Spared a potentially devastating breakup by a federal appeals court, Microsoft Corp. still faces about 100 private antitrust suits with the potential to expose the software giant to billions of dollars in damages.
Although state and federal judges have effectively dismissed about 40 private antitrust cases in the last year, more than 100 remain. And they are being spearheaded by some of the same aggressive liability lawyers who targeted the big tobacco companies and breast-implant maker Dow Corning.
"It's quite a costly process to be litigating these private suits in multiple forums, not to mention paying any claims," said John Lopatka, a law professor at the University of South Carolina. "These suits could dog Microsoft for years."
The private suits allege that Microsoft, by virtue of its software monopoly, overcharged its customers for its Windows computer operating systems, an allegation disputed by company spokesman Jim Cullinan. "We're quite confident that the courts will agree with us that these lawsuits are without merit," Cullinan said.
An Oregon judge last year threw out a lawsuit against Microsoft that claimed the company overcharged for its Windows 98 operating system, which sold for $109.95 off the shelf, $89.95 as an upgrade of Windows 95 or 3.1, and less if it was bundled with a computer purchase. But earlier this year, Microsoft paid tiny software maker Bristol Technology Inc. an undisclosed amount to settle Bristol's claim that Microsoft was trying to crush competition.
The current antitrust lawsuits against Microsoft include a huge class-action case before U.S. District Judge J. Frederick Motz in Baltimore as well as dozens of smaller private antitrust lawsuits in at least 12 state courts.
Microsoft is well-armed financially to combat the suits, having amassed about $30 billion in cash and short-term investments. The private antitrust suits represent a crucial test of Microsoft's financial and legal staying power.
"We are moving forward with what we think is a strong case," said Cincinnati attorney Stanley M. Chesley, whose firm helped win a $3.2-billion settlement from Dow Corning in the breast-implant cases, and who is co-chair of the federal class-action suit against Microsoft. "Even if they ultimately throw out the [government] claims, we still have a case."
The civil suits will benefit from the fact that the U.S. appeals court let stand the lower-court finding that Microsoft was guilty of maintaining a monopoly.
Herbert Hovenkamp, a University of Iowa law professor whose treatise on antitrust law was frequently cited in the government's antitrust case against Microsoft, said the plaintiffs now need to prove only that they were injured because of Microsoft's monopoly power and that they suffered financial damages as a result of Microsoft's actions.
Competitors and consumers who bring successful class-action antitrust claims can recover as much as three times the amount of money they were overcharged for a product. "The extent of damages could range from some small sum into several billion dollars," Hovenkamp said.
Despite the potential windfall, virtually none of the companies the government has alleged were injured by Microsoft's anti-competitive actions have brought private antitrust claims. The company with the strongest potential claim, AOL Time Warner Inc., is unlikely to sue, although no final decision has been made, said an official close to AOL.
AOL is in a position to sue Microsoft because it bought the prime victim of Microsoft's anti-competitive conduct: Netscape Communications Corp. AOL could sue Microsoft for billions of dollars in lost profit on behalf of Netscape, which produced the Internet Web browser that was crushed by Microsoft and was at the heart of the government's antitrust case against Microsoft.
But an official close to AOL said that despite an intense rivalry between the two companies, "we still have to work together." The official added: "I don't think we would have a fiduciary duty to bring a lawsuit against" Microsoft. "What good would it do?"
Consumers, Internet service providers and computer makers don't have such strategic considerations. But their potential claims against Microsoft might also be problematic, according to South Carolina law professor Lopatka.
Computer makers can argue that, like consumers, they were overcharged for Windows. But their claim is undermined by their voluntary acceptance of the higher price in exchange for other benefits from Microsoft, such as having early access to Windows and various promotional benefits.
And consumers' legal case is undermined by their legal status. They are considered indirect purchasers of Microsoft's Windows software because they buy the product either from retailers or from computer makers. The Clayton Act, a foundation of federal antitrust law, allows only direct purchasers to recover damages.
Lawyers for consumers have argued that because Microsoft licenses its software to end users and not to stores or computer makers, consumers are the actual direct purchasers of the product.
Motz effectively dismissed that argument when he ruled in January that plaintiffs in 38 of the class-action private antitrust suits could not proceed because they were not direct purchasers of Windows. But Motz said the argument should be reviewed by a higher court.
Plaintiffs' lawyers have filed an appeal of Motz's decision. A ruling by the U.S. appeals court in Richmond, Va., is expected soon.