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Microsoft is in penalty phase

Judge's findings open the door to lawsuits

Logo - ComputerworldNovember 22, 1999 | Computerworld

By Patrick Thibodeau, Kim S. Nash, David Orenstein

For Microsoft Corp., the penalties in its antitrust case are arriving well before Judge Thomas Penfield Jackson’s final verdict.

Seizing on the judge’s recent finding that Microsoft is an overcharging monopoly, class-action lawsuits with big damage potential are developing.

The case could also upset Microsoft’s Windows 2000 release, planned for February. The government, once it has a verdict in hand, may attempt to argue that the browser has been illegally tied to the operating system and seek an injunction blocking its release, according to legal experts.

But Microsoft President Steve Ballmer said the government won’t force the company to split the browser from the operating system.

“We don’t expect that to happen,” Ballmer said last week at Comdex/Fall ’99. “We’ve gone through that process once before, and the appellate court upheld our ability and right to integrate additional value for our customers.”

Last May, an appeals court overturned an injunction that would have barred Microsoft from forcing PC makers to take Internet Explorer along with Windows.

Microsoft isn’t preparing any backup plans for Windows 2000, Ballmer said. But Microsoft probably wouldn’t admit to having a backup plan anyway, said Rich Gray, an antitrust lawyer in San Jose. Not only would that suggest that Microsoft thought it was doing something wrong, Gray said, but talking about a fallback position could interfere with potential settlement talks.

Microsoft Chairman and CEO Bill Gates said on ABC’s Good Morning America program last week that he was serious about reaching a resolution in the case. But settlement prospects remain “unknown,” said one government attorney, following a meeting with Jackson and Microsoft attorneys on Thursday at U.S. District Court.

Government and Microsoft attorneys met for the first time last week since Jackson’s Nov. 5 pro-government findings of fact to schedule final trial activities. It was agreed that both sides would be back in court to give oral arguments before a final verdict is released early next year.

With a verdict against Microsoft all but certain, government attorneys are preparing for the remedy phase of the trial. “We’re still working hard on that,” said Iowa Attorney General Tom Miller after last week’s meeting with the judge. “Neither (state nor federal officials) have really decided exactly what the best remedy is for the consumer interest.”

But Miller said he expected that the states and the federal government would reach a strong consensus on a remedy. “Look at how the trial has gone. The Justice Department and the states have been in concert on every issue, and we anticipate this will not be an exception,” said Miller.

While the government mulls over remedies in this case, Microsoft attorneys are preparing for a new round of antitrust-related lawsuits that have been spurred by the judge’s finding that the company is a monopoly.

In a federal suit, Blaine Cox, a PC user in Birmingham, Ala., has claimed that he and other consumers were overcharged $10 to $40 every time they bought Microsoft software. Cox wants that money back, as well as triple damages.

The figures are based on an internal study Microsoft did to figure out how to price Windows. The study, which Jackson cited in his Nov. 5 ruling, said Microsoft could charge $49 for the product; it ultimately charged $89.

What prompted the suit? “The ruling, of course,” said Cox’s lawyer, Bob Roden, an attorney at the firm Shelby & Cartee LLC in Birmingham.

Roden hopes to turn Cox’s suit into a class action and said he has had calls from other consumers. But no one has joined Cox yet.

Seastrom Associates Ltd., a New York advertising company, also filed an antitrust suit against Microsoft just days after Jackson’s findings. Seastrom, which is seeking to have other companies and individuals join it in a class-action suit, claims that Microsoft has consistently overcharged for Windows.

And two PC users in Louisiana filed suit in federal court in New Orleans. Jay Quigley and John Redmann also seek class-action status.

“These are baseless, groundless lawsuits. We consistently charge lower prices for Windows than our competitors do for their operating systems,” a Microsoft spokesman said.

If the antitrust case ends up delaying Windows 2000, Bill Pantely, information systems director at Spancrete Industries Inc. in Waukesha, Wis., said it won’t bother him.

The building materials maker doesn’t plan to look at Windows 2000 until August, and Pantely said Microsoft could fend off an injunction.