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Judge orders Microsoft to pay Bristol $1 million

In a stunning defeat for the software giant, a federal judge boosts the damages in a case Microsoft largely won before a jury last year.

In a stunning defeat for Microsoft, a federal judge has ordered the software maker to pay $1 million in damages in a case the company largely won before a jury last year.

The turnaround in fortune comes as Microsoft's legal problems mount on multiple fronts and as its business practices fall under increased scrutiny.

U.S. District Judge Janet Hall yesterday ordered the punitive damages against Microsoft in a lawsuit brought by Bristol Technology of Danbury, Conn. A jury last year sided with Microsoft on the majority of claims but found the company had violated state fair-trade statutes. The jury awarded Bristol $1 in punitive damages, but Hall changed the amount to $1 million.

"We will likely be appealing this ruling," Microsoft spokesperson Jim Cullinan said. "We believe the jury decision was the right decision. We think yesterday's ruling is contradictory with what the jury said. There are a number of issues we will raise on appeal, and we look forward to raising them as soon as possible."

In a scathing, 103-page ruling, Hall lambasted Microsoft's business practices, contending that the Redmond, Wash.-based software maker used bait-and-switch tactics in violation of Connecticut's Unfair Trade Practices Act. She also faulted Microsoft for unfair practices involving its Windows Interface Source Environment (WISE) licensing program, which gave Bristol access to Windows source code.

To Bristol, the judge's ruling appears to validate many of the claims it presented at trial. "She comments on much more than the punitive damages she awarded yesterday," said Jean Blackwell, Bristol's vice president of marketing and a company co-founder. "It seems to me she is agreeing with Bristol's facts that we presented in the case, and not just the unfair-practices facts but the antitrust facts as well."

Besides imposing the punitive damages, Hall restricted Microsoft from "publishing, distributing or circulating the 'WISE Mission Statement'" and "portions thereof concerning 'confidence,' 'compatibility' or 'consistency' in any format."

Bristol has also asked Hall to impose "corrective advertising" about the WISE program, but she ceded jurisdiction over that matter to the Federal Trade Commission.

Even as she has boosted the amount of damages, the judge has not yet accepted the jury's verdict. In yesterday's order, she set up a schedule for hearing motions on final judgment for Sept. 15 and Sept. 30. The degree to which Hall accepted Bristol's claims in her ruling could indicate she may vacate the jury's verdict, but legal experts warn that nothing is certain.

"The same facts could constitute an unfair competition claim but not constitute an antitrust violation," said Bob Lande, an antitrust professor at the University of Baltimore School of Law.

The $1 million judgment, the highest awarded under Connecticut's fair-trade law, is Microsoft's second legal setback this week. On Tuesday, a California judge certified 27 private antitrust suits with "class status" and set a trial date of March 4, 2002. Those lawsuits, stemming from Microsoft's defeat in its antitrust trial against the Justice Department and 19 states, allege the software maker overcharged California consumers as much as $40 for every copy of Windows sold in the state.

But plaintiffs in the nearly 140 private antitrust cases pending against Microsoft may get little use out of yesterday's ruling. While Hall determined Microsoft used unfair tactics to gain advantage in the Unix market similar to those it used against America Online subsidiary Netscape Communications in the Web browser market, there may be little carryover to other cases.

"I think it's doubtful that ruling will have much effect on the antitrust disputes going on in the private cases or the federal dispute," said Bill Kovacic, an antitrust professor at George Washington University Law School.

"The litigants in the private cases are going to point to that because in some of the state cases that have been filed--I'm not sure how many--they plead unfair allegations," he said. "But the judge has not necessarily targeted behavior that has victimized these other plaintiffs."

The award, although far shy of the $263 million that Bristol asked for at trial, still could be a psychological boost to competitors, customers or consumers looking to sue Microsoft.

"You'd certainly prefer not to have an opinion that describes you as dishonest floating around," Kovacic said.

During a six-week trial, which ended in July 1999, Bristol accused Microsoft of unfair business practices and violation of state and federal antitrust laws. But after two days of deliberations, the jury found for Microsoft on all counts except the unfair business practice claim and awarded Bristol $1 in damages.

Bristol, which makes tools for running Windows applications under Unix, had argued that Microsoft used it to gain a foothold in technical workstation and server operating systems.

Bristol licensed Windows source code at a time when Microsoft's Windows NT operating system trailed Unix substantially in market share. Bristol accused Microsoft of initially giving access to the Windows source code for its Wind/U product but later raising licensing fees after NT found its footing in the workstation and server markets.

Bristol's largest competitor, Mainsoft, continues to license Windows source code from Microsoft. After losing the antitrust portion of the trial, Bristol late last year signed a licensing agreement similar to Mainsoft's.

The Bristol case is not the first time Microsoft has run afoul of state fair-trade laws.

Sun Microsystems sued Microsoft in October 1997, alleging the maker of Windows violated its contract with Sun for developing and releasing products using the Java programming language and Sun's Java copyright.

Thirteen months later, Judge Ronald Whyte issued a preliminary injunction barring Microsoft from using Java in its products. An appeals court later overturned the preliminary injunction, chiding Whyte for accepting Sun's copyright claim.

When Whyte reinstated the copyright claim in January, he did so for unfair business practices under California's Business and Professions Code.

Sun is not likely to benefit much from the ruling, Kovacic said.

"Unless Sun could show Microsoft has done something like this to them as well, I don't think they could use it. Certainly what the commercial plaintiffs would have to do is say, 'We've been victims of a similar practice,' and go about proving that. Otherwise, all they get from the denunciation in Bristol is a mild rebuke."