CORPORATION, Plaintiff, v. OPEN SOFTWARE FOUNDATION, INC., DIGITAL
EQUIPMENT CORPORATION, and HEWLETT-PACKARD COMPANY, Defendants.
STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
F. Supp. 274; 1995-1 Trade Cas. (CCH) P71,036
19, 1995, Decided
For ADDAMAX CORPORATION, Plaintiff: Samuel Adams, Ralph T. Lepore,
III, Keith C. Long, Warner & Stackpole, Boston, MA. James V.
O'Gara, Alan R. Kusinitz, Patricia Oveis Kahn, Kelley, Drye &
Warren, New York, NY.
OPEN SOFTWARE FOUNDATION, INC., Defendant: James C. Burling, Michelle
D. Miller, Charles J. Gray, Peter A. Spaeth, Hale & Dorr, Boston,
MA. For DIGITAL EQUIPMENT CORP., Defendant: William L. Patton, Eric
Jaeger, Ropes & Gray, Boston, MA. Richard H. Alpert, Digital
Equipment Corporation, Maynard, MA. For HEWLETT-PACKARD CO., INC.,
Defendant: Robert W. Sutis, Hewlett-Packard Company, Palo Alto, CA.
Robert A. Skitol, Drinker, Biddle & Reath, Washington, DC. Brian
A. Davis, Robert S. Frank, Jr., Kevin P. Light, Nicholas J. Nesgos,
Choate, Hall & Stewart, Boston, MA.
G2 COMPUTER INTELLIGENCE, INC., Movant: James B. Conroy, Donnelly,
Conroy & Gelhaar, Boston, MA.
Joseph L. Tauro, Chief United States District Judge
BY: Joseph L. Tauro
May 19, 1995
This dispute unfolds against the backdrop of the multi-million dollar
market for operating systems, the machine language programs that
coordinate the activities of a computer's hardware components. n1
Plaintiff Addamax Corporation, a producer of security systems for the
computer industry, is suing Hewlett-Packard ("H-P"), the
Digital Equipment Corporation ("Digital"), and the Open
Software Foundation ("OSF"), alleging violations of federal
and state antitrust laws. The complaint alleges that Digital and H-P
led an attempt to influence the market for operating systems
technology by illegally combining the buying power of the industry's
The defendants have moved for summary judgment, arguing that Addamax's
case fails with respect to several elements essential to any antitrust
claim. In applying an old statute to new technology, the court
examines these issues with an eye to the underlying purpose of the
antitrust laws: the efficient functioning of competitive markets.
Ocean State Physicians Health Plan, Inc. v. Blue Cross and Blue Shield
of Rhode Island, 883 F.2d 1101, 1110 (1st Cir. 1989) (citing Standard
Oil Co. v. Federal Trade Commission, 340 U.S. 231, 248-49, 95 L. Ed.
239, 71 S. Ct. 240 (1951)), cert. denied, 494 U.S. 1027 (1990);
P. AREEDA, H. HOVENKAMP, J. SOLOW & D. TURNER, ANTITRUST LAW, P
 I. BACKGROUND
In considering a motion for summary judgment, the court must view the
record "in the light most hospitable to the party opposing
summary judgment, indulging all reasonable inferences in that party's
favor." Griggs-Ryan v. Smith, 904 F.2d 112, 115 (1st Cir.
1990). The following statement of facts is drawn accordingly.
A. The Market
for Operating Systems.
Operating systems coordinate the activities of the computer's hardware
components, allowing it to "run" applications software. The
systems are designed to "fit" specific hardware. Software is
in turn manufactured to be compatible with certain operating systems.
The industry's three-tier system (hardware, software, and operating
systems) has produced a complex market shaped by licensing agreements
and compatibility concerns.
The Babel-like character of the market for operating systems has
produced periodic calls for the harmonization of operating system
specifications. This lawsuit revolves around a joint venture, the Open
Software Foundation, ostensibly formed for this purpose.
B. the Formation
of the OSF Joint Venture.
The Open Software Foundation ("OSF"), was formed in 1988 by
a group of eight computer manufacturers. n2 OSF
exists as a not-for-profit joint venture, and is registered as such
under federal law. n3 OSF is also registered under
the laws of Delaware as a not-for-profit membership corporation, and
as the only member of the Open Software Foundation Research Institute
also incorporated under Delaware law.
OSF membership is open to corporations, non-profits, academic
institutions, governmental agencies, and "other business
entities." (Defendants' Memorandum in Support, Appendix III, Tab
2, By-Laws of Open Software Foundation, Inc., Article 3). OSF by-laws
provide for two classes of participation. The founding corporations
are referred to as "sponsors." Sponsors retain exclusive
voting rights in the foundation. All other participants, (some three
hundred and fifty at the time this suit was filed) are referred to as
OSF's sponsors include many of the major competitors in the market for
computer systems. The list includes several of the largest computer
companies in the world, including H-P, Digital, IBM, and Bull Systems.
According to the complaint, these companies compete with one another
in two separate markets. First, they compete in the purchasing of
systems technology from independent developers like Addamax. Second,
they compete in the sale of finished systems on the downstream market
for operating systems. The sponsors, in other words, compete both
"in markets where they are sellers and in markets where they are
buyers." (Plaintiff's First Amended Complaint, P 20.)
OSF's statement of purpose indicates that the organization was formed
to "undertake cooperative research, experimentation and
development activities ... to allow users to more easily mix and match
computers and software from different suppliers." 53 Fed. Reg.
34594 (1988). To this end, OSF and the OSF Research Institute
indicated an intent to engage in a wide array of activity, including
"the production and marketing of the software or other
proprietary information or technology produced through the venture
including the granting of licenses." Id. at 34594.
OSF, in keeping with its corporate charter, became involved in the
development of new operating systems. In developing its first such
operating system, later baptized OS-1, OSF chose to assemble the
package by fusing existing technology. As a result, most of OSF's
efforts were directed towards purchasing  and integrating
existing component programs.
OSF's gathered technology for the OS-1 system through a competitive
bidding process called a Request for Technology, or "RFT."
Companies specializing in a particular area were informed of the
process and encouraged to submit bids.
With respect to Addamax, the bid involved a security program n4
for the new operating system. Two companies responded to the bid:
Addamax and SecureWare. After an evaluation of the competing bids, a
panel of experts appointed by OSF selected the Secureworks package.
D. Addamax's Allegations
Addamax is now claiming that they lost the bid for reasons unrelated
to the price and quality of their product. More importantly, Addamax
is alleging that the entire OSF concept is an illegal joint venture
designed to influence the market for operating systems technology.
Addamax makes two charges with respect to OSF's strategy. First,
Addamax asserts that OSF has rigged its procurement system to favor
specific companies and technologies. Second, Addamax claims that OSF
forces suppliers to sell their product to OSF and its sponsors under
With respect to the Request for Technology process, Addamax asserts
that OSF ran a suspect contest. Addamax claims that internal OSF
documents named SecureWare as the security system component several
months before the bids were submitted. (OSF Goethe Project Journal,
July 7, 1989, Plaintiff's Appendix I, Volume II, Tab 107, at F055653).
With respect to OSF's effect on prices, Addamax alleges that the joint
venture forced competitors to offer their products at below-market
prices and under disadvantageous conditions. n5
Companies are forced to do this, Addamax claims, because failure to
win the bid excludes the developer from a huge segment of the market.
The loser sees his technology left out of a new system that
automatically becomes an industry standard. A firm that fails in an
OSF bid looses the chance to sell its product, not only to OSF, but to
all OSF members. In this way, Addamax claims, OSF functions as a joint
purchasing agreement, or buyers' cartel.
On the basis of these alleged activities, Addamax brought suit against
OSF and two of its sponsors, Digital and H-P. The complaint contains
claims under federal and state anti-trust law, the state unfair trade
practices act, and state common law. The defendants have moved for
summary judgment with respect to each claim.
II. SUMMARY JUDGMENT IN ANTI-TRUST CASES
In Poller v. Columbia Broadcasting, 368 U.S. 464, 7 L. Ed. 2d 458,
82 S. Ct. 486 (1961), the Supreme Court warned that "summary
procedures should be used sparingly in complex antitrust litigation
where motive and intent play leading roles, the proof is in the hands
of alleged conspirators, and hostile witnesses thicken the plot."
Id. at 473 (citations omitted).
The admonition in Poller notwithstanding, antitrust suits are not
immune from summary judgment, and rule 56(c) is routinely used in
antitrust actions. See Capital Imaging, P.C. v. Mohawk Valley
Medical Association, 996 F.2d 537, 541 (2nd Cir.), cert. denied, 126
L. Ed. 2d 337, U.S. , 114 S. Ct. 388 (1993); Midwest Radio v. Forum
Publishing, 942 F.2d 1294, 1296 (8th Cir. 1991).
 III. OVERVIEW OF THE SHERMAN ACT, § 1. n6
The Sherman Act,
15 U.S.C. § 1 et seq., prohibits:
combination in the form of trust or otherwise, or conspiracy, in
restraint of trade or commerce ...
15 U.S.C. § 1.
This simple phrase reveals the basic components of every § 1 claim: a
conspiracy and its anticompetitive effect.
The essence of every § 1 claim is "a combination or some form of
concerted action between at least two legally distinct entities."
Capital Imaging, P.C. v. Mohawk Valley Medical Assoc., 996 F.2d 537
(2nd Cir.), cert. denied, 126 L. Ed. 2d 337, U.S. , 114 S. Ct. 388
(1993). Section 1, in other words, does not apply to
"unilateral conduct on the part of a single person or
Not every agreement, however, constitutes a violation of the Sherman
Act. After establishing the existence of a contract, combination, or
conspiracy, the plaintiff must establish that the agreement
constitutes an "unreasonable restraint on trade." To
identify the agreements that fail this test, courts have adopted two
levels of analysis: per se and "rule of reason."
A limited number of agreements are considered unreasonable per se and,
therefore, are illegal as a matter of law. Per se treatment is limited
to those cases in which the agreements are manifestly or patently
unreasonable, and clearly serve no legitimate purpose. The agreements
that typically fall into the per se category involve price fixing,
boycotts, and tying arrangements. See Northwest Wholesale
Stationers, Inc. v. Pacific Stationery and Printing Co., 472 U.S. 284,
289, 86 L. Ed. 2d 202, 105 S. Ct. 2613 (1984).
Cases that do not fall into "the narrow per se niche"
proceed under the rule of reason. U.S. Healthcare, Inc. v.
Healthsource, Inc., 986 F.2d 589, 593 (1st Cir. 1993). To
establish a claim under the rule of reason, a plaintiff "bears
the initial burden of showing that the challenged action has had an
actual adverse effect on competition as a whole in the relevant market
... " Capital Imaging, 986 F.2d 537 at 543. If the
plaintiff meets this initial burden, the defendant can come back with
evidence that the agreement was formed for legitimate business
purposes which outweigh any anti-competitive effects. Finally, the
plaintiff can prevail by showing that the legitimate ends of the
agreement could have been accomplished through less restrictive
IV. ANTITRUST INJURY; CONSPIRACY
Every section 1 claim, whether per se or rule of reason, must satisfy
two threshold requirements. First, the plaintiff must prove more than
"mere injury." The successful section 1 plaintiff must
establish "antitrust injury." Second, the plaintiff must
prove the existence of a conspiracy. The defendants challenge
Addamax's case as insufficient in both respects.
The defendants first major argument is that the plaintiff has failed
to allege adequate antitrust injury. n7 Courts have
often noted that the antitrust laws are aimed at protecting
competition, not competitors, and that not all business losses
constitute the type of injury that the antitrust laws were designed to
prevent. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477,
489, 50 L. Ed. 2d 701, 97 S. Ct. 690 (1976).  Along these
lines, the defendants note that to the extent that Addamax complains
of lower prices for its product, this type of loss falls beyond the
protection of the antitrust laws.
Lower prices usually benefit consumers, and are not generally
considered harmful to competition. For this reason, agreements to set
prices at below-market rates do not ordinarily give rise to antitrust
injury. n8 Atlantic Richfield Co. v. USA Petroleum
Co., 495 U.S. 328, 337-338, 340, 109 L. Ed. 2d 333, 110 S. Ct. 1884
(1989); Kartell v. Blue Shield of Massachusetts, 749 F.2d 922, 930-931
(1st Cir. 1984), cert. denied, 471 U.S. 1029, 85 L. Ed. 2d 322, 105 S.
Ct. 2040, 105 S. Ct. 2049 (1985)(antitrust laws protect against
higher, not lower, prices).
But, when lower prices input prices do not produce lower prices to
consumers, courts have found antitrust injury in the presence of
agreements to lower prices. Vogel v. American Society of
Appraisers, 744 F.2d 598, 601 (7th Cir. 1984), citing Mandeville
Island Farms, Inc. v. American Crystal Sugar Co., 334 U.S. 219,
223-24, 92 L. Ed. 1328, 68 S. Ct. 996 (1948). This occurs when the
colluding buyers possess market power on a downstream market. Only
with control of a downstream market can the monopsonist n9
decrease output and raise prices. See J. Jacobson & G. Dorman,
Joint Purchasing, Monopsony and Antitrust, THE ANTITRUST BULLETIN, 1,
17 (Spring, 1991); AREEDA ET AL., ANTITRUST LAW, P 574. n10
Here, Addamax has made a threshold showing of the defendants'
significant leverage on both relevant markets: the upstream market for
inputs, and the downstream market for output. See infra Part V.B.1.
With respect to
Addamax's standing as a plaintiff in this case, the court finds that
Addamax has properly alleged that their injury "flowed from that
which makes the defendants' act unlawful." Brunswick Corp., 429
U.S. at 489. In so doing, this court is mindful of the First Circuit's
admonition that "even where a violation exists and a plaintiff
has been damaged by it, the courts - for reasons of prudence - have
sought to limit the right of private parties to sue for damages or
injunctions." SAS of Puerto Rico, Inc. v. Puerto Rico
Telephone Company, 48 F.3d 39, (1st Cir. 1995).
Addamax's harm allegedly "flows directly from collusive activity
that decreases competition among buyers." R. Blair & J.
Harrison, Antitrust Policy and Monopsony, 76 CORNELL L. REV. 297,
337 (1991). Given these circumstances, the court holds that
Addamax, as a seller to a collusive monopsony, has alleged sufficient
antitrust injury, and has the standing necessary to bring this suit. SAS
of Puerto Rico Inc. v. Puerto Rico Telephone Co., 48 F.3d 39, 44 (1st
Cir. 1995) (antitrust injury exists where "the seller is a
participant in the very market where competition is impaired").
The defendants' second major argument is that OSF, as a joint venture,
cannot constitute a contract, combination, or conspiracy within the
scope of § 1. Whatever OSF did, the defendants argue, it did on its
own, and unilateral action may not constitute a conspiracy. n11
 While it is true that joint ventures are not unreasonable in and
of themselves, SCFC ILC. v. Visa USA, 36 F.3d 958, 964 (10th Cir.
1994), it is also true that conspirators cannot gain immunity from
the antitrust laws by labelling their agreement a "joint
venture." Timken Roller Bearing Co. v. United States, 341 U.S.
593, 598, 95 L. Ed. 1199, 71 S. Ct. 971 (1951). n12
A review of the relevant case law suggests that joint venture
agreements are addressed like any other agreement among competitors.
E. KINTNER, FEDERAL ANTITRUST LAW, § 9.15 (listing cases); SCFC
ILC., 958 F.3d at 964 (no "special treatment" for joint
ventures under the antitrust laws). The first step is to determine the
nature and scope of the agreement. If the joint venture is unlawful in
purpose and effect, the joint venture is treated like any other per se
violation of the Sherman Act. If, on the other hand, the joint venture
is based on a lawful attempt to integrate resources, the agreement is
measured according to the standard "rule of reason"
analysis. AREEDA ET AL., ANTITRUST LAW, P 1478 et seq.|
H-P and Digital probably had several legitimate reasons for launching
the OSF joint venture. But, Addamax has produced evidence that H-P and
Digital formed OSF at least in part to impair the progress of certain
competitors. This evidence alone, in the form of internal memoranda
and strategy papers discussed in more detail below, raises a genuine
issue of fact as to whether the joint venture itself can be labelled a
conspiracy for Sherman Act purposes.
A. Per Se
Addamax has asked for per se scrutiny with respect to all of its state
and federal antitrust claims. n13 As the First
Circuit noted in U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d
589 (1st Cir. 1993), per se claims enjoy significant
advantages in matters of proof: "the advantage to a plaintiff is
that given a per se violation, proof of the defendant's power, of
illicit purpose and of anticompetitive effect are all said to be
irrelevant .... the disadvantage is the difficulty of squeezing a
practice into the ever narrowing per se niche." U.S.
Healthcare, 986 F.2d at 593 (internal citations omitted).
Court has held that per se treatment is appropriate only in the
practices which because of their pernicious effect on competition and
lack of any redeeming virtue are conclusively presumed unreasonable
and therefore illegal without elaborate inquiry as to the precise harm
they have caused or the business excuse for their use.
Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5, 2 L. Ed.
2d 545, 78 S. Ct. 514 (1958).
Addamax's complaint alleges that the OSF agreement warrants per se
treatment because OSF operates as a buyer's cartel, and because OSF's
very purpose, the promotion of the Sponsors' technology, is
1. price fixing and joint buyers' cartel.
Addamax's complaint contains related price-fixing and joint buying
claims. The  essence of these charges is that OSF's purpose was
to operate as a joint buying group in order to exercise control over
the market for operating systems technology.
Addamax's allegations of "price fixing" turn largely on a
series of statements made by an OSF representative, Doug Hartman, in
the context of bid negotiations with Addamax's president, Peter
Allsberg. In response to Allsberg's questions, Hartman indicated that
OSF was not going to offer more than "six figures" for
Addamax's technology. Plaintiff's Appendix II, Deposition of Peter A.
Allsberg recalls that when he told Hartman that the figure was far
below Addamax's development costs, much less what they thought was a
fair price, Hartman shrugged and told him that "the market has
changed." Allsberg Dep. 0145;6-7. Allsberg then asked Hartman:
"is what you are telling me I can sell to you at your price and
get a little money out of the market now and have no future business,
or you will buy from SecureWare at that price and I will get no money
out of the market now and have no future business?" Hartman
replied, "Well, you could look at it that way." Allsberg
Dep. at 0145;9-23.
This evidence notwithstanding, the court finds Addamax's price fixing
claim inappropriate for per se treatment. Per se treatment is
reserved for those combinations whose purpose and effect is manifestly
anticompetitive. Because joint purchasing agreements often produce
legitimate economies of scale, n14 courts have
generally refused to find these agreements illegal under the per se
standard. n15 See R. Blair & J. Harrison,
Cooperative Buying, Monopsony Power, and Antitrust Policy, 86
NORTHWESTERN L. REV. 331, 343-345 (1992) (describing cases in which
courts refused to apply per se standard in cooperative buying
context). Rather, plaintiffs generally are required to make their case
under the "rule of reason," by proving that the
anticompetitive effect of the buying agreement outweighs any
With respect to this case, it is clear that the effects of market
standardization on the computer industry are extraordinarily difficult
to gauge. Moreover, without the benefit of expert opinion, it is
nearly impossible to predict the specific effect of OSF's actions on
competition within the industry. The sheer complexity of the industry
cautions against a per se analysis here. See M&H Tire Company,
Inc. v. Hoosier Racing Tire Corporation, 733 F.2d 973, 977 (1st Cir.
1984)(avoiding per se analysis in "novel context").
2. unlawful purpose
Similar considerations compel the same caution with respect to
Addamax's claim that OSF was formed for an anticompetitive purpose.
Addamax alleges that OSF was formed "to thwart the nascent
movement towards truly open systems by, among other things,
collectively attacking the movement's two leading proponents and more
efficient rivals, AT&T and Sun." Plaintiff's Memorandum in
There is substantial evidence, in the form of internal H-P and OSF
memoranda, that OSF was formed specifically to combat Sun and
AT&T. At H-P, officials met at a "Beat Sun" conference
to discuss the possibility of joing other manufacturers in a UNIX
consortium. The context of the discussions make it clear that the
consortium was discussed as a answer to Sun and AT&T's aggressive
moves on the market. Plaintiff's Appendix I, Volume I, Tab 37,
HP-72173 ("Beat Sun" Offsite Minutes). These actions,
unremarkable if taken by a single  competitor, may be suspect
when taken by a group of would-be competitors. n16
The record contains ample evidence that Digital and H-P, among others,
communicated among themselves with regards to a collective
"anti-Sun/AT&T" strategy. Id. at HP-72176.
Again, however, the context of this case makes it inappropriate for
per se analysis. Despite some evidence of an anti-competitive motive,
it is not clear that the OSF joint venture had an anticompetitive
effect on the market. On the record before the court, it cannot be
said that the OSF joint venture is so void of redeeming virtue that it
must be "presumed to be unreasonable and therefore illegal
without elaborate inquiry as to the precise harm they have caused or
the business excuse for their use." Northern Pacific Ry. Co.
v. United States, 356 U.S. 1, 5, 2 L. Ed. 2d 545, 78 S. Ct. 514
Having determined that the defendants are entitled to summary judgment
with respect to each of the plaintiff's per se claims, the
court turns to the rule of reason elements of the plaintiff's
B. Rule of
To state a Sherman Act claim under the rule of reason, Addamax bears
the initial burden of establishing that OSF's actions have "an
actual adverse effect on competition as a whole in the relevant
market." Capital Imaging, 996 F.2d at 543. If the
defendant then comes forward with a legitimate justification for the
conduct, the plaintiff must show that the same legitimate purpose
could have been obtained through less restrictive means. Id.
1. market power
An essential element of every rule of reason claim is a showing that
the defendants exercised market power in some relevant market. n17
In this case Addamax has alleged that OSF and its sponsors possess
significant market power in: (1) the market in which the defendants
purchase security systems, and (2) the market in which the defendants
sell operating systems. Conceding, for the purposes of this motion,
the definitions of the relevant markets, n18 the
defendants argue that the plaintiffs cannot prove collective market
power sufficient to prove a violation of the rule of reason.
The defendants argue that the calculation of market share in this case
may include only purchases and sales attributable directly to OSF. The
plaintiffs, however, argue that the defendants' collective market
share must include the purchases and sales of the individual sponsors.
The parties, in other words, disagree on whether the individual
sponsors' shares of the markets should be included in gauging the
joint venture's impact on the market.
The dispute is significant. As a percentage of the global market for
operating systems, OSF's sales are so small as to be insignificant.
The same may be said for OSF's purchases of security systems'
technology. If, however, market share is calculated to include the
purchases and sales made by the individual sponsors, the defendants
 collectively control significant shares of both markets.
The individual sponsors continue to make independent purchases and
sales of security software and operating systems technology. As a
result, OSF is merely an additional buyer of security systems
technology and an additional seller of finished operating systems.
Under these conditions, a court would not ordinarily consider the
market power of the individual members of the joint venture in
determining the market share of the alleged conspiracy. R.C. Dick
Geothermal Corp. v. Thermogenics, Inc., 619 F. Supp. 441, 451 n.8
(N.D. Cal. 1985).
The essence of Addamax's complaint, however, is that OSF affects the
industry by establishing de-facto industry standards, and the volume
of OSF's purchases and sales are not of particular concern to the
alleged conspirators. The leverage of the conspiracy, Addamax argues,
is not market power as measured in purchases and sales. It is, rather,
the simple fact that OSF's choice of technology amounts to an
unqualified endorsement of that technology by seven or eight giants of
the industry. Once OSF has blessed a particular technology by
including it in a operating system package, competing technologies
The nature of the anticompetitive behavior alleged, coupled with the
unique and unexplored characteristics of the market at issue, lead to
the conclusion that Addamax has raised a genuine issue of fact with
respect to the monopsony power of the conspiring defendants. Whether
or not it is appropriate to aggregate the market power of the
defendants in assessing market share, Addamax has put forth evidence
that H-P and Digital were aware of, and in fact counted on, OSF's
ability to influence the relevant markets. n19 This
alone might suggest a triable issue of fact with respect to the
sponsors' collective market power.
Finally, it is worth noting that market share is not always a reliable
indicator of monopoly (or monopsony) power. AREEDA ET AL., ANTITRUST
LAW, P 515. In this case, Addamax has put forth evidence that suggests
that OSF's monopsony power extends beyond its immediate share of the
2. anti-competitive effect
Expanding upon its challenge to Addamax's allegations of antitrust
injury, the defendants next argue that even if Addamax could show harm
to itself, it cannot show harm to competition. As has already been
noted, the defendants correctly assert that harm to competition, not
competitors, is the hallmark of every antitrust claim. Brunswick
Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 50 L. Ed. 2d 701, 97
S. Ct. 690 (1976).
The defendants argue that Addamax cannot prove that OSF's presence
affects the market in any of the ways traditionally associated with
harm to the competitive process: higher prices or lower output.
Although Addamax has been unable to point to specific evidence of
increased consumer prices or decreased product output, the court
concludes that Addamax has established a genuine issue of fact as to
OSF's effect on competition in the industry. Addamax's complaint,
combined with deposition transcripts and documents submitted by the
parties, permit an inference that OSF, H-P, and Digital embarked in a
course of conduct designed to confuse and paralyze the market.
The computer industry is characterized by market turbulence. This
year's state-of-the-art may be next year's dinosaur. But, buyers
nonetheless want assurances that their systems will remain viable in
the future. The industry has coined a term to describe the market's
preoccupation with the future of a particular technology. The term is
"FUD," an acronym for "fear, uncertainty and
 Addamax claims that the defendants used "FUD" as a
weapon by fomenting questions about the future of industry standards.
By announcing the formation of OSF, and promising new technology
destined to become the industry standard, the Sponsors allegedly
sought to paralyze the industry and deter users from committing to
Several pieces of documentary evidence support OSF's claim. An OSF
interoffice memo suggests that the joint venture was developed at
least in part because "our sponsors wanted a hammer, axe or
two-by-four that could be used to beat [the competition] (Plaintiff's
Appendix I, Vol. III, Tab. 110 at F30690). A Hewlett Packard memo,
marked "company confidential," memorialized a discussion
among HP executives:
Impact of FUD on
Sun. It was asserted that an aggressive push by the consortium might
cause software developers to reconsider their commitment to the
nonstandard elements of the Sun OS, thereby slowing Sun's market
momentum. A goal of the consortium might be to position the
AT&T/Sun OS as the nonstandard Unix operating system and attempt
to put them in a defensive position.
Appendix I, Vol. I, Tab. 37, HP-72177.
According to Addamax, this evidence indicates that OSF was formed not
to create a new product, but to "bully the market" into
adopting certain standards for computer products. These standards were
consistent with the Sponsors' interests, and inhibited competition in
their purchases of operating system components.
Addamax's position also finds some support in evidence that OSF did
very little in terms of actual research and development. n20
Roger Gourd, head of engineering at OSF, admitted in deposition
testimony that he was unaware of any research into "new product
offerings," (Plaintiff's Appendix II, Deposition of Roger S.
Gourd, 153:8-20), and it is undisputed that OSF is managed and staffed
by personnel otherwise tied to the Sponsors.
Addamax has presented evidence of OSF's structure, purpose and
strategy sufficient to support an inference of anticompetitive effect.
This evidence, combined with the plausible hypothesis that a collusive
monopsony eventually raises prices and restricts output, is sufficient
to withstand a motion for summary judgment on Addamax's rule of reason
VI. OTHER CLAIMS
The plaintiff's suit also includes counts under the Clayton Act and
under Massachusetts law. The defendants have moved for summary
judgment on all of these claims, arguing that Addamax cannot raise
genuine issues of fact with respect to essential elements of each of
A. Clayton Act.
Addamax's complaint alleges violations of § 7 of the Clayton Act,
which prohibits mergers or acquisitions that substantially lessen
competition in a relevant line of commerce. See 15 U.S.C. § 18.
The defendants argue that the transactions giving rise to this joint
venture do not amount to a merger or acquisition, and are thus beyond
the scope of the statute.
It is true that the Clayton Act, by its own terms, applies only where
there has been an acquisition of assets, stock, or other share
capital. Id. In keeping with the broad mandate of the antitrust laws,
however, courts have generally adopted a flexible approach in
measuring the scope of this language. United States v. Philadelphia
National Bank, 374 U.S. 321, 337-339, 10 L. Ed. 2d 915, 83 S. Ct. 1715
(1963); Mr. Frank, Inc. v. Waste Management, Inc., 591 F. Supp. 859,
866 (N.D. Ill., 1984)(noting that in the context of Section 7, the
term "asset" may mean "anything of
In this case, Addamax has submitted evidence indicating that the
defendants acquired certain rights as a result of their contributions
to the project. Some of these rights might properly be characterized
as  giving the Sponsors a degree of control over OSF. n21
Although control itself does not implicate the transfer of stock or
share capital, the acquisition of control has been deemed the
"acquisition of an asset" for section 7 purposes. Mr.
Frank, Inc., 859 F. Supp. at 866.
Finally, Addamax correctly notes that the OSF "Formation and
Funding Agreement" signed by the sponsors could be construed as
transferring a tangible asset. Plaintiff's Appendix I, Volume I, Tab
48 at HP36022. Section 2.5 of that document provides that the
sponsors' capital contributions may eventually be treated "as
prepaid credit against cash royalties which may in the future become
due ..." Id. Without deciding whether or not this transaction
constitutes the "acquisition of asset," the court is
satisfied that Addamax has produced a genuine issue of fact with
respect to its Clayton Act claim.
B. State Law
In addition to the federal and state antitrust claims, Addamax's
complaint contains a state law claim based on intentional interference
with actual and prospective contractual relations. n22
This claim is grounded upon the allegation that at least one of
Addamax's customers, Convex Computer Corp., cancelled a contract with
Addamax after OSF's selection of SecureWare was announced, and that
other companies refused to enter into contracts with Addamax after
learning that SecureWare, not Addamax, had secured the OSF bid. With
respect to Convex, Addamax claims that OSF's actions caused Convex to
breach an exiting agreement with Addamax. Plaintiff's First Amended
Complaint, P 93. According to the complaint "Convex's decision to
breach its contract with Addamax stemmed directly from OSF's decision
to select SecureWare as the OSF standard technology." Id. at P
To recover on a theory of intentional interference with actual or
prospective business relations, a plaintiff must prove (1) the
existence of business relations; (2) the defendant's knowing
interference with the relations; and (3) the harm to the plaintiff
borne of the defendant's actions. See United Truck Leasing Corp. v.
Geltman, 406 Mass. 811, 551 N.E.2d 20, 21 (Mass. 1990); Comey v. Hill,
387 Mass. 11, 438 N.E.2d 811, 816 (Mass. 1982)(quoting J.R. Nolan,
Tort Law § 72, at 87 (1979)); ELM Medical Laboratory, Inc. v. RKO
General, Inc., 403 Mass. 779, 532 N.E.2d 675, 681 (Mass. 1989).
Addamax has shown an issue of fact with respect to each contested
element. Addamax has presented evidence of a licensing agreement with
Convex, (Plaintiff's Appendix II, Deposition of Randall J. Sandone,
3:115;19-21), and evidence of contractual negotiations with Tektronix,
another potential customer. Id. at 3:113;6-7). Addamax has presented
evidence that H-P and Digital knowingly interfered with these
relations through illegal conduct. n23 Finally,
Addamax has presented evidence that it was harmed by the defendants'
actions. Id. at 15-19; 3:120;11-14.
The defendants argue that both Convex and Tektronix had entered into
contracts with SecureWare before SecureWare was chosen by OSF. As a
result, the defendants argue, OSF could not be to blame for these
companies' choices. In making this argument, however, the defendants
overlook the  fact that Addamax need not establish that Convex
and Tektronix chose SecureWare instead of Addamax. Addamax, rather,
needs only to show that they had relations with these companies, and
that the defendants knowingly interfered with them. n24
Addamax has met its burden with respect to these elements, and the
defendants motion for summary judgment on Addamax's intentional
interference with business relations claim must be denied.
For the foregoing reasons, the defendants' motion for summary judgment
is allowed as to all of Addamax's per se claims, and denied in all
An order will issue.
Joseph L. Tauro
United States District Judge
May 19, 1995
For the reasons stated in the accompanying Memorandum, the defendants'
motion for summary judgment is allowed as to all to the per se
claims in counts I, II, III, IV and V, and denied in all other
IT IS SO ORDERED.
Joseph L. Tauro
United States District Judge
1 Operating systems coordinate the activities of the
computer's hardware, allowing it to "run" applications
software. Operating systems, like other programs, are considered
intellectual property, and rights to operating systems are routinely
bought, sold, and licensed.
2 Only two of these companies, H-P and Digital, are
named as defendants in this suit.
3 OSF is registered under the National Cooperative
Research Act of 1984, 15 U.S.C. § 4301. The National
Cooperative Research Act, designed to encourage cooperative research,
offers some antitrust protection to joint ventures formed for
specifically enumerated purposes. 15 U.S.C. § 4301(a)(6).
4 The security component of an operating system
"enables computer owners to prevent unauthorized individuals from
obtaining access to their computer systems or authorized individuals
from obtaining access to information beyond their individual security
clearance." Plaintiff's First Amended Complaint, P 9.
5 Addamax maintains that OSF extracts major
concessions from its suppliers in terms of both price and
conditions-of-sale. Addamax claims that OSF's strategies secure
software at a fraction of its market price, and in some instances at
prices below those necessary to recoup research and development costs.
In addition, Addamax claims that OSF forced suppliers into
disadvantageous licensing agreements.
6 The "overview" portion of this memorandum
is drawn largely from Capital Imaging, P.C. v. Mohawk Valley
Medical Assoc., 996 F.2d 537 (2nd Cir.), cert. denied, 126 L. Ed. 2d
337, U.S. , 114 S. Ct. 388 (1993).
7 The seminal case on antitrust injury is Brunswick
Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 50 L. Ed. 2d 701, 97
S. Ct. 690 (1977). In Brunswick, the Court noted the type of
damage required to state a claim under the Sherman Act:
[Antitrust] plaintiffs must prove antitrust injury, which is to say
injury of the type the antitrust laws were intended to prevent and
that flows from that which makes defendants' acts unlawful. The injury
should reflect the anticompetitive effect either of the violation or
of the anticompetitive acts made possible by the violation.
Brunswick Corp., 429 U.S. at 489.
8 An exception to this rule, not directly relevant
here, occurs when the conspirators fix prices at "predatory"
levels. A predatory price (price below cost) is designed to eliminate
competition and ensure later monopoly profits.^ Top
9 Monopsony, the mirror image of monopoly, refers to
"market power ... on the buying side of the market." AREEDA
ET AL., ANTITRUST LAW, P 574.
10 Areeda and Turner summarize the effect on prices
The monopsony buyer, unlike the competitive buyer, can reduce the
purchase price by scaling back its purchases. Because the monopsonist
ordinarily reduces its buying price by purchasing less, it sells less
downstream. This reduction in its own output will, if it has market
power on the selling side, mean higher prices for customers. Thus,
lower buying prices upstream may translate into higher selling prices
AREEDA ET AL., ANTITRUST LAW, P 574 (footnotes omitted).
11 The defendants' memorandum in support reads:
... the sole basis for Addamax's price-fixing claim is that OSF itself
allegedly sought to purchase security software at a reduced price.
However, a joint venture such as OSF is not a "walking
conspiracy," and as a matter of law, neither OSF's simple
existence nor its unilateral actions with respect to price is
sufficient to establish a conspiracy among OSF and the Sponsors.
Defendants' Memorandum in Support of Motion for Summary Judgment,
12 The Supreme Court in Timken made explicit
reference to joint ventures in the antitrust context:
Nor do we find any support in reason or authority for the proposition
that agreements between legally separate persons and companies to
suppress competition among themselves and others can be justified by
labeling the project a "joint venture." Perhaps every
agreement and combination to restrain trade could be so labeled.
Id. at 598 (citations omitted).
13 The scope of the Massachusetts Antitrust Act, 93
M.G.L. ch. 93 § 4, is statutorily tied to its federal law analog, §
1 of the Sherman Act. See M.G.L. ch. 93 § 1; Winter Hill Frozen
Foods and Services, Inc. v. Haagen-Dazs Co., 691 F. Supp. 539 (D.Mass.
1988). Discussion of Addamax's state law claim is accordingly
"subsumed" into the discussion of the applicable federal
statutes. Id., at 543 n.5.
14 A second reason for the more lenient treatment
given joint purchasing agreements is a result of the relationship
between the likely plaintiff and the likely defendant: the company
alleging the violation is not a direct competitor of the companies
forming the buying cartel.
15 There is one relevant exception to the "rule
of reason" standard for buyer's cartels. A joint buying agreement
will be illegal per se if "the buyer [is] ... a 'sham'
organization seeking only to combine otherwise independent buyers in
order to suppress their otherwise competitive instinct to bid up
price." Kartell v. Blue Shield of Massachusetts, 749 F.2d 922,
925 (1st Cir. 1992). Again, however, Addamax has produced no
evidence that OSF was formed to in order to suppress the sponsors'
"competitive instinct to bid up price." Addamax's buyer's
cartel claims do not warrant per se scrutiny.
16 The fact that OSF's alleged anticompetitive
purpose was directed at Sun and AT&T, not Addamax, is not relevant
to the analysis. It is sufficient that the harm to Addamax
"flowed from" OSF's anticompetitive purpose. See part IV.A.,
17 For reasons discussed earlier in this memorandum,
a seller to a collusive monopsony must establish that the conspiring
defendants exercised market power on two relevant markets: the market
for the seller's inputs and the market for the buyers' output.
The search for relevant markets here is complicated by several
features unique to the computer industry. The market for computer
systems is unlike the market for "widgets" that typically
frames antitrust analysis. The technology at issue, by its very
nature, is not sold in units. Sales agreements may be for licenses,
royalties, or combinations of the two, and one company's choice of
technology may have important repercussions on the industry as a
whole. In addition, as noted earlier, systems are often assembled from
existing technology, further complicating the search for the
"relevant market" in antitrust terms.
18 The defendants' objection to Addamax's definition
of the relevant markets is limited to a single footnote. Defendants'
Memorandum in Support, 24 n.18. Without passing on the validity of
Addamax's market definitions, the court limits its inquiry to the
arguments fully developed in this motion for summary judgment.
19 Several documents suggest that OSF's original
sponsors recruited IBM and other computer companies in a conscious
effort to increase OSF's leverage on the market. See Plaintiff's
Appendix I, Volume II, Tab 61 at HP53240; Id. at Tab 72, F052024; Id.,
Volume I, Tab 37 at HP72176. This evidence, though not entirely
unambiguous, supports the inference that the sponsors themselves
believed that OSF could influence the market. These documents,
particularly when viewed in the light most favorable to the nonmoving
party, clearly raise genuine issues of fact with respect to the
defendants' collective monopsony power.
20 A general lack of activity suggests that the true
purpose in joining forces is not to integrate resources, but rather to
exploit its market power. Timken, 341 U.S. at 597-98.
21 The defendants submit that "the only indicia
of Sponsorship is one seat on the Board of Directors."
Defendants' Memorandum in Support, 30 & n.21. In fact, however,
the Sponsors may have obtained considerably more in exchange for their
initial cash contributions. The Formation and Funding Agreement,
Plaintiff's Appendix I, Vol. I, Tab 48, and OSF's by-laws, plaintiff's
Appendix III, Tab. 2, suggest that the Sponsors retain rights apart
from and beyond their seat upon the board of directors. The Sponsors
may, for example, alter, amend or repeal the by-laws without the
consent of the board.
22 Having found that the defendants are not entitled
to summary judgment on all state antitrust claims, the court finds it
unnecessary to consider the defendant's motion with respect to
Addamax's M.G.L. ch. 93A, § 11 claim.
23 It is important to note, with respect to this
element of Addamax's claim, that a plaintiff need not establish that
the defendants actions were motivated by malice towards the plaintiff.
It is sufficient that Addamax show that (1) the defendants were aware
of Addamax's business relations, and (2) that their illegal conduct
interfered with these relations. United Truck Leasing, 406 Mass.
811, 551 N.E.2d 20, 23 (Mass. 1990).
24 The timing of Addamax's several contractual
relations may of course be relevant to the issue of whether or not the
defendants interfered with Addamax's business relations. For the
purposes of this motion, however, it is sufficient to note that the
timing of the contracts, in and of itself, does not preclude Addamax's