FOR IMMEDIATE RELEASE First of Five Hearings on Partial Summary Judgment
Begin Today in U.S. District Court in Salt Lake City Salt Lake City, UT -- July 24, 1996--
Caldera®, Inc., a Utah-based software developer, said today it has filed
an antitrust lawsuit against Microsoft® Corp. seeking treble damages,
as well an injunction to halt ³illegal conduct by Microsoft calculated
and intended to prevent and destroy competition in the computer software
industry.² The lawsuit explains that, ³In September, 1994, as
a result of Microsoft¹s predatory and anti-competitive conduct ... Novell
announced that it would cease the marketing and development of DR DOS.²
# # # Caldera designs, develops and markets to consumers
and businesses a line of full-featured, economical system software as
alternatives to such products as Microsoft¹s Windows NT®, Sun Solaris®
and SCO UNIX®. It uses its own technological and marketing resources to
leverage technologies ‹ including the Linux operating system ‹ created
by independent developers worldwide. Caldera¹s web site is at http://www.caldera.com. PRESS CONTACT: Caldera, Inc.
Lyle Ball
Tel: (801) 426-5001x305
Fax: (801) 426-6166
Caldera News
The lawsuit, filed late Tuesday in the U.S. District Court in Salt Lake
City, echoes many of the charges made by the U.S. Department of Justice
in its 1994 antitrust complaint against Microsoft, including violations
of the Sherman Act. In the complaint, Caldera states that Microsoft¹s
anti competitive conduct includes unfair pricing practices and license
agreements, as well as false statements and ³vaporware² announcements
intended to dissuade consumers from purchasing products in competition
with Microsoft¹s MS-DOS® software.
³Unless restrained by order of this court, Microsoft will permanently
destroy competition in the DOS Market in the microcomputer software industry,
and Caldera will be artificially and illegally prevented from realizing
the full financial potential of the DOS Business,² the complaint says.
Caldera, which designs, develops and markets system software products,
today acquired the DR DOS® operating system and DR DOS-related assets,
including this claim, from Novell®, Inc. Raymond J. Noorda, former chief
executive officer of Novell, Inc., is the majority owner of Caldera.
In 1991, while Mr. Noorda was CEO of Novell, that company purchased Digital
Research Inc.® (DRI), developers of the DR DOS software technologies.
According to the lawsuit, Microsoft¹s practices ³have had the effect of
excluding competitors [including DR DOS] from the DOS Market, a market
in which Microsoft has monopoly power.² The lawsuit continues, ³as a direct
and proximate result of [Microsoft¹s] predatory acts and practices, the
DR DOS business which Caldera has acquired is being and will continue
to be immediately and irreparably injured through.. the loss of profits
... sales ... market presence ... [and] market share that might otherwise
have been achieved in a freely competitive market,² as well as ³the substantial
reduction in the value of the DR DOS business assets.²
Caldera¹s lawsuit states, ³As outlined in the Justice Department¹s complaint,
through various unfair and predatory acts, Microsoft has willfully maintained
a monopoly of the market for MS-DOS operating systems software and functionally
equivalent operating system software.²
According to the Justice Department complaint, ³Microsoft¹s exclusionary
contracting practices have had the effect of excluding competitors on
a basis other than competition on the merits and have thereby allowed
Microsoft illegally to perpetuate its monopoly in the PC operating system
market. Through the unlawful acts and practices described ... [in the
antitrust action], Microsoft has harmed competition, consumers and innovation...²
Microsoft settled the U.S. government¹s charges against it by signing
a consent decree in 1994. In the consent decree, Microsoft neither admitted
nor denied guilt, but did agree to end certain practices, including so-called
per-processor license agreements, certain multi-year license agreements
and highly restrictive confidentiality agreements with software developers
who create programs to work with MS-DOS and Windows.
Stephen D. Susman, of Susman Godfrey in Houston, one of the law firms
representing Caldera, said, ³It is my belief, from reading the government¹s
antitrust complaint against Microsoft, that it recognized the need to
open the market to Microsoft competitors.²
Mr. Susman added, ³It is our intention to finish the job the Justice Department
left unfinished when it settled its antitrust complaint through a consent
decree.²
Microsoft¹s ³conduct has had a direct, substantial and adverse effect
on competition by raising barriers to entry to competing DOS Software,
foreclosing competition with Microsoft on the basis of price and performance,
and stifling innovation,² the complaint says. ³Buyers of PC¹s and software
have thus been forced to pay higher prices for less innovative, inferior
products.²
Caldera¹s lawsuit, in addition to asking for treble damages, pursuant
to the Clayton Act, seeks permanent injunctive relief :
Mr. Noorda¹s long-term interest in nurturing competitive alternatives
in the software industry fit closely with the desires of Caldera¹s chief
executive, Bryan Sparks, to pursue the DR DOS business and the legal action
against Microsoft to help open the way for Caldera and other companies
to compete against the software giant.
Mr. Noorda said that competition is necessary for the growth of the market.
He added, ³This lawsuit is about injury to competition. In my opinion,
the antitrust decree was too little too late. It is my belief that if
Caldera is successful, the entire computer industry -- not just Caldera
-- will benefit.² Mr. Sparks said, ³The industry demands an open marketplace.
It¹s simply free enterprise. No single organization should have absolute
power over the free market process.
³Caldera¹s business philosophy,² Mr. Sparks continued, ³is to dramatically
level the technology playing field, giving independent developers open
access to system software technologies.² The Caldera complaint continues,
³... By the mid-1980s, MS-DOS had become entrenched as the standard in
the DOS Market .... Not surprisingly, in view of Microsoft¹s monopoly
power and the absence of competition, the price of MS-DOS in the OEM [original
equipment manufacturers] channel escalated from $2-5 per copy in the 1981-1982
period to $25-$28 per copy by 1988. ³At the same time, for much of the
1980s, Microsoft did almost nothing to improve MS-DOS ... Microsoft¹s
inaction was remarkable given that improvements in hardware technology
and applications software had created a demand among PC users for an enhanced
operating system,² the lawsuit continues.
As these demands escalated, the suit explains, ³a number of OEMs approached
DRI and requested that it develop a version of DOS that would fill the
gaps in functionality that plagued MS-DOS. ... Accordingly, in 1987 DRI
began planning for a new version of DOS, to be called DR DOS. ³The result
of DRI's initial development effort was a product designated as DR DOS
3.31, introduced on May 28, 1988. DR DOS 3.31 was followed quickly by
enhanced versions of the product. Thus DR DOS 5.0, introduced in May 1990,
and DR DOS 6.0, introduced in September 1991, were significantly superior
to then-existing versions MS-DOS in many areas.²
The Caldera suit continues, ³Industry experts responded enthusiastically
to DR DOS. DR DOS 5.0 received several awards including the 1990 BYTE
Award of Distinction and Finalist in the 1990 PC Magazine Award for Technical
Excellence. DR DOS 6.0 similarly received a number of industry awards,
including the 1991 BYTE Award of Excellence, BEST of COMDEX (Fall 1991),
and the Infoworld Buyers Assurance Seal.
³The technical superiority of DR DOS resulted in a rise in sales from
about $15 million in fiscal year 1990 to $30 million in fiscal year 1991.
Notwithstanding Microsoft¹s anticompetitive conduct, DR DOS sold well
in the retail distribution channel, but due to Microsoft¹s exclusive dealings
and other predatory conduct, it was largely locked out of the OEM channel.²
The suit goes on, ³Microsoft refused to tolerate this challenge to its
monopoly position in the DOS Market.... DR DOS posed a particularly significant
threat to Microsoft because it was compatible with applications written
for MS-DOS; and ... Microsoft could not claim that DR DOS infringed upon
any proprietary technology it owned.
³Microsoft's principal defense against any competitive threat, including
DR DOS, was the wall of Œper processor¹ licenses that it had begun to
construct in 1988, the year that DR DOS was first released to the market.
Under per processor licenses, OEMs were required (must to agree)to pay
Microsoft a royalty on every PC they sold regardless of whether it contains
Microsoft¹s MS-DOS, some other software developer¹s DOS Software or no
operating system software. This royalty system effectively imposed a tax
in favor of Microsoft whenever an OEM sold a PC equipped with any operating
system other than MS-DOS. Given the razor-thin margins on the sale of
PC¹s, this royalty scheme caused OEMs to ship MS-DOS exclusively.
³Microsoft compounded this per processor licensing scheme by insisting
on long-term licenses of MS-DOS from its OEM customers, contracts that
tended to be longer than typical product cycles. Microsoft also obtained
large Œtake or pay¹ minimum commitment licenses that also effectively
foreclosed the ability of competitors such as Novell to sell competing
DOS Software products to OEMs, and engaged in other licensing practices
that had the effect of coercing OEMs to deal exclusively with Microsoft.²
³In the fall of 1991, Microsoft announced to the market that DR DOS would
not be compatible with the next release of Windows known as Windows 3.1
.... The market perceived that it was critical for an operating system
to support Windows; therefore Microsoft¹s statements that DR DOS could
not do so substantially undercut Novell¹s efforts to penetrate the DOS
Market.²
Microsoft reinforced this misleading impression of incompatibility between
DR DOS and Windows 3.1, when, ³beginning in December, 1991, Microsoft
released beta versions of Windows 3.1 containing code that generated error
messages when Windows 3.1 ran on top of DR DOS rather than MS-DOS.
Microsoft created these error messages solely for the purpose of creating
the impression that DR DOS would be incompatible with Windows in order
to dissuade customers from purchasing DR DOS.² Caldera¹s lawsuit also
states that Microsoft ³refused to provide a Windows 3.1 beta to Novell.
Microsoft¹s refusal to do so was another predatory effort to ... hamper
Novell¹s ability to offer a Windows 3.1-compatible release of DR DOS to
the market.²
Microsoft officials made ³false public statements,² the suit also states,
³concerning future product features and anticipated shipment dates, known
in the industry as Œvaporware,¹ timed to match announcements or releases
of new versions of competing DOS Software, in particular DR DOS.² For
instance, ³Microsoft responded to DR DOS 5.0 by announcing, in May 1990,
that it intended to issue a new release of MS-DOS, to be called MS-DOS
5.0, that would mirror the technical advantages already present in DR
DOS 5.0. Microsoft indicated that the new release of MS-DOS would be available
within a few months. Industry experience indicates that it would have
been near-impossible for Microsoft to develop and release a commercial
version of its product matching the features of DR DOS 5.0 within that
period. Nonetheless, Microsoft repeated this vaporware announcement throughout
the summer and into the fall of 1990. In fact, MS-DOS 5.0 was not released
until June 1991 and, when finally released, it did not offer the features
Microsoft had promised.²
Microsoft unfairly used ³other pricing tactics,² Caldera¹s complaint charges.
³Microsoft also informed certain PC manufacturers that they could not
obtain Windows or be given access to essential information, product support
and service if they did not purchase and ship MS-DOS, to the exclusion
of DR DOS.
³Similarly, Microsoft established a pricing structure for Windows that
made it prohibitive to buy that product in the absence of MS-DOS.²
For example, certain Korean OEMs were informed that the price of Windows
without MS-DOS would be double the price of Windows with MS-DOS.
³Microsoft's most devastating tactic, however, was its massive expansion
of per processor licenses in the OEM channel. Following the announcement
of Novell¹s acquisition of DRI, Microsoft substantially stepped up its
efforts to coerce OEMs to enter into per-processor licenses or comparably
exclusionary MS-DOS licenses. Thereafter, Novell¹s sales force found the
OEM channel virtually impenetrable... thwarted in account by account by
Microsoft¹s per-processor license wall.²
³The combined effect of Microsoft¹s anticompetitive practices on DR DOS
was devastating. DR DOS sales plummeted during fiscal year 1992, totaling
$15.5 million in the first quarter, $13.7 million in the second quarter,
$6.9 million in the third quarter, and $1.4 million in the fourth quarter
(which ended October 31, 1992).
³Microsoft continued with its predatory practices throughout 1992 and
up to the present day. Microsoft has employed another tactic for locking
OEMs exclusively to MS-DOS, namely, Œcliff pricing,¹ through which a commercially
reasonable price is provided to OEMs if and only if they commit to obtain
all of their requirements for operating system software from Microsoft.
³Although various governmental agencies, including the United States Department
of Justice, have sought to bar certain of Microsoft's predatory practices
such as the per-processor license, Microsoft has been permitted to employ
its Œcliff pricing¹ practice with impunity.² Caldera intends ³to reintroduce
the full line of DR DOS products to the market and to offer additional
product features,² the company said in its complaint.