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nytimes.com
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Microsoft Faces a Class Action on
'Monopoly'
By STEVE LOHR
Lawyers say they will file a class-action suit against
Microsoft on Monday on behalf of millions of
Californians, in the first of what legal experts say could
become a flood of private litigation springing from the
Justice Department's antitrust action against the
company.
The suit, to be filed by three longtime class-action
lawyers, will accuse Microsoft of using its monopoly
in operating systems software to overcharge buyers of
Windows 95 and Windows 98. The complaint does not
estimate the financial impact to Windows users, but the
lawyers are seeking triple damages if the suit leads to
an eventual finding of financial harm.
The big software maker's vulnerability to private suits
increased sharply earlier this month when Judge
Thomas Penfield Jackson issued his findings of fact in
the government's antitrust case against Microsoft.
Jackson concluded that Microsoft is a monopoly whose
anticompetitive acts have stifled innovation and harmed
consumers.
Unlike conclusions of law, a judge's findings of fact in
a federal antitrust case are not generally considered
admissible as evidence in private suits. But Jackson's
findings agreed so strongly with the case presented by
the Justice Department and 19 states that antitrust
experts say his final verdict, expected early next year,
will almost surely find that Microsoft is a monopoly
that violated the law.
The biggest financial threat to
Microsoft may come not from
corporate suits, but from class
actions on behalf of the
millions of users of the
company's industry-standard
Windows operating system.
Such consumer suits, legal
experts say, have the potential
to cost Microsoft hundreds of
millions of dollars, perhaps
even billions, in damage
claims.
"This is the start of the race to
get to the courthouse," observed Stephen Axinn, a
partner in Axinn, Veltrop & Harkrider who is an
antitrust litigator. "It could be like the tobacco
litigation, in the sense that you have lots of plaintiffs
lawyers in different states sharing information."
Reducing the financial risk from such litigation,
according to legal experts, should be a powerful
incentive for Microsoft to seek an out-of-court
settlement in the government case. The chances of a
settlement appeared to increase last Friday when
Jackson appointed Richard A. Posner, a federal
appeals court judge and leading antitrust scholar, as
mediator in settlement talks between Microsoft and the
Justice Department and the states.
"The prospect of a flood of private follow-on cases --
with their triple damages in private antitrust cases --
are lawsuits with potentials that Microsoft simply
cannot ignore," said Herbert Hovenkamp, a professor at
the University of Iowa law school.
Yet, publicly at least, Microsoft insists that its risk
from private antitrust suits is exaggerated. "That
litigation is something we're prepared to defend and
defend aggressively, if necessary," said Tom Burt, a
Microsoft lawyer.
In consumer class actions, legal experts say, Microsoft
has defenses that will lessen its potential liability and
present formidable obstacles for plaintiffs. For
example, most computer users do not purchase
Windows directly from retail software stores in
shrink-wrapped boxes. Generally, the operating system
is already loaded on personal computers when they are
purchased. An estimated 90 percent of Windows 98
users got it preloaded on new machines.
The legal significance is that a 1977 Supreme Court
ruling -- the Illinois Brick Company vs. the State of
Illinois -- declared that indirect purchasers of goods
could not recover damages in class-action antitrust
cases.
Since 1977, however, 18 states including California
and New York have passed laws allowing indirect
purchasers to qualify for triple damages in antitrust
class actions.
And while Jackson's findings do provide a road map
for plaintiffs' lawyers, there remains a lot to prove in
court. Jackson, for example, found that Microsoft has a
monopoly, but he did not say precisely when it
achieved monopoly status. He found consumers were
harmed by Microsoft, but the class-action lawyers must
put a figure on how much users were overcharged.
"The econometrics on damages will be very complex,"
Axinn said. "There's no question that Microsoft has
some good cards to play on defense."
Still, Jackson provided class-action lawyers with some
tantalizing details. In asserting that consumers may have
paid more for Windows than they would have in a
competitive market, he cited a Microsoft study
suggesting possible prices of $49 and $89 for the retail
upgrade to Windows 98. Microsoft chose to charge
$89, which the study identified as the "revenue
maximizing" price.
"That portion of the judge's findings was an invitation
to a class-action lawsuit," said Robert Litan, a former
senior official in the Justice Department's antitrust
division who is now at the Brookings Institution.
Microsoft replies that the November 1997 study was
garden-variety pricing analysis. Trying to estimate an
optimal, or revenue maximizing, price is something that
every consumer product company routinely does for
each of its offerings.
The judge's discussion of the Microsoft pricing study,
according to Terry Gross of Gross & Belsky in San
Francisco, is "a clear marker." But, he said, it is mainly
the overall drift of Jackson findings that provides a
solid starting point for the class-action suit that he and
his colleagues are filing.
"Throughout the judge's findings," Gross said, "he
makes it clear that all Windows users were harmed by
paying too high a price for Windows."
The class action, which the lawyers plan to file in
California Superior Court in San Francisco, does not
specify the number of members in the class of both
individual and corporate users of Windows. But Gross
estimated that the number in California was "at least 10
million," and he said the suit covers Windows users
since the introduction of Windows 95. The complaint
does not estimate the financial damage to Windows
users in California.
Earlier this month, a small New York advertising
company that purchased Windows, Seastrom
Associates Ltd., sued Microsoft and sought class-action
status to represent thousands of similar corporate
customers in New York state.
But to take on Microsoft in a class action, legal experts
say, will require experience, skill and resources. They
note that the three lawyers behind the California suit --
Gross, Daniel J. Mogin of San Diego, and Francis O.
Scarpulla of San Francisco -- are experienced state
class-action lawyers who have worked for two
decades on antitrust cases involving products ranging
from snack foods to tires.
The lawyers say they will continue their litigation even
if the federal case is settled out of court. Jackson's
findings of fact alone, they insist, ease the way for suits
like theirs.
"A settlement in the government's case wouldn't make
our case go away," Gross said. "We still have these
findings that Microsoft is a monopoly that abused its
power by overcharging consumers."
Typically, only a final ruling -- not the findings of fact
-- can be used as evidence in other cases. But a judge's
fact findings and final ruling are ordinarily issued at the
same time. Jackson took the unusual step of separating
his findings of fact from his findings of law, which gave
his fact findings greater importance.
Still, legal experts say Microsoft will surely challenge
any attempt by class-action lawyers to build a case on
the findings of fact alone. |
