Tuesday, October 23, 2007

Novell’s Scaled-Back Antitrust Claims Can Proceed Against Microsoft

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reports.

Novell, Inc., the software company that once owned the WordPerfect word-processing and Quattro Pro spreadsheet applications, can proceed with claims that Microsoft Corporation engaged in anticompetitive conduct in the market for personal-computer (PC) operating systems, even though Novell did not directly compete in that market, the U.S. Court of Appeals in Richmond, Virginia, has decided.

However, Novell is unable to pursue allegations based on harm to the office-productivity-applications market. A decision granting in part and denying in part Microsoft's motion to dismiss (2005-1 Trade Cases ¶74,830) was affirmed.

Novell argued that its popular applications, though themselves not competitors or potential competitors to the defending firm's dominant operating system, posed a potential threat to the Microsoft's monopoly in the market for PC operating systems by offering developers of competing operating systems a "bridge" across the applications barrier to entry.

Antitrust Standing

A multi-factor analysis was applied to determine that Novell had antitrust standing. Novell could have suffered an antitrust injury and that injury could be traced to the alleged antitrust violations, the court ruled. It alleged harm of the type the antitrust laws were intended to prevent and that Microsoft specifically targeted its products for destruction as a means to damage competition in the operating-systems market. The directness of the injury weighed in favor of finding antitrust standing. There was little risk that any damages that might be established would need to be allocated or apportioned among any more-directly injured parties.

Statute of Limitations

The statute of limitations barred Novell's claims based on harm to the office-productivity-applications market, according to the court. However, the tolling provision of Sec. 5(i) of the Clayton Act preserved the other claims. Sec. 5(i) of the Clayton Act suspends the running of the statute of limitations during the pendency of a federal antitrust action and for one year thereafter for private suits based in whole or in part on the government action.

Although Novell's claims arose prior to November 1996, when it sold WordPerfect and Quattro, it did not file its complaint until November 2004. The government's complaint was filed in May 1998. Novell convinced the court that its claims based on harm to the PC operating-systems market involved the same conduct at issue in the government's complaint.

However, Novell could not establish that the tolling provision saved its claims related to the office-productivity-applications market. It unsuccessfully argued that tolling was appropriate because the "core elements" of these claims "echo[ed] allegations made throughout the government's complaint" and that the government's complaint referenced other software markets.

The decision is Novell, Inc. v. Microsoft Corp., decided October 15, 2007, 2007-2 Trade Cases ¶75,901.

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