Netscape sues Microsoft
graphic January 22, 2002: 5:53 p.m. ET

Federal antitrust case seeks damages for Microsoft's "anticompetitive conduct."
graphic graphic
graphic       graphic
  • MSFT private settlement denied - Jan. 11, 2002
  • Justice Department and Microsoft settle - Nov. 2, 2001
    graphic       graphic
  • Microsoft Corp.
  • AOL Time Warner
  • Netscape
    NEW YORK (CNN/Money) - Netscape Communications filed an antitrust lawsuit against Microsoft Corp. Tuesday afternoon, citing the same grounds that were used in the U.S. Justice Department's suit against the software provider.

    Netscape, a unit of AOL Time Warner Inc. (AOL: Research, Estimates), filed a seven-count suit in U.S. District Court for the District of Columbia, charging Microsoft (MSFT: Research, Estimates) harmed Netscape in a series of illegal acts aimed at promoting Microsoft's Internet Explorer browser at the expense of Netscape Navigator. CNN/Money also is a unit of AOL Time Warner.

    The company did not specify the amount of damages sought, although it said it "seeks to recover all the damages to Netscape, (tripled) in accordance with the law."

    Netscape also said it is seeking "equitable relief to eliminate the continuing effects of Microsoft's illegal conduct and to restore competition lost in the operating system market and in the Web browser market because of Microsoft's illegal conduct."

    Netscape also argued that Microsoft's actions continue to harm the company.

    A spokesman for Microsoft denounced the Netscape suit when contacted Tuesday.

    "Every chance AOL Time Warner gets they choose litigation over innovation," said Microsoft spokesman Vivek Varma. "Microsoft is investing to building products. AOL is investing in lawyers and lobbyists to put roadblocks in Microsoft's way.

    "AOL has been using the political and legal system to compete against Microsoft for years and this is just the next tactic in their litigation plans," he added.

    Microsoft was found guilty of engaging in anticompetitive conduct in the Justice Department's suit, although a lower court decision ordering a break-up of the company was later overturned by the U.S. Court of Appeals.

    The Justice Department and nine of 18 states that filed the antitrust suit against Microsoft reached a tentative agreement with Microsoft last November on restrictions on Microsoft's business conduct to prevent it from abusing its monopoly power in the personal computer operating system market.

    But nine other state attorneys general continue to push for more severe restrictions on the company, and the judge hearing the case has yet to rule on the various proposals.

    AOL Time Warner spokesman John Buckley says Netscape filed a private antitrust suit against Microsoft now because the company determined it was better to file before the judge hearing the federal case ruled on potential remedies against Microsoft. The Netscape suit is not a surprise, said Spencer Waller, a law professor at Loyola University Chicago.

    "I think it strongly suggests they (Netscape) believe the (proposed) settlement will not restore competition in the market, that it's not enough for their needs," said Waller.

    Waller said that while Netscape will gain tremendous benefits from having had the Justice Department suit handle a great deal of the expensive discovery in the case, the federal case still leaves it with a lot of legal work to do on its own.

    "Their (Netscape's) case is about proving damages and nothing in the government case dealt with that," said Waller. "This isn't a total free ride."

    Waller wouldn't even estimate the amount of damages that Netscape could seek. He pointed to an $1.8 billion decision that a long-distance provider won against AT&T 20 years ago, but that amount was later reduced on appeal.

    "I'm presuming it would be a staggeringly high number," he said of Netscape's potential damages.

    A clash of the titans

    The resources that both AOL and Microsoft bring to the suit make the civil action a "clash of titans," said Steve Axxin, a prominent antitrust attorney.

    "What's important is that you now have an extraordinarily well-heeled plaintiff that's inherited Netscape and has the will to fight this," said Axxin. "This is a battle of the media titans that has been looming for some time."

    But University of Baltimore Law Professor Robert Lande said that the decision to file the suit could not have been an easy one for AOL, despite its deep pockets.

    "It's a multiyear battle that will take tens of millions of dollars," said Lande. "Any time you file a suit like this it's a declaration of war. The question is if you're AOL, do you want to declare war on Microsoft? Apparently they did."

    Lande said that Netscape's case differs from the government case in that it is again pursuing some issues that the government dropped along the way.

    But Lande said the Netscape's case is strengthened by the fact that Microsoft's Internet Explorer's share of the browser market has grown significantly during the last two years ago. Lande said that in November 1999, Judge Thomas Penfield Jackson found that while Microsoft had improperly used its dominance of the PC operating system market to grab a 60 percent share of the browser market, IE did not yet dominate the browser market. Lande said that today IE clearly does dominate the browser market.

    Click here for the CNN/Money special report: Justice vs. Microsoft

    Besides the antitrust case, Microsoft also is trying to conclude a price-fixing class-action suit filed by more than100 plaintiffs who charged the company used its market dominance to charge unfair prices for its Windows operating system software. A proposed settlement in that case was rejected by the federal judge hearing that case earlier this month.

    Netscape created the first widely-used browser used by consumers to view Internet web sites. It dominated that market until Microsoft introduced its Internet Explorer browser, which became part of its Windows operating system. That inclusion of a browser in the Microsoft operating system was one of the key points argued about in the Justice Department case against Microsoft.

    Netscape agreed to be purchased by AOL for $4.2 billion in November 1998, at the time that the Justice Department case against Microsoft was already well underway.

    Shares of Microsoft were unchanged in after-hours trading, after losing $1.64 to close regular-hours trading at $64.46 Tuesday. Shares of AOL lost 15 cents to $28.25 in after-hours trading, following a drop of $1.18 in regular-hours trading on Tuesday. graphic


    MSFT private settlement denied - Jan. 11, 2002

    Justice Department and Microsoft settle - Nov. 2, 2001


    Microsoft Corp.

    AOL Time Warner