Microsoft class action could open litigation floodgates

THREE SAN Francisco lawyers filed a class-action suit against Microsoft yesterday, opening what is expected to be a flood of private litigation against the software giant.

The suit, brought on behalf of millions of Californian users of the Windows operating system, accuses Microsoft of abusing its monopoly position in the market to overcharge customers, both for the Windows 95 package and the more recent Windows 98 package.

Similar suits have been filed in New York and New Orleans. They are based on Judge Jackson's findings, in the anti-trust case mounted by the US Federal government, that Microsoft enjoys a monopoly position on personal computer software.

He found it controlled some 90 per cent of the market, with the result that innovation has been stifled and consumers harmed. Given the size of the Californian computer market, however, yesterday's suit was the most significant so far.

It is not clear at this stage if the suits are aimed at pressuring Microsoft into a settlement with the Justice Department, or if the lawyers intend to squeeze Bill Gates for all they can get, regardless of the outcome of the anti-trust case.

"This is the start of the race to get to the courthouse,'' anti-trust lawyer Stephen Axinn told The New York Times. "It could be like the tobacco litigation, in the sense that you have lots of plaintiffs' lawyers in different states sharing information.''

The San Francisco suit does not specify the level of financial damages being sought, but anti-trust lawyers say private consumers generally have the right to demand three times the amount of money they have lost in such cases.

The New Orleans suit, filed last week, alleged that Microsoft overcharged for its Windows 98 upgrade by as much as $40 per customer - suggesting that every one of the company's clients might be able to claim $120 in compensation. At that rate, Microsoft's losses could stretch into the billions.

"The prospect of a flood of private follow-on cases ... are lawsuits with potentials that Microsoft simply cannot ignore," said Herbert Hovenkamp, a professor at the University of Iowa's law school.

Microsoft, meanwhile, is likely to argue that a lawsuit based on a simple finding of fact, rather than a final judicial ruling, cannot stand under US law. It will also probably try to neutralise the impact of private suits in any settlement it attempts to reach with the federal government.

Prospects for a settlement appear to have increased with last Friday's court appointment of a mediator, a highly respected appeals-court judge called Richard Posner whose conservative anti-trust instincts are being interpreted by financial markets as a silver lining on Microsoft's otherwise dark cloud.

Microsoft's share price was on its way up on Wall Street yesterday, with several analysts' reports calling Judge Posner's appointment a long- awaited piece of good news for the company.

Judge Posner has argued plaintiffs generally should be required to provide economic proof that a defendant harmed competition in order to hold them liable for an antitrust violation.

William Epifanio, an analyst with JP Morgan, said: "He has such credibility that (both) sides of the discussion would be viewed as unreasonable if they rejected a settlement."

Bill Gates has said repeatedly that he wants to settle the case, although he has insisted the company will not compromise its ability to add features to the Windows operating system.