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Novell Vs Microsoft - Wordperfect | 35 comments (27 topical, 8 editorial, 6 hidden)

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by pgk (PG_King zzzzzzz (yahoo.com)) on Sun Nov 14th, 2004 at 04:46:44 EST
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Since this made it's way through incomplete, here's the rest of the text.

76. When Novell asked Microsoft why it removed the Explorer interfaces and browsing extensions, Microsoft claimed that it did not have the time and resources to complete their development. But in fact, the Explorer interfaces and browsing extensions had been complete and functional before Microsoft removed them. Microsoft's real reasons for pulling the interfaces and browsing extensions were twofold: to delay the development of Novell's software programs and products, including WordPerfect, which had to be reworked to function through a different set of interfaces designed for Microsoft's software programs and products; and to hide the more advanced capabilities of Novell's office productivity applications from users of Windows 95. Novell had no choice but to spend more than a year recreating the functionality of Windows' integrated browsing functions. As Gates knew and intended, withdrawing the documentation of the browsing APIs caused Novell, in Microsoft's own words, to re-invent the wheel and divert resources from innovations on behalf of consumers. Microsoft's applications developers, by contrast, had unfettered access to the integrated browsing extensions all along.

77. Thereafter, when Microsoft released Windows 95 and Office 95, at virtually the same time, Microsoft suddenly reversed course and documented the programming interfaces. Doing so voided the alternatives that Microsoft previously forced Novell to expend an entire year developing and, at the precise moment when WordPerfect needed to enter the market, forced Novell to spend additional time designing basic functions of WordPerfect all over again.

78. Microsoft's anti-competitive integration of browsing functions into Windows delayed the release of Novell's office productivity applications for Windows 95. These acts also degraded the functionality of Novell's applications, which never were able to provide Novell's customers with as robust an implementation of the browsing extensions as they otherwise could have provided. In short, "Microsoft's conduct with respect to browsers is a prominent and immediate example of the pattern of anticompetitive practices undertaken by Microsoft with the purpose and effect of maintaining its PC operating system monopoly and extending that monopoly to other related markets," including the office productivity applications markets alleged herein. Gov't Compl. 1 13. By virtue of Microsoft's anti-competitive integration of browsing functions into Windows 95, for which Microsoft was held liable in the Government Suit, Novell's applications were delayed in reaching the markets and provided consumers with less value.

79. In addition to documentation of the crucial browsing extensions, Microsoft withheld other technical specifications concerning Windows 95, and in some instances affirmatively misrepresented the specifications, further delaying Novell's delivery of WordPerfect and related applications for the Windows 95 platform.

80. Microsoft refused to publish the APIs that were used to place items on the Windows Clipboard, although its own developers had the documentation. The Clipboard provided a location for storing information until it was "pasted" into another application. Novell ultimately had to forgo this functionality in its applications because the expenditure of time and resources required to duplicate the hidden APIs was prohibitive, so Novell could not provide the same richness of data integration that Microsoft's applications could provide.

81. Further, Microsoft misrepresented that Windows 95 would operate as an exclusively "32-bit" system, meaning it would process 32 bits of data at once. A bit --short for binary digit - is the smallest unit of information a computer can hold. The beta versions of Windows 95 indicated that it would be an entirely 32-bit system, rather than a 16-bit system, as all previous versions of Windows were. This representation was critical, because applications written for a 32-bit operating system would not function properly on a 16-bit system. Novell relied upon Microsoft's representations and developed its applications to run on an entirely 32-bit system. After Novell completed its PerfectOffice 3.0 suite of office productivity applications, including WordPerfect and Quattro Pro, Microsoft disclosed that Windows 95 would not be a purely 32-bit system. Microsoft's deception forced Novell to expend considerable time and resources to redesign its applications, significantly delaying their release. Microsoft's own applications developers knew that Windows 95 would not be an entirely 32-bit operating system and, as a consequence, Microsoft was able to release its office productivity applications almost immediately upon the release of Windows 95.

82. Through these and other anticompetitive acts, Microsoft put Novell "on a treadmill," forcing Novell's developers to expend significant time obtaining information and creating functionalities that Microsoft gave to its own applications developers through secret documentation of hidden APIs.

83. In addition to withholding technical information, Microsoft created and controlled new "industry" standards and established unjustified certification requirements to delay the release of Novell's applications and to impair their performance for Novell's customers.

84. First, as discussed above, Microsoft excluded from the markets the "OpenDoc" technology for sharing information among applications, by using its monopoly power to force a different standard upon the industry. Because CIL was designing OpenDoc to run across multiple platforms, including MS-DOS, DR-DOS, Windows, OS/2, and Macintosh, OpenDoc threatened the applications barrier to entry that protected Microsoft's Windows monopoly.

85. Microsoft responded to this competitive threat by preventing CIL from making OpenDoc compatible with Windows 95. For example, Microsoft routinely required all ISVs to execute nondisclosure agreements as a condition of receiving the information they needed to develop their applications. These agreements, however, contained terms that uniquely targeted ISVs who were members of CIL, by preventing their employees who worked on OpenDoc from receiving Windows 95 betas or specifications, which effectively prevented CIL from initially developing OpenDoc for Windows 95. In addition, Microsoft required ISVs working with a Windows 95 beta to agree that they would not work on OpenDoc for two years. While Microsoft eventually dropped this requirement, its impact had immediate anticompetitive effects on OpenDoc's development.

86. Further, Microsoft unilaterally announced that OLE would be incorporated directly into Windows, instead of existing independently of the operating system as a technology to be adopted or rejected by ISVs, depending on their assessments of its technical merit. Microsoft then required OLE-compatibility as a condition of Microsoft's certification of an application's compatibility with Windows 95. This certification requirement was a significant barrier to entry into the applications markets, because Microsoft represented to the industry that any application lacking the certification could not be trusted to run on Windows 95. By exploiting this barrier to entry, Microsoft forced ISVs to make their applications OLE-compatible. Furthermore, Microsoft ensured that only applications using its tools, and not those of its competitors, would reach customers. This anticompetitive behavior by Microsoft is similar to the behavior described in the Government Suit with respect to Microsoft's efforts to force ISVs to use Microsoft's implementation of Java. "Specifically, in the First Wave agreements that it signed with dozens of ISVs in 1997 and 1998, Microsoft conditioned early Windows 98 and Windows NT betas, other technical information, and the right to use certain Microsoft seals of approval on the agreement of those ISVs to use Microsoft's version of the Windows [Java virtual machines] as the 'default.' Findings of Fact T 401.

87. There was no valid technical or business reason for requiring OLE-compatibility as a condition of the Windows 95 certification; OpenDoc was even more capable of providing the same linking and embedding functions, and in the absence of the certification requirement and other anticompetitive acts, OpenDoc and OLE would have continued to compete on their technical merits. Indeed, Microsoft initially announced that applications using OpenDoc would be deemed OLE-compatible, and would receive Microsoft's certification for Windows 95, because OpenDoc was a "superset" of OLE, meaning it provided every function of OLE, and more. Later, after Novell, other ISVs and CIL were far advanced in their efforts to develop and use OpenDoc, Microsoft announced that applications using OpenDoc would not receive automatic certification, and might not receive certification at all.

88. Seeing that Microsoft's anticompetitive acts would ensure the demise of OpenDoc, ISVs were left with no choice but to adopt Microsoft's proprietary OLE protocol as the de facto industry standard for linking and embedding. Even after making OLE the industry standard, however, Microsoft still withheld specifications and final, debugged versions of OLE until after Microsoft released its competing applications. Microsoft's anticompetitive acts concerning OLE further increased the "time-to-market" lead that Microsoft's office productivity applications unlawfully achieved over Novell's applications.

89. Second, Microsoft required office productivity applications seeking Windows 95 certification to be compatible with the very different Windows NT, which is an operating system for larger and more powerful computers that are used as "servers" to link numerous PCs (and peripherals) across an organization into a network. There was no justification for this requirement. Further, Windows 95 and Windows NT were so dissimilar that an application running on one system could not run on the other without substantial modification. Novell expended significant development resources to make its applications compatible with Windows NT, resulting in further delay in the release of Novell's applications for Windows 95.

90. Third, Microsoft unilaterally made the proprietary Rich Text Format ("RTF") of Microsoft Word the standard file format for text-based documents in applications developed for Windows. Upon capturing the standard, Microsoft strategically withheld the specification to injure competitors, including Novell.

91. As Microsoft knew, a truly standard file format that was open to all ISVs would have enhanced competition in the market for word processing applications, because such a standard allows the exchange of text files between different word processing applications used by different customers. A user wishing to exchange a text file with a second user running a different word processing application could simply convert his file to the standard format, and the second user then could convert the file from the standard format into his own word processor's format. Thus, a law firm, for instance, could continue to use WordPerfect (which was the favorite word processor of the legal profession), so long as it could convert and edit client documents created in Microsoft Word, if that is what clients happened to use. Microsoft knew that if it controlled the convertibility of documents through its control of the RTF standard, then Microsoft would be able to exclude competing word processing applications from the market and force customers to adopt Microsoft Word, as it soon did.

92. The specifications for RTF were readily available to Microsoft's applications developers, because RTF was the format they themselves developed for Microsoft's office productivity applications. Microsoft withheld the RTF specifications from Novell, however, forcing Novell to engage in a perpetual, costly effort to comply with a critical "industry standard" that was, in reality, nothing more than the preference of its chief competitor, Word. Indeed, whenever Word changed its own file format, Microsoft unilaterally and identically changed the RTF standard for Windows, forcing Novell and other ISVs constantly to redevelop their applications. In this mariner, Microsoft gave Word a permanent, insurmountable lead in time-to-market, and made document conversions difficult for users otherwise interested in running non-Microsoft applications. Many WordPerfect users were thus forced to switch to Microsoft Word, which predictably monopolized the word processing market.

93. Fourth, Microsoft unilaterally announced that other features of Word were to be considered Windows standards. One important example is the "tool bar," which typically runs across the top of the PC's screen in applications operating on Windows. Microsoft's tool bar originated in the Microsoft Office applications, such as Word and Excel, while ISVs such as Novell developed competing features, such as WordPerfect's more widely admired "button bar." Unable to design a better feature than WordPerfect's, Microsoft simply declared its toolbar to be the Windows standard, supplanting WordPerfect's button bar and other competitors' offerings. As in the case of RTF, Microsoft forced Novell to delay its time-to-market while redeveloping its applications to an inferior standard. Because these standards were lifted directly from Microsoft's own applications, those applications, by definition, were always "compatible" with the standards.

94. Fifth, Microsoft made other inferior features de facto industry standards, by preventing Novell and other competitors from presenting certain of their own features, such as Novell's QuickFinder, on the desktop. The government alleged and the Court held in the Government Suit that Microsoft was liable for excluding the features of certain other ISVs from the desktop in the same manner. See 253 F.3d at 62, 64; Findings of Fact 1212-214; Gov't Compl. 11 24-25.

95. QuickFinder, Novell's search technology, was faster and more advanced than Microsoft's own "find" capability. QuickFinder enabled users to create search criteria across the computer's different storage devices and to search files by name, text, and date. Because Microsoft prevented Novell from presenting QuickFinder on the desktop, QuickFinder could only be used when running WordPerfect; Microsoft's own finder technology, with exclusive display on the desktop, could be used anywhere in the computing environment, gaining an unfair advantage over Novell's otherwise superior technology.

2. Microsoft's Anticompetitive Withholding of Technical Information Concerning Earlier Versions of Windows

96. Microsoft withheld critical information concerning earlier versions of the Windows operating system, thereby giving itself a time-to-market lead in the applications markets. Microsoft held and extended this lead following Novell's merger with WordPerfect by virtue of the anticompetitive acts alleged above. Microsoft's anticompetitive acts, both pre- and post-dating Novell's merger with WordPerfect, were committed as part of a continuing violation designed to maintain Microsoft's monopoly in the operating systems market and to achieve and maintain monopolies in the office productivity applications markets. Independent, overt acts during the period in which Novell owned the rights to WordPerfect inflicted new and accumulating harm on Novell.

97. Microsoft refused to disclose technical specifications that were required to overcome an operating system flaw known as the "64k (meaning 64,000 bytes of) memory limitation," which adversely affected critical features of WordPerfect. Specifically, the menu feature in WordPerfect consumed well in excess of 70 percent of the operating system's limited memory. Using such an inordinate amount of memory could cause a PC to crash.

98. Microsoft's API documentation did not disclose sufficient information to cure this limitation. In addition, the Microsoft support personnel, who were assigned to help Novell solve such problems pursuant to a paid subscription to Microsoft's support program, simply refused to provide the information. The denial of this crucial information forced Novell to develop a costly and difficult solution, delaying the shipment of WordPerfect for Windows, just when Windows was replacing the MS-DOS platform, on which WordPerfect was the dominant word processing application. Microsoft's denial of information also increased the risk of performance problems with Novell's products, and it created programming difficulties for ISVs who wished to develop applications compatible with WordPerfect, thereby diminishing the commercial appeal of WordPerfect.

99. By contrast, because Microsoft's own applications developers had access to complete specifications for the operating system, comparable features of Microsoft Word consumed only a small percentage of the limited memory, and Microsoft experienced no delay in reaching the market.

100. The 64k memory limitation also caused degrading functionality in WordPerfect's dialog boxes, which guide the user through the execution of certain functions, such as the "save as" function. Opening multiple dialog boxes in WordPerfect consumed a significant amount of memory, which could cause the PC to crash. Microsoft was aware of the problem, and incorporated into Windows a solution called Dialog Box Manager ("DBM"). Microsoft refused to document this feature of Windows to competing ISVs, however, making it available exclusively to Microsoft's own applications developers.

101. As a consequence, Novell had to reduce the functionality of its application and split its more complex dialogs into several boxes, making WordPerfect more difficult to use. As always, the effort to overcome the lack of information cost WordPerfect crucial time-to-market.

102. Microsoft Word's developers had access to the required information all along. They "solved" the problem by making undocumented calls to the secret DBM in Windows. Indeed, when WordPerfect's developers first encountered the problem, they observed Word in operation, to see if it was consuming the same amount of memory; using developers' tools that monitor the interactions between applications and operating systems, the WordPerfect developers saw Word making calls to the undocumented DBM. Even when confronted with this information, Microsoft's ISV "support" personnel would not tell the WordPerfect's developers how to call the DBM.

103. Microsoft also harmed Novell by hiding the computer-based training ("CBT") "hooks," or interfaces, in Windows, which Microsoft Word and Excel employed to train their users. Novell's developers requested information regarding these undocumented hooks, but they were advised that no information was available to ISVs. Microsoft's ISV support personnel acknowledged, however, that Microsoft's own applications developers were using the hooks.

104. Microsoft's refusal to document the CBT hooks made Novell's applications more difficult to use, thereby providing less value to consumers and increasing Novell's customer support costs, further impairing Novell's sales efforts and delaying the release of Novell's applications.

105. Microsoft also refused to resolve Windows-related bugs affecting Novell's WordPerfect, Quattro Pro, and related applications as aggressively as it resolved bugs affecting its own applications. This discriminatory treatment adversely affected the performance of Novell's applications, causing consumers to believe that Novell's applications were inferior to Microsoft's competing applications.

106. Further, Microsoft excluded WordPerfect and Quattro Pro developers from technical conferences and porting labs, which are opportunities for developers to "debug" their Windows applications and otherwise ensure integration with Windows. As a result of Novell's exclusion from these conferences, its applications suffered a greater incidence of malfunctions, which were often caused by Windows itself, prolonged development efforts, increased customer frustration, and reduced sales. In contrast, Microsoft's applications developers routinely had access to the developers of Windows, whenever convenient to resolve technical problems or incorporate new functions into their applications.

107. Microsoft also refused to provide a simple remedy for a phenomenon referred to as "DLL Hell," which adversely affected non-Microsoft applications running on the Windows platform. "Dynamic Link Libraries" ("DLLs") are files containing specific lines of code that must be present in specific places on the PC if applications are to operate properly on Windows. Microsoft often changed the functions of the DLLs from one version of Windows to the next, without changing the documentation provided to ISVs. As a result, Novell was forced to implement elaborate procedures, which degraded the performance of WordPerfect and sometimes required WordPerfect's users to "double reboot" their computers. This phenomenon is commonly referred to as "DLL Hell."

108. Since Microsoft Office developers had timely access to information concerning the changing DLLs, installing their software did not result in "DLL Hell." Because of this advantage, OEMs had additional incentive to distribute Word and not WordPerfect to avoid the technical support issues "DLL Hell" raised.

109. To prevent "DLL Hell," Microsoft needed merely to document "version" information whenever it changed a DLL. Microsoft was fully aware of the problem and this simple solution, but refused to implement it.

110. The above-described anticompetitive acts during the development of successive versions of Windows, including Windows 95 and its integrated browsing functions, unlawfully hindered the efforts of Novell to develop word processing and other office productivity applications to compete against applications developed by Microsoft. They lacked any legitimate business justification. The only purpose of this conduct was to maintain and/or achieve monopolies in the operating systems and office productivity applications markets.

111. The above-described anticompetitive acts had their intended effect. Hidden features of each successive version of Windows, including Windows 95 and its integrated browsing functions, substantially delayed the release of Novell's office productivity applications, giving Microsoft's own applications a significant time-tomarket lead. It was the perpetual nature of this lead, and Microsoft's exercise of its unilateral power to protect its lead by strategically withholding information and otherwise abusing its operating system monopoly during development of Windows 95, that ultimately forced Novell to sell the WordPerfect assets at a staggering loss.

B. Microsoft's Exclusion of Novell's Office Productivity Applications From The Major Channels of Distribution

112. In addition to delaying development and degrading operation of Novell's office productivity applications, Microsoft has substantially foreclosed all of the efficient methods for their distribution as well, including the OEM channel, independent retailers, independent or loosely-affiliated resellers, direct sales, and other platform technologies.

1. The OEM Channel

113. Fully aware that the OEM distribution channel was critical to the continued success of WordPerfect and other competing applications, Microsoft used a variety of tactics to eliminate the applications of Novell and other ISVs from this channel, while "handcuffing" OEMs to Microsoft's operating system and office productivity applications.

114. OEMs manufacture and distribute PCs, typically bundling them with the latest version of Windows along with applications such as word processors and spreadsheets. OEMs are a principal distribution channel for this software, because most individuals and small businesses desire to have both an operating system and applications pre-installed on their PCs.

115. As the District Court found in the Government Suit, OEMs lack a commercially viable alternative to licensing Windows for pre-installation on their PCs. Findings of Fact 9191 53-55. Without a license on favorable terms for the pre-installation of Windows, an OEM cannot survive. By using its resulting dominance over OEMs to control the applications that they pre-install, Microsoft directly controls the markets for applications. Microsoft's executives schemed to use the power of their Windows monopoly to force OEMs such as IBM to stop supporting applications that competed with Microsoft's applications. Microsoft's internal correspondence records the scheme.

116. Microsoft perpetrated numerous anticompetitive acts to destroy its competitors' access to the OEM channel.

117. Microsoft refused or threatened to refuse to grant OEMs licenses for Windows if the OEMs distributed non-Microsoft office productivity applications. Faced with a choice between offering non-Microsoft office productivity applications and obtaining a Windows license, most OEMs had no alternative but to carry exclusively Microsoft applications. Microsoft forbade OEMs from pre-installing both Novell and Microsoft products on their machines, and gave OEMs discounts for refusing to sell other vendors' office productivity suites, such as Novell's PerfectOffice.

118. Microsoft also increased or threatened to increase the price of Windows and/or took or threatened to take other retaliatory action against OEMs who distributed non-Microsoft applications. The competitive PC market is characterized by many competing OEMs earning narrow profit margins, and an increase in the price of Windows is a direct threat to an OEM's profitability. In the face of likely retribution by Microsoft, in the form of higher prices for Windows, most OEMs refused to distribute WordPerfect and other Novell office productivity applications.

119. Microsoft entered into anticompetitive arrangements with OEMs to foreclose competing products from the distribution channel, as found in the Government Suit. "Virtually every new PC that comes with Windows, no matter which OEM has built it, presents users with the same screens and software specified by Microsoft." Gov't Compl. 125. These restrictions deprive OEMs "of the freedom to make competitive choices about which browser or other software product should be offered to their customers," (id.) "substantially reduce OEMs' incentives and abilities to innovate and differentiate their products in ways that could facilitate competition between Microsoft products and competing software products, and enhance Microsoft's ability to use the near-ubiquity of its Windows operating system monopoly to gain dominance in both the Internet browser market and other software markets." Id. 27.

120. The express terms of Microsoft's "Distributor Licenses" intimidated and punished distributors who sold competing office productivity applications, such as WordPerfect, while providing financial rewards to distributors who exclusively sold Microsoft Office. For instance, Microsoft paid its distributors a pro-rata "rebate" for each sale of Microsoft Office over a certain minimum quarterly threshold. Conversely, a distributor would be monetarily penalized for each sale of a competing application, such as WordPerfect and Novell's other office productivity applications. Under these licenses, Microsoft literally paid its distributors to stop doing business with competitors such as Novell.

121. Further, to qualify for the rebate program, the distributor was required to provide Microsoft with detailed weekly and monthly reports of its sales, including sales of competing applications, such as WordPerfect. The reporting requirements for competing applications were different from and well in excess of the reporting requirements for sales of Microsoft's applications. These requirements sent an intimidating message concerning Microsoft's intolerance of competition. Merely by asking how many competing applications a distributor might sell, Microsoft communicated that "zero" was the only number it would tolerate. Distributors of competing applications were forced to incur the extra administrative costs of tracking, accounting for, documenting, and reporting all competing sales. These burdens were anticompetitive.

122. Microsoft's licenses also forced OEMs to divulge confidential and proprietary information about Microsoft's competitors, including WordPerfect. The OEMs' reports were to include total pre-installations of WordPerfect, in both absolute and percentage terms, the times of the sales, and even the specific geographic regions of the sales. In many instances, the reported information would be sufficient to allow Microsoft to identify and target markets and even specific customers served by Novell through an OEM. Neither the competitors nor the OEMs would have provided this information absent Microsoft's monopoly power in the operating systems market.

123. Microsoft also engaged in other anticompetitive licensing practices with OEMs. It provided substantial inducements to license Microsoft Office on a per= processor basis, rather than a per-copy basis, by setting the price of the per-copy license significantly above the per-processor price. Under the per-processor licensing scheme, an OEM paid Microsoft for a copy of Microsoft Office, including Word and Excel, for every PC it sold, regardless of whether Microsoft Office was actually pre-installed on the PC.

124. Since the OEM was obligated to pay for Microsoft Office whether or not Office was pre-installed, the marginal cost of shipping Microsoft Office was effectively zero. The OEM who wished to pre-install Novell's applications, however, was required to pay a royalty to both Microsoft and Novell. The per-processor licensing scheme effectively levied a tax (the payment for unwanted Microsoft applications) on OEMs who sold Novell's office productivity applications. This practice excluded Novell's applications from the OEM distribution channel.

125. Microsoft's OEM licenses also based payment terms upon minimum sales commitments. By making minimum commitments, OEMs received volume-discounts, but were required to make lump sum payments in advance, reflecting the commitments. If actual units shipped were less than the committed number, the OEM was not entitled to a refund. Instead, Microsoft accumulated these overpayments in a "prepaid balance."

126. While Microsoft usually did not refund these balances, it was often willing to credit portions of the balance against minimum obligations under a renewed license. Thus, Microsoft locked OEMs into successive licenses and made it prohibitively expensive to sell competing software.

127. Microsoft also withheld or threatened to withhold Market Development Funds ("MDFs") from OEMs that sold applications competing with Microsoft's applications. MDFs are payments to OEMs that help fund their advertising and marketing efforts. Because of the competitive nature of the PC market, Microsoft's threats regarding MDFs had their intended anticompetitive effect. Faced with the prospect of losing these funds, OEMs refused to distribute competing office productivity applications, as found in the Government Suit.

128. Microsoft also punished OEMs that pre-installed Novell's applications by withholding or threatening to withhold technical support concerning Windows. Customers experiencing technical problems with their PCs are generally instructed to contact the manufacturer for assistance. Because the operating system controls the PC, the customers' problems generally involve Windows. Microsoft's support is therefore critical to OEMs, who compete fiercely on the basis of their ability to resolve problems caused by Windows. An OEM that provides poor support will lose sales quickly. Fearing the denial of technical support from Microsoft, OEMs refused to distribute competing office productivity applications, as found in the Government Suit.

129. Further, Microsoft charged smaller OEMs, who were more likely to pre-install Novell's applications, higher prices for Windows, as compared to the prices charged to larger OEMs. By charging the smaller OEMs higher prices, Microsoft increased the prices of their PCs and limited their sales, restricting this market for Novell's applications.

130. Microsoft's control over applications distributed through the OEM channel is self-perpetuating. Consumers are less likely to consider a competing application if they are never exposed to it, and tend to continue using the applications on which they are initially trained and eventually proficient. Microsoft's control of the OEM channel thus protected Microsoft's monopolies in the operating systems and office productivity applications markets. Further, Microsoft's ability to control pre-installations of its applications locked users into Microsoft's upgrades, which are subsequently purchased through other channels and have accounted for approximately 40 percent of office productivity applications revenues.

131. The above-described anticompetitive acts unlawfully hindered the efforts of Novell to distribute word processing and other office productivity applications in competition with applications developed by Microsoft. Collectively, these practices have foreclosed Novell from a large and growing portion of the distribution channel for office productivity applications. In foreclosing Novell products from distribution, Microsoft's conduct has harmed competition, as it has in similar circumstances, by "inhibiting Microsoft's competitors that nevertheless succeed in developing promising innovations from effectively marketing their improved products to customers" and "reducing the incentive and ability of [distributors] to innovate and differentiate their products in ways that would appeal to customers." Gov't Compl. 37. These acts lacked any legitimate business justification. Their only purpose was to maintain and/or achieve monopolies in the operating systems and office productivity applications markets.

2. Other Distribution Channels

132. Other than through OEMs, office productivity software can be distributed through the following channels: independent retailers that sell to individuals and small businesses; independent or loosely affiliated resellers that sell to larger organizations, including government agencies, larger businesses, professional associations, etc.; and direct sales to government agencies, large corporations, and other large organizations.

133. Microsoft engaged in predatory behavior in these channels, as well. As with the OEM channel, Microsoft engaged in similar anticompetitive tactics designed to monopolize the office productivity applications markets and strengthen the barriers to entry into the monopolized operating systems market. These anticompetitive acts unlawfully hindered the efforts of Novell to distribute office productivity applications to compete against Microsoft's applications. They lacked any legitimate business justification. Their only purpose was to maintain Microsoft's operating systems and office productivity applications monopolies.

3. Internet Browser and Other Platforms

134. "Java is designed in part to permit applications written in it to be run on different operating systems," which threatens to reduce or eliminate the applications barrier to entry. Gov't Compl. Q 7. "Netscape's browser was itself a 'platform' to which many applications were being written -- and to which (if it thrived) more and more applications would be written. Since Netscape's browser could be run on any PC operating system, the success of this alternative platform also threatened to reduce or eliminate" this key barrier to entry protecting Microsoft's operating systems monopoly. Id. 9

135. In 1995, "Microsoft attempted to eliminate competition from Netscape by seeking an express horizontal agreement not to compete." Id. IT 14, 70-71. Microsoft attempted "to induce Netscape not to compete with Microsoft to divide the browser market, with Microsoft becoming the sole supplier of browsers for use with Windows 95 and successor operating systems and with Netscape becoming the sole supplier of browsers for operating systems other than Windows 95 or its successors."

Id.

136. Upon Netscape's refusal to participate in the alleged scheme, Microsoft set about to exclude Netscape and other browser rivals from access to the widespread distribution, promotion, and resources they needed to offer their browser products to OEMs and PC users. Id. 15, 72-74.

137. "Microsoft invested hundreds of millions of dollars to develop, test, and promote Internet Explorer, a product which it distributes without separate charge." Id. 16. But Microsoft "did not stop at free distribution. Rather, Microsoft purposefully set out to do whatever it took to make sure significant market participants distributed and used Internet Explorer instead of Netscape's browser -- including paying some customers to take [Internet Explorer] and using its unique control over Windows to induce others to do so." Id. 17.

138. Microsoft also entered into agreements unlawfully tying its Internet Explorer software to Windows 95 and Windows 98. It "unlawfully required PC manufacturers, as a condition of obtaining licenses for the Windows 95 [and Windows 98] operating system[s], to agree to license, preinstall, and distribute Internet Explorer on every Windows PC such manufacturers shipped. By virtue of the monopoly position Windows enjoys, it was a commercial necessity for OEMs to preinstall Windows 95 [and Windows 98] -- and, as a result of Microsoft's illegal tie-in, Internet Explorer -- on virtually all of the PCs they sold." Id. 11 18, 103-123.

139. Microsoft also misused its operating systems monopoly by requiring "OEMs to agree, as a condition of acquiring a license to the Windows operating system, to adopt the uniform 'boot-up' sequence and 'desktop' screen specified by Microsoft.... Microsoft's exclusionary restrictions forbid, among other things, any changes by an OEM that would remove from the PC any part of Microsoft's Internet Explorer software (or any other Microsoft-dictated software) or that would add to the PC a competing browser (or other competing software) in any more prominent or visible way (including by highlighting as part of the startup sequence or by more prominent placement on the desktop screen) than the way Microsoft requires Internet Explorer to be presented." Id. 11 24, 93-102.

140. Moreover, Microsoft entered into agreements with Internet Service Providers ("ISPs"), which allowed "Microsoft to leverage its operating system monopoly by conditioning . . . [ISPs] to offer Microsoft's Internet Explorer browser primarily or exclusively as the browser they distribute; not to promote or even mention to any of their subscribers the existence, availability, or compatibility of a competing Internet browser; and to use on their own Internet sites Microsoft-specific programming extensions and tools that make those sites look better when viewed through Internet Explorer than when viewed through competing Internet browsers." Id. 9J 29-30; 75-86.

141. Microsoft also entered into anticompetitive agreements with Internet Content Providers ("ICPs"). Microsoft conditioned the ICPs' placement on one of the prominent "channel buttons" that provided direct Internet access on the ICPs' agreement "to not pay or otherwise compensate Microsoft's primary Internet browser competitors (including by distributing their browsers) for the distribution, marketing, or promotion of the ICP's content; to not promote any browser produced by any of Microsoft's primary browser competitors; to not allow any of Microsoft's primary browser competitors to promote and highlight the ICP's 'channel' content on or for their browsers; and to design its web sites using Microsoft-specific, proprietary programming extensions so that those sites look better when viewed with Internet Explorer than when viewed through a competing browser." Id. 11 33, 87-92.

142. Microsoft's contracts with OEMs, ISPs, and ICPs have unreasonably restrained competition in the market for Internet browsers. "They artificially increase[d] the share of the market held by Microsoft's Internet Explorer, and they threaten[ed] to 'tip' the market permanently to Internet Explorer, not because OEMs or PC customers ha[d] freely chosen Microsoft's product in a competitive marketplace, but because of the illegal exercise of monopoly power by Microsoft." Id. 135.

143. Microsoft also used its office productivity applications monopoly as an additional means to foreclose Netscape and other competing browsers from access to customers by ensuring that PC users with Microsoft Office already had Internet Explorer installed.

144. Microsoft's suppression of such potential middleware, as alleged and shown in the Government Suit, of competing and potentially competing operating systems (such as Novell's own DR-DOS, IBM's OS/2, Micrografx's Mirrors, and Go's Penpoint), and of other technologies that could have supported competition in the operating systems market (such as Borland's development tools and Intel's Native Signal Processing) deprived Novell of alternative platforms for its office productivity applications, increasing Novell's reliance upon Windows.

145. Microsoft engaged in numerous anticompetitive acts to achieve this result, such as causing Microsoft software to display bogus error messages when detecting competing operating systems on a PC; withholding technical specifications in the manner alleged above; and locking ISVs into the Windows APIs and thereby preventing them from developing applications for the APIs in competing operating systems.

146. Microsoft's office productivity applications benefited from unique, anticompetitive advantages in the markets for applications running on Microsoft's monopoly Windows platform, as described above. Microsoft's office productivity applications had no such advantages on platforms that competed with Windows, and Microsoft's ability to take market share from Novell's applications would have been greatly reduced, if not eliminated, on these other platforms. Thus, Novell's overall market share would have been higher if there had been a free market for operating systems.

147. Microsoft caused Novell to lose market share by excluding these other platforms from the operating systems market and forcing Novell increasingly to limit its applications to the Windows platform, where Microsoft's own applications unlawfully benefited from the anticompetitive acts described above.

148. The above-described anticompetitive acts unlawfully hindered the efforts of Novell to distribute office productivity applications to compete against Microsoft's applications. They lacked any legitimate business justification. Their only purpose was to maintain Microsoft's operating systems and office productivity applications monopolies.

VIII. THE DEMISE OF WORDPERFECT AND RELATED APPLICATIONS: INJURY TO COMPETITION AND NOVELL

149. The foregoing conduct has directly and proximately harmed competition by suppressing innovation and foreclosing choice in the markets for Intel-compatible personal computer operating systems and for word processing and spreadsheet applications. The foregoing conduct has caused antitrust injury to Novell, specifically by, without limitation: delaying and interfering with Novell's product development and sales efforts; limiting the functionality and degrading the performance of Novell's products; increasing the costs associated with Novell's product development, sales and marketing, and customer support; foreclosing Novell from distributing its products through OEMs; restricting the development efforts of ISVs in ways that were detrimental to Novell's product offerings and that favored Microsoft's product offerings; and coercing consumers who would have otherwise preferred Novell's office productivity applications to purchase Microsoft's office productivity applications instead.

150. The financial harm to WordPerfect caused by Microsoft's anticompetitive acts described above is substantial. In 1993, WordPerfect's market share was approximately 40 percent, with annual sales of approximately $700 million. By 1996, WordPerfect's market share had plummeted to less than 10 percent, with annual sales of approximately $200 million -- even though the computer software and office productivity applications markets had continued to grow substantially during this period. The financial harm to Novell, however, is not limited to the amount of profits lost by WordPerfect during the period 1994-1996 because of Microsoft's anticompetitive actions. As a result of the dramatic decline in WordPerfect's sales and profits, Novell sold WordPerfect to Corel Corporation in March 1996 for approximately $170 million -- a precipitous decline in WordPerfect's value relative to its value of approximately $1.2 billion as of May 1994. This substantial drop in the value of the WordPerfect business due to Microsoft's anticompetitive actions is in stark contrast to the continued increase in the value of other software companies (such as Microsoft) during this time period and represents additional direct financial harm to Novell.

IX.    CLAIMS FOR RELIEF

A. Count I: Monopolization Of The Intel-Compatible Operating Systems Market

151. Novell incorporates the allegations in paragraph 1 through 150 above.

152. Microsoft possessed monopoly power in the market for Intel-compatible PC operating systems software.

153. Microsoft willfully and wrongfully obtained and maintained its monopoly power in the Intel-compatible operating systems market by engaging in anticompetitive conduct to thwart the development of products that threatened to weaken the applications barrier to entry, including Novell's WordPerfect word processing application and its other office productivity applications, in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2.

154. Through this misconduct, Microsoft has harmed consumers and competition by, without limitation, depriving consumers of the lower prices and more rapid pace of innovation that competition would have brought.

155. As a direct, foreseeable, and proximate result of Microsoft's misconduct, Novell was damaged by, without limitation, lost sales of office productivity applications and a diminution in the value of Novell's assets, reputation, and goodwill in amounts to be proven at trial. Novell's injury is of the type the antitrust laws are intended to prohibit and thus constitutes antitrust injury.

B. Count II: Monopolization Of The Market For Word Processing Applications

156. Novell incorporates the allegations in paragraphs 1 through 155 above.

157. Microsoft unlawfully obtained and possessed monopoly power in the market for word processing applications.

158. Microsoft willfully and wrongfully obtained and maintained its monopoly power in the market for word processing applications by engaging in anticompetitive conduct to thwart the development and distribution of Novell's word processing applications in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2.

159. Through this misconduct, Microsoft has harmed consumers and competition by, without limitation, depriving consumers of the lower prices and more rapid pace of innovation that competition would have brought.

160. As a direct, foreseeable, and proximate result of Microsoft's misconduct, Novell was damaged by, without limitation, lost sales of its applications and a diminution in the value of Novell's assets, reputation, and goodwill in amounts to be proven at trial. Novell's injury is of the type the antitrust laws are intended to prevent and thus constitutes antitrust injury.

C. Count III: Monopolization Of The Market For Spreadsheet Applications

161. Novell incorporates the allegations in paragraphs 1 through 160 above.

162. Microsoft unlawfully obtained and possessed monopoly power in the market for spreadsheet applications.

163. Microsoft willfully and wrongfully obtained and maintained its monopoly power in the market for spreadsheet applications by engaging in anticompetitive conduct to thwart the development and distribution of Novell's spreadsheet applications in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2.

164. Through this misconduct, Microsoft has harmed consumers and competition by, without limitation, depriving consumers of the lower prices and more rapid pace of innovation that competition would have brought.

165. As a direct, foreseeable, and proximate result of Microsoft's misconduct, Novell was damaged by, without limitation, lost sales of its applications and a diminution in the value of Novell's assets, reputation, and goodwill in amounts to be proven at trial. Novell's injury is of the type the antitrust laws are intended to prevent and thus constitutes antitrust injury.

D. Count IV: Attempted Monopolization Of The Market For Word Processing Applications

166. Novell incorporates the allegations in paragraphs 1 through 165 above.

167. Microsoft willfully and wrongfully attempted to obtain and maintain monopoly power in the word processing applications market by engaging in anticompetitive conduct to thwart the development and distribution of Novell's word processing applications in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2. Microsoft acted with a specific intent to monopolize the word processing applications market. Microsoft's anti-competitive conduct has had a dangerous probability of success, and Microsoft has in fact achieved a dominant position in the market for word processing applications.

168. Through this misconduct, Microsoft has harmed consumers and competition by depriving consumers of the lower prices and more rapid pace of innovation that competition would have brought.

169. As a direct, foreseeable, and proximate result of Microsoft's misconduct, Novell was damaged by, without limitation, lost sales of its applications and a diminution in the value of Novell's assets, reputation, and goodwill in amounts to be proven at trial. Novell's injury is of the type the antitrust laws are intended to prevent and thus constitutes antitrust injury.

E. Count V: Attempted Monopolization Of The Market For Spreadsheet Applications

170. Novell incorporates the allegations in paragraphs 1 through 169 above.

171. Microsoft willfully and wrongfully attempted to obtain and maintain monopoly power in the market for spreadsheet applications by engaging in anticompetitive conduct to thwart the development and distribution of Novell's spreadsheet applications in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2. Microsoft acted with a specific intent to monopolize the spreadsheet applications market. Microsoft's anti-competitive conduct has had a dangerous probability of success and Microsoft has in fact achieved a dominant position in the market for spreadsheet applications.

172. Through this misconduct, Microsoft has harmed' consumers and competition by depriving consumers of the lower prices and more rapid pace of innovation that competition would have brought.

173. As a direct, foreseeable, and proximate result of Microsoft's misconduct, Novell was damaged by, without limitation, lost sales of its applications and a diminution in the value of Novell's assets, reputation, and goodwill in amounts to be proven at trial. Novell's injury is of the type the antitrust laws are intended to prevent and thus constitutes antitrust injury.

F.    Count VI: Exclusionary Agreements In Unreasonable Restraint Of Trade

174. Novell incorporates the allegations in paragraphs 1 through 173 above.

175. Microsoft's agreements with OEMs 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.

176. Through this misconduct, Microsoft has harmed consumers and competition by depriving consumers of the lower prices and more rapid pace of innovation that competition would have brought.

177. As a direct, foreseeable, and proximate result of Microsoft's misconduct, Novell was damaged by, without limitation, lost sales of its applications and a diminution in the value of Novell's assets, reputation, and goodwill in amounts to be proven at trial. Novell's injury is of the type the antitrust laws are intended to prevent and thus constitutes antitrust injury.

X.    JURY DEMAND

178. Novell demands a trial by jury of all its claims.

XI.    PRAYER FOR RELIEF

WHEREFORE, Novell respectfully requests that:

1. The Court adjudge and decree that Microsoft:

2. Novell be awarded its actual damages in an amount to be determined at trial, trebled pursuant to Section 4 of the Clayton Act, 15 U.S.C. § 15, along with interest on such damages.

3. Novell be awarded its costs, including reasonable attorney fees, as provided in Section 4 of the Clayton Act, 15 U.S.C. § 15.

4. Novell be granted such further relief as the Court may deem just and proper.

Novell Vs Microsoft - Wordperfect | 35 comments (27 topical, 8 editorial, 6 hidden)

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