Judge’s Ruling Paves the Way for More Suits Against Microsoft
If Monday was one of the darkest days in the short but exuberant history of software titan Microsoft Corp., it was also likely to be just the beginning.
Legal scholars and other experts predicted this week that the methodical ruling by U.S. District Judge Thomas Penfield Jackson will loose a torrent of new lawsuits by the same well-organized, wealthy attorneys who once targeted asbestos, tobacco and other wounded industries.
“Once there’s a crack in the dike, the floodgates open,” said James Rill, a former top Justice Department antitrust lawyer. Plaintiffs’ lawyers, who must gamble on winning contingency-fee cases, choose their targets carefully, and Rill and other outsiders said Jackson’s ruling is a clear invitation.
More than 100 private cases are already pending, including consumer class actions and cases seeking triple damages under antitrust law. For those suits and new ones, Jackson’s ruling has tremendous legal significance.
Under a previous Supreme Court holding, the fact that a judge has made a final determination on the worth of the case, after hearing from both sides, means that new litigants can cite his findings.
Microsoft can be barred from using the same defenses it tried in Jackson’s courtroom. Unless it wins on appeal, the rule of thumb is: once a monopolist, always a monopolist.
“Once you have had a chance to defend on the merits and there has been a full decision by the court, you can be denied the opportunity to re-litigate the same issue,” said Columbia University law professor John Coffee, an expert in complex cases who foresees billions of dollars in potential damages.
That procedural advantage alone will attract swarms of new lawyers, said Coffee and antitrust specialists.
“Merely the potential application of that doctrine gives Microsoft a significant problem,” Coffee said. “It leverages up the level of risk to Microsoft.”
Among those already arrayed against Microsoft are Michael Hausfeld, whose Washington firm is presiding over various federal class-action lawsuits against Microsoft, and Stanley Chesley, who reaped millions from past class actions.
‘We Now Have Power of a United Decision’
“It’s a very big leap for the private civil cases,” Hausfeld said. “We now have the power of a united decision.”
Hausfeld’s firm is well-known for getting Texaco to settle the largest racial discrimination suit in corporate history, and last year, his firm produced a $1.17-billion settlement against the world’s largest vitamin producers on price-fixing claims.
He is part of a legal team that is coordinating more than 110 class-action claims against the computer software giant. He and other prominent class-action attorneys who have filed similar claims are combining litigation and seeking one venue to try the case.
The team also includes Chesley, a partner in a Cincinnati firm that fought Dow Corning in breast implant cases, and Christopher Lovell, whose New York firm helped negotiate a $1-billion settlement of claims that Wall Street firms conspired to fix the price of stocks traded on Nasdaq.
At its heart, the Microsoft case is about market manipulation, Hausfeld said, and its actions threaten the foundation of free markets.
“If markets can be manipulated by the exercise of unlawful muscle, then consumers are being cheated by being deprived of having free and open competition,” Hausfeld said. “Through unlawful conduct, Microsoft precluded potential competitors from entering the operating-system market. If those competitors had been able to enter the market, the price for Windows would have been less.”
In addition to the federal suits, Microsoft faces about 60 class-action cases in various state courts, including a consolidated case filed in San Francisco by Charles Lingo, a retired Silicon Valley engineer who now lives in Louisiana. He filed before Jackson issued his findings of fact.
In that case, Lingo alleges that Microsoft violated the antitrust laws of California by monopolizing the market for operating systems. He also alleges that Microsoft was able to leverage its operating-system monopoly into the spreadsheet and word-processing markets.
Attorneys for Lingo first filed the case in February 1999 and have been prosecuting the case for nine months.
“We filed back when we had no idea how the government would rule,” said Eugene Crew, whose San Francisco firm represents Lingo. Crew is now the lead counsel for 30 class-action suits that have been filed against Microsoft in California.
“When Nov. 5 arrived [the date of Jackson’s findings of fact], the sky opened up and 30 lawsuits fell down. It was chaotic and there was some infighting,” Crew said. “It’s all consolidated now.”
Indeed, class-action attorneys have filed suits against Microsoft from places as remote as Cedar Rapids, Iowa, and Tierra Amarilla, N.M. And the suits have come from some of the biggest legal powers in the profession--from firms that have won huge settlements from such corporate giants as Exxon, Texaco and Dow Corning.
Attorneys have filed about 120 suits in 30 states against the world’s largest software company, and the number could still go higher.
Although some charges in the private suits vary, nearly all of them focus on one key point: that millions of computer users were forced to pay too much for their computers and the operating system that runs them because of Microsoft’s monopoly.
“What has the consumer lost and what are the damages?” said Chesley, one of the plaintiffs’ attorneys. “If it turns out that Microsoft has snuffed out all competition, then the consumer has lost even more than overpaying for the product.”
Microsoft attorneys dispute these allegations, saying they are confident that the plaintiffs will be unable to prove that the company overcharged consumers. But the company will have to defend itself against the backdrop of being labeled a monopoly that “trammeled the competitive process.”
“I think the plaintiffs will be hard pressed to come up with an example of a single product, whether it is a software product or an operating system, that has delivered more benefit to the consumer or to the economy at large,” said Michael Lacovara, Microsoft’s attorney at New York firm Sullivan & Cromwell.
Not all of the pending or expected new cases will be easy to win. The strongest cases legally are the dozen or so by pure competitors such as Sun Microsystems, experts said.
Sun has won preliminary rulings against Microsoft in a long-running case in U.S. District Court in San Jose. Evidence in that case showed that Microsoft, a licensee of Sun’s Java programming language, plotted to undermine Sun’s control by making Java work better on Windows systems than on its rivals.
Caldera Systems is believed to have recouped about $100 million in its suit, although the amount hasn’t been disclosed.
An Emboldened Plaintiffs Bar
The next strongest cases would be those by Microsoft’s direct customers. But no one foresees Compaq or Dell gnawing off the arm of the master that feeds them.
Rill, the former Justice Department antitrust lawyer, said the question of whether Microsoft could be legally prevented from retaliating against a customer that sues is “fascinating” but unresolved, and therefore too risky.
The weakest cases also are the easiest to file: class actions on behalf of consumers, who will have a harder time showing just how much they were overcharged.
Other lawyers are going their own way in state courts, some of which specifically allow indirect purchasers to sue for antitrust violations.
The plaintiffs bar will be especially emboldened now, said Mark Hutton, who filed a customer case seeking class-action status in a Wichita, Kan., state court three weeks ago.
“This paves the way,” said Hutton, who wants to keep his case in state court.
