly every
person in this state" would be too numerous to make joinder the more practical approach in the
case.95 Similarly, the trial court found that the plaintiff would make an appropriate class
representative because he had the same interests in the suit as the other members of the proposed
class and would vigorously pursue it, as his choice of experienced and vigorous attorneys had
demonstrated up to that point.96
In its analysis of the factor in MCR 3.501(A)(1)(b), the trial court squarely addressed the
defendants' contention "that it would be extremely difficult to demonstrate any consistent
damages suffered by any one individual in the proposed class, and therefore, the class is
(…continued)
86
Id. at 80.
87
Id. at 86-87.
88
Id. at 87.
89
Wilcox v Archer-Daniels-Midland Co, unpublished opinion and order of the Ingham Circuit
Court, issued September 29, 1997 (Docket No. 96-82473-CP).
90
Id. at 1-2.
91
Id. at 2.
92
Id.
93
Id.
94
Id.
95
Id. at 3.
96
Id. at 4.
-26-
impracticable."97 The trial court rejected this argument, stating that "[t]he fact that there are
some questions that are difficult or not common to the group will not necessarily defeat the
Plaintiff 's request to certify a class action."98 In the trial court's opinion, despite some likely
differences between members of the plaintiff 's proposed class, critical questions, such as whether
a conspiracy actually existed, would be uniform for the class.99 The trial court did not find proof
problematic under this factor.
The trial court's analysis thus had proceeded smoothly in a direction favoring class
certification through the first four certification factors.100 Yet, the final class certification factor,
which synthesized the other factors in asking whether a class action would be superior to other
forms of lawsuits, troubled the trial court. The trial court concluded that the likelihood that many
of the class members would have sustained such small damages that suing individually would not
be feasible militated in favor of a class action.101 However, the trial court returned to the
question of proof, explaining that a class of the size proposed "creates a vast problem of proof
that in this Court's opinion tolls the death knell for the request to certify a class in this case."102
First, the trial court found that the proposed class was a "fluid group," making it virtually
impossible to determine who actually was in the class.103 For example, though the plaintiff
claimed that proving and quantifying residency during the period defined for the class would be
possible, the trial court questioned how the parties could account for people who had lived in the
state but had moved, people who worked in this state but lived elsewhere, and the myriad other
situations a proposed class of that size posed.104 As the trial court put it, dealing with the
paperwork would be "staggering."105
Second, the trial court noted that the prevalence of citric acid and corn syrup made it
highly likely that the members of the class would not have known when they consumed the
ingredients, much less that they would have kept any records.106 This plainly posed a "serious
and substantial problem . . . [in] ascertaining the amount of damages suffered by any of the
claimants."107 The trial court acknowledged that consumer goods had been the subject of class
97
Id. at 3.
98
Id. at 3-4.
99
Id. at 4.
100
Id. at 5.
101
Id. at 5.
102
Id. at 6.
103
Id.
104
Id.
105
Id.
106
Id. at 6-7.
107
Id.
-27-
actions in the past, but noted that this case was relatively unusual in the sense that it related to
ingredients rather than finished products.108 The plaintiff suggested avoiding this problem by
assuming that "everyone [in the class] ate or drank the same amount of the various products
during the applicable period." 109 The trial court rejected this effort to "generalize" the proof of
damages, stating that
[t]he purpose of this litigation would be to compensate those people who were
damaged by the alleged illegal activities . . . not just to fix some punishment for
antitrust violations. While the people of this state deserve protection from illegal
price fixing, there are other mechanisms available to punish such illegal
actions.[110]
Consequently, the trial court denied the motion for class certification, resting its decision on the
difficulty of defining the class and proving damages.
(3) Wood v Abbott Laboratories
In the 1990s, Shirley Wood filed an action in Oakland Circuit Court accusing Abbott
Laboratories of engaging in price fixing in one segment of its pharmaceutical market.111
According to Wood, Abbott had priced its products on the basis of the identity of the
intermediate (direct) purchasers, charging higher prices to the retail pharmacies it disfavored, and
lower prices to the institutional pharmacies, such as hospitals, nursing homes, and health
maintenance organizations, it favored. Wood asserted that this scheme negatively affected the
consumers who purchased their medications from retail pharmacies, which passed on the higher
drug prices to them. Thus, Wood asked the trial court to certify a class consisting of consumers
who had purchased name-brand drugs from one of the disfavored retail pharmacies.
The trial court wasted no time in analyzing the class certification factors, focusing
entirely on whether Wood could prove overcharge and pass-on for the entire class with common
proofs. Wood's expert maintained that findings in a similar federal antitrust case, a discount
method comparing the prices Abbott charged the favored and disfavored direct purchasers, and
the profit as the logical goal of the conspiracy were sufficient proof of overcharge. The expert
suggested that regression analysis, a tax incidence theory, and standard economic theories made
it "optimal for a pharmacy to pass on some portion of its cost increases to the consumer," thus
satisfying the pass-on requirement. However, the expert conceded that a regression analysis
could not calculate the actual pass-on rate, and that the incremental costs that would affect this
analysis would vary. The expert also conceded that the pass-on rate might vary according to the
108
Id. at 7.
109
Id.
110
Id.
111
Wood v Abbott Laboratories, unpublished opinion of the Oakland Circuit Court, issued
September 11, 1997 (Docket No. 96-512561-CZ), pagination unavailable.
-28-
drugs at issue, necessitating individual calculations for each drug. The defense expert
emphasized the individual calculations that would be necessary, explaining that his experience
demonstrated that retailers did not necessarily pass on all the price increases, and were not even
consistent regarding that portion that they did pass on to consumers. In light of these variations,
the defense expert also concluded that it was impossible to calculate the amount of pass-on using
the opposing expert's simple cost comparison method.
The trial court, in considering these conflicting statements regarding how to calculate
pass-on, returned to MARA's language in MCL 445.778(2). Emphasizing that MARA required
proof of actual damages, the trial court concluded that the plaintiff 's expert had not provided a
common way to calculate each class member's damages. The expert's method "would require
examination of the drugs each class member purchased from which retailer, the discounts
applicable to each retailer for each drug at the time of purchase, and other relevant factors,
resulting in thousands of mini-trials and rendering the class unmanageable." Accordingly, the
trial court found that "individual questions of fact as to both injury and damages predominate
over the one theory common to the class, that being the existence of the alleged conspiracy," and
denied the motion for class certification.
(4) Conclusions And Common Factors
Clearly, the facts of the individuals cases weighed most heavily on the trial courts in
Holmes, Wilcox, and Wood. However, these three opinions reveal several important factors
about the way MARA's actual damages requirement and the court rules identify indirect
purchaser cases that are inappropriate for class certification.
Proving a defendant's illegal conduct may not be a particularly difficult matter, even
when a class is large. In most cases, no matter how large the class, there are usually only a
handful of defendants, at most. All members of the class are highly likely to use the same
evidence to prove the defendant's illegal conduct that essentially binds the class as a single entity.
In Wilcox, for instance, the plaintiff sued only five defendants that manufactured high fructose
corn syrup and citric acid. As the trial court in Wilcox suggested, even though the class members
may have purchased these two ingredients in any number of products, the defendants allegedly
engaged in the same illegal activities. Indeed, with each defendant being part of the same alleged
conspiracy, common proof should have been easy to find, if any proof of the conspiracy was
available.
More importantly, with respect to the nature of the proof itself, there is a distinct
advantage in proving not only the illegal conduct, but also the overcharge in comparison to the
pass-on. The evidence may be in the form of testimony from eyewitness whistleblowers, former
employees, corporate accountants and officers, as well as documents, such as minutes of board
meetings and invoices showing charges to direct purchasers like retailers. In Holmes, the
plaintiff relied heavily on the defendant's internal documents to prove, at least preliminarily, that
the defendant had fixed prices. Courts and juries are comfortable examining this sort of evidence
because it is grounded in the observable world.
-29-
In contrast, when proving pass-on, plaintiffs typically must present evidence in the form
of economic theory and analysis. These theories and analyses organize vast amounts of data and
explain trends that would otherwise defy categorization in the ordinary person's lexicon.
Nevertheless, though the real world often validates economic theories and analyses, they
represent evidence that courts and juries may have a difficult time accepting as proof. This is not
to say that courts and juries are unable to understand economic theories and analyses, but that
they can appreciate that there is a distance between theory and reality, and that the actual
damages requirement in MARA mandates proof of pass-on's reality. The economic analyses in
these three Michigan cases we have examined ultimately failed to bridge the gap between theory
and reality, but they are useful in that they demonstrate a range of pitfalls that frustrate making
that theory-reality connection.
In Wilcox, it seems quite plausible to us that the plaintiff could have found an economic
theory to suggest that pass-on actually occurred because the circumstances surrounding the case
made pass-on so likely. Consider that the products at issue were used widely, which may have
allowed all the direct buyers to pass on the overcharge to consumers without drawing any
attention to the increased price. These direct buyers who made the consumer goods that
contained the ingredients at issue were virtually required to purchase the ingredients from the
defendants because of the defendants' dominance in the market. This not only made it likely that
all direct purchasers had this overcharge to pass on to consumers, the large scale and consistent
uses for these ingredients may have made the amount of the pass-on more uniform. The food
products in which these ingredients were used may have had a low profit margin without the
price fixing, preventing direct purchasers from tolerating the overcharge, thereby requiring the
pass-on. Though these circumstances seemed to suggest that pass-on actually occurred, the very
breadth of the consumer products involved, the length of the class period, the size of the class,
and the likely variation in the amount of consumer products each class member purchased made
it impossible to propose an economic analysis that would do anything more than "generalize"
damages. As the trial court in Wilcox found, generalization is inherently incompatible with
proving actual damages. Further, though the information available in the Wilcox trial court's
opinion is limited, as far as we know, the plaintiff 's expert had yet to name a theory or propose
the outlines of an analysis that would lead to this generalization once the parties completed
discovery. In the end, the trial court's decision in Wilcox suggests that the high likelihood of real
world pass-on does not obviate the need for proof of the damages the members of the class would
be entitled to receive. While the class certification stage does not require an exacting analysis of
damages, it nevertheless requires more than a promise that, when the time comes, a plaintiff will
be able to suggest a general figure for damages.
Holmes, however, represents a different type of problem in proving pass-on. The plaintiff
in Holmes retained an expert who not only identified the economic theories and analyses that he
believed would be useful in calculating the amount of the overcharge passed on to the infant
formula purchasers who would comprise the class, the expert actually performed calculations
using real data. Thus, unlike the plaintiff in Wilcox, the plaintiff in Holmes presented credible
evidence that she would be able to calculate the amount of pass-on, thereby quantifying the
damages the class members sustained from the defendant's allegedly anticompetitive behavior.
Nevertheless, the flaw in the plaintiff 's calculations boiled down to the variations in the behavior
-30-
of the direct purchasers, that is, the infant formula retailers. With so many different retailers,
each with individual economic constraints and interests, the plaintiff 's expert learned that there
was no consistent pass-on rate, even at the same retailer over time. Even if the expert could have
calculated the pass-on rate for the individual retailers, that enormous task would have destroyed
the efficiency a class action otherwise provides.
Holmes, and to some extent the extraordinarily large proposed class in Wilcox, illustrate
the paradox of indirect purchaser class actions concerning consumer goods. If the amount of
overcharge passed on to consumers was large, individuals would pursue individual remedies.
However, in many instances, the amount of overcharge passed on to purchasers is relatively
small, providing little incentive for individual purchasers to sue on their own.112 In order to
make a class action lawsuit economically feasible for the plaintiff, especially when an overcharge
is small and the pass-on likely smaller, the class must be very large. Yet, as the class grows
larger, so too does the number of variables affecting the rate at which the individual class
members were forced to assume the overcharge through pass-on. This makes it difficult, if not
impossible, to devise an economic theory and analysis to account for the pass-on to the class as a
whole, regardless of how dependable and readily available the data are. Even assuming that an
expert's calculation would accurately determine the actual damages a portion of the class
sustained, it must account for the actual damages of the entire class.
Wood exemplifies this paradox. The proposed class in Wood, while not as large as in
Wilcox, involved pharmaceutical buyers who not only purchased their medications from a variety
of allegedly disfavored pharmacies, they also purchased a variety of medications. Though the
trial court had not yet certified a class, much less allowed the case to go to trial, the defense put
the plaintiff 's economic theories to the test. Choosing just seven of the medications the
defendants produced, the defense expert was able to show a significant disparity in the amount of
overcharge passed on to consumers, ranging from zero percent to one hundred percent. These
real world data had a definite effect on the trial court, which concluded that the plaintiff 's expert
had no way to calculate actual damages on a class-wide basis.
In summary, when the only figures available to prove damages are general in nature, they
fail to prove the actual damages the class members sustained. Economic theories and analyses
are most useful, and therefore come closest to satisfying the actual damages and common proof
requirements for pass-on, when there is a minimum of variables involved. However, even
assuming that a consistent pass-on rate exists and can be demonstrated with common proof, the
plaintiff must do more than promise that this sort of calculation will be available in the future.
Moreover, the burden allocated to the party moving for class certification113 to find a method of
common proof gives the party opposing class certification the luxury of reacting to the moving
party's proposed theories and analyses. By conducting studies, some very preliminary and
112
See MCR 3.501(A)(2)(d) and (e).
113
Typically, but not always, the party who moves for class certification in a class action is the
plaintiff.
-31-
modest in scope, the party opposing class certification has a reasonable prospect of
demonstrating significant variations in the market, casting doubt on whether the moving party
can prove actual damages with common proof.
C. Foreign Decisions Regarding Indirect Purchaser Suits Using Similar Evidence
(1) Melnick v Microsoft Corp
In Melnick v Microsoft Corp,114 the plaintiffs indirectly purchased Microsoft's operating
systems software and made allegations virtually identical to allegations in the instant case. In
support of their motion to certify a class, the plaintiffs offered an affidavit from the same
Dr. Leffler involved in this case. Their hope was that this affidavit would prove class-wide
damages and show how to calculate damages relying on general economic principles because
Dr. Leffler did not have access to data that would allow him to calculate damages. The Melnick
trial court concluded that Dr. Leffler's analysis was a generic statement of economic theory, not
facts, while Microsoft's experts provided sufficient data and analysis about the markets in Maine
to support its argument. In the end, the Melnick trial court denied the motion for certification
because the plaintiffs relied only on general economic theories in support of their case and they
were unable to show that such theories were workable under the applicable facts.
(2) Gordon v Microsoft Corp
The facts in Gordon v Microsoft Corp,115 another indirect purchaser case, are virtually
identical to the facts of this case. When the plaintiffs moved to certify a class, the trial court in
Gordon analyzed Dr. Leffler's affidavit and the evidence Microsoft offered, including Dr.
Hausman's affidavit. While the Gordon court discussed both sides' positions and theories, it
apparently accepted the plaintiffs' offer of proof on the issue of both injury and damages for the
class without subjecting it to a rigorous analysis on the grounds that such an analysis is best left
for trial. In short, the Gordon court may have decided to certify the class because, otherwise, the
case could not go forward. Microsoft appealed the trial court's decision to Minnesota's
intermediate appellate court, which declined to review the case under its discretionary appellate
authority.116 The Minnesota Supreme Court then took the case, but purposefully chose not to
address the substantive issues surrounding class certification in light of the nature of Microsoft's
petition with the court.117 Rather the court explored the factors affecting discretionary review in
the lower appellate court, ultimately affirming the intermediate appellate court's decision to deny
114
Melnick v Microsoft Corp, unpublished opinion of the Maine Superior Court, issued August
24, 2001 (Docket Nos. CV-99-709, CV-99-752), pagination unavailable.
115
See Gordon v Microsoft Corp, unpublished memorandum opinion of the Minnesota District
Court, issued March 30, 2001 (Docket No. 00-5994).
116
Gordon v Microsoft Corp, 645 NW2d 393, 396 (Minn, 2002).
117
Id. at 396-397.
-32-
review.118 Thus, as of June 2002, the class action against Microsoft in Minnesota was
proceeding toward trial.
(3) Bellinder v Microsoft Corp
In Bellinder v Microsoft Corp,119 a Kansas trial court certified a class action made up of
indirect purchasers of Microsoft's operating systems software. The Bellinder court also analyzed
the parties' evidence, which included Dr. Leffler's affidavit, and concluded that its role at the
preliminary class certification stage did not extend to deciding which of the experts was correct,
which was a matter for trial. Instead, the Bellinder trial court seemed to accept Dr. Leffler's
theories on injury and damages without scrutinizing those theories in light of the contrary
evidence Microsoft offered. The trial court saw subclasses as the appropriate way in which to
handle some of the evidentiary complexities Microsoft identified. In the end, the trial court,
which emphasized the useful role private antitrust actions play and the need to protect consumers
in an efficient manner, certified the class.
(4) Conclusions And Common Factors
In a sense, when we look at these cases from other jurisdictions in comparison to the
Michigan trial court cases, the certification decisions illustrate Page's "skeptical" versus
"sanguine" paradigm. Those trial courts that have denied class action certification have tended to
value accuracy over approximation, while those trial courts that have granted class action
certification have taken the opposite approach, allowing "reasoned estimation" to prevail over
precision. Plainly, the more rigorous the analysis, the less likely the courts were to certify the
class. Though not binding on us, we gather from Holmes, Wilcox, and Wood that Michigan's trial
courts tend to interpret MARA and our state court rules as requiring a rigorous analysis. We,
too, think that MARA's actual damages requirement mandates this approach.
IX. The Trial Court's Decision
A. Overview
As we mentioned earlier in this opinion, the trial court in this case, without question, took
considerable care with its opinion granting class action certification. The trial court identified the
standards for class action certification in MCR 3.501 and engaged in an extended analysis of the
rule's five requirements. With respect to the commonality requirement, it distinguished between
common questions and predominance, concentrating on predominance. The trial court set out
general standards employed by federal courts to determine whether a plaintiff can establish the
fact of injury (effect) by common proof before reviewing the assertions and conclusions in the
various affidavits. The trial court, without using the terminology adopted in this opinion and
118
Id. at 397, 403.
119
Bellinder v Microsoft Corp, unpublished memorandum opinion of the Sedgwick County,
Kansas District Court, issued September 7, 2001 (Docket No. 00-C-0855).
-33-
used extensively in the case law, then turned to the necessary common proof of overcharge and
pass-on.
B. The Overcharge Requirement
The trial court explicitly noted that Dr. Leffler had described three "yardstick"
methodologies that could be used to establish Microsoft's purported overcharge to its direct
purchasers: the comparative margin method, the competitive margin method, and the violationfree period method. The trial court acknowledged that Dr. Hausman challenged each of these
methodologies insofar as "they do not account for the economic realities of this case." Deciding
that it was not necessary to resolve the dispute among the experts, the trial court concluded that
A&M had "demonstrated through Professor Leffler that impact might be shown by common
proof."
Though it does not serve as the foundation for our decision, we observe that the trial
court's approach on the overcharge requirement may have been correct. Given the findings in the
federal Microsoft antitrust litigation and Dr. Leffler's three "yardstick" methodologies, it is
possible that establishing the fact of injury to direct purchasers is "'virtually a mechanical task,'"
"'capable of mathematical or formula calculation'"120 in this case. These proposed methodologies
may be sufficiently probative of a loss suffered by all the class members attributable to the
antitrust violation to satisfy this overcharge requirement,121 as well as the common proof required
under MCR 3.501(A)(1)(b). This common proof that each class member suffered injury also
tends to support the trial court's finding that a class action was the superior form of lawsuit.
Were the fact of injury the only substantive question relevant to the class certification question,
we might affirm the trial court's decision. However, the pass-on requirement is equally critical.
C. The Pass-On Requirement
Under a heading entitled "Damages," again without using the terminology, the trial court
attempted to address the pass-on requirement. The trial court, citing federal law, asserted that the
plaintiff need not present a precise formula, and that it was not necessary that the plaintiff
demonstrate to a certainty that the proposed methods will succeed. Further, the trial court stated
that its decision whether to certify the class did not depend on whether the proposed method
would eventually succeed on the merits, but rather "whether or not the proposed methods are so
insubstantial as to amount to [no] method at all." The trial court's citations are correct; its
conclusions with respect to the pass-on requirement are not.
Essentially, there are two approaches to the pass-on requirement in Dr. Leffler's
affidavits. The first is the tax incidence theory. As noted above, this theory may function as an
interpretive tool in a market that is perfectly competitive. To the extent that the marketplace for
120
See Alabama v Blue Bird Body Co, Inc, 573 F2d 309, 326-327 (CA 5, 1978), quoting
Windham v American Brands, Inc, 565 F2d 59, 68 (CA 4, 1977).
121
See Blue Bird, supra at 325-326, following Bogosian, supra.
-34-
Microsoft's products is less than perfectly competitive, its utility declines drastically. As Judge
Posner once observed:
A direct purchaser who finds himself paying a higher price for inputs
would love to pass on all of the additional cost to his customers in the form of a
higher price, but he cannot do so, because a price that much higher will so reduce
the demand for his product that his profits would fall unacceptably. (If the higher
price were optimal, the firm would have raised its price without waiting for its
costs to increase.) The optimal adjustment by an unregulated firm to the increased
cost of the input will always be a price increase smaller than the increase in input
cost, and this means that the increased cost will be divided between the two tiers,
the direct and indirect purchasers—but in what proportions will often be hard to
determine, even by sophisticated techniques of economic analysis. This is the
central insight of the Illinois Brick decision.[122]
The trial court paid no real attention to the parameters, the implications, and the speculative
nature of the tax incidence theory. Inexplicably, it asserted that Dr. Leffler had provided an
explanation that was "a means by which to show how customers were damaged." While Dr.
Leffler did refer to the "intense competition" in the software market in his affidavits, he did not
describe a formula or method demonstrating that indirect purchasers were damaged, other than
the assertion that the pass-on might be one hundred percent. Instead, Dr. Leffler repeatedly
mentioned "basic economic principles," estimated end-user damages calculated by "using a class
wide statistical determination," "extensive economics literature," "sound, accepted economic and
statistical methodologies," "relatively simple statistical estimation[s]," and "[m]odern computer
systems and statistical tools." Bluntly put, the absence of any meaningful details in Dr. Leffler's
affidavits make these statements slogans, not methods of proof. We appreciate that Dr. Leffler
did not have all the data necessary to put forth the evidence he might be able to present at a trial
following further discovery. We also appreciate that it is unlikely that A&M has the same
financial resources as Microsoft with which to secure preliminary studies. Nevertheless, these
broad, nonspecific references fail to describe a method or formula by which a court could
determine that Microsoft's conduct caused actual damages or injury to each class member, even
when the assertions are read in context.123 Even when attempting to minimize the effect of Dr.
Hausman's criticisms, Dr. Leffler continued to refer to his methodologies as a viable way to
estimate damages for the class. Thus, A&M failed to articulate a method or formula for
calculating the pass-on when it relied wholly on Dr. Leffler's tax incidence theory and
generalized slogans.
122
Illinois ex rel Hartigan v Panhandle Eastern Pipe Line Co, 852 F2d 891, 894 (CA 7, 1988),
overruled on other grounds sub nom Illinois ex rel Burris v Panhandle Eastern Pipe Line Co,
935 F2d 1469 (CA 7, 1991); see also In re Brand Name Prescription Drugs Antitrust Litigation,
123 F3d 599, 605 (CA 7, 1997) ("Tracing a price hike through successive resales . . . is famously
difficult.").
123
See In re Plywood Anti-Trust Litigation, supra at 583-584.
-35-
Perhaps recognizing the inherent difficulties with the incidence theory, Dr. Leffler also
suggested in Leffler I that regression analyses might be used to calculate the rate at which
Microsoft's direct purchasers passed on the overcharge to indirect purchasers. That may be true.
However, the affidavits provide no reasonable basis on which a court might reach the conclusion
that a regression analysis would actually compute the amount of the pass-on rate on a class-wide
basis or with respect to individual consumers. Again, the early stage of the proceedings likely
did not allow Dr. Leffler sufficient data to perform—or even describe in any great detail—a
regression analysis or results. However, the timing of a motion for class action certification
within the first ninety-one days after the complaint is filed124 is entirely a matter that rests in the
plaintiff 's hands. The decision when to move for class certification is tactical, resting in part on
the degree to which the lawsuit's economic feasibility depends on whether it proceeds as a class
action and the likely expense of learning, at a later date, that certification is not possible.
Nevertheless, these factors do not obviate a plaintiff 's burden with respect to articulating a
method or formula by which a court could determine that the defendant's conduct caused each
member of the proposed class actual damages. A&M did not meet that burden through Dr.
Leffler's references to regression analyses. Even when viewed collectively, none of Dr. Leffler's
methods provided the class-wide common proof of actual damages that MCR 3.501(A)(1)(b) and
MARA mandate.
In addition to our conclusion that Dr. Leffler's vague promises for future analysis failed to
bridge the gap between economic theory and the reality of economic damages, some of the
concerns that surfaced in Holmes, Wilcox, and Wood also concern us when analyzing whether a
class action would be the superior form of lawsuit, as MCR 3.501(A)(1)(e) requires. For
instance, this case involves no less than six products sold over a number of years through
numerous retailers. As the trial court observed in Wood, this proliferation of factors expands the
possibility that the overcharge for each product varied over time, varied at a different rate from
the other products, and was passed on at different rates to indirect purchasers. Dr. Nichols' study
confirmed this premise from Wood, suggesting that the pass-on rates not only varied widely for
Microsoft's products, but were sensitive to the price points used to market them. Even if the
relevant market is perfectly competitive and results in one hundred percent pass-on of the
overcharge,125 which Dr. Hausman disputes, Dr. Leffler's affidavits fail to assure us that the
methodologies he has proposed can account or adjust for this breadth of remaining variation for
the class.
Additionally, though the proposed class in this case is smaller than the proposed class in
Holmes, we cannot ignore the prevalence of Microsoft's products. The class, if certified, would
likely be immense, numbering in the hundreds of thousands. While the size of the class and
124
See MCR 3.501(B)(1)(a).
125
Notably, even the United States Supreme Court is willing to consider the possibility that
Illinois Brick would permit an indirect purchaser to sue "when, by hypothesis, the direct
purchaser will bear no portion of the overcharge and otherwise suffer no injury." Kansas v
Utilicorp United, Inc, 497 US 199, 218; 110 S Ct 2807; 111 L Ed 2d 169 (1990).
-36-
other factors certainly suggest that joinder would be impracticable and that a number of the
factors favoring certification in MCR 3.501(A)(2) exist, the paradox we have discussed makes
the many variations between class members problematic when it comes to proving actual
damages. In short, this case has all the hallmarks of being unmanageable. Dr. Leffler's
methodologies, even if they were to work with respect to small, well-defined subclasses that
group class members by a very few strongly unifying characteristics, will essentially require
separate trials to determine the different pass-on rates affecting the class as a whole. MCR
3.501(A)(2)(c) suggests that when a proposed class action is unmanageable, a trial court should
deny class certification. Though the trial court was willing to accept the task of handling a case
this large and complex, we are left with the definite feeling that it made a mistake when it
concluded that the plaintiffs had a satisfactory method of demonstrating that a class action was
the superior form of adjudicating this dispute.
X. Conclusion
We hold that A&M has not set forth a viable method for proving actual damages on a
class-wide basis that MARA, MCL 445.778(2), and the court rules require for a plaintiff in an
indirect purchaser suit brought as a class action. We also hold that A&M has not satisfied its
burden of proving that a class action would be a superior way to resolve this dispute. Thus, the
trial court clearly erred when it certified the class proposed for this lawsuit. We note, however,
that MCR 3.501(B)(3)(e) permits A&M as a named plaintiff to maintain this action against
Microsoft, relying on individualized proofs.
Reversed and remanded for additional proceedings consistent with this opinion. We do
not retain jurisdiction.
/s/ William C. Whitbeck
/s/ Peter D. O'Connell
/s/ Patrick M. Meter
-37-
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.