Court Finds Microsoft’s Apple Defense Half Baked

A federal court has denied Microsoft’s request to dismiss a claim of monopolizing a single-brand aftermarket, rejecting Microsoft’s attempt to use an argument that Apple used to dismiss a similar aftermarket claim.  We examined Microsoft’s motion in a previous post.

Judge Elizabeth D. Laporte of the Northern District of California has denied in part and granted in part Microsoft’s motion to dismiss the complaint in Datel Holdings Ltd. et al. v. Microsoft Corp., Case No. CV 09-5535 EDL (N.D. Cal.). The court distinguished Apple’s successful defense of an aftermarket claim based on Apple’s more explicit disclosure to its customers that they were being restricted to Apple products.

Plaintiff Datel Holdings Ltd., alleges it is Microsoft’s sole competitor for Xbox 360 memory cards and other accessories.  Datel charges that Microsoft is monopolizing an aftermarket for Xbox 360 memory cards by requiring Xbox users who want to access online gaming to download Microsoft’s “dashboard” software – which “disables Datel’s memory cards,” thereby forcing Xboxers to buy Microsoft’s memory cards.

Microsoft moved to dismiss Datel’s claim with an argument that was successful for Apple in Apple, Inc. v. Psystar Corp., 586 F. Supp. 2d 1190 (N.D. Cal. 2008) – that the single-brand aftermarket (here, Xbox memory cards) could not support an antitrust violation because Xbox users had agreed to use only Microsoft’s memory cards, making the Kodak exception for undisclosed aftermarket restrictions inapplicable.  Judge Laporte was not convinced, holding that the scope of Microsoft’s restriction was ambiguous, such that “customers may not have understood” it, which “counsels against granting a motion to dismiss.”

Judge Laporte also denied Microsoft’s motion to dismiss Datel’s tying and unfair competition claims.  While she dismissed Datel’s second antitrust claim (concerning a Multiplayer Online Dedicated Gaming Systems Market), leave to replead was granted.

For manufacturers, the moral of the story is this:  If you want customers of your primary products – Harley-Davidson motorcycles, for example, or Canon cameras – to buy only your brand of accessories – Harley-brand engine components, or Canon-brand zoom lenses, for instance – and not your competitors’, you should draft your customer restrictions very carefully and clearly in order to withstand antitrust challenges.

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