Kloth v. Microsoft Corp.

PUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

LINDA DAMERON KLOTH; BLAINE 
COX; DEBRA CUNNINGHAM; ERIC
FERRELL; ELIZABETH STRICKLAND;
RENE GONZALEZ; CLAY TYLER; PETER
HAKLAR; ERIC S. LAZARUS; HAROLD
A. PHILLIPS; PAUL L. HOWARD;
THOMAS MCCALEB; VICKI MCCALEB;
JAMES WOODS; LEYTON T. BROWN;
GALE RUFFIN; JAY S. QUIGLEY; JOHN
W. REDMANN; JOHN GLASE; BRUCE
WRIGHT; EVANGELOS KRITIKOS;
WALTER LORELL; RENALDO VELTRI;
JOHANNA M. MCWHINNEY; JODI
MARKS; JUDD GOODMAN,
Plaintiffs-Appellants,
and  No. 04-2566

PRECISION BILLING SERVICES,
INCORPORATED; MSC SYSTEMS,
INCORPORATED; O’SULLIVAN, HICKS &
PATTON; RYAN D. REYNOLDS;
ELEADERS, INCORPORATED; KBS-NET,
SA; SILVERWARE, LIMITED; DATA
UNIT AG; DATACROWN, LIMITED, On
Behalf of Themselves and All
Others Similarly Situated; WAYNE
MIMS; GRAVITY, INCORPORATED; 403
WEST LOOP 820 N; TO THE RESCUE
COMPREHENSIVE COMPUTER SERVICES;
D’S PET SUPPLIES, INCORPORATED;
DAVID BACH; THE RUBBRIGHT GROUP;

2 KLOTH v. MICROSOFT CORP.

JAMES M. BURT; RECLAIM CENTER, 
INCORPORATED; STEVEN NIELSEN;
RAYMOND PRYOR; SEASTROM
ASSOCIATES LTD; CHRIS CAMPBELL;
DENISE DAVENPORT; SARA
CHEESEMAN; RONALD RODJENSKI;
HAROLD PHILLIPS; MATTHEW W.
O’NEILL; ROBERT WEINKE; IDY
KLEIN; DAVID JAFFEE; AVI MANDEL;
SOUTH DAKOTA ASSOCIATION OF
PLUMBING, HEATING AND COOLING
CONTRACTORS; JOHNNIE MOON;
ROBERT LEE COLEBANK; BRYAN K.
MANSON; FRED LUCE; EDWARD
MICHAEL O’BRIEN; GOLF O’BRIEN
COMPANY; CYNTHIA M. AIKENS;
CLAIR FALGOUST; CARLTON
FALGOUST; MANUAL KNIGHT; 
WEBSTER T. KNIGHT; JAMES RUDASIL;
AUBREY BERNARD; GERALDINE GUICE;
WILLIAM BRAND PRYOR; PACIFIC
COAST SYSTEMS; TERI GORDON;
MICHAEL SHEVEKOV; MARTIN HAGAN;
ELHAM SHIRZAI; DAWN BRANDT;
DONALD J. GIANNI; MARIO
TRAFFICHINI; JOHN F. SIEGENTHALER;
CAREN M. MCCALL; LARRY A.
PENIX; PRYCE M. HAYNES, II; JOHN
K. HEIDLAGE; RYAN D. REYNOLDS;
DANIEL C. RAY; GTI SYSTEM
INTEGRATORS; TZIRI FINE; DEREK M.
PRENTICE; KURT C. CARTER; JAMES T.
BREMS; TIM APPELGATE; JULIE
TINKHAM; STEVEN MASTER; THOMAS

 KLOTH v. MICROSOFT CORP. 3

INFANTE; TURNER CORPORATION; JOHN 
A. SUPERNOVICH; MARLENE K.
SUPERNOVICH; SHERWOOD; AUTOMATIK
DESIGN, INCORPORATED; STATE OF
WEST VIRGINIA, ex rel. Darrell V.
McGraw, Jr., Attorney General;
NETSCAPE COMMUNICATIONS
CORPORATION; SUN MICROSYSTEMS;
BE INCORPORATED; BURST.COM,
INCORPORATED; IVAX CORPORATION;
KEITH COOPER; CONWAY, MACKENZIE
& DUNLEAVY, PC; CHRISTINE
BARTON; RHODA HENNING; KAREN
GREEN; RENAE LUCAS; JOHN ROBY;
JOHN DOES 1-50; MICHAEL LEWIS;
HENRY MASCAGNI; HAYLEY J.
GARDNER; STEVE GRUBB; LINDA
STEWART; MURLINE ADDINGTON; 
TRAVIS D. MCHANN, JR.; BILLY
LEWIS; BOOKER T. BAILEY, JR.; JAMES
PIGG; ANGELA BRINKLEY; DELANIOUS
HARRIED; GERTRUDE GREEN; CAMELIA
CALVERT; MARY WYATT; EMMA
WALTON; HETHA GREEN;
REALNETWORKS, INCORPORATED;
PRADEEP SUJAN; CARL C. CONRAD;
PAUL A. DIETER; FRANKLIN L.
DEJULIUS; KEVIN HUDDELL; GARY
LEACH,
Plaintiffs,
v.
MICROSOFT CORPORATION,
Defendant-Appellee.

4 KLOTH v. MICROSOFT CORP.
Appeal from the United States District Court
for the District of Maryland, at Baltimore.
J. Frederick Motz, District Judge.
(CA-00-1332-MDL; CA-00-2117-JFM)

Argued: February 1, 2006

Decided: April 18, 2006

Before WIDENER, NIEMEYER, and GREGORY, Circuit Judges.

Affirmed by published opinion. Judge Niemeyer wrote the opinion,
in which Judge Widener and Judge Gregory joined.

COUNSEL

ARGUED: Christopher Lovell, LOVELL STEWART HALEBIAN,
L.L.P., New York, New York, for Appellants. David Bruce Tulchin,
SULLIVAN & CROMWELL, New York, New York, for Appellee.
ON BRIEF: Gary S. Jacobson, LOVELL STEWART HALEBIAN,
L.L.P., New York, New York, for Appellants. G. Stewart Webb,
VENABLE, L.L.P., Baltimore, Maryland; Richard J. Wallis, Steven
J. Aeschbacher, MICROSOFT CORPORATION, Redmond, Wash-
ington; Joseph E. Neuhaus, Richard C. Pepperman, II, Sharon L.
Nelles, SULLIVAN & CROMWELL, L.L.P., New York, New York;
Charles B. Casper, MONTGOMERY, MCCRACKEN, WALKER &
RHOADS, L.L.P., Philadelphia, Pennsylvania, for Appellee.

OPINION

NIEMEYER, Circuit Judge:

This appeal, a part of the multidistrict class action antitrust litiga-
tion brought against Microsoft Corporation by 39 purchasers of
Microsoft’s operating system software and applications software,
 KLOTH v. MICROSOFT CORP. 5
presents the question whether 26 indirect purchasers have stated a
claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6).
The district court granted Microsoft’s motion to dismiss their claims,
concluding that because these 26 plaintiffs did not buy software
directly from Microsoft, they were indirect purchasers who were
barred from seeking recovery for illegal pass-through overcharges
under the principles of Illinois Brick Co. v. Illinois, 431 U.S. 720
(1977). The court also found that they lacked standing to seek recov-
ery for certain types of injury because the alleged injury did not con-
stitute "antitrust injury," was speculative, or was generalized and not
specific to the plaintiffs. The court dismissed the plaintiffs’ equitable
claims under the doctrine of laches.

For the reasons that follow, we affirm.

I

In the aftermath of the United States’ suit against Microsoft, in
which Microsoft was found to have maintained an illegal monopoly
in the worldwide market for licensing Intel-compatible PC operating
systems, see United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir.
2001), numerous class action suits were filed against Microsoft in
courts across the country. On April 25, 2000, the Judicial Panel on
Multidistrict Litigation transferred the cases that were pending in fed-
eral district courts to the District of Maryland, pursuant to 28 U.S.C.
§ 1407. Thereafter, 39 plaintiffs filed a superseding consolidated
amended complaint, seeking damages and equitable relief under the
Clayton and Sherman Acts. See 15 U.S.C. §§ 2, 15, 26.

In their 66-page consolidated amended complaint, the plaintiffs
allege that beginning in the late 1980s, when Microsoft’s market
share in the United States for operating system software was 95 per-
cent, Microsoft engaged in a series of predatory acts that were
designed to, and did, eliminate competition and prevent entry into the
operating system software market. They allege that since 1994, when
Digital Research, Inc. and IBM were eliminated as meaningful com-
petitors, Microsoft has had no significant competitor in the operating
systems software market. They assert that Microsoft used this monop-
oly power to raise prices and to leverage its power into other markets,
including markets for applications software such as word processing,
6 KLOTH v. MICROSOFT CORP.
spreadsheet, and office suite software, with the result that Microsoft
has dominated these applications software markets since the mid-
1990s, achieving market shares approaching 90 percent. Thus, for the
time periods material to the complaint, the plaintiffs contend that
Microsoft has had monopoly power in four product markets:

(1) The licensing of Intel-compatible personal computer
operating systems software; (2) the licensing of Intel-
compatible personal computer word processing applications
software; (3) the licensing of Intel-compatible personal
computer spreadsheet applications software; and (4) the
licensing of Intel-compatible personal computer office suite
applications software.

The plaintiffs allege that Microsoft maintained and advanced its
monopoly power by refusing to sell its software to manufacturers,
retailers, and consumers. Instead, they allege, Microsoft employed a
two-tier licensing system. It used one type of license for transactions
with "original equipment manufacturers" ("OEMs"), allowing them to
preinstall software on personal computers, which they in turn sold to
consumers or "end-users." The plaintiffs claim that Microsoft was
able to require OEMs to accept the terms of Microsoft’s licensing
agreement, forcing the OEMs to preinstall Microsoft operating sys-
tems on personal computers they sell and to act as Microsoft’s agents
in offering a second type of license, called "end-user license agree-
ments" ("EULAs"), for acceptance or rejection by consumers under
terms dictated by Microsoft. To use Microsoft software, the end-users
were required to agree to the EULAs, which provided, among other
things, a Microsoft-funded refund to the end-user if the end-user
declined to enter into the EULA. The EULAs imposed significant
restrictions on use of the software by the licensee, giving Microsoft
remedies against the end-user for breach of the license agreement.
The complaint alleges in a similar manner that Microsoft dictated the
terms and conditions under which distributors and retailers were able
to sell EULAs.

The plaintiffs claim that under this two-tier licensing regime, most
consumers did not purchase software licenses directly from Micro-
soft. Rather, they bought computers from OEMs or retailers with pre-
installed software that incorporated Microsoft’s offer to issue the end-
 KLOTH v. MICROSOFT CORP. 7
user a license agreement. The 26 plaintiffs who have appealed here
are typical of those who purchased computers from OEMs or retailers
with preinstalled software.

The plaintiffs allege that Microsoft’s exclusionary and restrictive
practices caused them injury by charging them "supra-competitive"
prices for operating systems software and applications software, by
denying them the benefit of new and superior technologies, and by
preventing them from reselling Microsoft software products. They
also claim that by integrating its Internet Explorer web browser with
its operating system, Microsoft deprived them of alternative Internet
search engines, degraded the performance of their computers, and
made their computers more susceptible to security breaches. In short,
they allege that as end-users, they paid "supra-competitive" prices for
software and were deprived of the benefits of competition including,
but not limited to, technological innovation, market choice, product
variety, and substitutable supply. They request equitable relief, treble
damages, attorneys fees, and costs.

In response to the plaintiffs’ complaint, Microsoft filed a motion to
dismiss plaintiffs’ money-damages claims under Federal Rule of Civil
Procedure 12(b)(6) for failure to state a claim upon which relief can
be granted. By order dated January 12, 2001, the district court granted
Microsoft’s motion, relying on two distinct grounds: (1) that the
plaintiffs were indirect purchasers and therefore barred from suing for
overcharge damages under the doctrine of Illinois Brick Co. v. Illi-
nois, 431 U.S. 720 (1977); and (2) that the plaintiffs lacked standing
to seek recovery for injuries other than overcharges under the holding
of Associated General Contractors v. California State Council of
Carpenters, 459 U.S. 519 (1983). In re Microsoft Corp. Antitrust
Litig., 127 F. Supp. 2d 702 (D. Md. 2001).

With respect to its application of Illinois Brick, the district court
concluded that the plaintiffs did not purchase either software or
EULAs directly from Microsoft, even though the computers that the
plaintiffs purchased included licenses from Microsoft that had to be
agreed to by the purchasers. The court noted, "Whether the consumer
buys software or the EULA, the immediate economic transaction con-
stituting the purchase occurs between the consumer and an OEM or
retail seller." Id. at 709. The court also concluded that despite the
8 KLOTH v. MICROSOFT CORP.
broad allegations of antitrust injury, the plaintiffs’ money-damages
claims reduced to claims for supra-competitive prices or overcharges
paid by the plaintiffs to the OEMs or retail dealers from whom they
purchased the computers, because any damage that was not measur-
able by the prices paid to the OEMs or retailers was "only incidentally
related to the alleged anticompetitive behavior." Id. at 712.

As to the standing issue, the district court considered the five fac-
tors identified in Associated General Contractors and concluded that
consideration of the last two — the existence of more direct victims
and the problem of speculative injury and complexity in apportioning
damages — supported its conclusion that plaintiffs lacked standing to
sue for some of the injuries alleged. Id. at 711.

The district court certified its January 12, 2001 dismissal order for
appellate review under 28 U.S.C. § 1292(b). In re Microsoft Corp.,
127 F. Supp. 2d at 727. We denied plaintiffs’ petition for interlocu-
tory appeal on June 27, 2001.

The district court granted Microsoft’s motion to dismiss the
remaining issues for equitable relief on November 29, 2004, conclud-
ing that it was "perfectly clear . . . that the plaintiffs in the consoli-
dated amended complaint were not pursuing injunctive claims with
diligence. The focus was on monetary damages." The court also con-
cluded that Microsoft would be prejudiced and that resurrecting equi-
table claims at that late date would be "contrary to the public interest."

Along with granting Microsoft’s motion to dismiss the plaintiffs’
claims for equitable relief, the district court entered final judgment in
this case on November 29, 2004, dismissing plaintiffs’ complaint.
Twenty-six plaintiffs are now prosecuting this appeal from the court’s
judgment.

II

Our review of the district court’s judgment granting Microsoft’s
motion to dismiss under Rule 12(b)(6) is de novo and focuses only on
the legal sufficiency of the complaint. In conducting this review, we
"take the facts in the light most favorable to the plaintiff," but "we
 KLOTH v. MICROSOFT CORP. 9
need not accept the legal conclusions drawn from the facts," and "we
need not accept as true unwarranted inferences, unreasonable conclu-
sions, or arguments." Eastern Shore Mkts., Inc. v. J.D. Assocs. Ltd.
P’ship, 213 F.3d 175, 180 (4th Cir. 2000); see also Dickson v. Micro-
soft Corp., 309 F.3d 193, 201-02 (4th Cir. 2002).

III

As its principal ground for dismissing the complaint, the district
court applied the "indirect-purchaser" rule established in Illinois
Brick, which held that only direct purchasers of products affected by
anti-competitive activity can seek treble damages under § 4 of the
Clayton Act. Those who purchase indirectly or through intermediaries
are barred from recovering for antitrust injuries. See also Kansas v.
UtiliCorp United, Inc., 497 U.S. 199, 207 (1990).

In Illinois Brick, the State of Illinois sued concrete block manufac-
turers for engaging in a price-fixing conspiracy, in violation of § 4 of
the Clayton Act and § 1 of the Sherman Act. The manufacturers were
suppliers to subcontractors who installed bricks for general contrac-
tors engaged by the State of Illinois. The State claimed that the manu-
facturers had illegally overcharged the intermediary contractors and
that the overcharge had been passed on to the State. The Supreme
Court barred the State from recovering against the manufacturers,
because the State, as an indirect purchaser, "should not be allowed to
use a pass-on theory to recover damages from a defendant unless the
defendant would be allowed to use a pass-on defense in a suit by a
direct purchaser." 431 U.S. at 729. In Hanover Shoe, Inc. v. United
Shoe Machinery Corp., 392 U.S. 481 (1968), the Court had held that
an antitrust violator could not defend itself by arguing that a direct
purchaser suffered no injury because it was able to pass on illegal
overcharges to indirect purchasers. Illinois Brick applied the same
logic to offensive uses of a "pass-on" theory. Thus, the Court held that
indirect purchasers could not claim to be injured because direct pur-
chasers had passed on illegal overcharges to them. 431 U.S. at 729-
30.

The Supreme Court relied on two rationales in adopting the rule.
First, allowing indirect purchasers to recover damages at each level
down the economic chain "would create a serious risk of multiple lia-
10 KLOTH v. MICROSOFT CORP.
bility for defendants." Illinois Brick, 431 U.S. at 730; see also Hano-
ver Shoe, 392 U.S. at 493; UtiliCorp, 497 U.S. at 207. Second, courts
would be required to engage in highly complicated calculations to
"apportion the recovery among all potential plaintiffs that could have
absorbed part of the overcharge." Illinois Brick, 431 U.S. at 737. This
would "add whole new dimensions of complexity to treble-damages
suits and seriously undermine their effectiveness." Id. By adopting the
rule barring recovery by indirect purchasers, the risk of duplicative
recoveries and overcompensation for the same antitrust injuries was
eliminated.

To be governed by the Illinois Brick rule, plaintiffs have to be (1)
indirect purchasers (2) seeking recovery for illegal overcharges. "Indi-
rect purchasers" are those purchasers "[i]n the distribution chain,
[who] are not the immediate buyers from the alleged antitrust viola-
tors." UtiliCorp, 497 U.S. at 207.

In this case, it is apparent that the plaintiffs were indirect purchas-
ers because they did not buy products directly from Microsoft. Rather,
they purchased computers from OEMs or retailers on which Micro-
soft operating systems and software had been preinstalled. The plain-
tiffs were thus at the end of the retail distribution chain with at least
one and possibly more intermediaries between them and Microsoft.
The plaintiffs are also claiming damages in the form of overcharges
paid to the OEMs and retailers who could in turn seek recovery for
overcharges against Microsoft. Thus, the plaintiffs’ claim for damages
in the form of overcharges would, at first blush, appear to fall
squarely within the Illinois Brick paradigm.

The plaintiffs do not contest the fact that they purchased computers
from OEMs and retailers, on which Microsoft operating systems and
applications software were preinstalled. They argue nonetheless that
Illinois Brick does not bar their damages claims, giving four basic rea-
sons: (1) they acquired end-user licenses that functioned as contracts
directly between them and Microsoft; (2) their right under the EULA
to a refund from Microsoft establishes a direct economic relationship;
(3) Microsoft should be judicially estopped from asserting that it sells
software to intermediaries by statements that it made in other cases;
and (4) an exception allowed by Illinois Brick based on superseding
market forces should be applied. We address these arguments in turn.
 KLOTH v. MICROSOFT CORP. 11
First, plaintiffs argue that because they subscribed to EULAs and
Microsoft does not sell its software to anyone, the EULA between
each plaintiff and Microsoft is the relevant economic transaction. This
argument, however, fails to recognize both the role of the OEM or the
retailer in the licensing chain and the economic realities of the trans-
action. Although Microsoft does not sell title to its software, it does
sell licenses to use its software, and plaintiffs could have acquired
licenses directly from Microsoft. Indeed, in this case, the district court
certified a class of end-users who did purchase licenses for operating
systems software directly from Microsoft. But the plaintiffs in this
case acquired their licenses by purchases from OEMs and retailers,
paying them, not Microsoft, for their licenses at prices set by the
OEMs and retailers. Because the plaintiffs purchased their products
from intermediaries and not Microsoft, they are indirect purchasers
within the meaning of that term as defined in Illinois Brick and Utili-
Corp, and the recoveries they would have from Microsoft would pre-
sent the very problems that those cases sought to avoid.

In the same vein, the plaintiffs contend that because the EULA
entitles them to a refund from Microsoft in the event that they do not
subscribe to the license, the meaningful transaction is between them
and Microsoft. But it does not follow from this observation that the
plaintiffs were direct purchasers of Microsoft’s licenses. While the
reimbursement structure does demonstrate that Microsoft maintains a
financial relationship with end-users, that relationship does not estab-
lish that plaintiffs paid Microsoft for the software licenses. Moreover,
even though Microsoft might be required by the EULA to provide
refunds or other reimbursements, that obligation did not give Micro-
soft the ability to control the retail prices set by OEMs and retailers
for the sale of the license agreements. Were we to accept plaintiffs’
argument, we would have to consider the very complex price adjust-
ments within Microsoft’s distribution chain that Illinois Brick sought
to avoid. See Illinois Brick, 431 U.S. at 737.

Plaintiffs also seek to bind Microsoft, under the doctrine of judicial
estoppel, from asserting that it sells software to OEMs or other retail-
ers because, within the context of other legal disputes, Microsoft has
denied making a "first sale" to OEMs. Although Microsoft may have
argued in the past that it did not sell title to its software, plaintiffs
have not shown that Microsoft ever denied selling OEMs the right to
12 KLOTH v. MICROSOFT CORP.
charge consumers for licenses or the options to enter into licenses. As
Microsoft has not relied on mutually inconsistent positions, we find
no basis for applying the doctrine of judicial estoppel. See Emergency
One, Inc. v. Am. Fire Eagle Engine Co., 332 F.3d 264, 274 (4th Cir.
2003); King v. Herbert J. Thomas Memorial Hosp., 159 F.3d 192,
196-97 (4th Cir. 1998).

Finally, plaintiffs argue that they should not be held to be indirect
purchasers because of a so-called "market forces" exception referred
to in Illinois Brick. There, the Court stated that a "situation in which
market forces have been superseded and the pass-on defense might be
permitted is where the direct purchaser is owned or controlled by its
customer." 431 U.S. at 736 n.16. This exception, however, has been
construed narrowly to apply only when the antitrust defendant has
either "functional unity" with the intermediary sellers or sufficient
ownership interest in or control over the intermediary sellers to set
prices along the chain of distribution. See In re Brand Name Prescrip-
tion Drugs Antitrust Litig., 123 F.3d 599, 605-06 (7th Cir. 1997);
Jewish Hosp. Assoc. v. Stewart Mechanical Enterprises, Inc., 628
F.2d 971, 975 (6th Cir. 1980); In re Sugar Industry Antitrust Litig.,
579 F.2d 13, 19 (3d Cir. 1978). The plaintiffs, however, do not allege
such facts. In the absence of such allegations, we cannot overlook the
Supreme Court’s admonition against enlarging market-based excep-
tions that would undermine the indirect-purchaser rule. See UtiliCorp,
497 U.S. at 216-17; see also Dickson, 309 F.3d at 214-215 (following
"the Supreme Court’s clear directive in UtiliCorp United against
crafting new exceptions to the Illinois Brick rule").

In short, plaintiffs purchased their licenses or license-options from
OEMs and retailers, paying for them at prices established by the
OEMs and retailers, not by Microsoft. While the licenses they pur-
chased from OEMs and retailers gave them financial rights against
Microsoft, the economic transaction for this license was consum-
mated with the intermediaries at prices fixed by the intermediaries.
The financial rights given to end-users in the EULAs are simply not
relevant to the Illinois Brick issue.

The plaintiffs’ more serious argument for bypassing Illinois Brick
relates to whether the damages that plaintiffs claim resulted from an
illegal overcharge passed on to them by the intermediaries.
 KLOTH v. MICROSOFT CORP. 13
First, the plaintiffs, recognizing that they made their payments for
the licenses to intermediaries, contend that the Illinois Brick rule does
not require that consumers have made payments directly to antitrust
defendants. They rely primarily on Blue Shield of Virginia v.
McCready, 457 U.S. 465 (1982), in which the Supreme Court held
that plaintiffs suffered antitrust injuries when their healthcare insurer
implemented a boycott of psychologists and refused to reimburse the
plaintiffs for payments that they made to the psychologists for ser-
vices. The Court distinguished that factual circumstance from those
in Hanover Shoe and Illinois Brick because, in the case before it, there
was no intermediary threatening duplicative recovery. The psycholo-
gists were paid by the plaintiffs and therefore had no claim against the
insurer based on its failure to reimburse. Nor did the case present dif-
ficulties in "disentangling overlapping damages claims," since
McCready’s "damages were fixed . . . they could be ascertained to the
penny." Id. at 475 n.11 (internal quotation marks omitted). In this
case, by contrast, the plaintiffs stand at the end of a distribution chain
in which the intermediaries have independently set prices and passed
on alleged overcharges. Such circumstances are decisive in distin-
guishing this case from McCready and in bringing the facts alleged
within the holding of Illinois Brick.

The plaintiffs also contend that despite the fact that they paid inter-
mediaries for the licenses, Microsoft caused them direct injuries by
(1) suppressing competitive technologies, (2) restricting the terms of
end-user licenses, and (3) degrading computer performance. They
argue that these injuries were sustained by them and not by intermedi-
aries. But as the plaintiffs themselves have argued, the effect of hav-
ing competitive substitute technologies available on the market would
have been to drive down the price of Microsoft’s products. Indeed,
the plaintiffs’ theory of damages for the denial of rival products is
based on the difference between what consumers paid for Microsoft
software and what they would have paid in a competitive market. As
the district court observed, however, the same theory could be
advanced by OEMs and intermediary retailers who "could sue Micro-
soft alleging that they had paid too much for the products they had
purchased, [and] the problems of potential multiple recoveries and
apportionment of damages would recur." In re Microsoft, 127 F.
Supp. 2d at 710.
14 KLOTH v. MICROSOFT CORP.
The same logic applies to plaintiffs’ claim that they suffered unique
and direct injuries from restrictions placed on end-user licenses mak-
ing it more difficult for them to obtain reimbursements and prohibit-
ing them from reselling the software in a secondary or "used"
software market. Licenses that encouraged consumers to obtain reim-
bursements and that permitted them to resell in "used" software mar-
kets would have had greater value. But that is merely another way of
stating that the consumers paid too much for the more restrictive
licenses. Again, the OEMs and retailers could have made this same
claim. In purchasing the right to offer consumers restrictive end-user
licenses, they suffered exactly the same antitrust injury.

Finally, the plaintiffs claim that Microsoft’s integration of Internet
Explorer and Windows caused them direct injury because it resulted
in performance degradation of their computers. This claim either mir-
rors the assertion that Microsoft suppressed superior technologies or
seeks recovery for injuries that are not antitrust injuries. If Microsoft
developed inferior technology, it essentially overcharged intermedi-
aries for the value of its products, as measured by the price it would
have obtained in a competitive market. Such injury is no different in
principle from the restrictions on end-user licenses and the suppres-
sion of substitute technologies. All are essentially claims for illegal
overcharges passed on to consumers. And to the extent that Micro-
soft’s software degraded the performance of plaintiffs’ computers,
then any such damage would not form the basis of a claim for anti-
trust injury but a claim for some type of product liability injury. Pre-
sumably plaintiffs could make that claim just as they could for any
other product liability claim.

In short, the market structure alleged by the plaintiffs in the com-
plaint fits easily within the Illinois Brick paradigm. The plaintiffs are
end-users who purchased Microsoft licenses from OEMs and retailers
at prices fixed by the OEMs and retailers. In these circumstances, the
indirect purchaser doctrine of Illinois Brick applies to bar their claims.

IV

In addition to claiming injury based on the allegation that Micro-
soft charged supra-competitive prices — i.e., overcharges which are
barred by Illinois Brick — plaintiffs claim, as we have just noted,
 KLOTH v. MICROSOFT CORP. 15
other types of injury. To repeat, they have alleged that (1) they were
deprived of the benefits of competitive technology; (2) they sustained
injury from restrictions imposed in the EULAs prohibiting them from
reselling Microsoft software in a secondary or "used" market; and (3)
their computers were degraded by the integration of the Internet
Explorer web browser with the Windows operating system. As we
concluded in Part II, these injuries amount to a form of overcharge
passed on to the plaintiffs by OEMs and retailers and therefore were
barred by Illinois Brick. In addition, however, the district court con-
cluded that the plaintiffs lacked standing to assert claims for these
injuries under American General Contractors.

Although courts sometimes blend the indirect purchaser rule of Illi-
nois Brick and the requirement of § 4 standing under American Gen-
eral Contractors, the Supreme Court has explained, "[T]he question
of which persons have been injured by an illegal overcharge for pur-
poses of § 4 is analytically distinct from the question of which per-
sons have sustained injuries too remote to give them standing to sue
for damages under § 4." Illinois Brick, 431 U.S. at 728 n.7. To have
§ 4 standing, the plaintiffs must demonstrate direct antitrust-type
injury, not simply any injury that was caused by an antitrust violation.
"Congress did not intend to allow every person tangentially affected
by an antitrust violation to maintain an action to recover threefold
damages for injury to his business or property." American General
Contractors, 459 U.S. at 535 (quoting McCready, 457 U.S. at 476-77)
(internal quotation marks omitted). To determine whether a person
has sustained direct antitrust-type injury to his business or property,
a court must consider the five factors identified in American General
Contractors: (1) the causal connection between an antitrust violation
and harm to the plaintiffs, and whether that harm was intended, id. at
537; (2) whether the harm "was of a type that Congress sought to
redress in providing a private remedy for violations of the antitrust
laws," id. at 538 (quoting McCready, 457 U.S. at 466); (3) the direct-
ness of the alleged injury, id. at 540; (4) "the existence of more direct
victims" of the alleged antitrust injury, id. at 545; and (5) "problems
of identifying damages and apportioning them" among those directly
and indirectly harmed, id.

When considering the three types of injury that plaintiffs claim to
have sustained directly — injuries other than supra-competitive prices
16 KLOTH v. MICROSOFT CORP.
— we conclude, by applying the American General Contractors fac-
tors, that plaintiffs’ injuries were too generalized or speculative; that
some injuries were not of the type covered by the antitrust law; that
there were more direct victims; and that plaintiffs’ claims raise insu-
perable problems in measuring and allocating damages. Some of these
conclusions overlap those reached in connection with analyzing plain-
tiffs’ damages under the doctrine of Illinois Brick, but they also inde-
pendently support our holding that plaintiffs lacked standing to assert
claims for some of the injuries alleged.

First, with respect to plaintiffs’ claims that Microsoft deprived con-
sumers of competitive technology, we agree with the conclusions
reached by the district court. The court observed, "It would be entirely
speculative and beyond the competence of a judicial proceeding to
create in hindsight a technological universe that never came into exis-
tence." In re Microsoft, 127 F. Supp. 2d at 711. The court continued,
"It would be even more speculative to determine the relevant benefits
and detriments that non-Microsoft products would have brought to the
market and the relative monetary value . . . to a diffuse population of
end users." Id. While plaintiffs assert that they should be given dis-
covery with respect to these issues, it is readily apparent that discov-
ery would not change or inform the nature of the alleged injuries. As
the district court stated,

The underlying reason that plaintiffs lack standing is that, to
the extent they are seeking damages . . . for the denial of the
benefit of technologically superior products, it is merely
coincidental that they purchased Microsoft products at all.
They occupy a position no different from any other end user
of computer products who never purchased any Microsoft
software or EULAs.

Id. At bottom, the harms that the plaintiffs have alleged with respect
to the loss of competitive technologies are so diffuse that they could
not possibly be adequately measured. The problem is not one of dis-
covery and specific evidence, but of the nature of the injury claimed.
Where the purported injuries amount to generalized or abstract soci-
etal harms, the plaintiffs cannot claim that they, as distinct from oth-
ers in society, were specifically injured in their business or property
by the alleged antitrust violation, as required by § 4. See Highland
 KLOTH v. MICROSOFT CORP. 17
Supply Corp. v. Reynolds Metals Co., 327 F.2d 725, 732 (8th Cir.
1964) ("Damages claimed in a private antitrust suit must be different
from those suffered by the general public — i.e., they must be special
to the claimant").

With respect to plaintiffs’ alleged injury from Microsoft’s restric-
tions on end-users in the EULAs, the plaintiffs lack standing because
there are more direct victims — i.e., the retailers and OEMs — and
because it is too costly for courts to discern the allocation of such
damages. These attributes of this injury claimed by plaintiffs are the
same as those supporting application of the indirect-purchaser rule of
Illinois Brick, which has been discussed above.

Finally, with respect to plaintiffs’ allegation that Microsoft
degraded the performance of their personal computers, we have
already concluded that insofar as this injury is a claim for an over-
charge, it is barred under Illinois Brick. But the plaintiffs also claim
that the integration of Windows and the Internet Explorer web
browser resulted in specific harms to their computers including "loss
of speed and memory . . . loss of operating system stability and
increased susceptibility to viruses or security breaches." To the extent
that these claims are for actual injury to plaintiffs’ computers, the
plaintiffs’ claims amount to claims for defective products. This type
of injury is simply not a type for which plaintiffs can recover under
the antitrust law. See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.,
429 U.S. 477, 489 (1977). Rather, it sounds more in the nature of
injury from a breach of warranty or other product liability. And plain-
tiffs do not assert that Microsoft intended to cause this harm to plain-
tiffs’ computers or that Microsoft’s purpose for inflicting this injury
was aimed at lessening competition. As the district court observed,
"the degradation of computer performance alleged by plaintiffs is
only incidentally related to the alleged anti-competitive behavior." In
re Microsoft, 127 F. Supp. 2d at 712.

In short, we agree with the district court that in addition to the bar-
rier imposed by the doctrine of Illinois Brick, plaintiffs have failed to
demonstrate that they have sustained direct antitrust-type injury, as
required by § 4 of the Clayton Act and Associated General Contrac-
tors.
18 KLOTH v. MICROSOFT CORP.
V

Finally, we address whether the district court abused its discretion
in dismissing plaintiffs’ claims for injunctive relief under the doctrine
of laches. See White v. Daniel, 909 F.2d 99, 102 (4th Cir. 1990)
("[T]he equitable balancing of a plaintiff’s delay with prejudice to a
defendant is primarily left to the sound discretion of the trial court,
and we may not reverse unless it is so clearly wrong as to amount to
an abuse of discretion") (internal quotation marks omitted) (emphasis
added). In dismissing the plaintiffs’ claims for equitable relief, the
district court concluded that the plaintiffs failed to pursue their injunc-
tive claims with diligence and that their failure prejudiced Microsoft.
See Giddens v. Isbrandtsen Co., 355 F.2d 125, 127 (4th Cir. 1966)
(noting that laches may be applied when a plaintiff fails to pursue his
claim with diligence, causing prejudice to the opposing party).

The plaintiffs argue that they did not pursue their equitable claims
because they were involved in class action settlement proceedings.
They suggest that it would have made no sense to press their claims
until those proceedings were resolved. In addition, the plaintiffs assert
that Microsoft had notice of the nature of their claims for injunctive
relief and suffered no prejudice in the form of "unfair surprise or
inability to prepare its defense."

In response, Microsoft argues that plaintiffs filed only a general-
ized claim requesting injunctive relief in 2000 but waited more than
four years before articulating the nature of the injunctive relief that
they were seeking. Microsoft contends that this delay made it impos-
sible for it to coordinate any consideration of remedies with the litiga-
tion in the United States’ action against Microsoft then pending
before Judge Kollar-Kotelly in the District of Columbia District
Court. Microsoft argues that if the equitable claims had not been dis-
missed, a second round of litigation over the market effects of the
proposed consent decree in the United States’ action would have been
required.

Accepting Microsoft’s arguments, the district court stated that it
was "perfectly clear . . . that the plaintiffs in the consolidated
amended complaint were not pursuing injunctive claims with dili-
gence. The focus was on monetary damages." The court also relied
 KLOTH v. MICROSOFT CORP. 19
on the fact that the inability to coordinate with the United States’
action caused prejudice because the simultaneous proceedings would
have "reshape[d] the competitive landscape." Finally, the court noted
that despite years of litigation, the plaintiffs had only recently speci-
fied the nature of their request for equitable relief and that they were
using the initial "vague claim" for equitable relief as "a vessel for,
essentially, asserting new claims." Permitting that result would, in the
district court’s judgment, be "contrary to the public interest."

In the circumstances of this case, we conclude that the district court
did not abuse its discretion in applying the doctrine of laches to dis-
miss plaintiffs’ equitable claims.

* * *

For the reasons given, the November 29, 2004 judgment of the dis-
trict court dismissing appellants’ complaint is

AFFIRMED.