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The Novell v. Microsoft Case - Statute of Limitations Explained
Sunday, November 14 2004 @ 10:14 PM EST

Now that Novell has filed suit against Microsoft, the question arises whether and to what extent Groklaw will be covering the litigation. I was thinking of hitting only the headlines, mainly because of concern about resources and how fully my time is already used, and because I didn't see a clear connection to Free and Open Source. But I got an email from Groklaw reader marbux, who, as most of you know, is an attorney, now retired, and he expressed an interest in covering the case in depth. He believes that the evidence that will be unearthed is going to be useful in the future, should Microsoft actually attack Linux with some trumped up patent infringement lawsuit, whether directly or through a proxy. Like maybe this one?

I asked him to explain the connection he sees between this case and FOSS, and while he was at it, he has provided a very clear explanation of the statute of limitations argument Microsoft has raised, and so here is his article for your consideration. I note, by the way, looking at page 5 of the Caldera v. Microsoft order he links to that Burst was one of the companies given the opportunity to copy documents prior to their destruction by Canopy Group.

*********************************

The Novell v. Microsoft - Statute of Limitations Explained
~ by marbux

On the day following the November 11 Veterans Day holiday in the U.S., Novell filed a major antitrust complaint against Microsoft, seeking mega-damages for Microsoft's alleged anti-competitive behavior destroying most of the value of the WordPerfect word processor and QuattroPro spreadsheet programs.

Novell acquired WordPerfect Corp. through a stock-swap merger in 1994 and purchased QuattroPro from Borland the same year, but sold the WordPerfect and QuattroPro programs to Ottawa developer Corel Corp. in 1996. (This history is summarized in the Novell complaint. If you'd like a more detailed review of the rise and fall of WordPerfect Corp., one of the software giants of the Microcomputer Revolution, I heartily recommend Almost Perfect, by W. E. Pete Peterson, former WordPerfect Corp. executive and part owner. The book is now out of print but the HTML version can be read online without charge.)

Microsoft officials settled anti-trust claims involving Novell's Netware operating system last week, but said they were unable to settle Novell's WordPerfect-related claims because Microsoft believes an applicable 4-year statute of limitations bars Novell from litigating those claims. PJ reported the lawsuit's filing and Microsoft's reaction the same day the case was filed in this Groklaw article.

So this article is to provide background on the case and aid discussion among the Groklaw regulars regarding the importance of this case to free and open source software (FOSS). If Groklaw takes on this case as a project, do folks think that would be a worthwhile project? If so, how might people be willing to help?

I believe the Novell-Microsoft case, regardless of outcome, could have a major beneficial impact for FOSS, providing we watch it closely. Groklaw is uniquely positioned to collect and disseminate information about the case. In a nutshell, the Novell complaint promises a bonanza of evidence that Microsoft engages in unfair competition to maintain its monopoly in the PC software operating system market and to extend that monopoly to the application markets.

At a minimum, following this case will help prepare us better to understand the IBM unfair competition counterclaims in the SCO v. IBM case. But even better, evidence of such tactics can establish Microsoft's improper motives as part of an unfair competition defense to later Microsoft lawsuits or legislative attacks on FOSS, such as lawsuits asserting Microsoft's alleged intellectual property rights like patents and copyrights as weapons against FOSS. The existence of such a database may also to some degree deter Microsoft from pursuing such tactics.

There have been previous unfair competition lawsuits against Microsoft. However, there has been no systematic effort by the FOSS community that I am aware of to gather and disseminate such evidence. History suggests, however, that such an effort is warranted. Evidence can be a perishable commodity. We already have strong indications from other cases such as Burst v. Microsoft that Microsoft has had a document retention policy that has resulted in routine destruction of corporate emails, sometimes even, according to Burst, if they related to looming litigation issues. Microsoft's response to that accusation can be read here.

Moreover, there are indications that Microsoft normally includes a requirement in its settlement documents that public access be removed to Microsoft documents acquired in litigation. Caldera, for example, developed an extraordinary online collection of Microsoft documents relating to the DR-DOS anti-trust case; however, that database -- along with Microsoft's own extensive online collection of relevant court documents -- disappeared from the Web shortly after Microsoft settled with Caldera. (A post-settlement stipulated order in the Caldera v. Microsoft case governed destruction of discovery documents, but allowed copying by other anti-trust litigants suing Microsoft before destruction.)

A public and freely available repository for such evidence would be an incredible resource for FOSS lawyers, developers, and users likely to need such evidence in the future. Unfair competition defenses to IP lawsuits require, by definition, that the motive of anti-competitive acts be proved. The acts must not only be proved to have an anti-competitive effect, but also that they were knowingly intended to have such effects. Bear in mind that it's a truism of anti-trust litigation that even lawful acts taken for an unlawful anti-competitive purpose are unlawful.

Demonstrating the existence and effect of Microsoft's acts may often be easy. But proving its motives may be more difficult because that requires a subjective inquiry into Microsoft's state of mind. Collecting evidence of Microsoft's intent driving its anti-competitive acts can be crucially important, because evidence of prior conduct is evidence admissible to show a later improper state of mind, just as subsequent conduct may be used to show a prior state of mind. See e.g., Grandstaff v. City of Borger, Texas, 767 F.2d 161, 171 (5th Cir. 1985; cert. denied, 480 U.S. 916. In other words, if and when Microsoft unleashes its lawyers on the FOSS community, evidence that surfaces in the Novell case can be used later to show Microsoft's anti-competitive intent. Many of us believe that such a Microsoft attack on FOSS is already under way and that the SCO litigation is only a thinly-disguised opening salvo.

I respectfully urge as many of you as can find the time at least to skim the Novell complaint linked above. It is unusually long (68 pages) and detailed, but it's a good read. It announces Novell's intent to rummage deeply in Microsoft's heaping hamper of soiled linen. The complaint contains a multitude of allegations describing systematic and specific efforts by Microsoft to impede third-party developers, to destroy standards, to curtail interoperability, to provide its own application developers advanced access to Windows application programming interfaces (APIs) and undocumented system API calls made available only to Microsoft's own developers. It quotes critical Microsoft emails that Novell's lawyers have obviously been collecting for years. My favorite so far is a quoted email from a Microsoft official to investor Warren Buffet:

"If we own the key 'franchises' built on top of the operating system, we dramatically widen the 'moat' that protects the operating system business."
Novell Complaint, paragraph 62.

Assuming Microsoft later goes after OpenOffice.org or other key "franchises" of the Linux desktop, do you think such a document might be admissible to show anti-competitive intent?

The complaint rehashes much of the DoJ-Microsoft antitrust case's factual rulings, but I promise you that the complaint just keeps getting better the farther you read.

You'll find the details of Microsoft's successful effort to suppress the OpenDoc open source standard and replace it with Microsoft's closed source OLE. Watch in awe as Novell tells the story of Microsoft destroying the future of the cross-platform AppWare application development tools. Be astounded by the adroit moves as Microsoft crushes the most commercially successful program of the time, as Novell describes it, deflating WordPerfect's market share from 47 percent to 10 percent worldwide in the space of two years, without bothering to develop an equivalent replacement. Here we're going to be treated to a battle of the titans over a serious claim to more than $3 billion in damages. This is nothing like SCO's near-ludicrous claim for billions of IBM's dollars. And Novell just got Microsoft to bankroll the lawsuit to the tune of the $536 million Netware settlement. No budget-minded plaintiff in this lawsuit.

Microsoft's planned assertion of the statute of limitations defense promises early disclosure of Microsoft's alleged tawdry dealings. Novell has armored up its complaint to withstand a motion to dismiss, forcing a likely summary judgment battle at the beginning of the case. So unlike the SCO v. IBM litigation, we'll likely be seeing the dirt relatively soon. Indeed, we're already seeing much of it in Novell's complaint.

Here's why Novell's complaint will likely force an early summary judgment factual inquiry by the court. Novell has raised three barriers to the statute of limitations defense. The first is unlikely to be contested, a stipulated agreement by Microsoft to stop the statute of limitations clock for the last year while the parties tried to negotiate a settlement. Novell's first real line of attack on the statute of limitations defense is part of the federal anti-trust laws, 15 U.S.C. 16(i), Section 5 of the Clayton Act, which somewhat confusingly states in relevant part:

(i) Suspension of limitations

Whenever any civil or criminal proceeding is instituted by the United States to prevent, restrain, or punish violations of any of the antitrust laws, but not including an action under section 15a of this title, the running of the statute of limitations in respect of every private or State right of action arising under said laws and based in whole or in part on any matter complained of in said proceeding shall be suspended during the pendency thereof and for one year thereafter: Provided, however, That whenever the running of the statute of limitations in respect of a cause of action arising under section 15 or 15c of this title is suspended hereunder, any action to enforce such cause of action shall be forever barred unless commenced either within the period of suspension or within four years after the cause of action accrued.

So after finally parsing that language successfully, Novell understandably alleges facts to establish that the government's original complaint in the DoJ-Microsoft case included allegations that Microsoft had improperly attempted to crush competition in the word processing and spreadsheet markets, and that at least some of the relevant allegations were litigated to a conclusion and decided in the Feds' favor. It also pleads the date of the final consent decree entered in that action. Novell's lawsuit is timely because it was filed within one year of the final decree, the complaint argues, if you ignore the time in which the limitations period was suspended by stipulation.

All well and good, but even without doing legal research, we can infer there may be some relevant ambiguity in the case law construing the above-quoted statute, or the statute of limitations would not have been a barrier to settlement. Moreover, many of the Microsoft acts Novell complains of occurred more than four years before the DoJ filed suit. So what is the Novell complaint's second line of attack on Microsoft's statute of limitations defense? That's where things become very interesting and explains why FOSS advocates should be highly interested in this case from the outset.

In complaint paragraph 22, Novell alleges:

By agreement, the parties further tolled the running of the statute of limitations as of November 7, 2003 through the time this action was filed. Novell's claims are also tolled because Microsoft's entire course of conduct constitutes a continuing violation in pursuit of a single anti-competitive objective, namely the destruction of Novell office productivity applications in order to eliminate competition in the office productivity applications markets and to maintain its monopoly in the PC operating systems market. Microsoft's avowed campaign to "slaughter" Novell dates at least to the early 1990s, and each pattern, practice, and overt act by Microsoft alleged herein took place as part of that single continuous campaign. Novell has suffered harm within the applicable limitations period from every act that Microsoft has undertaken in furtherance of that campaign prior to the limitations period.
Elsewhere, Novell alleges that the harm it suffered is cumulative.

The key elements of Novell's theory are underscored above. Various equitable doctrines avoid harsh results of statutes of limitations in appropriate cases. The one Novell is invoking is the doctrine of the "continuing wrong." To better understand the theory involved, let's try a simpler, more down-home analogy. Let's hypothesize that you purchase a home. Several years later, the Kinder-Gentler Chemical Co. (KGCC) erects a chemical plant next door. Twenty years after that, while washing your car your liver falls out onto the ground, and investigation eventually traces the cause to benzene wastes that were injected by KGCC into the groundwater beneath its plant and subsequently migrated to your well.

Let's say there's a two-year statute of limitations for personal injury in your jurisdiction and you noticed that your water tasted funny nearly 20 years ago. KGCC can prove it because you told neighbors about it. Does this mean that you were on notice of the pollution way back then, and that KGCC escapes liability unless you can prove that the particular benzene molecules that destroyed your liver migrated through the property line only within the last two years?

That may be a literal interpretation of the relevant statute of limitations, but the courts recognize the injustice of a strict application under the circumstances. So they reason that each separate molecule of benzene that traveled from KGCC's property to your well was a separate wrongful overt act. The barrage of similar overt acts recurred more or less continually, and happened as part of a continuing single scheme of misconduct intended by KGCC to avoid the expense of proper hazardous waste disposal with a reasonably foreseeable likelihood of causing the harm you suffered. Moreover, medical testimony establishes that the harm inflicted by the benzene pollution on your liver occurred because of cumulative exposure to the benzene over the 20-year period. It is not possible to attribute the entire injury to any particular molecule of benzene trespassing on any given date, although it is fairly certain that your benzene exposure is the cause. Therefore, you have been the victim of a "continuing wrong" and the statute of limitations is tolled for the entire 20 years of trespassing pollution before your liver fell out. You need only file your lawsuit within two years of the day you first saw your liver lying on your driveway.

Notice that the theory transfers the benefit of the doubt to you rather than giving KGCC that benefit. Courts regard this as a just resolution because it was KGCC's continuing misconduct that created the doubt, not any act or omission by you.

Returning to Novell's complaint, Novell has alleged that it suffered analogous injuries in the form of its loss of sales, its sale of WordPerfect and QuattroPro at an enormous loss, and injury to its reputation and customer good will. Those injuries were cumulative in the sense that none of Microsoft's bad acts can be isolated as the sole or proportional cause of the injury. The injury is not divisible by the acts that caused them. Therefore, the harm was cumulative, and flowed from a pattern of overt acts all undertaken as part of a single unlawful scheme by Microsoft to protect its Windows monopoly and extend it to the office productivity software market. Because the harm was cumulative and some of that harm occurred within the time allowed by the statute of limitations, the complaint argues, there is no rational basis for denying the right to sue for the entire harm. In the Microsoft-Novell context, Novell also alleges facts establishing that the cumulative injury was actually intended by Microsoft, so there is an additional equitable legal argument available, that Microsoft lacks the clean hands necessary to invoke the statute of limitations. And thus, the statute of limitations should not apply.

What's important to our present discussion is the position all of that puts Microsoft in if it wishes to pursue early dismissal of Novell's case. Novell has in effect realleged its entire anti-trust complaint in support of a legal theory for overcoming the statute of limitations defense.

It will be very difficult for Microsoft to avoid litigating all of its alleged bad acts as part of asserting its statute of limitations defense. When a case is arguably subject to a statute of limitations defense, the federal courts require that plaintiffs plead the facts raising the defense and the facts that avoid it. Because Novell has affirmatively pleaded the facts constituting its avoidance of that defense, and because those facts are the same facts establishing the alleged anti-trust violations, a motion to dismiss is unlikely to succeed.

Therefore, Microsoft will be required to file a motion for summary judgment, attaching a multitude of affidavits from its officials and experts, testifying that Novell is wrong, that some of the alleged acts didn't happen, and even for those that did, Microsoft's motives were pure. This is going to be a case about Microsoft's motive. In effect, Microsoft has to early on disclose the identity of their witnesses for the trial and offer the substance of what they will testify to at trial. Whereupon Novell's lawyers file their evidence supporting the numerous allegations of the complaint, establishing a genuine dispute over material facts, requiring a trial on the statute of limitations defense. Discovery commences, and Novell's lawyers proceed to beat up on the people who executed affidavits for Microsoft, calling their credibility into question.

I suspect that the Novell negotiators never discussed in detail with Microsoft the continuing wrong theory for avoiding the statute of limitations defense, only the Clayton Act statutory grounds. So my guess is that Microsoft just got hit with the clue stick; over the next few days, it's going to begin to sink into the minds of the folks at Redmond that they just may have a tiger by the tail.

Novell, the stealth instigator of the DR-DOS anti-trust case, just demonstrated it is highly familiar with the DR-DOS evidence that caused a whopping settlement. (Indeed, one of the law firms representing Novell in its new case was also listed as a recipient of the discovery order in the DR-DOS case linked above.) Novell has the DOJ-Microsoft evidence. It knows about the Sun-Java evidence. It has the newly revealed WordPerfect evidence. And it intends to force Microsoft to litigate those issues. Let me assure you that this complaint was not researched and drafted in a single day, week, or even month. Novell has obviously been building its files on Microsoft for years. Welcome to the Novell circus, Microsoft! Just hold onto this tail for a moment, will you please? We'll be right with you.

I would not be surprised if Microsoft abruptly reconsiders its decision to break off negotiations. On the other hand, Microsoft has a demonstrated pattern of stumbling along in litigation until it is thoroughly embarrassed. Novell's lawyers have obviously thought about their strategy quite a bit. Unless Microsoft can come up with other, stronger defenses, the statute of limitations defense looks poised to unhinge Microsoft's nondisclosure policies at an early date.

FOSS could be one of the big beneficiaries of this lawsuit by assembling and disseminating the evidence. Do other folks feel that gathering and disseminating information about Novell v. Microsoft is important? Are people ready to help? Your feedback is important.


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