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Tuesday, November 09, 2004 - Page updated at 12:00 A.M.
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Microsoft settles two big fights

By Kristi Heim
Seattle Times business reporter

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Microsoft agreed yesterday to pay more than $500 million to settle a potential antitrust lawsuit by rival software maker Novell but will likely have to fight another part of Novell's claim in court.

For Microsoft, the move was an attempt to head off more lengthy court battles and government intervention by negotiating face to face with foes. As part of the deal, Novell said it will withdraw from the European Union case against Microsoft, which is on appeal.

In a separate settlement announced yesterday, Microsoft said it will join the Computer & Communications Industry Association (CCIA), the trade group that has fiercely opposed it for years and was its main challenger in European courts. At the same time, the group agreed to withdraw its complaint against the company in Europe.

"We and other companies in our industry do have the capacity now to sit down face to face and resolve the kinds of thorny antitrust issues that in the past were left to the government to resolve," said Microsoft General Counsel Brad Smith.

For the first time, Microsoft put an estimate on the cost of its remaining antitrust troubles, saying the total would be about $950 million, including lawsuits by RealNetworks and, consumer class-action lawsuits in the United States, and any new Novell claim.

Novell was preparing to file a private lawsuit similar to those of Sun Microsystems and Time Warner's Netscape Communications, claiming its business was damaged by Microsoft's efforts to maintain a monopoly with its Windows operating system.

The company planned to use findings from the U.S. government's case against Microsoft as evidence.

Yesterday's agreement comes after Microsoft earlier settled the Sun and Time Warner cases, as well as a string of cases brought by individual states.

Novell had pursued damages related to its NetWare operating system, as well as the WordPerfect application it owned from 1994 to 1996.
In exchange for the $536 million payout, Novell says it is giving up claims over NetWare. But it plans to file a lawsuit for unspecified damages this week alleging Microsoft's monopoly in office-productivity software harmed its WordPerfect word-processing application and Quattro Pro spreadsheet.

Microsoft's conduct "not only bolstered its monopoly of the desktop operating-system market but also helped it achieve monopoly market power in office applications," said Parker Folse, a partner with Susman Godfrey in Seattle who represents Novell.

Microsoft attorneys argued that Novell's claims for WordPerfect have no merit and that the case has gone beyond the four-year statute of limitations for antitrust claims.

That four-year statute would have begun when Novell sold WordPerfect to Corel in March 1996, said Microsoft Deputy General Counsel Tom Burt.

At the time, many industry analysts attributed Novell's drop in market share to poor business decisions, Burt said.

Recently, Microsoft and Novell have engaged in a war of words over the open-source Linux operating system.

On Oct. 27, Microsoft Chief Executive Steve Ballmer fired off a memo to customers touting the superiority of Windows. Novell, which recently started selling a desktop version of Linux, responded with its own three-page memo dissecting Ballmer's points and defending Linux.

In any case, Microsoft's payout on the NetWare issue represents a windfall for Novell. Last year, Novell reported a net loss of $162 million on sales of $1.1 billion.

But for Microsoft, removing obstacles from a potential settlement with the European Commission was a greater concern. Its agreement with CCIA means the trade group, which also fought against Microsoft's antitrust settlement with the U.S. Department of Justice, will withdraw a complaint with the European Union over Windows XP.

"That complaint was a principal obstacle to our ability to negotiate a settlement" with European Union regulators in March, Smith said. Microsoft will compensate CCIA an undisclosed sum for legal expenses, in some cases over a decade. In return, the trade group will not appeal the U.S. government case against Microsoft to the Supreme Court.

Instead, Microsoft will work with the group on technology issues such as immigration policy and support for research and development.

Ed Black, president and chief executive of CCIA, vowed he was not taking back any past criticisms.

"This is a limited settlement on specific areas," he said. "We're not changing our views. We look forward to working with Microsoft on some areas, but we're going to continue our effort in open-source and copyright and patent areas."

As for RealNetworks, Smith sought to portray the Seattle company as the last holdout for litigation in Europe and here.

"RealNetworks now is really standing alone in terms of continuing with the litigation path in Europe and elsewhere," he said.

RealNetworks said it continues to support the case brought by the European Commission against Microsoft.

"The European Commission's decision is intended to promote competition and provide more choice to consumers and PC makers," said Dave Stewart, RealNetworks deputy general counsel, in a statement. "Microsoft's payments to Novell and CCIA do not change the anticompetitive conduct condemned by the European Commission."

Kristi Heim: 206-464-2718 or

Copyright © 2004 The Seattle Times Company

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