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After six years in an out-of-state jurisdiction, a lawsuit by Provo's Novell that accuses Microsoft of anti-trust violations involving WordPerfect has returned home to Utah, and with it a bygone era of technology history is about to come back into view.
A seven-week trial is set to begin next month in the lawsuit originally filed in November 2004 in which Novell claims that the software giant took actions to enrich its business at the expense of the spreadsheet program Quattro Pro and WordPerfect. Novell owned WordPerfect, one of companies that propelled Utah's early technology industry, for a short period as it fell from its lofty post as the top word-processing software.
At stake is $1.2 billion that Novell claims it lost because Microsoft used illegal tactics to push its Windows 95 program at the expense of others. Microsoft scoffs at the claims of some type of conspiracy aimed at Novell products, and is even prepared to put Microsoft Chairman Bill Gates on the stand to help sway the Utah jury.
For Microsoft, the trial represents the last of dozens of lawsuits against it related to antitrust accusations made by competitors and the federal government as it aggressively moved to build itself into the world's No. 1 technology company. Ironically, that's a position it now has ceded to Apple and others as the ever-changing world of computer technology has gone in different directions.
The birth of WordPerfect • Brigham Young University graduate student Bruce Bastian and BYU computer science professor Alan Ashton joined forces to create WordPerfect in 1979, and formed the company that would become WordPerfect in 1980. By mid-decade, the program had become immensely popular.
Separately, Novell Inc. also was founded in 1979 in Provo and soared to prominence and prosperity after Ray Noorda became CEO in 1983 with its networking software that linked computers so they could share drives, printers and other functions.
For its part, by the early '90s Microsoft was selling the leading software systems that operate personal computers whose numbers had exploded. In 1989, it also introduced its Office suite, which included the word-processing program Word, a rival to WordPerfect, the spreadsheet program Excel.
Phil Windley, a founder and CTO of Kyntex and a veteran of Utah technology companies, said that until the '90s, Microsoft and Novell worked largely in separate areas, Microsoft with the DOS operating system and Novell in networking. But then Microsoft built networking into Windows 95, started selling server software and created Office "a huge tsunami that came out of Washington [state] and both Novell and WordPerfect were square in the cross hairs."
Novell came to believe it had to compete by developing or acquiring products similar to Microsoft, he said.
In 1991, Novell merged with Digital Research Inc., acquiring DR DOS, an operating system like Microsoft's MS DOS. In June 1994, Novell merged with WordPerfect Corp. and got its word processor, then bought the Quattro Pro spreadsheet. Novell intended to sell the three software products as a system.
In the long-running WordPerfect lawsuit, Microsoft contends that Novell also began to put together an anti-trust suit against Microsoft after assembling those software products and others into a package called PerfectOffice. But Novell switched gears when in April 1994 Robert Frankenberg came on board as CEO, succeeding Noorda, who retired.
Frankenberg said after taking over he instituted a study of the company's 15 or so products.
"We came to the conclusion that we were trying to do too much, and that we were not properly funding the products that we felt we could be successful with, and so we came to the conclusion that we should sell several of those businesses … and then focus on our networking product area," he said in testimony in an unrelated lawsuit.
He sold off WordPerfect and Quattro Pro to Corel Corp. in March 1996 and then sold DR DOS and the antitrust claims against Microsoft to Caldera Inc., a company owned by Noorda, with the understanding that Caldera would sue Microsoft.
Lawsuits passed along • Caldera filed suit on the same day it closed on the DR DOS purchase and got an initial victory in June 2000 when Microsoft settled the case for $280 million, with $35.5 million of that paid by Caldera to Novell. Novell responded by suing Caldera for more of the settlement and in 2003 won another $17.7 million.
Then, eight years after it sold WordPerfect and Quattro Pro, Novell launched its own lawsuit against Microsoft, alleging that the latter had taken actions to solidify its market position that harmed WordPerfect and Quattro Pro when owned by Novell to the point that the applications couldn't compete with Microsoft's. The suit claimed that Microsoft's actions against the Novell applications were aimed at maintaining the dominance of its operating system, as well.
It is the latter claims that survive and are to be argued at the Utah trial, which is set to begin Oct. 17. Novell filed its action in the wake the U.S. Justice Department suing Microsoft in May 1998, alleging the software giant engaged in anticompetitive conduct in violation of federal laws in the market for personal computer operating systems and for Internet browsers.
Dozens of lawsuits by software companies followed the DOJ's move, including Novell's 2004 filing. All of those suits were consolidated in one federal court in Maryland.
Over the next six years, U.S. District Judge J. Frederick Motz of Baltimore dismissed four of the six Novell counts because he said they had been filed too late, a decision upheld by the 4th District Court of Appeals. Those counts concerned claims of direct harm caused to the value and sales of WordPerfect and Quattro Pro.
Then Motz dismissed the remaining counts but earlier this year the 4th Circuit reversed him and sent the case back for trial. In accordance with protocol, the Novell lawsuit was returned to Utah in July. Motz will come to Utah to preside over the trial.
At issue will be Novell's claims that by trying to squelch WordPerfect and Quattro Pro, Microsoft conspired to ensure the success of its Windows 95 operating system, which signaled the company's leap into a popular graphical interface operating system.
Novell claims that those efforts included actions by Bill Gates, the Microsoft cofounder who remains its chairman.
Novell points to an Oct. 3, 1994, email from Gates to Microsoft development teams in which he announced his decision to not include several technical features in Windows 95, citing competition with WordPerfect and Lotus Notes with Microsoft's Office software.
"We should wait until we have a way to do a high level of integration that will be harder for [the] likes of Notes, WordPerfect to achieve, and which will give Office a real advantage," Gates wrote.
Novell's case • WordPerfect's share of the word-processing market fell from nearly 50 percent in 1990 to less than 10 percent by the time Novell sold it in 1996, Novell said.
Novell claims that as a result of Microsoft's actions, it suffered lost profits while it owned WordPerfect and Quattro Pro, and that the value of those assets declined by about $1 billion from May 1994 to their 1996 sale.
"Novell is confident that after hearing the evidence in the case the jury will conclude that Microsoft's conduct was anticompetive, that Microsoft targeted Novell and WordPerfect with this anticompetitive conduct and that Microsoft's conduct caused substantial damage to the WordPerfect-PerfectOffice product line," said Max Wheeler, a Salt Lake City attorney who represents Novell.
Microsoft attorneys say Gates' decisions were not based on anti-competitive stance toward Novell but rather he was trying to mediate a dispute between groups within Microsoft over which features would be included in Windows 95 and the company's Windows NT operating system.
"Ultimately the chairman, the boss, had to decide between the two groups of vice presidents about who was right," said Steven Aeschbacher, a former Salt Lake City attorney who is associate general counsel for Microsoft.
Gates, who could be called as a witness in the Utah trial, made the decisions based on what turned out to be a flawed vision for Windows 95, not because he feared WordPerfect, said Aeschbacher.
Another Microsoft attorney, Jim Jardine of Salt Lake City, said Novell's claims that Microsoft targeted the applications WordPerfect and Quattro Pro to maintain a monopoly for its operating system was a stretch.
"Judge Motz said [that linkage] was unique," he said. "We know of no case like it."
Jardine called the attempt to link the two different kinds of products "a very problematic part of the trial" for Novell.
Aeschbacher said stumbles by WordPerfect and Novell in the marketplace were caused by them and their failure to see that they need to have a product ready for Windows 95 when the operating system launched.
"It doesn't appear they spent very much time and effort getting ready for Windows 95 until after [finishing work related to earlier Windows systems], and that was very late in the game," he said. "There's evidence that will show just how far behind they were in even getting started."
Innovator's dilemma • Since those days, Novell has struggled to maintain a market share for its remaining products. Despite their legal antagonism, the two companies in 1996 announced an agreement to ensure their products were compatible so they could be jointly marketed.
In April, the Attachmate Group from Houston completed the purchase of Novell for $2.2 billion and split the company in two, with Novell remaining in Provo as a unit of the larger corporation but with a workforce greatly reduced from its glory days.
For Microsoft, the trial marks the last of the dozens of lawsuits that followed in the wake of Department of Justice's 1998 complaint. In May of last year, Apple passed Microsoft as the world's largest technology company in market capitalization, and Apple's iPhone and iPad have been cutting into PC sales that fueled Microsoft's growth.
"Microsoft is in a huge battle for its survival," said tech veteran Windley, and is caught in an "innovator's dilemma" articulated by Harvard business school professor Clayton Christensen.
"They're trying to protect their Windows and Office franchise, and at the same time be innovative, whereas at the same time you've got people like Google and others who are able to just dance around them."
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Windows of opportunity
Crux of dispute • Novell claims Microsoft used illegal tactics to gain dominance and push out competition in developing its PC-operating system.
At stake • Novell seeks $1.2 billion n damages.
Status of suit • Four of six original counts were thrown out. Two remaining counts were remanded to a Utah court.