Novell’s Antitrust Claims Against Microsoft Fail

This posting was written by E. Darius Sturmer, Editor of CCH Trade Regulation Reporter.

Computer software developer Novell, Inc., marketer of the word processing application WordPerfect, failed to present sufficient evidence that software and operating system maker Microsoft Corporation committed any anticompetitive acts that violated Sec. 2 of the Sherman Act in maintaining its monopoly in the operating system market, the federal district court in Salt Lake City, Utah, has ruled.

Novell claimed that Microsoft's withdrawal of support for namespace extension application programming interfaces (API) accessible to independent software vendors forced it to try to write customized file open dialog code in order to maintain compatibility with the Windows 95 operating system. This delayed the market entry of its suite of business productivity applications intended to compete with Microsoft Office and preventied several Novell programs from being accepted in the market as middleware.

Microsoft's Withdrawal of Support

Although Novell raised a genuine issue of fact as to whether the reasons for Microsoft's decision to withdraw support for the namespace extensions were pretextual, Microsoft's conduct was not anticompetitive within the meaning of the Sherman Act, the court found. The act of withdrawing support was not itself unlawful, the court noted, as a monopolist generally had no duty to cooperate with a competitor and neither intentional deception for an anticompetitive purpose nor termination of a previously existing profitable relationship was shown.

There was no evidence to support the premise that Microsoft made the decision deceptively because it knew that Novell was using those APIs in the development of its applications and that, by withdrawing support for the APIs, it knew Novell would fall behind schedule. In addition, the claim that Microsoft purposely destroyed a preexisting business relationship was equally flawed. Even after it withdrew namespace extension API support, it continued to provide assistance to Novell and never terminated their relationship.

Franchise Theory

A "franchise theory" posited by Novell—namely, that its applications were so popular that they would have flourished in the market regardless of the operating system on which they ran—was not only unsupported, but actually contradicted by the record.

Moreover, Novell did not present sufficient evidence from which a jury could find that its products would have been successfully developed as middleware but for Microsoft's actions. For a middleware product to have an impact on competition in the operating systems market, it had to be cross-platformed to various operating systems, had to be ubiquitous on the dominant system, and had to expose a sufficient number of APIs of its own to entice ISVs to write applications to it rather than to the operating system on which it sits, the court explained. Novell satisfied none of these requirements.

There was no basis for inferring that Novell's office productivity applications written for Windows 95 via the namespace extension APIs could have been effectively ported to other systems, the court observed. The namespace extension APIs were platform specific. Regarding ubiquity, WordPerfect's share of the word processing market during the relevant period was at most 36 percent, and that was only when personal computers using the DOS platform were included.

It was entirely speculative to assume that Novell's applications would have increased to a substantially greater number of computers using Microsoft's Windows operating system had not Microsoft withdrawn the namespace extension API support, the court said. An argument by Novell that its exposure of APIs that would result in "something less" than the writing of full-featured personal product applications was sufficient to constitute a threat to Microsoft's monopoly was rejected.

Finally, the absence of any evidence that Microsoft's withdrawal of namespace extension API support was the source of any contemporaneous urgency at Novell showed that the claim was "a lawyers' construct" and was not based on an underlying business reality, the court concluded.

The decision is Novell, Inc. v. Microsoft Corp., 2012-2 Trade Cases ¶77,979.

Novell Can Proceed with Antitrust Claim Against Microsoft

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

Novell, Inc. did not assign to a third party an antitrust claim based on alleged harm to office-productivity applications resulting from Microsoft Corporation’s alleged anticompetitive conduct, the U.S. Court of Appeals in Richmond, Virginia, has ruled.

The court reversed summary judgment in favor of Microsoft (2010-1 Trade Cases ¶76,983) on Novell’s claim that Microsoft “engage[d] in anticompetitive conduct to thwart the development of products that threatened to weaken the applications barrier to entry” to the operating systems market. Specifically, Novell contended that Microsoft’s conduct had damaged Novell’s WordPerfect word processing applications and its other office productivity applications in violation of Section 2 of the Sherman Act.

Statute of Limitations

Unlike other claims asserted by Novell, this count was not time-barred, because the statute of limitations was tolled during the pendency of the government’s case against Microsoft for antitrust violations in the operating systems market.

A 1996 Asset Purchase Agreement (APA), under which Novell sold its various DOS products to Caldera, Inc. and assigned the rights to any antitrust litigation related to those products, did not assign claims related to office-productivity applications, the court ruled.

The term “DOS Products” was defined in the APA to include Novell’s PC operating systems DR DOS and Novell DOS, among other products. The APA conveyed claims “associated” with an expressly enumerated body of property that did not include Novell’s office productivity applications. The mere existence of a possible conceptual link between the DOS products and those applications did not mean that the agreement divested Novell of the claim based on harm to related to office-productivity applications, the court explained.

Claim Preclusion

The court also rejected Microsoft’s res judicata defense. Nonmutual claim preclusion was generally disfavored, but Microsoft still argued that Novell’s assignment of some of its claims to the third part was sufficient to establish a substantive legal relationship between them that fell within exceptions to that principle.

Microsoft also contended that the claims arose out of the same basic core of operative facts. However, Caldera’s suit addressed a distinct set of harms from those addressed in the present dispute. While both suits implicated Microsoft’s desire to control the operating system market, overlapping motivation for separate harms was insufficient to render those harms identical for purposes of claim preclusion. Moreover, Caldera likely would not have served as an adequate representative of the complaining company’s interests. As a practical matter, only Novell had the incentive to recover for damages to its office productivity applications.

Dissent

A dissent contended that because Novell’s claim was premised on Microsoft’s anticompetitive conduct in the operating systems market, the claim was “associated directly or indirectly with” DR DOS. According to the dissent, “the majority ignore[d] the plain, patently broad language in the APA, choosing instead to craft its own narrow reading of the phrase.”

The decision is Novell Inc. v. Microsoft Corp., 2011-1 Trade Cases ¶77,434.