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Microsoft ruling may blunt other cases

update Judge Colleen Kollar-Kotelly?s antitrust ruling may have gutted many pending private lawsuits against Microsoft, but cases in California and Europe still pose a danger.

update WASHINGTON--Friday's antitrust ruling may give Microsoft powerful ammunition to defend against more than 60 private lawsuits pending against the software giant, legal experts say.

On Friday, U.S. District Judge Colleen Kollar-Kotelly approved, with few changes, a November 2001 settlement between Microsoft and the Justice Department and nine states. She then issued a revised settlement as her remedy in continued litigation brought by nine other states and the District of Columbia.

In the 344-page memorandum supporting her decision, Kollar-Kotelly potentially set limits on the use of U.S. District Judge Thomas Penfield Jackson's "findings of fact" in other cases. Many of the cases already faced an uphill struggle but would have greatly benefited from the document's use to show Microsoft had harmed consumers or competitors, legal experts say. But Kollar-Kotelly's comments, part of her explanation for not imposing the stiffer sanctions requested by the plaintiff states, could effectively gut the majority of private cases pending against Microsoft.

Microsoft is expected to renew with new vigor its assault on the private lawsuits, which, with the exception of an investigation by the European Union's Competition Commission, derive from the U.S. antitrust case. Most of the suits, filed on the behalf of consumers or competitors, seek damages resulting from Microsoft's anticompetitive acts.

"This judge has presented powerful reasoning to Microsoft's lawyers for defending its various private lawsuits that will allow them to argue that much of Judge Jackson's findings of fact are irrelevant or at least should not be accepted wholesale by these other courts as a clear basis for antitrust liability," said Rich Gray, a Menlo Park, Calif.-based lawyer closely following the trial.

Brad Smith, Microsoft's general counsel, agreed and made it clear that the company would use the newfound ammunition in some of the private antitrust cases.

"Just as the plaintiffs in these other cases have been introducing Judge Jackson's findings of fact, I think it is more likely we will be submitting, rather than they, the determination that was made" on Friday, he said. "There will be findings (in Kollar-Kotelly's ruling) that will be useful in these other cases. At the same time, I don't think that everything in these other cases will be disposed of by either Judge (Kollar-Kotelly) or Judge Jackson."

Attorneys filed the majority of the lawsuits after Jackson issued his devastating two-part ruling against Microsoft in November 1999 and April 2000. Jackson concluded that Microsoft used anticompetitive means to maintain an operating system monopoly in violation of the Sherman Antitrust Act.

At one point, Microsoft faced more than 130 private lawsuits, the majority brought on behalf of consumers and alleging the software giant had overcharged consumers for Windows. But Microsoft effectively defeated the majority of the private lawsuits on an important technicality. Under federal law, third parties cannot directly sue an antitrust violator. Since the majority of consumers bought Windows through retailers or installed on PCs, they could not sue Microsoft for damages resulting from the company's antitrust violations.

But California and some other states have passed laws that allow third parties to sue the antitrust violator. So the cases there and another group in Baltimore successfully moved forward, even as Microsoft defeated others on the technicality. At the same time, companies potentially directly affected by Microsoft's antitrust violations started to file their own private antitrust lawsuits: AOL Time Warner's Netscape division, Be Inc. and Sun Microsystems are among the filers.

A federal judge in California has already accepted 382 of Jackson's findings for the group of lawsuits there. In Baltimore, U.S. District Judge J. Frederick Motz said on Monday that 395 of Jackson's findings could be used in the Be,, Netscape and Sun lawsuits. But he granted their use "subject to Microsoft being afforded a final opportunity to challenge particular findings as not having been necessary to the judgment in the government's case." Microsoft has until Nov. 20 to respond. Motz is presiding over consumer and competitor antitrust lawsuits, which include the one from Sun.

Narrowing liability
Jackson established 421 findings about the case, many of which show some kind of anticompetitive behavior on the part of Microsoft. With a few exceptions, Kollar-Kotelly determined that there was no direct correlation showing that Microsoft's monopoly would have been jeopardized absent the anticompetitive acts. This, in part, relates to an antitrust doctrine known as "causation."

"Harm to 'one or more competitors,' however severe, is not condemned by the Sherman Act in the absence of harm to the competitive process and thereby harm to consumers," Kollar-Kotelly wrote.

For example, a basketball player telling the center of the opposing team that someone is stealing his $100,000 car in the stadium parking lot might affect game play but it doesn't necessarily violate National Basketball Association rules.

"These factual findings, abundant and damning as they appear, have not, in fact, been weighed for competitive and anticompetitive effect," Kollar-Kotelly wrote. "These factual findings, standing alone and unconnected to specific liability findings, cannot be utilized to justify specific remedial provisions."

Gray interpreted: "She's saying she can't even rely on (the findings) for imposing injunctive relief because they don't demonstrate antitrust liability. If they don't demonstrate antitrust liability for imposing injunctive relief, I don't see how they can support showing liability for imposing money damages" in other cases.

But Luane Sacks, an antitrust attorney with Gray Cary in San Francisco, questioned Kollar-Kotelly's reasoning. "She is confused on the standard in antitrust injuries," Sacks said.

Relying heavily on a June 2001 U.S. Court of Appeals decision in the case, Kollar-Kotelly significantly narrowed the importance of Jackson's findings. She found that only a few actions were relevant to antirust liability and her remedy decision. This is why legal experts conclude that much of Jackson's findings will not be as helpful to private litigants as it once appeared.

"What she effectively did was take this huge edifice that Judge Jackson had built and carved it down into an outhouse," Gray said.

Attorneys in the private cases had hoped to use Jackson's findings to largely prove liability, paving an easier way to collect damages. Kollar-Kotelly's limited scope of the findings would mean some cases would essentially need to start from scratch.

What's the cause?
But Glenn Manishin, an antitrust attorney with Kelley Drye & Warren in Vienna, Va., said he didn't see anything in Kollar-Kotelly's ruling that would prevent Jackson's findings from being used in other cases. He did see the ruling as creating a problem proving damages in those other cases, though.

Kollar-Kotelly "set a high hurdle for causation," he said. "Assume, for example, another court says to prove a damages remedy, but for Microsoft's conduct you would have to have had an alternative that would have reduced prices."

Because Kollar-Kotelly "found no causation was shown," it's going to be much harder for plaintiffs in the other cases than before Friday's ruling, Manishin said. "They're going to have to show more than states did," which could be very difficult.

Manishin concluded that some cases might prevail but win no damages because of Kollar-Kollar's determination on causation.

Even companies such as Netscape or Sun face a tougher court battle in light of Kollar-Kotelly's ruling. Already, the Court of Appeals found no liability in Microsoft's developing a version of the Java Virtual Machine that was incompatible with Sun's.

She noted that the appellate court narrowed liability to deceptive tactics where Microsoft failed to tell developers that its Java tools "created programs which were not cross-platform." Kollar-Kotelly rejected what she concluded were new claims of "bad acts" regarding Java and other so-called middleware technologies.

"Now in all those other lawsuits there's no ability to show the Windows market power has been shown to be a danger in these other (technology and middleware) areas," Manishin said. "That's at the centerpiece of the Sun lawsuit."

Smith suggested that Kollar-Kotelly's ruling could have an immediate effect on a Sun request for a preliminary injunction that would compel its rival to ship the Java Virtual Machine with Windows. A hearing is scheduled for December.

"The preliminary injunction hearing is all about one of the specific proposals considered by Judge (Kollar-Kotelly)--the proposal that Microsoft be compelled to carry Sun's Java product in Windows," Smith said. Her "decision spoke directly to that proposal and concluded it would be inappropriate and, in fact, anticompetitive rather than pro-competitive."

AOL Time Warner and Sun could not be reached for comment Sunday.

EU, California connection
Still, the EU Competition Commission's investigation and the group of California lawsuits potentially pose serious threats to Redmond, Wash.-based Microsoft.

The EU investigation is largely independent of the U.S. case. Trustbusters there are following up on a Sun complaint that Microsoft is using its dominance in desktop operating systems to gain unfair advantage in server software. A preliminary ruling is expected by the end of the year.

Unlike U.S. antitrust law, which focuses on consumers, European law favors competitors, which could be a problem for Microsoft particularly as the investigation expands to include streaming media software.

The California case could pose a threat to Microsoft, even with the benefit of Kollar-Kotelly's ruling.

"If you carefully read the substance of Judge Kollar-Kotelly's opinion concerning those findings of fact you will see that she agrees that Microsoft's conduct was unlawful and she agrees that she is bound by the findings of fact that were upheld on appeal," said Richard Grossman, an attorney with Townsend and Townsend and Crew. "This is entirely consistent with Judge (Paul) Alvarado's ruling in our case."

Grossman's firm leads the coalition of lawyers suing Microsoft on behalf of California consumers. The case is scheduled to go to trial on Feb. 3.

"With respect to the California case, we are currently assessing the impact of (Friday's) decision on the issues there," Smith said. "It's too early to tell how it will be most relevant."

Microsoft's legal challenge in California may come more from the state's strict statute governing unfair competition than the antitrust law known as the Cartwright Act. When Sun sued Microsoft for violating an agreement regarding Java, for example, the judge issued a successful injunction based on the unfair competition statute rather than the Cartwright Act.

"I don't think there are any concerns that could come out because of her comments on injunctive relief and having a casual connection to the alleged antitrust violations in future litigation out her in California," Sacks said. "Out here, they do have (unfair competition) claims against Microsoft."

The statue "gives the court very broad injunctive relief, and it also gives the court the power to order the divestiture of ill-gained profits," she added.