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OS maker files suit against Microsoft

Operating system maker Be sues the software giant for alleged anti-competitive practices that may have stunted the growth of its business.

! -- EDS UPDATE, 2:55 pm 2/19: last nine graphs --> Operating system maker Be on Tuesday said it has filed a federal lawsuit against Microsoft, alleging the software giant's anti-competitive practices stunted the growth of the Be operating system.

In the lawsuit, filed in U.S. District Court in San Francisco, Be said it is suing for "the destruction of its business as a direct result of the illegal and anti-competitive practices of Microsoft." The company is seeking unspecified damages.

Be, which last year sold its technology to Palm, is in the process of dissolving itself as a company. CEO Jean-Louis Gassee, a former Apple Computer executive, launched Be in 1990.

A Microsoft representative said that the company has not yet seen the lawsuit, but it will respond appropriately.

"This sort of litigation is not in the interest of consumers, nor is it good for the industry," said Microsoft spokesman Jim Desler. "The industry is at its best when it's developing new products and focusing on innovation."

The Be lawsuit draws on the federal court's ruling that Microsoft violated federal and California state antitrust laws. A district court judge initially ordered that Microsoft be split up as a result of that finding. A federal appeals court struck down that part of the order, but upheld the court's finding that Microsoft had abused its monopoly power. In November, Microsoft reached a settlement with the Justice Department and nine states.

Although Be's flagship operating system had a devout following among a small group of technical insiders, it never achieved commercial success. In its lawsuit, Be charges that Microsoft's licensing agreements prevented computer makers from offering the BeOS on the same systems that ran Microsoft's Windows operating system.

Separately, Be said Tuesday that Gassee has stepped down as president and CEO. Chief Financial Officer P.C. Berndt has also left the company, although he remains on its board of directors.

Dan Johnston, Be's general counsel, was named to serve as president.

In the suit, Be outlines its tortured history of trying to get its operating system included on machines from major computer makers, most notably Compaq Computer and Hitachi.

Be said that in September 1998, Hitachi verbally committed to loading the BeOS alongside Windows on a line of PCs. Be had planned to offer software that would easily let computer owners choose between the two operating systems, but said it was notified by Hitachi in November 1998 that Microsoft's licensing deal with Hitachi effectively prevented such an approach.

Although Hitachi eventually sold some PCs with the BeOS loaded on the hard drive, Be said the operating system had to be started from a floppy disk, and the machines bore no indication that they even came with the operating system.

"The same restrictions that deprived Be of the benefits it expected from the Hitachi contract precluded Be from entering into any preinstallation contracts at all with other major PC (makers)," Be said in its suit.

Microsoft's Desler said computer makers are able to ship multiple operating systems with their computers, although he would not discuss Be's claim that the restrictions imposed by Microsoft make such a scenario unworkable.

The suit also claims that Microsoft interfered with Be's efforts to develop an Internet appliance with Compaq.

Although Be was never able to unseat Microsoft, the company did have a chance to cash in on its efforts.

Apple reportedly offered $125 million for Be in 1996, but Gassee wanted $200 million. Apple eventually ended up purchasing Steve Jobs' Next for $400 million instead.

Be then tried to go it alone. In 1998, Intel, August Capital and others invested millions of dollars in the company. It went public in July 1999, with the stock opening at $6 and trading as high as $39 a share. However, Be never achieved profitability, sales stalled and losses mounted.

The company ended up getting $11 million from Palm for its technology in a deal that closed last year.