IN RE: Microsoft Corporation Antitrust Litigation v. , 355 F.3d 322 ( 2004 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
IN RE: MICROSOFT CORPORATION 
ANTITRUST LITIGATION
(Kloth, et al. v. Microsoft Corp.;
Netscape Communications Corp. v.
Microsoft Corp.; Sun Microsystems,
 No. 03-1817
Inc. v. Microsoft Corp.; Burst.com,
Inc. v. Microsoft Corp.) (MDL No.
1332)

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
J. Frederick Motz, District Judge.
(CA-00-1332-MDL, CA-00-2117-1, CA-02-2738-1, CA-02-2739-1,
CA-02-2952-1)
Argued: October 29, 2003
Decided: January 15, 2004
Before WIDENER, NIEMEYER, and GREGORY, Circuit Judges.
Reversed and remanded by published opinion. Judge Niemeyer wrote
the opinion, in which Judge Widener joined. Judge Gregory wrote a
separate opinion concurring in part and dissenting in part.
COUNSEL
ARGUED: David Bruce Tulchin, SULLIVAN & CROMWELL,
L.L.P., New York, New York, for Appellant. John Bucher Isbister,
TYDINGS & ROSENBERG, L.L.P., Baltimore, Maryland, for
2 IN RE: MICROSOFT CORPORATION
Appellees. ON BRIEF: Richard C. Pepperman, II, Marc De Leeuw,
SULLIVAN & CROMWELL, L.L.P., New York, New York; Robert
A. Rosenfeld, Matthew L. Larrabee, HELLER, EHRMAN, WHITE
& MCAULIFFE, L.L.P., San Francisco, California; Michael F.
Brockmeyer, Jeffrey D. Herschman, PIPER RUDNICK, L.L.P., Balti-
more, Maryland; Charles W. Douglas, SIDLEY, AUSTIN, BROWN
& WOOD, Chicago, Illinois; Thomas W. Burt, Richard L. Wallis,
Linda K. Norman, Steven J. Aeschbacher, MICROSOFT CORPORA-
TION, Redmond, Washington, for Appellant. Thomas M. Wilson, III,
TYDINGS & ROSENBERG, L.L.P., Baltimore, Maryland; Lloyd R.
Day, Jr., James R. Batchelder, Robert M. Galvin, DAY, CASEBEER,
MADRID & BATCHELDER, L.L.P., Cupertino, California; Michael
A. Schlanger, Kirk R. Ruthenberg, SONNENSCHEIN, NATH &
ROSENTHAL, Washington, D.C.; Spencer Hosie, Bruce J. Wecker,
HOSIE, FROST, LARGE & MCARTHUR, San Francisco, Califor-
nia; Parker C. Folse, III, Ian B. Crosby, Edgar G. Sargent, SUSMAN
GODFREY, L.L.P., Seattle, Washington; Stephen D. Susman, James
T. Southwick, SUSMAN GODFREY, L.L.P., Houston, Texas; Chris-
topher Lovell, Victor E. Stewart, Jody Krisiloff, Peggy Wedgworth,
LOVELL, STEWART & HALEBIAN, L.L.P., New York, New
York; Stanley M. Chesley, WAITE, SCHNEIDER, BAYLESS &
CHESLEY, Cincinnati, Ohio; Robert Yorio, CARR & FERRELL,
L.L.P., Palo Alto, California; Michael D. Hausfeld, COHEN, MIL-
STEIN, HAUSFELD & TOLL, P.L.L.C., Washington, D.C., for
Appellees.
OPINION
NIEMEYER, Circuit Judge:
In 1998, the United States and several of the States filed a civil
action against Microsoft Corporation in the District of Columbia for
violations of the Sherman Act. The district court in that action found
that Microsoft (1) illegally maintained a monopoly in the market of
"licensing of all Intel-compatible PC operating systems worldwide,"
(2) attempted to monopolize a "putative browser market," and (3)
entered into an illegal tying arrangement by bundling its Internet
Explorer web browser with its Windows operating system, in viola-
IN RE: MICROSOFT CORPORATION 3
tion of §§ 1 and 2 of the Sherman Act. The Court of Appeals for the
D.C. Circuit affirmed, with limitations, the district court’s conclusion
that Microsoft illegally maintained a monopoly in the PC operating
systems market but reversed the district court’s other conclusions.
United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001).
Based in large part on the factual findings made in that District of
Columbia litigation, the plaintiffs in the cases now before this court
have asserted a broad range of antitrust violations against Microsoft.
On the plaintiffs’ motions to foreclose Microsoft from relitigating 356
factual findings made by the district court in the District of Columbia
litigation, the district court in these actions entered a pretrial order
applying the doctrine of "offensive collateral estoppel" to preclude
Microsoft from relitigating 350 of the factual findings. The district
court made its decision about each finding by determining that the
finding was "supportive of" the judgment affirmed by the Court of
Appeals for the D.C. Circuit. In re Microsoft Corp. Antitrust Litig.,
232 F. Supp. 2d 534, 537 (D. Md. 2002). On appeal, Microsoft con-
tends that the standard that the district court used to apply offensive
collateral estoppel to factual findings from the District of Columbia
litigation was too broad, unfairly denying Microsoft an opportunity to
litigate those facts in this action.
Because the "supportive of" standard is not the appropriate stan-
dard for applying collateral estoppel, we reverse and remand, direct-
ing the district court to give preclusive effect only to factual findings
that were necessary — meaning critical and essential — to the judg-
ment affirmed by the D.C. Circuit.
I
Several competitors of Microsoft — Netscape Communications
Corporation, Sun Microsystems, Inc., Burst.com, Inc., and Be Incor-
porated — as well as a class of consumers commenced these actions
against Microsoft for various violations of the antitrust laws and
related laws, and in April 2002 these actions were transferred to the
District of Maryland under multidistrict litigation procedures. See 28
U.S.C. § 1407.
In August 2002, several of the plaintiffs filed pretrial motions
under Federal Rule of Civil Procedure 16(c) to foreclose Microsoft,
4 IN RE: MICROSOFT CORPORATION
under the doctrine of collateral estoppel, from relitigating 356 of the
412 factual findings made by the district court in the District of
Columbia litigation. See United States v. Microsoft Corp., 84 F. Supp.
2d 9 (D.D.C. 1999). The district court granted the motions with
respect to 350 of those findings. In re Microsoft Corp. Antitrust Litig.,
232 F. Supp. 2d 534 (D. Md. 2002). In reaching its conclusion, the
court recognized that it could foreclose Microsoft from relitigating
only those facts that were "necessary to the prior judgment," id. at
537, but it concluded that the doctrine "is sufficiently served by
requiring that a specific finding be supportive of the prior judgment,"
id. (emphasis added).
On Microsoft’s motion, the district court certified for review under
28 U.S.C. § 1292(b) its interlocutory order, which the court character-
ized as a ruling that "facts found by Judge Jackson [for the District
of Columbia District Court] that were supportive of (rather than indis-
pensable to) the liability judgment against Microsoft in the govern-
ment case should be given collateral estoppel effect in the cases
encompassed in this MDL proceeding." By order dated July 3, 2003,
we granted Microsoft leave to appeal.
II
Under the traditional rubric of res judicata, once a matter —
whether a claim, an issue, or a fact — has been determined by a court
as the basis for a judgment, a party against whom the claim, issue, or
fact was resolved cannot relitigate the matter. Judicial efficiency and
finality have demanded such a policy.
The doctrine of "collateral estoppel" or "issue preclusion," which
the district court applied in this case, is a subset of the res judicata
genre. Applying collateral estoppel "forecloses the relitigation of
issues of fact or law that are identical to issues which have been actu-
ally determined and necessarily decided in prior litigation in which
the party against whom [collateral estoppel] is asserted had a full and
fair opportunity to litigate." Sedlack v. Braswell Servs. Group, Inc.,
134 F.3d 219, 224 (4th Cir. 1998) (internal quotation marks and cita-
tion omitted). To apply collateral estoppel or issue preclusion to an
issue or fact, the proponent must demonstrate that (1) the issue or fact
is identical to the one previously litigated; (2) the issue or fact was
IN RE: MICROSOFT CORPORATION 5
actually resolved in the prior proceeding; (3) the issue or fact was crit-
ical and necessary to the judgment in the prior proceeding; (4) the
judgment in the prior proceeding is final and valid; and (5) the party
to be foreclosed by the prior resolution of the issue or fact had a full
and fair opportunity to litigate the issue or fact in the prior proceed-
ing. See id.; Polk v. Montgomery County, Maryland, 782 F.2d 1196,
1201 (4th Cir. 1986) (using "necessary, material, and essential" for
the third prong); Tuttle v. Arlington County Sch. Bd., 195 F.3d 698,
703-04 n.6 (4th Cir. 1999) (using "critical and necessary"); C.B. Mar-
chant Co. v. Eastern Foods, Inc., 756 F.2d 317, 319 (4th Cir. 1985)
(using "necessary and essential"); see also Restatement (Second) of
Judgments § 27 & cmt. h (1982) (using "essential to the judgment,"
meaning that the judgment must be "dependent upon the determina-
tions").
When a plaintiff employs the doctrine of collateral estoppel or issue
preclusion "to foreclose the defendant from litigating an issue the
defendant has previously litigated unsuccessfully in an action with
another party," it is known as "offensive collateral estoppel." Park-
lane Hosiery Co. v. Shore, 439 U.S. 322, 326 n.4 (1979). And when
a defendant employs the doctrine "to prevent a plaintiff from asserting
a claim the plaintiff has previously litigated and lost against another
defendant," it is known as "defensive collateral estoppel." Id. Recog-
nizing a greater possibility for unfairness from the use of offensive
collateral estoppel, the Supreme Court has held that in lieu of prohib-
iting its use altogether, district courts should be granted "broad discre-
tion to determine when it should be applied." Id. at 331. But this
discretion should not be exercised to permit the use of offensive col-
lateral estoppel "where a plaintiff could easily have joined in the ear-
lier action or where . . . the application of offensive estoppel would
be unfair to a defendant," particularly in several specified ways. Id.
Thus, when exercising its discretion, a court should consider the fol-
lowing nonexclusive factors: (1) whether the plaintiff could have eas-
ily joined in the action against the defendant in the earlier action, (2)
whether the defendant had an incentive in the prior action to have
defended the action fully and vigorously; (3) whether the defendant
had won litigation other than the prior action that determined the
same issues or facts favorably to the defendant; (4) whether proce-
dural opportunities are available in the pending action that were not
available in the prior action. See id. at 331-32. In sum, the doctrine
6 IN RE: MICROSOFT CORPORATION
of offensive collateral estoppel or offensive issue preclusion may be
used cautiously to preclude a defendant from relitigating a fact actu-
ally found against the defendant in prior litigation when the fact was
critical and necessary to the judgment in the prior litigation, so long
as the plaintiff using the fact could not have easily joined the prior lit-
igation and application of the doctrine would not be unfair to the
defendant. The caution that is required in application of offensive col-
lateral estoppel counsels that the criteria for foreclosing a defendant
from relitigating an issue or fact be applied strictly. See, e.g., Jack
Faucett Assocs. v. AT&T, 744 F.2d 118, 124 (D.C. Cir. 1984) ("The
doctrine [of offensive collateral estoppel] is detailed, difficult, and
potentially dangerous").
The single criterion at issue in this appeal is whether the district
court correctly applied the requirement that facts subject to collateral
estoppel be "critical and necessary" to the judgment in the prior litiga-
tion. While the district court correctly stated this criterion, it inter-
preted and applied it to foreclose relitigation of any fact that was
"supportive of" the prior judgment. We believe that this interpretation
changes the criterion, rendering it too broad to assure fairness in the
application of the doctrine. "Supportive of" is a term substantially
more inclusive than the stated criterion of "critical and necessary."
Tellingly, in describing the scope of the "critical and necessary"
criterion, we have used the alternative word "essential." See, e.g.,
Polk, 782 F.2d at 1201 ("necessary, material, and essential"); C.B.
Marchant, 756 F.2d at 319 ("necessary and essential"). And all of the
terms that we have used — critical, necessary, essential, and material
— are words of limitation. See Webster’s Third New International
Dictionary 1510-11 (1993) (defining "necessary" to mean logically
required, essential, indispensable); Random House Dictionary 1283-
84 (2d ed. 1987) (defining "necessary" to mean "essential, indispens-
able, or requisite"). Because a fact that is "supportive of" a judgment
may be consistent with it but not necessary or essential to it, the term
"supportive of" is a broader term than "critical and necessary." The
term "supportive of" sweeps so broadly that it might lead to inclusion
of all facts that may have been "relevant" to the prior judgment. Such
a broad application of offensive collateral estoppel risks the very
unfairness about which the Supreme Court was concerned in Park-
IN RE: MICROSOFT CORPORATION 7
lane, 439 U.S. at 330-31, and we conclude therefore that it is inappro-
priate.
In addition, the "supportive of" standard, when applied to offensive
collateral estoppel, would foreclose further litigation of findings for
which the defendant had no opportunity for appellate review in the
prior litigation. See 18 Charles Alan Wright et al., Federal Practice
and Procedure § 4421, at 559 (2d ed. 2002); 18 James Wm. Moore
et al., Moore’s Federal Practice § 132.03[4][b][iv], at 113,
§ 132.03[4][k][ii], at 123-24 (3d ed. 2003). If a trial court were to
make an unnecessary or collateral finding in a case and the defendant
appealed the judgment, the appellate court, in affirming the judgment,
would generally not reach the unnecessary findings. Thus, such find-
ings would evade appellate review. See 1B James Wm. Moore et al.,
Moore’s Federal Practice ¶ 0.443[5.-1], at 585-86 (2d ed. 1996). Yet,
under a "supportive of" standard, these unnecessary or collateral find-
ings, which are practically immune to appellate review, would still
foreclose further litigation, as long as they tended generally to con-
firm the affirmed judgment. In contrast, when only "necessary" find-
ings are given preclusive effect, the defendant will have received a
full opportunity for litigation in the prior proceeding, including the
opportunity for appellate review.
In support of its broader interpretation of "necessary," the district
court cited Delaware River Port Auth. v. Fraternal Order of Police,
290 F.3d 567, 572 (3d Cir. 2002); Hoult v. Hoult, 157 F.3d 29, 32 (1st
Cir. 1998); and Synanon Church v. United States, 820 F.2d 421, 424-
25 (D.C. Cir. 1987). But none of these opinions employed the district
court’s broadening interpretation. See Delaware River Port Auth., 290
F.3d at 572 (using "necessary to support [the] judgment" in the prior
action); Hoult, 157 F.3d at 32 (using a "‘necessary component of the
decision reached’" in the earlier action (quoting Dennis v. Rhode
Island Hosp. Trust Nat’l Bank, 744 F.2d 893, 899 (1st Cir. 1984)));
Synanon Church, 820 F.2d at 424 (using "actually and necessarily
determined by a court of competent jurisdiction" in a prior proceed-
ing).
The district court also reasoned that if "necessary" were to be con-
strued as strictly as is suggested by "indispensable" and "essential,"
we could not have reached the decision that we did in Ritter v. Mount
8 IN RE: MICROSOFT CORPORATION
St. Mary’s Coll., 814 F.2d 986 (4th Cir. 1987). The district court
observed that the more restricted meaning would require that if there
were two independently sufficient grounds for a prior decision, pre-
clusive effect could not be given to either ground. Yet we gave pre-
clusive effect to two independently sufficient grounds in Ritter.
But Ritter does not undermine the generally restrictive meaning of
necessary. In Ritter, the court observed the principle that "where the
court in the prior suit has determined two issues, either of which
could independently support the result, then neither determination is
considered essential to the judgment. Thus, collateral estoppel will
not obtain as to either determination." 814 F.2d at 993. In the circum-
stances of that case, however, which involved no prior judgment from
another proceeding but rather a prior ruling in the same case, we
noted that "if the parties were not bound by the facts found in the very
same case which they were litigating, then the judgments of courts
issued during trial would become irrelevancies." Id. at 992. Even
though we enforced an earlier factual finding applied to a motion
decided later in the same case — essentially applying a law-of-the-
case principle — we called it collateral estoppel and applied it in the
exceptional circumstances of that case, where the parties were the
same, the issues were the same, the facts were the same, and even the
court was the same. Id. at 994. Indeed, the case itself was the same.
Id. at 992-94. But when issue preclusion is considered in the context
of two separate litigations, the restrictive principle recognized in Rit-
ter remains viable — that if a judgment in the prior case is supported
by either of two findings, neither finding can be found essential to the
judgment. Id. at 993; see also Tuttle, 195 F.3d at 704; C.B. Marchant,
756 F.2d at 319.
III
On remand, when the district court applies the "critical and neces-
sary" standard to the facts found in the District of Columbia litigation,
it must take care to limit application to facts that were necessary to
the judgment actually affirmed by the D.C. Circuit. The D.C. Circuit
held that Microsoft illegally maintained a monopoly in the market of
"licensing of all Intel-compatible PC operating systems worldwide"
through 12 specified acts of anticompetitive conduct, described by the
D.C. Circuit in United States v. Microsoft Corp., 253 F.3d 34, 50-80
IN RE: MICROSOFT CORPORATION 9
(D.C. Cir. 2001). Microsoft may be precluded from relitigating the
facts necessary to this judgment under the doctrine of offensive collat-
eral estoppel.
To support their argument that all 350 factual findings were neces-
sary to the District of Columbia judgment, the plaintiffs contend that
the D.C. Circuit "affirmed all 412" of the district court’s factual find-
ings. In making this assertion, the plaintiffs seem to be suggesting that
the scope of the judgment in the District of Columbia litigation was
broader than the judgment actually affirmed by the D.C. Circuit. But
the D.C. Circuit did not affirm all 412 factual findings. The D.C. Cir-
cuit considered all of the factual findings only when considering
whether the improprieties of the district judge evidenced a bias
against Microsoft that would have invalidated all of his factual find-
ings. See Microsoft, 253 F.3d at 117-18. While the D.C. Circuit ulti-
mately rejected this bias argument, it did not review the 412 factual
findings to determine whether they were clearly erroneous or whether
they should be affirmed on appeal. Indeed, because the D.C. Circuit
reversed two of the three claims found by the district court, the dis-
trict court’s judgments on those two claims were deprived of all pre-
clusive effect. See 18 James Wm. Moore et al., Moore’s Federal
Practice § 131.30[1][a] (3d ed. 2003). On remand the district court
must limit itself to those facts critical and necessary to the judgment
actually affirmed by the D.C. Circuit.
In sum, we reverse the ruling of the district court that offensive col-
lateral estoppel will apply to any fact found in the District of Colum-
bia litigation that is supportive of the judgment, and remand for
application of the doctrine under the standards stated in this opinion.
REVERSED AND REMANDED
GREGORY, Circuit Judge, concurring in part and dissenting in part:
I concur in the majority’s conclusion that preclusive effect should
only be given to factual findings that were necessary to, rather than
supportive of, the judgment affirmed by the Court of Appeals for the
District of Columbia. I respectfully dissent, however, from the majori-
ty’s rigid construction of the term "necessary." In my view, this rigid
construction of "necessary" is inconsistent with both the purposes of
10 IN RE: MICROSOFT CORPORATION
collateral estoppel and the contextual approach taken by the Supreme
Court and our sister circuits when defining "necessary."
I
The majority construes "necessary" to mean critical and essential.
Ante at 3. In so doing, the majority cites to and relies on dictionary
definitions of "necessary." Id. at 6. As the Supreme Court has noted,
however, dictionary definitions provide little guidance as to the
proper construction of "necessary." In the landmark case of McCul-
loch v. Maryland, the Court expressly held that the term "necessary"
must be construed in accordance with the context in which it is used:
It is essential to just construction, that many words which
import something excessive, should be understood in a more
mitigated sense—in that sense which common usage justi-
fies. The word "necessary" is of this description. It has not
a fixed character, peculiar to itself. It admits of all degrees
of comparison; and is often connected with other words,
which increase or diminish the impression the mind receives
of the urgency it imports. A thing may be necessary, very
necessary, absolutely or indispensably necessary. To no
mind would the same idea be conveyed by these several
phrases.
17 U.S. 4 Wheat. 316, 414 (1819)(emphasis added). In McCulloch,
the Supreme Court considered whether the Necessary and Proper
Clause required that the incorporation of a bank be absolutely neces-
sary to the exercise of Congress’s enumerated powers. Id. at 401. In
rejecting such a rigid construction of "necessary," the Court held that
the Necessary and Proper Clause only requires that a statute be con-
ducive to and plainly adopted to serve the end for which it was
enacted. Id. at 414, 417, 421. The Supreme Court has since reaffirmed
this construction of the Necessary and Proper Clause. In Jinks v. Rich-
land County—a decision issued last term—the Court held that 42
U.S.C. § 1367(d) satisfies the requirements of the Necessary and
Proper Clause because it is "‘conducive to the due administration of
justice’ . . . and is ‘plainly adapted’ to that end." ___ U.S. ___, ___,
123 S. Ct. 1667, 1671 (2003). In so holding, the Court noted: "[W]e
long ago rejected the view that the Necessary and Proper Clause
IN RE: MICROSOFT CORPORATION 11
demands that an Act of Congress be ‘absolutely necessary’ to the
exercise of an enumerated power." Id.
Further illustrating the Supreme Court’s contextual approach for
construing "necessary" is its tax law jurisprudence. Rather than rely-
ing upon dictionary definitions, the Court has construed "necessary"
in a manner that is best suited for this highly technical area of law.
For instance, in determining whether an expense can be properly
deducted as an "ordinary" and "necessary" business expense, the
Court has "consistently construed the term ‘necessary’ as imposing
only the minimal requirement that the expense be ‘appropriate and
helpful’ for ‘the development of the [taxpayer’s] business.’" Comm’r
v. Tellier, 383 U.S. 687, 689 (1966)(quoting Welch v. Helvering, 290
U.S. 111, 113 (1933)). Such a construction reflects the Court’s under-
standing that a correct construction of "necessary" cannot turn on dic-
tionary definitions.
II
A number of our sister circuits have followed the Supreme Court’s
contextual approach when construing "necessary" and have thus
declined to mechanically apply dictionary definitions of "necessary."
The D.C. Circuit, for example, has expressly stated: "[I]t is crucial to
understand the context in which ["necessary"] is used in order to com-
prehend its meaning." Cellular Telecomm. & Internet Ass’n v. FCC,
330 F.3d 502, 510 (D.C. Cir. 2003). In Cellular Telecomm. & Internet
Ass’n, the D.C. Circuit considered whether the FCC’s enforcement of
wireless number portability rules was "necessary" for the protection
of consumers. Id. at 504. In construing the term "necessary," the D.C.
Circuit noted that "a dictionary definition by no means tells us what
‘necessary’ means in every statutory context," id. at 510, because "the
word ‘necessary’ does not always mean absolutely required or indis-
pensable." Id. at 509-10. The court further observed: "‘[C]ourts have
frequently interpreted the word ‘necessary’ to mean less than abso-
lutely essential, and have explicitly found that a measure may be ‘nec-
essary’ even though acceptable alternatives have not been
exhausted.’" Id. at 510 (quoting Natural Res. Def. Council v. Thomas,
838 F.2d 1224, 1236 (D.C. Cir. 1988)). Accordingly, the D.C. Circuit
held that the FCC need not show that enforcement of its wireless
12 IN RE: MICROSOFT CORPORATION
number portability rules "is absolutely required or indispensable to
protect consumers." Id. at 511.
Similarly, the Second Circuit noted in FTC v. Rockefeller that the
use of the term "necessary" does not automatically render something
"‘absolutely needed’ or ‘inescapable’" because "‘necessary’ is not
always used in its most rigid sense." 591 F.2d 182, 188 (2d Cir.
1979). The specific issue before the Second Circuit in Rockefeller was
whether an investigation conducted by the FTC fell under a statutory
provision authorizing the FTC to "‘gather and compile information’
from, and to ‘investigate,’ banks ‘to the extent that such action is nec-
essary to the investigation’ of non-banking targets." Id. (quoting Pub.
L. 93-153 § 408(e), 87 Stat. 592)(emphasis added). Given its more
flexible construction of "necessary," the court held that an ancillary
investigation of a bank is "necessary" if it "arise[s] reasonably and
logically out of the main investigation" of nonbanking targets. Id. In
so holding, the court rejected the argument that "‘necessary’ means
that the [FTC] must pursue all other ‘reasonably available alterna-
tives’ before engaging in the ancillary investigation." Id.
More importantly, for present purposes, two of our sister circuits
have expressly declined to adopt a rigid construction of "necessary"
in the context of collateral estoppel. In Hoult v. Hoult, the First Cir-
cuit held that "a finding is ‘necessary’ if it was central to the route
that led the factfinder to the judgment reached, even if the result
‘could have been achieved by a different, shorter and more efficient
route.’" 157 F.3d 29, 32 (1st Cir. 1998)(quoting Commercial Assocs.
v. Tilcon Gammino, Inc., 998 F.2d 1092, 1097 (1st Cir. 1993))(em-
phasis added). Similarly, the Federal Circuit has stated:
At the outset, [when determining the applicability of collat-
eral estoppel] it is important to note that the requirement
that a finding be "necessary" to a judgment does not mean
that the finding must be so crucial that, without it, the judg-
ment could not stand. Rather, the purpose of the requirement
is to prevent the incidental or collateral determination of a
nonessential issue from precluding reconsideration of that
issue in later litigation.
Mother’s Rest. Inc. v. Mama’s Pizza, Inc., 723 F.2d 1566, 1571 (Fed.
Cir. 1983)(emphasis added). Two circuits have thus concluded that a
IN RE: MICROSOFT CORPORATION 13
finding need not be indispensable to a prior judgment in order to be
deemed "necessary" to that judgment. A conclusion which is directly
in conflict with the one reached by the majority today.
III
Despite this case law, the majority adopts a rigid construction of
"necessary," whereby preclusive effect is only accorded to findings
deemed indispensable to a prior judgment. As previously noted, the
majority holds that findings are "necessary" to a prior judgment and
thereby entitled to preclusive effect if they are critical and essential
to that judgment. Random House Webster’s College Dictionary 317
(2000)(defining "critical" to mean of essential importance, indispens-
able); id. at 451 (defining "essential" to mean absolutely necessary,
indispensable); Webster’s Third New International Dictionary 538
(1981)(defining "critical" to mean indispensable); id. at 777 (defining
"essential" to mean indispensable). The majority concludes that such
a rigid construction is required due to the potential unfairness that can
result from the application of offensive collateral estoppel. Ante at 5-
6. While it is true that we must cautiously apply the doctrine of offen-
sive collateral estoppel, we must also take care to construe the
requirements for this doctrine in a manner that furthers its purpose.
As noted by the Supreme Court, offensive and defensive collateral
estoppel serve "to ‘relieve parties of the cost and vexation of multiple
lawsuits, conserve judicial resources, and, by preventing inconsistent
decisions, encourage reliance on adjudication.’" United States v. Men-
doza, 464 U.S. 154, 158 (1984)(quoting Allen v. McCurry, 449 U.S.
90, 94 (1980)). The majority’s rigid construction of "necessary," how-
ever, runs contrary to these purposes. Indeed, the majority’s rigid con-
struction of "necessary" frustrates these purposes. Very few findings,
while a material element of a prior judgment, can be considered indis-
pensable. Consequently, under the majority’s construction of "neces-
sary," litigants and courts will be forced to reconsider an issue that
constituted or was a material element of a prior judgment even though
that issue was fully contested and resolved in a previous proceeding.
For instance, a finding during a dispute concerning the amount of
a contractor’s lien on real property that the contract in question con-
tains a provision placing a limit on the contractor’s compensation is
not indispensable because it does not determine the actual amount of
14 IN RE: MICROSOFT CORPORATION
the contractor’s lien. Nonetheless, such a finding is a material element
of the judgment because it establishes that the compensation to which
the contractor is entitled cannot exceed a certain amount. Accord-
ingly, the parties should be precluded in a subsequent suit from reliti-
gating whether the contract in question placed a limit on the
contractor’s compensation if this issue was fully and fairly contested
during the initial proceeding. Allowing this issue to be relitigated
defeats the purposes of collateral estoppel, which, as previously
noted, are "to ‘relieve parties of the cost and vexation of multiple law-
suits, conserve judicial resources, and, by preventing inconsistent
decisions, encourage reliance on adjudication.’" Id.
IV
As a means of drawing an appropriate balance between the costs
and purposes of offensive collateral estoppel, I believe a finding
should be deemed "necessary" to a prior judgment if it concerns a
matter that was "distinctly put in issue and directly determined by a
court of competent jurisdiction," Montana v. United States, 440 U.S.
147, 153 (1979)(quoting S. Pac. R. Co. v. United States, 168 U.S. 1,
48-49 (1897)), and a material element of the judgment. Although less
rigid than the construction adopted by the majority, this construction
of "necessary" offers the same protection against the potential unfair-
ness of offensive collateral estoppel with which the majority is con-
cerned while better serving the purposes of this doctrine. By requiring
that a matter be directly put in issue, determined and a material ele-
ment of a prior judgment, this construction of "necessary" prevents
nonessential dicta and ancillary findings from being accorded preclu-
sive effect.
With respect to the present case, application of this less rigid con-
struction of "necessary" would not unfairly prejudice Microsoft, the
party against whom collateral estoppel is being asserted. Microsoft
had sufficient incentive to vigorously contest every issue raised dur-
ing the government’s antitrust case given that its continued existence
as a single entity was directly at issue. Moreover, Microsoft under-
stood that the findings rendered in the government’s antitrust case
would determine, in large part, whether private parties would com-
mence civil actions against Microsoft. Accordingly, Microsoft should
be precluded from relitigating issues that were distinctly raised, deter-
IN RE: MICROSOFT CORPORATION 15
mined and a material element of the judgment affirmed by the D.C.
Circuit.
V
For the foregoing reasons, I concur in the conclusion that preclu-
sive effect should only be accorded to factual findings that were "nec-
essary" to the judgment affirmed by the D.C. Circuit. I respectfully
dissent, however, from the majority’s determination that a factual
finding must be indispensable to a prior judgment in order to be "nec-
essary" to that judgment. In my view, factual findings made during
the course of a proceeding are "necessary" to the judgment rendered
in that proceeding if they concern a matter that was "distinctly put in
issue and directly determined," Montana, 440 U.S. at 153, and a
material element of that judgment. Accordingly, on remand, I believe
preclusive effect should be accorded to factual findings that meet the
construction of "necessary" as set forth in my opinion.