Microsoft's Courtroom Flashback

Even as Microsoft executives tout Vista as the operating system of the future, operating systems of the past continue to plague it.

Today in Iowa, attorneys have once again taken Microsoft to court over anti-trust charges associated with its Windows operating system. In addition to the age-old complaints about squeezing out competitors and price-fixing, there is a twist: This case alleges that by bolting together Windows and Internet Explorer, Microsoft produced software that gummed up people’s computers.

The case promises to be a textbook contrast between the ponderous nature of the legal world and the mercurial nature of technology.

Thanks to long hours of arguments by lawyers on both sides, the entire first day of the case was filled by Polk County District Judge Scott Rosenberg, who read through 110 of the 120 pages of instructions given to the jury.

That’s just the beginning. The opening statement by Iowa attorney Roxanne Barton Conlin is expected to last three to four days. She plans to show the entire 10-hour deposition given by Gates in 1998 to attorneys for the U.S. Department of Justice and will introduce some of the 25 million pages of documents gathered from other actions against the company.

Unless the parties settle, Chairman Bill Gates Bill Gates and Chief Executive Steve Ballmer Steve Ballmer will be called to take the witness stand, possibly as early as January. One minor victory for Microsoft: Gates and Ballmer need only make one trip to Iowa and so will answer questions from both the prosecution and defense on the same day--potentially disrupting the “flow” of the plaintiff’s case.

Complaints about lack of choice and high prices have been the theme song of most of the legal complaints against Microsoft. The Iowa case also alleges that Microsoft’s software caused “drained memory, decreased speed and an increased incidence of security breaches and bugs” in its customers’ computers.

The plaintiff lawyers contend that Iowan customers of Microsoft are entitled to as much as $329 million in damages as compensation for Microsoft overcharges between May 1994 and June 2006. The lawyers are also seeking compensation for the time people have had to spend repairing security breaches--a figure that they put at a minimum of $50 million. “The illegal bolting of Internet Explore to the Windows operating system created a larger ‘attack surface’” and made the operating system more vulnerable, asserts Richard Hagstrom, co-lead counsel for the plaintiffs. “The damages are based on what people need to do to protect themselves from security breaches.”

Although few consumers would disagree with the charge, it may be tough to prove that buggy software is an anti-trust violation. “They’re trying to hold us responsible or make us pay damages because someone out there is violating the law and writing viruses,” says Richard Wallis associate general counsel for Microsoft. “We’re not writing any viruses, I can assure you.”

Since the U.S. government won a 2000 anti-trust decision against Microsoft, the company has fought a rash of more than 200 anti-trust class-action lawsuits throughout the U.S., starting with a California suit. All but two--this case in Iowa and another in Mississippi--have reached settlements or preliminary settlements.

Although the government--and Microsoft--spent millions of dollars to wage the anti-trust court battles, the direct benefit to consumers has been minuscule. All told, Microsoft has had to earmark $2.4 billion for settling these suits. In most states, consumers who purchased Microsoft software in the past are eligible for vouchers for modest refunds when they buy new computer hardware or software. The settlements range in value between $5 to $29 per purchase. Consumers in California (which reached the first settlement in January 2003) wrung the best deal out of Microsoft. An appeal by an independent California attorney held up the settlement, California residents only began receiving their vouchers this past August--three and a half years after Microsoft reached a deal with the plantiffs.

Only a portion of vouchers are likely to be redeemed. In California, eligible businesses and consumers have applied for approximately 30-40% of the alloted vouchers, according to Microsoft. The experience of other mail-in rebate programs suggests that only a portion of those vouchers will ultimately be cashed in. Low-income schools will eventually receive a portion of the money that is not redeemed, although the precise amount varies across settlements. Microsoft repockets the rest. By contrast, the Bill and Melinda Gates Foundation has donated more than $230 million to U.S. libraries since it began its program in the late 1990s--which happened to be the same time anti-trust concerns were cresting.

Most of plaintiff’s petition reads like a history lesson in Microsoft’s anti-trust woes. The case aims to follow well-trod legal ground, revisiting the damage Microsoft inflicted on long-extinct competitors, including Netscape Communications, Be and Go, along with Novell's DR-DOS and IBM's OS/2. Among the witnesses who will testify are former Novell software developers and a former product manager for computer maker, Acer.

“I think Microsoft is as strong as ever,” contends Hagstrom. He helped lead a class action case against Microsoft in Minnesota that spent six weeks at trial before the parties settled.

“All this fanfare about Vista--it seems like it’s just going to be ‘Windows XP.1,’” he contends. “They’ve had to pull back on a lot of the features they said they’d have. Where’s the innovation?”

Silicon Valley entrepreneurs point to the resurgence of Apple Computer and Google's $150 billion market cap as signs that consumers value new approaches to software.

“This case is about whether Iowans paid fair prices for Microsoft software,” insists Microsoft’s Wallis. “We think we charge fair prices.”