Sidestepping a potentially embarrassing trial, Microsoft Corp. yesterday settled a lawsuit brought by a software company that had accused the Redmond, Wash., giant of exploiting its market power to crush a rival operating system.
Terms of the settlement with Caldera Inc., now a tiny Salt Lake City holding company, were not disclosed. The only clue Microsoft provided about the size of the settlement was an announcement that it will record a one-time charge in the quarter ending March 31, reducing earnings by about 3 cents per share. Based the number of outstanding shares, the deal could cost Microsoft at least $154 million--and perhaps more.
"We are pleased to put this issue behind us," Tom Burt, a Microsoft lawyer, said in a statement. "Rather than litigating, we prefer to focus on building great software for our customers in this dynamic and competitive industry."
The deal is expected to have little effect on the Justice Department's still-pending antitrust suit against Microsoft, according to experts. Though the allegations in both cases are similar--in each the software giant is accused of using bullying tactics to shore up its position with computer makers--judges typically aren't swayed by out-of-court settlements.
Still, making peace with Caldera is a savvy public relations move, said antitrust specialists. A trial in the case would likely have generated heavy news coverage and rehashed allegations that Microsoft's is a brutal competitor willing to fight nasty. The trial was scheduled to begin Feb. 1, right around the time that Thomas Penfield Jackson, the presiding judge in government's case, starts to mull his conclusions in the case.
"This was probably an attempt to avoid some ugly publicity," said Marc Schildkraut, an antitrust lawyer and former FTC attorney. "It's like Clinton settling the Paula Jones case. This is better than getting smacked around in court with a bunch of reporters watching."
The deal also allows Microsoft to avoid the possibility of an adverse ruling that could have added momentum to either the government's case or cases brought by other companies against Microsoft. The settlement could also represent a softening in Microsoft's traditional hard-line position against settling such lawsuits, including the big one brought by the Justice Department.
"It reflects a level of strategic adroitness that could mean some flexibility on Microsoft's part," said William Kovacic, a professor of law at George Washington University. "That could even include the big case in Washington."
Caldera's case stemmed from Microsoft's alleged efforts to undermine DR DOS, an operating system that predated the Windows era and was considered a potential competitor to Microsoft's MS-DOS in the late 1980s. According to Caldera--which purchased DR DOS from Novell in 1996--the Microsoft offered its lowest prices on MS-DOS only to those computer makers that paid Microsoft a royalty fee every time a computer was sold, whether or not it carried a Microsoft operating system.
Manufacturers that wanted to sell DR DOS essentially had to pay twice for an operating system, Caldera alleged. The effect, according to Caldera: Few computer manufacturers carried DR DOS.
The accusations caught the eye of staffers at the Federal Trade Commission, which launched an investigation into Microsoft. After an extensive probe, the commissioners deadlocked in a 2 to 2 vote over whether to bring charges against the company. Justice picked up the case and eventually won a consent decree with Microsoft, in which the company admitted no wrongdoing but agreed to drop the so called "per-processor" fees that became the heart of Caldera's case.
Caldera today has just one employee--its CEO, Bryan Sparks, who is also president of Lineo Inc., a small company that markets an operating system.
"As the Department of Justice continues its case," Sparks said in an interview, "we look forward as an interested spectator, hoping that they'll continue to pursue their lawsuit and have some effect on leveling the playing field as it regards Microsoft and its operating system dominance."
Shares of Microsoft rose 81 1/4 cents, to $112.25, on the Nasdaq Stock Market.
CAPTION: Caldera, maker of Microsoft challenger DR DOS, was founded by Bryan Sparks, now the firm's only employee. He called Caldera an "interested spectator" in the antitrust case.