Microsoft whittles away at class-action suits

The Redmond, Wash.-based company has now won five times out of five, with more than 130 private cases still pending against it.

Courts in Hawaii, Iowa and Kentucky threw out pricing suits alleging that Microsoft overcharged customers for Windows 95 and 98. Earlier cases in Oregon and Nevada met a similar fate.

The timing is good for Microsoft, as it prepares to file a brief Wednesday contending there is no legal basis for the Supreme Court to take its appeal in the landmark antitrust case directly. The early wins also may foreshadow the outcome of a legal confrontation set for Aug. 4 that could remove more than 60 other cases.

"It's nothing more than plaintiffs attorneys trying to go for a successful company," Microsoft spokesman Jim Cullinan said. "The good news is many of these cases have been dismissed. We look forward to arguing our motions in many other states."

U.S. District Judge Thomas Penfield Jackson ruled in June that Microsoft should be broken into two companies. The software giant immediately appealed that ruling.

Lawyers filed the first private antitrust lawsuits against Microsoft in November, after U.S. District Judge Thomas Penfield Jackson issued his stinging "findings of fact." Even then, legal experts warned that many of the cases wouldn't stick.

Though there are serious problems applying the government's antitrust case to private pricing suits, Microsoft has relied on a simpler strategy: asking courts to throw out the suits based on a 1977 U.S. Supreme Court ruling known as Illinois Brick.

"This doctrine, which some but not all states have adopted, says that if you didn't purchase directly from Microsoft you can't sue," said Rich Gray, an intellectual property attorney with Outside General Counsel Silicon Valley in Menlo Park, Calif.

Because most consumers bought Windows 95 or 98 with a new PC or from a retailer, the law prohibits them from suing Microsoft directly. The doctrine exists to protect companies from being sued by multiple parties for the same acts.

"People who purchased directly from Microsoft have to sue, and how many computer manufacturers are going to line up to do that?" Gray said.

The Illinois Brick approach will be put to the test Aug. 4, when Microsoft files a motion asking a Baltimore federal court to throw out more than 60 pending federal cases. In April, a panel of federal judges consolidated the cases, more than 25 of which had been filed in state court and later were removed to the federal level.

Cullinan predicted the Baltimore court would throw out the cases.

"Microsoft has better than a very good shot at that," Gray said.

Microsoft's exposure is potentially more than $7 billion, according to a formula developed by Robert Hall, an economist with the Hoover Institute at Stanford University. But Microsoft's liability could be more than three times that when accounting for the breadth of the violations. That sum could grow if more companies sue the software maker, analysts say.

But these kinds of private antitrust lawsuits are tough to win, said Bill Kovacic, a professor at George Washington University Law School. More than 40 lawsuits filed against IBM during its 13-year antitrust battle with the government led to payouts of less than $50 million on potential claims of $4 billion.

"There is no reason to think Microsoft cannot repeat IBM's string of civil victories," Kovacic said.

Added Cullinan: "There's a little momentum now of trying to get rid of many of these baseless lawsuits brought by plaintiffs attorneys, which have no merit. Anything based solely on the District Court's findings of fact or conclusions of law in the DOJ we believe is sadly misplaced, because we think that will be overturned on appeal."

In other legal proceedings, Microsoft on Wednesday will address the government's effort to take its antitrust appeal directly to the Supreme Court. Microsoft instead would like the U.S. Court of Appeals for the District of Columbia Circuit to take the case.

In preparation for its Supreme Court arguments, Microsoft hired Washington, D.C.-based attorney Carter Phillips and his law firm, Sidley & Austin, to assist lead attorney John Warden and his firm, New York-based Sullivan Cromwell.

Microsoft is expected to argue, among other things, that the law allowing the direct appeal does not apply to the states' portion of the case. Originally, the Justice Department and 19 states filed separate cases, which Jackson treated as one.

Microsoft also is expected to contend that the case is not of enough national significance to warrant direct appeal under the Expediting Act.

The government files a rebuttal brief Aug. 15, and Microsoft has the option of responding Aug. 22. The Supreme Court is expected to rule on jurisdiction by early October. If it chooses to take the case directly, a ruling is expected by next June. Otherwise the case goes back to the Court of Appeals, which could rule in as few as nine months.