'Multiplier effect' besets Microsoft
A bevy of private lawsuits complicate the software giant's fight withthe US government.
After months of battling Uncle Sam in a mammoth antitrust suit, Microsoft is suddenly facing a possibly more dangerous adversary: private class-action attorneys.
A tsunami of lawsuits alleging that Microsoft has overcharged consumers for its software may be about to break over the high-tech giant. While the suits don't threaten the company's very existence, as the antitrust case does, they could siphon off millions of dollars and distract Microsoft at perhaps the most crucial moment in the company's history.
If nothing else, the possibility of hundreds of lawyers gleefully pursuing the firm might force it to seriously consider settling the antitrust case, which is the legal foundation for current and planned private suits.
"These kinds of cases present a significant kind of problem to Microsoft in the sense of death by a thousand paper cuts," says Norman Hawker, an associate professor at Western Michigan University who has written about the company's current legal mess.
At least seven private lawsuits have been filed so far in the wake of US district court Judge Thomas Penfield Jackson's finding that Microsoft is a software monopolist.
The latest was filed Nov. 22, in California state court in San Francisco. Similar cases already await Microsoft lawyers in Alabama, Louisiana, and New York.
Charges of price-gouging
The arguments of the suits - and the dozens, if not hundreds, of copy-cat suits that legal experts expect to follow - are essentially the same. The Windows operating system, Microsoft's basic product, cost too much, the suits say. As a monopolist, Microsoft was able to illegally charge more than it would have if it had faced real operating-system competition.
Judge Jackson himself has already concluded that might be the case. In his Nov. 5 findings of fact in the antitrust suit, he discussed an internal Microsoft study that weighed whether to charge $49 or $89 for the retail upgrade to Windows 98. The firm chose the higher price.
The findings of fact also discuss other alleged flaws in the operating system, from security problems to its frustrating tendency to crash. The judge's implication is that Windows might have been better if it faced true competition.
"Microsoft's product itself was kind of a war against consumers," says Jamie Love, director of the Consumer Project on Technology and a longtime critic of the firm.
Microsoft officials insist their firm did nothing wrong. The class-action lawsuits are "baseless," according to a company release. "We believe our actions have been pro-competitive and fully legal," says Microsoft spokesman Jim Cullinan.
And other experts point out that the civil suits are far from slam-dunk sure winners.
To begin with, most users buy Windows only indirectly, when they purchase it preloaded on a PC. And in 1977, the US Supreme Court ruled that indirect purchasers of a product could not recover damages as part of a class-action lawsuit.
That limits the cases' possible venue to the 18 states that have passed laws giving indirect purchasers standing to sue in state court. As direct purchasers, PC firms such as Dell could sue Microsoft anywhere - but that's unlikely, given their continued dependence on Microsoft's goodwill.
Furthermore, Jackson's findings did not flat out state that Microsoft overcharged for its product. Given that Windows software hasn't actually risen in price, while it has had numerous new features added over the years, state judges might not agree that consumers have been harmed.
"Proof of damages is never easy," says Steven Salop, antitrust professor at Georgetown University Law Center here.
Still, the money at stake could be considerable. Considering the number of consumers involved, damages could be in the hundreds of millions of dollars.
That sum could drive Microsoft to settle the pending anti-trust case, as such an action could doom many of the civil actions against the firm.
Absent a final ruling in the federal case, civil attorneys would have to prove on their own that Microsoft is a monopolist. They would also have to prove that Microsoft used its monopoly power illegally - something Jackson appears all but certain to rule.
Following a US road map
Mr. Hawker uses the analogy of a map. Right now, the government has drawn class-action lawyers a map to their hoped-for destination. If it wins its case, the government will even bring the class-action cases along to its destination, victory.
But if a settlement halts the antitrust suit before it finishes, the map turns to dust. Class-action attorneys would have to trudge to victory on their own, and few private lawyers or plaintiffs have the time and money to pursue Microsoft in that manner.
Jackson appears to be pushing hard for a settlement. He has brought a mediator into the case - partly because he fears the US government and its state partners in the antitrust suit will squabble about what should happen to Microsoft if the firm is found in violation of antitrust laws, according to court transcripts.
(c) Copyright 1999. The Christian Science Publishing Society