Microsoft now faces slew of civil lawsuits

While the software giant prepares for the final stages of its landmark antitrust trial, lawyers are readying the first stages of about 115 civil suits that could expose it to more than $7 billion in damages.

4 min read
While Microsoft prepares for the final stages of its landmark antitrust trial, lawyers are readying the first stages of about 115 civil lawsuits that could expose the software giant to more than $7 billion in damages, according to some legal experts.

Private attorneys started filing the bulk of the civil lawsuits against Microsoft in November, soon after U.S. District Judge Thomas Penfield Jackson issued his findings of fact in the trial.

Many of these suits have lain virtually dormant while lawyers sorted through preliminary preparations and waited for Jackson's judgment, which was delivered on Monday.

The reason the suits may become active again is that Jackson has said he wants to see the penalty phase of the trial completed within 60 days. If Jackson issues a final ruling on penalties, private lawyers will be able to use the trial record and Jackson's findings as evidence in their lawsuits, according to legal experts. If Microsoft settles before the final ruling--which remains a distinct possibility--private lawyers will find themselves back at square one as far as evidence is concerned.

Aside from private suits, companies Jackson cited as wronged by Microsoft's business practices--such as Sun Microsystems--are also considering their own lawsuits.

These corporate suits could be even more damaging to Microsoft than the private cases, at least in terms of monetary awards, according to the laywers filing them and coordinating the actions. The fines Microsoft might have to pay in the DOJ case are limited. The same limits don't apply in these civil cases, which could eventually include a vast sea of plaintiffs.

"Now that Judge Jackson has issued a judgment on the findings of fact, they potentially become legally significant in our case," said Dan Small, a partner with Cohen, Milstein, Hausfeld & Toll in Washington, D.C. Small's firm has worked to coordinate lawsuits and consolidate them as larger class-action suits.

Microsoft spokesman Jim Cullinan denounced the class action suits. "These class action lawsuits are not designed to benefit consumers, but really about the plaintiff attorneys attacking a successful company seeking money. Consumers have clearly benefited from the rapid innovation, great technology and low prices offered by Microsoft and our products," he stated in an e-mail.

Jackson's final ruling, which could come within 60 days, potentially would give attorneys access to loads of evidence gathered by the government, as well as the use of Jackson's findings of fact. That document concluded Microsoft's anti-competitive behavior harmed consumers and many Microsoft competitors and customers.

"For many of these lawsuits, the government has already done 90 percent of the legwork," said University of Baltimore School of Law professor Bob Lande.

With the government having done the heavy lifting, more civil suits are likely to follow, say legal experts.

see special coverage: The verdict is in Yet lawyers will still have to dig up new evidence for their cases, experts say. Some have asserted that the government's case did not go far enough, especially in proving financial damages against consumers.

"If their charge is (that) Microsoft overcharges for Windows, they have to prove Microsoft has monopoly power in the form of extracting monopoly rents on Windows--over what it would have been in a competitive market, and that they're entitled to a refund," said Glenn Manishin, an antitrust attorney with Patton Boggs in McLean, Va.

In his findings of fact, Jackson concluded Microsoft used its dominant monopoly in operating systems to maintain its prices on Windows and consequently harm consumers. A company-sponsored consumer survey indicated Microsoft could have marketed Windows 98 upgrades for $49, Jackson noted. Instead, Microsoft eventually charged $89, which the company identified as the "revenue maximizing" price. Microsoft, in fact, even raised the price of Windows 95 at the time Windows 98 came out, the reverse of what is expected in a competitive market.

Cullinan disputed that the findings indicate Microsoft overcharged consumers. "There is nothing in the court's conclusions of law or findings of fact that supports the assertion that Microsoft overcharged consumers for Windows because actually the opposite is true," he wrote.

While Jackson deliberated his ruling, Microsoft has been acting aggressively against civil lawsuits, requesting many state suits be remanded to federal court and many others be dismissed. Microsoft is especially fearful of cases filed in state courts, where antitrust laws make it easier for consumers to recover big damages, say legal experts.

Initially, more than two-thirds of the cases were filed in state courts, but Microsoft has successfully remanded many cases to the federal level. Of about 115 pending suits, 70 are now in federal court.

Robert Hall, an economist with the Hoover Institute at Stanford University, developed a formula that could be used for calculating damages against Microsoft. Hall's formula puts Microsoft exposure conservatively at $7 billion, 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.

Manishin dismissed the pending civil suits as "coupon cases. But the private lawsuits are where the big money is going to be involved. Then it's just not the potential overcharge, if any. There are damages to what the company would have been worth and what their profits would have been (without) being foreclosed by an anti-competitive market."

IBM, Intel, Netscape and Sun are among the firms Jackson said were wronged by Microsoft. All could sue Microsoft for damages and rely heavily on the government's case to prove their own case, Manishin said.

Even if Microsoft appeals, it's still open season on suing the software maker, said Rich Gray, an intellectual property attorney with Outside General Counsel Silicon Valley in Menlo Park, Calif.

"Once Jackson decides on a remedy and issues his final judgment, that judgment can be used to great advantage in these civil lawsuits, even while Microsoft appeals the ruling."