Details are scarce, but the settlement looks to be a humbling defeat for Microsoft
By Joe Barr
|On January 10, the curtain suddenly and unexpectedly came down on a legal
drama that was at the heart of one of the longest running feuds in all of
techdom: Microsoft and Caldera announced a settlement just weeks before the
lawsuit brought by the latter against the former would have finally gone
before a jury.
I spoke with Lyle Ball of Lineo and Caldera founder Bryan Sparks that very evening to learn what I could of this momentous, controversial, and perhaps historic settlement. Though both were forthright and open (at least as open as they could be), much of the story is hidden behind a cloak of silence dictated by the terms of the agreement.
The settlement may have come prematurely in the legal scheme of things, but it's been a long time coming. Not since the Stac lawsuit in the early 90s, when a court discounted Bill Gates' sworn testimony and found for Stac in its claims of theft of intellectual property, has Microsoft been humbled like this.
Caldera played the role of David to Redmond's Goliath. With settlement in hand, it has emerged victorious, having received substantial and "completely satisfactory" financial compensation for damages it claims against Microsoft for monopolistic, anticompetitive practices, behavior which blocked DR-DOS from ever gaining even a toehold in the marketplace.
The legal drama began in July of 1996, when Novell sold Caldera the rights to DR-DOS. On that very same day, Caldera filed suit against Microsoft for illegally preventing DR-DOS from competing in the marketplace in the late 1980s and early 1990s.
It has now, three and a half years later, ended with the recently announced settlement. Caldera got a lot of money and Microsoft got closure on a long and embarrassing lawsuit. Like all the terms of the settlement, the exact amount Caldera will receive is left open to speculation.
Microsoft announced that a one-time charge against earnings of three cents per share would hit the books this quarter. Doing the math based on the total number of shares of Microsoft stock (over five billion) yields a sum of over $150 million. But nobody -- well, almost nobody -- believes that the settlement was that low.
Microsoft spinmeisters are trying to imply that the settlement amount was as low as possible and that the amount Caldera demanded was as high as possible. Hey, it's the only possible way for the company to save any face at all in this situation. Microsoft wants us to believe that Caldera settled for a dime on the dollar. That makes Caldera look cheap, and eager to get anything at all from the suit.
But as David Sarna pointed out on the Assessing Microsoft mailing list recently, the three-cent-a-share hit to which Microsoft has admitted is an after-taxes figure. The pretax value of such a charge would be about twice that, or $300 million.
After fishing about for a ballpark number from Ball and Sparks, I wasn't any closer to knowing the actual amount of the settlement, but I did have a little additional information. First, nothing says that the entire settlement figure has to be accounted for in the publicly announced charge against earnings. Clearly, Microsoft wants us to think this is the case, but refuses to say so explicitly. There are other places to hide the settlement dollars owed to both Caldera and to its legal counsel. Second, the amount that Microsoft was bandying about as Caldera's asking price, which was often seen in the press, did not come from Caldera. Caldera has never said how much it was asking for in damages.
My guess (and I am, like everyone else, entitled to one) is that the settlement was in the half-billion dollar range, exclusive of legal expenses. It seems likely that Microsoft would try to hide some of those settlement dollars from the public, though the company probably couldn't get away with concealing more than the announced charge against earnings. Add $200 million in hidden money or so to the $300 million we can be sure about, and that gets us to $500 million. That's a nice tidy sum of money -- even for Microsoft.
Microsoft would also like for us to believe that it settled only to clean a pesky lawsuit off of its plate, and that it was never guilty as charged. Don't you believe it for a second. The evidence in the Caldera case was overwhelming, even more so than in the higher-profile Department of Justice suit. And just as was true in the DOJ case, the most damning evidence against Microsoft comes from its own documents.
For example, we have the following quote from Bill Gates in a memo to his minions circa 1988, which clearly shows his quest for incompatibilities:
How well did DR-DOS actually run Microsoft software? One Microsoft expert, Phil Barrett, answered that question in his reply to the Gates query above:
The picture becomes even clearer when you add this quote from a Korean Microsoft employee in August 1989:
"Bill Gates ordered to all application business units to include checking routines of operating environments and if it is Microsoft DOS, nothing will happen. But if it is non MS-DOS (such as DR-DOS), application will display messages saying that "This application has been developed and tested for MICROSOFT MS-DOS. Since you use [a] different environment, this application may not work correctly..."
Scare tactics, warning messages, product tying, exclusionary licensing, product disparagement, product preannouncements, and legal threats against its own customers: the evidence shows that Microsoft used them all to keep DR-DOS out of the market. But Caldera suggested that Microsoft went beyond its signature predatory business practices in the DR-DOS case. The company claims that Stefanie Reichel, an account manager for Microsoft Germany, testified during her deposition that evidence of wrongdoing had been destroyed during the earlier DOJ investigation.
Bryan Sparks was quoted in the September 1998 Sm@rt Reseller as saying:
" Reichel's deposition alleges some pretty serious things. Our lawyers said in court yesterday that, in her deposition, Stefanie acknowledges the destruction of evidence that could have been used in the original [US Department of Justice] v. Microsoft case. They also said she didn't produce all the documents requested. She alluded to documents we've never even seen."
Still, until very recently, Microsoft continued to hope for the best. It tried to derail the Caldera suit by convincing the court to split it up into nine different charges, and attempting to have each of them considered independently and then dismissed. The court considered each issue independently, as Microsoft wanted, but it found that each was well enough supported to warrant trial. It also put those charges back together into a single case instead of hearing them separately. It was at this point, evidently, that Microsoft could read the writing on the wall, and began to seriously consider a settlement.
But the drama that unfolded between July 1996 and January 2000 is not really the whole play. This episode is rather, like something out of Shakespeare, nothing more than a device, a play within a play. The real story began when Microsoft began eyeing Novell's fortune and wanting it for itself. That's when the company announced Windows NT, the network OS that would put an end to Novell and NetWare. As Microsoft executive Jim Allchin said in September 1991 (according to Caldera's Consolidated Statement of Facts), "We need to slaughter Novell before they get stronger."
Microsoft and Novell have been battling ever since. In fact, that battle is still being waged. Windows NT has been renamed, but NetWare is still around. Microsoft intends to finish the job it started with Windows NT 1.0 when Windows 2000 is released next month.
To help that cause along, Microsoft began doing to Novell NetWare what it has done so well in the past to Linux, Solaris, Lotus Notes, and others: flinging FUD. Late last year, a Microsoft Website began making false claims about Netware and NetWare Directory Services (NDS) -- all to help potential customers make the "right choice," I guess.
Novell didn't sit back and take it passively, however. The company sent legal warnings to Redmond, and the FUD came down from Microsoft's site. But like a bulldog holding a thief by the seat of his pants while waiting for his master to come home and see what he's caught, Novell is holding up Microsoft's claims about NetWare and NDS, and refuting them, on its own Website.
A look back
That was in the early 1980s. In the late 80s, Digital Research brought forth a worthy challenger to MS-DOS -- or tried to bring it forth, at least. Microsoft did everything in its power to keep it out of the marketplace and, for the most part, succeeded. How it succeeded is the basis of the lawsuit.
In 1991, Novell was led Ray Noorda, who had brought the company back from bankruptcy in 1983 by focusing on a single market segment (networking). Under Noorda, the company purchased DR-DOS from Digital Research. Noorda was at that time beginning to diversify in order to compete with Microsoft in the realms of operating systems and application software as well as networking. Around the same time as the DR-DOS purchase, Novell to purchased Quattro Pro from Borland and acquired WordPerfect by merger. All this gave Novell the basis for an office suite.
None of these non-networking investments have done well for Novell. The company kept DR-DOS on the market without success until 1994. By then, Windows had replaced DOS as king of the desktop, and DR-DOS was largely irrelevant, just as Microsoft had planned.
Also in 1994, following the WordPerfect merger, Noorda stepped down as CEO of Novell. He then invested in a startup called Caldera, which was headed up by Bryan Sparks, another Novell veteran. Caldera began life working on a Linux project that had also come from Novell.
Two years later, Caldera purchased the rights to DR-DOS from Novell and filed its suit. Since then, the company has done a little shape-shifting and spun off two separate entities: Caldera Systems and Lineo. Caldera, Inc., the parent firm of the two Linux breakaways, became nothing more than the entity with the lawsuit. Now that the suit is over, that company will soon cease to exist.
What does the settlement mean to Linux? Directly, nothing. All the dollars go to the shareholders of Caldera, Inc., not into Lineo or Caldera Systems. But to all Microsoft competitors, and especially the little guys, it is good news. It means that justice is still possible. It means that you can fight Microsoft and win. Of course, indirectly, both Lineo and Caldera Systems will benefit from the goodwill, publicity, and momentum resulting from the win. Fortuitous timing had Caldera Systems announcing its upcoming IPO on the same day that the settlement was announced.
Was Caldera wrong to accept a settlement instead of continuing the fight in court? Many feel it was, but I don't think so. I think Caldera got a victory, one which is important to all of us as consumers. I think it got a lot of money, too. Let the DOJ take care of punishing Microsoft. Caldera has done its job. And it has produced a mountain of evidence that might benefit others who, up to now, have not had the courage to bring their own case against Redmond.
For years it looked as though Gates, the poster boy for dirty tricks, had won and Noorda, the positive role model, had lost. But Noorda didn't give up. He used his money to continue the fight after leaving Novell. He paid the expenses of the Caldera legal team for three years. He ignored the jeers, taunts, and scoffing by Redmond and its obedient press.
Ray Noorda hung in there. This victory for the little guys was bankrolled by a billionaire. I doubt that it could have happened otherwise. My hat goes off to Ray Noorda and Bryan Sparks. If more leaders in the personal computing industry were like them, there would truly be a free market fueled by innovation and healthy competition.
Was it just coincidence that Gates announced his resignation as CEO of Microsoft just three days after the settlement was made known? Or did losing the Caldera fight have something to do with his departure? I wonder. Could his leaving have been a requirement of the settlement? The questions around both events will be the fodder for many a discussion in the years ahead.
As I finished my brief discussion with Bryan Sparks the evening of the settlement, he talked not about the conclusion of a long battle, but about what the future holds for Lineo, with its tight focus on the embedded operating system market and its choice of Linux for that space. He put it this way: "We no longer have a lawsuit against Microsoft. We are working in a market where Microsoft does not have a monopoly, and we are going to make sure they don't get one."