Microsoft preparing for Caldera antitrust case

While negotiations continue in Microsoft's landmark antitrust trial with the federal government and 19 states, the software maker's lawyers have been preparing to take on Caldera in a private antitrust case.

This next legal battle will bring some of Microsoft's top executives to court, including Steve Ballmer, Paul Maritz and Brad Chase. Of the two trials, the stakes could be much higher in the civil case than the one brought by the government, legal experts say.

Orem, Utah-based Caldera claims Microsoft used its dominance in PC operating systems in the early 1990s to crush competition from a product called DR-DOS, which Caldera obtained from Novell in 1996. Caldera is seeking $1.6 billion in damages.

The case is dangerous for Microsoft for a number of reasons. A Caldera win could bolster a number of class-action suits that were filed against Microsoft after U.S. District Judge Thomas Penfield Jackson filed his findings of fact in the government's antitrust case.

Jackson found that Microsoft "maintained" a monopoly, while Caldera alleges Microsoft "obtained" a monopoly. If Caldera, and then the class-action plaintiffs, could show that a monopoly was illegally obtained, the litigants could potentially show every copy of Windows sold resulted from that illegal act, exposing Microsoft to serious liability.

Microsoft also must present its defense to a jury, which could be tougher. Juries are more unpredictable and by their nature can generate more publicity, said Bob Lande, an antitrust professor with the University of Baltimore School of Law.

The Redmond, Wash.-based software company furthermore is dealing with events as much as a decade old.

The core of Caldera?s argument--that Microsoft illegally tied MS-DOS to Windows--is similar to the one set forth by the government, said Rich Gray, an intellectual property attorney with Outside General Counsel Silicon Valley. "It?s another shot at the tying issue. Windows wouldn't work by itself, it had to run on something."

In the government's antitrust trial and in an earlier consent decree case, the Justice Department alleged Microsoft illegally tied together two separate products, Windows 95 and Microsoft Internet Explorer. A federal appeals court sided with Microsoft on the earlier consent decree case, making it possible for Microsoft to bundle Windows 95 and 98 and Internet Explorer together as one product.

Legal experts expect Caldera to make a similar argument but go further: that Microsoft illegally leveraged its MS-DOS monopoly into the graphical interface market and sabotaged DR-DOS so it would not work well with Windows. DOS, or disk operating system, preceded Windows as the most prevalent operating software in personal computers.

Caldera is expected at trial to introduce an internal Microsoft email suggesting Microsoft sought to prevent competing operating systems, such as DR-DOS and IBM's PC-DOS, from working with Windows 3.x.

Observers say that Caldera faces an uphill battle on many fronts. "But in view of the appeals court ruling, I think Caldera will have a hard time winning this point of tying," Lande said. "It's not 1991, and people are used to thinking of Windows and DOS as one product."

Although speaking only in his current capacity as a professor, Lande worked for Digital Research, the original developer of DR-DOS, about ten years ago and helped draft the first allegations against Microsoft in this matter. He no longer has any financial interest in its outcome.

Microsoft will present executives from Compaq, IBM and other PC makers to refute this and other allegations and explain the licensing relationship for MS-DOS and Windows.

"Our witnesses are going to tell the story of who we were competing with and why we were competing," said Microsoft spokesman Jim Cullinan.

"We were competing against IBM, Apple and others like that. DR-DOS was yesterday?s technology. They were a clone, for crying out loud, and a clone has a huge burden to overcome to succeed."

Caldera, however, thinks otherwise.

"During three-and-a-half years of trial preparation Microsoft has repeatedly tried to delay jury trial and cause the court to chop up Caldera's case or get it thrown out piece by piece," said Caldera representative Lyle Ball.

"Microsoft has continually said this is an old issue that has no merit and had been resolved long ago. The federal judge overseeing this case thinks Caldera has sufficient standing, sufficient legal interpretation to warrant a presentation to a jury trial."

Microsoft's witnesses make a "who's who" list of the company's top executives. While the final witness list is still subject to a judge's approval, Microsoft plans to call at least six current or former top executives, including Microsoft president Steve Ballmer.

"Steve will be one of our witnesses, and someone who was directly involved in the IBM relationship and the decisions at the time as to the future of the company," Cullinan said. "And we think that is a very important story for the jury to hear."

Brad Silverberg, who left Microsoft in October, will testify, among other things, about MS-DOS and the marketing and development strategy for the product.

Brad Chase, who more recently has been involved with MSN, will go over the marketing strategy for both MS-DOS and Windows, as well as other matters.

David Cole, who is now involved with consumer Windows, will also discuss MS-DOS.

Joachim Kempin will testify about the competition Microsoft faced and also the three licensing options given to PC makers.

Paul Maritz, who played an important role in the development of Windows 95, will testify about that product, among other things.

Unlike the government's case, where both sides are talking settlement, there seems little sign Microsoft and Caldera will settle their case before the trial?s start next month.

"I?m not surprised there has been no settlement," Gray said. "This case makes sense for Microsoft to litigate because they have a good strong theory, which is that Windows itself was so much more appealing as an operating system that it was the momentum of introducing the graphical interface that undercut DR-DOS and not anything that Microsoft did."