Court rules not to dismiss Datel antitrust lawsuit against Microsoft

Datel's antitrust lawsuit against Microsoft will continue, now that a US District Court has rejected Microsoft's motion to dismiss the case. In all, five of Datel's six allegations against the Xbox 360 maker will be weighed. The court did dismiss Datel's claim that Microsoft would be blocking the company from competing in the console market, since Datel does not actually manufacture game consoles. (Find Datel's full announcement of the court's rejection posted after the break.)

The antitrust case claims that by locking out Datel's Max Memory Card with a firmware update, Microsoft used its status as the platform holder to unlawfully prevent competition. In Microsoft's motion to dismiss, it claimed that language in the "Additional Terms and Conditions" clause in the Xbox 360 product warranty barred the use of unauthorized peripherals. The company back upped its case by citing Apple's successful defense of its right to limit use of OS X to its own hardware.

The court rejected Microsoft's motion, however, finding the language in the "Additional Terms and Conditions" vague and too wide-reaching. For example, if Microsoft's interpretation of the terms was accepted, it could prevent the use of certain televisions with the console.

Since Datel's suit was first filed, of course, Microsoft has enabled the use any USB drive as a memory unit for the Xbox 360, which means that even if Datel is able to continue to sell the device, there likely won't be much demand for it. Meanwhile, Microsoft recently filed its own suit against Datel over claims that one of Datel's controllers is too similar in design to the official Xbox 360 gamepad.

Source – Order Granting in Part and Denying in Part Defendant's Motion to Dismiss [PDF]

Datel's official announcement:

"DATEL'S ANTITRUST CLAIMS AGAINST MICROSOFT FOR MONOPOLIZATION OF XBOX 360 ACCESSORY MARKET MAY PROCEED"

"SAN FRANCISCO, CA – April 26, 2010. In a decision released April 23, 2010, the United States District Court in San Francisco rejected Microsoft's motion to dismiss Datel's lawsuit concerning monopolization of the Xbox 360 accessory market. The Court's ruling permits Datel to proceed with five of the six claims it originally asserted.

"'We're gratified that the case will proceed and Datel looks forward to reestablishing the benefits of competition in the accessory market for all Xbox 360 users,' said Daniel Asimow, a litigation director at San Francisco-based Howard Rice who argued the motion on Datel's behalf.

"UK-based Datel is a leading manufacturer of video game accessories. Among Datel's many innovative products are memory cards and controllers for the Xbox 360. Datel's memory card, released in May 2009, offered four times the memory of Microsoft's memory card accessories for the same or a lower price. Rather than responding with a better product or lower price, Microsoft instead deployed a mandatory November 2009 software update that disabled all memory cards over 512 megabytes (the largest size sold by Microsoft). This exclusionary act not only cut off the market for future Datel sales of memory cards but disabled Datel memory cards already sold. In addition, Microsoft arbitrarily altered its software authentication scheme for game controllers in an attempt to disable Datel's competing products.

"On November 23, 2009 Datel sued Microsoft for antitrust violations. Microsoft responded with a motion to dismiss, claiming that because of a provision in a section entitled "Additional Terms and Conditions" buried in the product warranty, consumers agreed at the time of their Xbox purchase that they would not use unauthorized accessories.

"In its 31-page ruling, the Court rejected this argument, finding that those terms and conditions were at best ambiguous and did not support Microsoft's contention. Indeed, if Microsoft's reading were accepted, it would be impermissible to use the Xbox with a variety of accessories not manufactured by Microsoft, including televisions and music players. The Court rejected Microsoft's reliance on Apple v. Psytar , in which Apple succeeded in dismissing antitrust claims based on a provision in the Mac OS user license restricting the use of the software to Apple computers. Unlike that case, here there is no clearly binding contractual restriction and it is not possible for a consumer to forecast all of his or her accessory needs at the time of the initial purchase.

"The Court also found that Datel had properly alleged claims against Microsoft for unfair competition and for unlawful tying of consoles to accessories and that Datel had properly alleged that Microsoft enjoys market power in the console market as well as the accessory market. The Court dismissed claims against Microsoft for monopolization of the console market, solely on the grounds that Datel, an accessory manufacturer, was not direct participant in the console market."