Here is the full article...I like this quarter...a lot!
Microsoft Will Pay $275 Million
To Settle Lawsuit From Caldera
By LEE GOMES
Staff Reporter of THE WALL STREET JOURNAL
Microsoft Corp. agreed to pay an estimated $275 million to settle an
antitrust lawsuit by Caldera Inc., heading off a trial that was likely to air
nasty allegations from a decade ago.
Microsoft and Caldera, a small Salt Lake City software company that
brought the suit in 1996, didn't disclose terms of the settlement. Microsoft,
though, said it would take a charge of three cents a share for the agreement
in the fiscal third quarter ending March 31. Since the company has roughly
5.5 billion shares outstanding, the cost of the deal would appear to be
about $165 million. Michael Kwatinetz, an analyst at Credit Suisse First
Boston, estimated Microsoft paid about $275 million, based on its tax rate.
While the amount of money is small for a company of Microsoft's size, the
settlement suggests the software giant may be more willing to resolve its
legal problems privately. It is also in talks to settle the broader antitrust
case brought by the Department of Justice and 19 states. Those talks,
which continued this week in Chicago under a court-appointed mediator,
Judge Richard Posner, have yielded little movement so far, and the sides
remain far apart, people close to the talks said.
Vindication for Noorda
The Caldera settlement also marks a vindication of sorts for Raymond
Noorda, a retired industry leader and long-time Microsoft opponent who
helped bankroll the litigation. Mr. Noorda, former chief executive officer of
Novell Inc., founded closely held Caldera and is its biggest shareholder.
Through a series of maneuvers, Caldera obtained the rights to DR-DOS,
an operating system that Novell bought that was once a rival to
Microsoft's MS-DOS operating-system software.
The suit in U.S. District Court in Salt Lake City alleged Microsoft
competed unfairly against DR-DOS, and asked for monetary damages that
had the potential for reaching into the billions of dollars.
The Caldera suit is technically unrelated to the Department of Justice action
against Microsoft, which covers the company's response to the growth of
the Internet during the mid-1990s. But many of the themes of the two
actions were the same, especially as they involved Microsoft's response to
competitive threats.
With the Caldera trial scheduled to start on Feb. 1, analysts and antitrust
lawyers suggest Microsoft had many reasons to settle before then. It didn't
want its well-publicized troubles with the federal government to affect the
jury in the Caldera trial. It didn't want more revelations about its behavior
becoming public while U.S. District Judge Thomas Penfield Jackson, who
rebuked the company in a finding of fact in November in the government
case, was considering what remedy he should apply to Microsoft. What's
more, it likely wasn't eager for any adverse decision in the Caldera case to
become evidence in the more than 40 private antitrust lawsuits filed against
it in the wake of Judge Jackson's finding.
"It's a solid strategy to settle up before facing potentially extraordinary
damages," said Hillard Sterling, a Chicago attorney specializing in antitrust
law.
Microsoft said it settled the suit "to put this issue behind us," said Tom
Burt, the company's general counsel, in a statement. "Rather than litigating,
we prefer to focus on building great software for our customers in this
dynamic and competitive industry."
'You Can Stand Up to Microsoft'
Bryan Sparks, Caldera's CEO, said the settlement "proved that you can
stand up to Microsoft and win. We told our story and exposed a lot of
their behaviors."
Caldera's suit claimed Microsoft used licensing practices with computer
makers that discouraged them from purchasing alternatives to MS-DOS.
In 1994, Microsoft agreed to modify some of those practices following a
Justice Department investigation. Caldera also claimed Microsoft had
improperly tied its Windows software to MS-DOS, and developed
technology that produced an error message if consumers used Windows
with the rival DR-DOS operating system.
The Caldera case hasn't gone well for Microsoft. Dee Benson, the U.S.
judge overseeing the proceedings, had rejected most of the company's
pretrial motions. The jury trial also was set to take place in Utah, Caldera's
home turf. "They may have decided that they didn't need another round of
bad publicity," said Sam Miller, a former Justice Department attorney now
in private practice in San Francisco.
Mr. Kwatinetz, of Credit Suisse, added the pact "would be consistent with
the types of things that the Justice Department would like to see in a
settlement. It's kind of [Microsoft] saying, 'We are a different company
now.' "
Stephen D. Susman, the flamboyant Houston attorney who represented
Caldera, agreed the settlement was a signal Microsoft also was making
progress in its talks with the government. While he declined to discuss the
amount of the payoff, he said it was enough that "everyone involved with it
could be celebrating in Tahiti."
The agreement was hammered out at a lengthy negotiating session on
Friday at the Seattle office of Jim Smith, an attorney acting as a
court-appointed mediator in the case. Mr. Susman said he arrived at the
session initially suspicious Microsoft would use the day simply to distract
him from his pretrial preparations. But it quickly became apparent, he said,
the company was serious about settling the matter, as they soon came up
with counteroffers to Caldera's proposed settlement amounts.
The pact was reached at 8 p.m. Friday night; Judge Benson signed off on
the agreement Monday.
Risks for Microsoft
Caldera was originally asking for monetary damages that could easily have
escalated into the billions of dollars. It argued in pretrial proceedings that
because DR-DOS at one point had 20% of the operating-system market,
it should be entitled to 20% of Microsoft's profits from successor products
to MS-DOS, which include Windows 95 and Windows 98. What's more,
antitrust law allows a jury to triple a monetary damage against a company.
Caldera, which is 80%-owned by Mr. Noorda, obtained the right to sue
Microsoft from Novell, the networking company that itself once owned
DR-DOS. In connection with that agreement, Novell gets 18% of the
Microsoft settlement. Mr. Noorda wasn't available for comment Monday,
though a spokesman said he "is very pleased it has come to an end, and is
looking forward to competing aggressively" against Microsoft.
Mr. Noorda is competing with Microsoft via two companies he has
established, which both share the Caldera name, leading to considerable
industry confusion. Caldera Inc., the entity involved in the lawsuit, owns the
assets connected with the DR-DOS product; through its Lineo Inc.
subsidiary, it also sells software aimed at the market for a new generation
of "embedded" computers.
But there is also Caldera Systems Inc., a completely separate company
that is focusing on the Linux software market. Monday, Caldera Systems
announced it had filed with the Securities and Exchange Commission to go
public, joining a bandwagon of Linux companies raising money in the equity
markets. Caldera Systems also announced $30 million in new investments
from a variety of companies, including Sun Microsystems Inc. and Citrix
Systems Inc.
-- John R. Wilke contributed to this article. |
