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High Court Deletes Microsoft's Bid to Stop Novell Antitrust Suit

The U.S. Supreme Court will not stop Novell Inc. from pressing forward with its antitrust lawsuit over Microsoft's alleged efforts to protect its Windows operating system monopoly by destroying Novell's WordPerfect software.

The high court let stand the U.S. Court of Appeals for the 4th Circuit's finding that Novell has standing to sue Microsoft even though the market for office productivity applications is distinct from the market for PC operating systems[LU1].

Novell alleges that Microsoft Corp. used its dominance in the operating systems market to crush competition for applications like spreadsheets, word processing programs and software for creating presentations.

Companies were developing these programs to run on any operating system, so if the applications proved popular with consumers, that would encourage development of operating systems that could compete with Windows. [Donna H2]

Novell filed the suit in the U.S. District Court for the District of Utah, raising many of the same allegations the federal government brought in its antitrust case against Microsoft[LU3].

That case alleged that Microsoft integrated its Internet Explorer Web browser with the Windows operating system in a way that excluded competing browsers, entered into overly restrictive agreements with computer manufacturers and otherwise excluded competing application programs from distribution channels[Jodine4].

With respect to WordPerfect, which Novell sold in 1996, the company says Microsoft used anticompetitive tactics to damage the program's viability and pave the way for Word to dominate the word processing software market.

The complaint was transferred to the District of Maryland, where the Judicial Panel on Multidistrict Litigation consolidated all the private antitrust suits against Microsoft.

Microsoft moved to dismiss Novell's complaint, arguing, among other things, that the company lacks standing to sue because WordPerfect did not compete in the operating system market.

U.S. District Judge J. Frederick Motz rejected that argument.

Novell's complaint alleges that Microsoft targeted it because it saw Novell's office productivity applications, including WordPerfect, as a threat to the Windows monopoly, he explained.

These applications were being developed to run on any operating system, not just Windows, and consumer demand for them was high, the judge said.

He then certified the standing question to the 4th Circuit.

There, Microsoft reiterated its argument that Novell lacked standing because it was neither a consumer nor a competitor in the operating system market.

The appeals court rejected that argument, explaining that other factors affect standing, such as the type of injury alleged, whether the defendant's conduct caused the alleged injury and whether damages can be quantified.

Here, the panel said, Microsoft's alleged conduct was not just detrimental to Novell, a competitor, but to competition itself. The court cited Novell's claim that Microsoft locked it out of the market by refusing to do business with vendors that purchased its products.

The resulting harm to Novell's business would have directly resulted from Microsoft's conduct, thus creating a compensable antitrust injury, the panel said.

Microsoft asked the Supreme Court to review the case.

"Granting antitrust standing to parties other than consumers or competitors in the allegedly restrained market, as the 4th Circuit has done, significantly expands the class of potential plaintiffs permitted to seek treble damages under the federal antitrust laws," the company said in its petition.

"If left undisturbed, the decision ... will extend the federal antitrust laws far beyond their intended scope," it said.

In its opposition brief Novell said there is nothing remarkable about the 4th Circuit's ruling and that the decision correctly applied existing Supreme Court precedents.

The high court denied the petition without comment. Chief Justice John Roberts was not involved in the decision.

To comment, ask questions or contribute articles, contact West.Andrews.Editor@Thomson.com.

Microsoft is represented by in-house counsel Thomas W. Burt, Richard J. Wallis and Steven J. Aeschbacher and David B. Tulchin and Steven L. Holley of Sullivan & Cromwell in New York.Novell is represented by R. Bruce Holcomb, Jeffrey M. Johnson, Milton A. Marquis, David L. Engelhardt and Miriam R. Vishio of Dickstein Shapiro and Charles J. Cooper, Brian S. Koukoutchos and David H. Thompson of Cooper & Kirk, both in Washington, and in-house counsel Ryan L. Richards and James F. Lundberg[LU5].