Will Microsoft class-action suits spawn more?

Three lawyers today filed class-action suits for unspecified damages against the software giant in the California Superior Court in San Francisco. In short, the plaintiffs claim that they paid too much for Windows 95 and 98 because Microsoft allegedly used its monopoly in operating systems to maintain artificially high prices.

Although U.S. District Court Judge Thomas Penfield Jackson recently found that Microsoft has a monopoly in OSes that it has misused, these and other potential litigants may have a tough time using the government's findings to take on the company, antitrust experts said.

In its current state, the government's antitrust case does not provide enough substance to assure any kind of victory in consumer class-action suits, said Rich Gray, an intellectual property lawyer with Outside General Counsel Silicon Valley.

Because the government failed to deal with price fixing--an important issue in any class-action suit--and the judge determined Microsoft "maintained" but not "obtained" an illegal monopoly, the legal ground is soft for supporting civil actions, Gray said.

Microsoft said such class-action suits are "misguided."

"We think it is very unfortunate, both for consumers and the overall economy, that these kinds of groundless lawsuits are being brought against a company that has consistently driven prices downward," said Microsoft spokesman Mark Murray. "This lawsuit is particularly misguided since Microsoft's prices are generally lower than all of our operating system competitors."

Out-of-court settlement in the antitrust trial--which took a significant step forward on Friday when appeals court judge Richard Posner was appointed as a private mediator--could also put a damper on these cases, because it would essentially prevent the plaintiffs from using much of the evidence culled by the government.

Litigants face difficulty making a "link between the behavior that's ultimately thought to be illegal and the overcharge," said William Kovacic, a professor at George Washington University Law School. "Courts tend to apply the notion of proportionality, which tends to push the litigant to link the amount of the bad conduct to the overcharge.

"If I'm accused of a collection of hideous offenses and dirty fingernails, and if the only thing proven is the dirty fingernails, the dirtyfinger nails might not support a multi-billion judgment," Kovacic said.

The chances of the plaintiffs could improve remarkably if, for instance, Caldera emerges victorious in its lawsuit with Microsoft, Gray added. That case addresses both price fixing and whether the purported monopoly was illegally obtained.

"Judge Jackson has only said Windows is a monopoly franchise, and didn't say it was obtained illegally," Gray said. "If the Caldera lawsuit determines the monopoly was obtained illegally, that makes all these class actions being filed all that more dangerous for Microsoft."

History, however, is not on the plaintiffs' side. 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.

Jackson laid the framework for the class-action suits in findings of fact issued on Nov. 5. In his findings, which are not a ruling, the judge accepted the argument made by the U.S. Justice Department and 19 states that Microsoft is a malevolent monopoly that used illegal tactics to protect its Windows franchise.

The three lawyers in today's suit--Terry Gross, Dan Mogin and Francis Scarpulla--join a growing rash of high-tech, class-action suits. The attorneys are experienced litigators. In 1997, for example, they settled a case against Intel, alleging misconduct over benchmark tests and confusing and misleading processor performance advertising.

A case to watch is the Caldera civil trial set to start Jan. 17, Gray said. In that case, Caldera alleges Microsoft illegally tied MS-DOS to Windows in a way that illegally locked out competitors, such as DR-DOS. Tying MS-DOS to Windows allegedly led to monopolistic powers.

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.

"It also makes the class period wider and longer," Gray said, who added that based on Jackson's findings it is difficult to fix a date for when Microsoft started maintaining its illegal monopoly.

But all of this is meaningless should Microsoft and the government reach a settlement before Jackson's final ruling. Jackson's findings of fact would only be binding in civil cases if he renders a final judgment, represented by the conclusions of law slated to appear in March. The settlement would likely eliminate the necessity of conclusions of law. Further, the conclusions, if issued, have to be identical to issues in the civil case.

"If the case is settled, there goes more then 90 percent of the evidence available for other class-action suits," said Kovacic.

The U.S. Supreme Court ruled in 1977 that only the first purchaser of a product has a right to sue on grounds of antitrust behavior. Because the majority of Windows licenses are purchased by PC manufacturers, who sell the systems to consumers or businesses, only they are eligible to sue under federal law.

This presents a major barrier to class-action suits and protects Microsoft from the kind of relentless suing that eventually brought down big tobacco firms, said University of Baltimore Law School professor Bob Lande. "People make the analogy to plaintiffs' lawyers nibbling tobacco people to death. It's just not going to happen here because of this indirect purchaser shield, which is unique to antitrust."

By filing in California, the lawyers in today's suit sidestepped this issue as the state's antitrust law lets indirect purchasers sue in these kinds of cases. A dozen or so other states have also adopted similar indirect purchaser statutes.