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New Filings in Novell v. Microsoft & A Summary, by Marbux
Wednesday, July 27 2005 @ 07:41 AM EDT

There are some new filings in Novell v. Microsoft, the antitrust litigation:
Novell has filed a Memorandum in Opposition to Microsoft's Motion Pursuant to 28 U.S.C. Section 1292(b) For Certification of the Court's June 10 Ruling To The Extent It Denied Microsoft's Motion to Dismiss [PDF] and

Microsoft has filed a Reply Memorandum in Support of its Motion Pursuant to 28 U.S.C. Section 1292(b) [PDF].

To help us get up to speed on this case, I asked Marbux to write a summary about the case for us, so we're all clear on facts and actions that led up to Novell bringing this action.

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

Novell v. Microsoft -- A Summary, by Marbux

1. Background

Novell v. Microsoft is an antitrust case in Federal court involving office software products that Novell no longer owns, having sold them to Corel Corp., including WordPerfect and QuattroPro, a spreadsheet program. Novell alleges that before they sold them to Corel, Microsoft committed prohibited anti-competitive acts in order to maintain its monopoly in the desktop operating system market, causing some $1 billion in damages to Novell. Antitrust law provides a statutory remedy allowing for the collection of triple damages in civil actions, plus costs of suit, including attorneys' fees.

The now defunct WordPerfect Corp. developed and marketed what was once the leading word processing program, WordPerfect, and its companion applications. However, WordPerfect lost significant revenues and market share after Microsoft launched its Windows 3.x shell for the DOS operating system, accompanied by a Windows version of Microsoft Word.

In 1994, Utah-based Novell absorbed WordPerfect Corp. through a stock-swap merger and the same year purchased the QuattroPro spreadsheet program from Borland.

However, the market share for Novell's newly acquired office products continued to dwindle, so in 1996 Novell sold the WordPerfect word processor program and QuattroPro to Corel Corp, incurring a significant net loss. (Corel had a previous relationship with Novell and WordPerfect Corp., having developed and maintained the WordPerfect Presentations program, which is similar to Microsoft's PowerPoint product.)

On November 8, 2004, Novell and Microsoft announced a $536 million settlement of Novell's potential claims against the Redmond, Washington software company for antitrust violations involving Novell's Netware product. The companies issued statements saying they had agreed to stop the statute of limitations clock while they negotiated.

The companies also said at the time that they had been unable to agree on other potential Novell claims involving the WordPerfect and QuattroPro programs. Microsoft argued that those Novell claims had been extinguished by the applicable statute of limitations. (See also discussion of the case's statute of limitations issues.) Novell said it would promptly file a lawsuit involving the office software claims.

2. Relationship to U.S. v. Microsoft

Novell's case was transferred for pretrial issues soon after filing, from Utah Federal District Court to the Maryland District, by the Judicial Panel on Multidistrict Litigation ("MDL").

Under MDL procedures, closely related cases from all Federal courts are transferred to a single judge for pre-trial proceedings, then transferred back to the referring court for trial and subsequent proceedings. The procedure is intended to reduce the number of inconsistent rulings in closely related cases and to reduce the overall judicial workload created by repetitive issues.

In Maryland, the Novell case was consolidated with 112 other antitrust cases involving the Windows operating system brought against Microsoft, all consolidated under MDL docket number 1332, with District Judge J. Frederick Motz presiding. As of May 10, 2005, 49 of the 113 related Microsoft antitrust cases consolidated so far in MSL 1332 are still pending -- including Novell v. Microsoft -- according to statistics [PDF] for MDL cases issued by the Multidistrict Panel.

Like all the other lawsuits consolidated in MDL 1332 under the caption of In re: Microsoft Corp. Windows Operating Systems Antitrust Litigation, the Novell case is a follow-on to U.S. v. Microsoft, [Cf. Wikipedia] an important case in which the court ruled that Microsoft: [1] had a monopoly in the desktop operating system market for Intel-compatible computers; and [2] had committed antitrust violations in efforts to maintain and extend that monopoly. The attorneys general of several states had intervened early in the case, alleging violations of state fair competition laws.

In U.S. v. Microsoft, after Microsoft lost three of the government's antitrust claims in District Court, the District of Columbia U.S. Circuit Court of Appeals ("D.C. Circuit") reversed on one claim, and remanded for further proceedings on the others under different legal standards. After some jousting on remand in the District Court, Microsoft settled, accepting a stipulated Final Judgment regulating some of its conduct over a five-year period, unless renewed or modified in the interim.

It would be difficult to fully comprehend Microsoft's procedural maneuvering in the Novell case (or in other cases consolidated in MDL 1332) without knowledge of an important ruling by the Fourth U.S. Circuit of Appeals. That appeal began with an 8-page opinion [PDF] entered by Judge Motz in MDL 1332 on November 4, 2002, some 2 years before Novell filed its case.

The stakes were high even then, before a veritable flood of related cases were filed against Microsoft and then consolidated in MDL 1332, as Judge Motz noted:

This MDL proceeding encompasses private antitrust actions instituted against Microsoft Corporation by a group of consumers and by four different competitors: Be Incorporated, Burst.com, Inc, Netscape Communications Corporation, and Sun Microsystems, Inc. All of the plaintiffs have moved under Fed. R. Civ. P. 16(c) to preclude Microsoft from relitigating 395 factual findings conclusively established in United States v. Microsoft Corporation, 84 F. Supp. 2d 9 (D.D.C. 1999) (findings of fact), 87 F. Supp. 2d 30 (D.D.C. 2000) (conclusions of law and judgment), and 97 F. Supp. 2d 59 (D.D.C. 2000) (remedial order), aff’d in part, rev’d in part, and remanded in part, 253 F.3d 34 (D.C. Cir.), cert. denied, 120 S. Ct. 350 (2001)[.]

The MDL 1332 plaintiffs had sought preclusion of relitigation by Microsoft on grounds of the doctrine of offensive non-mutual collateral estoppel, which allows a court to preclude relitigation of issues by a defendant that were "necessarily decided" in a different case the defendant previously lost to a different party, absent an intervening change in the controlling law. Where applicable, courts normally invoke collateral estoppel to preclude relitigation of established facts in order to prevent inconsistent judgments.

Rejecting a series of Microsoft arguments against applying collateral estoppel, Judge Motz ruled:

In this case it appears that each of the 395 findings as to which plaintiffs seek preclusive effect supported the Court of Appeals’ decision in the government case that Microsoft unlawfully maintained a monopoly under section 2. Microsoft has been given ample opportunity in opposing plaintiffs’ motions to contest those findings it contends were not necessary to the judgment against it. However, “the devil is in the details” and -- at least until Sun submitted its reply memorandum in which it delineated the reasons it contends each specific finding was necessary to the judgment in the government case -- the parties’ briefing understandably focused on general issues, referring to specific findings by way of example. Therefore, I will give Microsoft one last opportunity to challenge specific findings as not meeting the “necessary” requirement.

(Italics added.) Microsoft sought Judge Motz's permission to seek an interlocutory appeal from that order, just as it is now doing again regarding his ruling in the current Novell litigation. An interlocutory appeal is a particular type of appeal before a case is fully litigated. You can see what it looks like when a court grants such a motion, because back then Judge Motz granted Microsoft's motion [PDF], reasoning that:

[a]s I have previously indicated (and as is obvious), my ruling is foundational to the structure within which this MDL litigation will be conducted, defining both the scope of evidence at the trial of the consumer class action and the scope of discovery in the competitor cases. There would be a senseless waste of private and public resources and an unconscionable delay in the final resolution of these proceedings if the Fourth Circuit were not given the opportunity to decide the collateral estoppel issues on an interlocutory appeal and ultimately were to find I had erred in my ruling.

The Fourth Circuit accepted Microsoft's interlocutory appeal, then decided it on January 15, 2004. Judge Motz had been too lax in precluding all findings that "supported" the D.C. Circuit's decision, the divided appellate panel ruled [PDF] and required that:

[o]n remand the district court must limit itself to those facts critical and necessary to the judgment actually affirmed by the D.C. Circuit.

The Fourth Circuit's decision was likely regarded as little more than a minor procedural setback by the lawyers for the antitrust plaintiffs suing Microsoft. In any event, they would very likely be allowed to relitigate any of the factual issues involved in U.S. v. Microsoft because their clients had not been parties to that case. In that regard, it was far less than certain that Judge Motz -- if presented with the same evidence that Judge Jackson reviewed earlier -- would come to different conclusions. Of course, the MDL 1332 plaintiffs would also be free to present even further evidence.

But most importantly, the appeals court ruling in effect traded a plaintiffs' pawn for a Microsoft queen. It was at best a Pyhrric victory for Microsoft; now it was set in stone that many of Judge Jackson's findings in U.S. v. Microsoft would preclude Microsoft from relitigating crucial issues in the steadily rising number of cases consolidated in MDL 1332. Nonetheless, the Fourth Circuit's ruling left a degree of bargaining leverage for Microsoft. Understandably, Microsoft began settling antitrust claims.

Microsoft has since then apparently avoided giving Judge Motz an opportunity to make further rulings on which specific judicial findings from U.S. v. Microsoft can not be relitigated in MDL 1332. Moreover, none of the MDL 1332 cases have gone to trial, most likely because further antitrust losses would result in Microsoft being precluded in later cases from relitigating even more facts. For Microsoft, MDL 1332 is a very large malignant tumor of the legal kind; Microsoft would be foolish to allow it to spread.

3. The Novell lawsuit

On November 12, 2004, Novell filed its lawsuit against Microsoft. Novell's complaint (PDF) sought damages under six alternative legal theories ("claims" or "causes of action" in lawyer-speak). (See discussion of Novell's complaint and claims in Groklaw article, Novell Files Suit Against Microsoft over WordPerfect; with further discussion and the text of the complaint in Groklaw article, The Novell Antitrust Complaint & A Law About Antitrust and Standards Writing.)

Before the case was transferred from Utah, Microsoft filed a motion to dismiss Novell's case, largely based on the statute of limitations defense, garbed in an argument that Novell lacked antitrust standing to pursue the case because the period allowed by statute of limitations for filing suit had lapsed. (See Groklaw article, Microsoft Files Motion to Dismiss Novell's AntiTrust Complaint.) Novell filed its opposition [PDF] and just before the case was transferred to Maryland, Microsoft replied. [PDF].

Judged Motz ruled on the Microsoft motion to dismiss on June 10, 2005 in a letter opinion [PDF]. He held that Novell's second through fifth claims were barred by the statute of limitations, but that its first and sixth claims would proceed to discovery and trial preparation. In essence, that allowed Novell to litigate its allegation that:

Microsoft's agreements with [original equipment manufacturers] and others not to license or distribute Novell's office productivity applications or to do so only on terms that materially disadvantaged these products unreasonably restrained trade by restricting the access of Novell's office productivity applications to significant channels of distribution in violation of Section 1 of the Sherman Act, 15 U.S.C. §1.

Microsoft accordingly filed its answer [PDF] to the Novell complaint.

However, Microsoft simultaneously responded to Judge Motz's ruling on the statute of limitations defense with its motion for permission to seek an interlocutory appeal. (See Groklaw article, Novell v. MS: MS Asks to Appeal June 10 Order & Answers Novell's Complaint.) Novell has now filed its opposition [PDF].

Microsoft is unlikely in the Novell case to risk having Judge Motz decide which U.S. v. Microsoft factual findings can not be relitigated. Microsoft is even less likely to allow the case to go to trial, in my opinion. If the Microsoft legal team can not have the case thrown out using its statute of limitations defense, we will likely see a settlement.

Therefore, it is not surprising that Microsoft's lawyers have focused thus far on the statute of limitations defense, which would allow sidestepping any judicial determination of Novell's case on its merits. From that perspective, a denial of Microsoft's motion to allow an interlocutory appeal on the statute of limitations defense might well trigger a settlement.

As the record otherwise stands as of this writing, the case would now normally move into discovery and trial preparation mode. The prospect of having to wait until the District Court proceedings are over to take an appeal undoubtedly is not appealing to Microsoft. So from Microsoft's perspective, this may well be a win-or-settle motion.


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