More than 200 class-action lawsuits were filed across the United States against Microsoft Corp. in 2000, claiming that anti-competitive actions by the company hurt consumers.

Six years later, only one case remains on track to go before a jury, and the showdown will take place in the Iowa District Court for Polk County.

Des Moines attorney Roxanne Conlin, who is representing the plaintiffs, said her experts have estimated that individuals and businesses have been overcharged as much as $453 million for Microsoft products over the last 12 years. The lawsuit is asserting that Microsoft’s practices “have caused harm by…increasing the price consumers have paid for Microsoft’s operating systems and relevant applications software above competitive levels and by denying them a free choice in a competitive market, as well as the benefits of software innovation.”

The company’s conduct, the suit claims, has significantly limited the range of choices that a free market would have provided to consumers.

“Microsoft has been found to have maintained its monopoly illegally by the federal government and we believe that they have continued their illegal conduct,” Conlin said.

Conlin is referring to United States vs. Microsoft, a case filed against Microsoft on May 18, 1998 by the U.S. Department of Justice and 20 U.S. states. In that case, Microsoft was not found to have gained its monopoly unlawfully, but that once that monopoly had been established, to have illegally attempted to maintain its monopoly status, said William Raisch, an adjunct professor at Drake University School of Law where he has taught antitrust law since 1984, and a former Iowa assistant attorney general from 1975 to 1986.

“Microsoft has already been determined to be a monopoly,” Raisch said. “They got there fairly by having a good product, but they still have to play the game fairly when they’re on top. Microsoft started using its power in a way they shouldn’t have.”

To maintain its monopoly, the lawsuit alleges, Microsoft intentionally made its operating system incompatible with or difficult to operate with competitor’s applications software; threatened companies such as Dell Inc., Gateway Inc. and Hewlett-Packard Co. that it would increase the price of its operating system if they distributed non-Microsoft applications software; and threatened to withhold technical support for Microsoft’s operating systems if they offered a competitor’s software.

Its resulting monopoly power has enabled Microsoft to price its operating system and relevant applications software virtually without regard to the prices of competing software, the suit claims. Sellers of personal computers and distributors of Microsoft products have passed these monopoly prices on to consumers.

And that point, the idea that the overcharge was passed on to consumers, is the crux of the case, Raisch said.

Indirect purchasers

“How do we determine what was passed on to consumers?” Raisch said. “Microsoft sold Windows to Hewlett-Packard, and Hewlett-Packard sold a computer to Best Buy with Windows on it, then we bought the computer from Best Buy. It is very difficult to prove that somewhere along the way any price increase wasn’t absorbed by another entity.”

Raisch said this is why under federal law indirect purchasers, defined as those who did not buy directly from the company in question, do not have standing to bring a lawsuit. That was also the case under Iowa law until Conlin argued, and the Iowa Supreme Court agreed, that those indirect purchasers could seek damages under Iowa anti-trust laws.

“That surprised me a great deal,” Raisch said. “I didn’t see that coming. I thought the case was over for sure.”

Many of the state cases brought against Microsoft ended when they came up against the indirect-purchaser issue. This is another aspect of the Iowa case that makes it unique, Raisch said.

“It has set a precedent that will now be followed in the future here in Iowa,” he said.



Bill’s vision

“[The federal] case was all about Microsoft as a threat to harm our competitors,” said Rich Wallis, associate general counsel for Microsoft Corp. “The fact that we were giving away our Internet Explorer was harmful to our competitors’ business. It is ironic that a ruling that said Microsoft hurt its competitors is now being used as a basis to say we are overcharging consumers.”

Wallis said every time Microsoft enters a market, prices go down.

“Bill [Gates]’s vision was a computer on every desk,” he said “He wanted to make computers affordable so everyone could get one. Our business model has always been high volume, low prices. And the consumers make the choice of whether they think they are getting a good value.”

Wallis said Microsoft believes consumers got a great value by purchasing the company’s products.

“To pay $50 for the brain of your computer, and it lasts forever. That is a pretty good deal,” he said.

The suit also claims that Microsoft used its monopoly status to push other companies out of the Internet browser market by tying Internet Explorer to its dominant Windows operating system.

“The plaintiffs are arguing that because companies couldn’t get a foot in the door, they didn’t even attempt to innovate to make competing products,” Raisch said. “Why would you pick another browser when you already have Explorer on your computer?”

Wallis said Microsoft didn’t really tie the two products together because in fact they are one product.

“Windows is a single product with a browser,” he said. “Most other operating systems have browsers. Consumers don’t want to have to load up a ton of programs when they get their computer. They want the convenience of having everything available to them.”

However, the suit contends that the two products are separate, citing the fact that Microsoft distributed and advertised Explorer as a separate product as well as marketing versions of Explorer for non-Windows operating systems.

Conlin also contends that anti-competitive actions by Microsoft during the 1990s killed many innovations that never reached consumers.

“Microsoft’s illegal conduct has stifled, and continues to stifle, innovation, variety, quality and safety of computer software, and unreasonably and significantly limited the choices of Iowa consumers,” the suit says.

Raisch said he felt that Microsoft has such a stranglehold on the market, companies would have to be innovative to overcome that. So Microsoft’s practices may have forced more innovation, he said.

Overcharge

In Iowa, about 5.1 million licenses for Microsoft Windows have been issued; 1.8 million for Office; 446,373 for Word; and about 21,349 for Excel. The average consumer overcharge ranges from $10.50 for buyers of Word to $56.99 for those who purchased Excel, Conlin said.

Many customers may have purchased more than one version of these programs in 12 years, Conlin said at a recent press conference, so they could be eligible for multiples of those amounts.

“Our experts use customary economic techniques to figure overcharges which we believe are embedded in the price of each of the products at issue,” she said.

Microsoft denies that consumers were injured and says that this is simply a case of a company being punished for its success.

“The reason Windows is highly profitable is because consumers and businesses love it,” Wallis said. “The consumers decide what is the appropriate amount to charge for a product, and the consumers have already spoken.”

Ultimately, this case will be decided by a jury.

“There is a tendency for juries to favor the consumer in these cases,” Raisch said. “A lot of what you see about corporations is not all that positive. If I was trying the case for the plaintiffs, I’d be trying to make the argument that Microsoft ripped off poor, unsuspecting people who didn’t even know they were getting taken advantage of.”

The case will officially get under way Nov. 13. As of press time, two motions from the defense had yet to be ruled on by the judge. The first is a motion for Conlin to be removed from the case for what Microsoft has deemed unethical conduct, and the second is a motion to decertify the class of the case, with Microsoft arguing that because people would have been affected differently by the supposed overcharges, they don’t represent a class.

The second motion would all but end the suit, as at that point people who felt they were harmed would have to sue Microsoft individually.

While neither motion has been ruled on, Wallis said he expects the case to go to trial as scheduled and for the first day to begin with the early stages of jury selection.

As for Conlin, she said this case should send a message to the public and the business community.

“We take the law seriously and expect everyone who does business in Iowa to follow the law, even Microsoft,” Conlin said. “We love competition and capitalism, but competition must be fair, and if it is not, there are consequences.”

TIMELINE:

COMES vs. MICROSOFT CORP.

KEY DATES

Feb. 18, 2000

Plaintiffs Joe Comes and Comes Vending Inc. file a petition initiating a class-action lawsuit against Microsoft in state court in Des Moines seeking damages as indirect purchasers of Microsoft operating system and applications software under the Iowa antitrust laws.

March 8, 2000

Plaintiffs file their first amended petition.

July 11, 2000

The court dismisses the first amended petition on the basis that indirect purchasers cannot recover under the Iowa antitrust laws, following the same rule that applies under the federal antitrust laws.

June 12, 2002

The Iowa Supreme Court reverses, holding that indirect purchasers may pursue damages under the Iowa antitrust laws. The case is sent back to the Iowa District Court in Des Moines.

Oct. 7, 2002

Plaintiffs file their second amended petition.

Feb. 14, 2003

Plaintiffs file their third amended petition

Sept. 16, 2003

The court certifies the case as a class action and recognizes two separate classes of plaintiffs: Iowa indirect purchasers of Microsoft operating system software and Iowa indirect purchasers of Microsoft applications software (e.g., Word and Excel).

Sept. 16, 2005

Plaintiffs file their fourth amended petition.

Feb. 8, 2006

Plaintiffs file their modified fourth amended petition.

Sept. 22, 2006

The court has scheduled a hearing on the parties’ motions for summary judgment, which could lead to a narrowing of the issues to be tried.

Oct. 10, 2006

The court has scheduled a hearing on two significant Microsoft motions. The first is Microsoft’s motion to decertify the class because harm to the class cannot be proven on a class-wide basis through common proof. The second is Microsoft’s motion to disqualify Roxanne Conlin as class counsel because of alleged ethical improprieties in the conduct of discovery in this litigation.

Nov. 13, 2006

Trial is scheduled to begin.