Novell Sues Microsoft over WordPerfect

By Peter Galli  |  Posted 2004-11-12

Novell Sues Microsoft over WordPerfect

After playing nice with one another earlier this week when they announced a $536 million legal settlement, Novell and Microsoft on Friday were back attacking one another again.

The flare-up comes as Novell Inc. on Friday filed suit against Microsoft Corp. in U.S. District Court in Utah seeking unspecified damages arising from Microsofts efforts to eliminate competition in the office productivity applications market during the mid-90s when Novell owned the WordPerfect word-processing application and the Quattro Pro spreadsheet application.

Novell said it planned to file the lawsuit earlier this week when it announced that it had reached an agreement that would see Microsoft pay the Waltham, Mass., company $536 million to settle potential antitrust litigation related to Novells NetWare operating system.

At that time, Joseph A. LaSala Jr., Novells senior vice president and general counsel, said the company has held extensive, yet unsuccessful, discussions with Microsoft to resolve the WordPerfect claims without resorting to litigation.

Microsoft general counsel Brad Smith agreed that "we could not resolve claims related to WordPerfect in any manner we thought appropriate, and we are prepared to turn to the courts to resolve it."

LaSala said Friday that the lawsuit was based in part on facts proved by the U.S. government in its successful antitrust case against Microsoft. That case found Microsoft to have unlawfully maintained a monopoly in the market for personal computer operating systems by eliminating competition in related markets.

In the lawsuit filed Friday, Novell claims (PDF form) that Microsoft withheld certain critical technical information about Windows from Novell, thereby impairing its ability to develop new versions of WordPerfect and other Novell office productivity applications.

It also alleges that Microsoft integrated certain technologies into Windows that were designed to exclude WordPerfect and other Novell applications from relevant markets. Novell also claims that Microsoft used its monopoly power to prevent hardware partners from offering WordPerfect and other applications to customers.

Novell acquired the WordPerfect word processing program when it merged with the WordPerfect Corp. in June 1994. In a related transaction at that time, Novell also bought Quattro Pro, a spreadsheet product, from Borland International.

The combined value of WordPerfect and Quattro Pro at that time was more than $1 billion yet, less than two years later in March, 1996, both WordPerfect and Quattro Pro were sold to Corel Corp. for some $170 million.

Read more here about Corel pinning its hopes on WordPerfect.

"WordPerfects share of the word processing market was almost 50 percent in 1990, but fell to less than 10 percent by the time Novell sold WordPerfect and related applications in 1996. Microsoft Words share of the word processing market rose from approximately 20 percent prior to 1990 to a monopoly share of approximately 90 percent by 1996," LaSala said.

Next Page: Microsoft says Novell is trying to pass the blame "for its own mismanagement and poor business decisions."

Microsoft Talks Back

In a statement released Friday, Microsoft disputed those assertions, saying that Novell is using the lawsuit to blame Microsoft "for its own mismanagement and poor business decisions. The record is clear that bad decisions and business mistakes are the reasons WordPerfect fell out of favor with consumers. Its also unfortunate, and surprising, that Novell has just now chosen to litigate over a business it owned for a very short time and that it sold more than eight years ago."

The unattributed statement went on to say that even before Novell bought WordPerfect in 1994, that product had already begun to decline. "Indeed, Novells stock dropped 15 percent the day after it announced the acquisition. WordPerfect deliberately chose not to develop a version for early versions of Windows in the hope that depriving Windows of a key application would limit the success of Windows," it said.

This and other missteps had led to a decline in WordPerfects popularity that resulted in Novell selling it for about one-eighth of what was paid for it only 20 months earlier, the Microsoft statement said.

There were also other fundamental flaws in Novells complaint, it said, and, given that the company had not owned WordPerfect for eight years, its claims should be barred by the legal doctrine called the statute of limitations.

"It is also surprising that Novell seeks to use the courts findings in the Department of Justice case against Microsoft. That case had nothing to do with WordPerfect or any other office productivity software, and focused almost exclusively on other markets and technologies. In fact, Novell was barely mentioned during the U.S. antitrust trial. Moreover, the U.S. antitrust laws do not support Novells claims that a company is required to share its inventions and trade secrets with its competitors," the statement said.

Novells LaSala said that while the lawsuit is unrelated to his companys current business, the claims are important and hold considerable value for Novell. "We intend to pursue aggressively a goal of recovering fair value for the harm caused to Novells business by Microsofts anticompetitive actions" he added.

An industry executive at a major software vendor who is familiar with the matter told eWEEK that the settlement of the NetWare antitrust claims had been nine months in the making and had nothing to do with the recent departure of Novell vice chairman Chris Stone.

Novell management, with Stones support, wanted to settle that matter so it could "then turn around and hit them [Microsoft] with the WordPerfect suit," the executive said. "

"The NetWare suit is three years old now, and the legal costs of continuing would have been astronomical. The $563 million settlement Microsoft paid Novell also helps them."

Some users were surprised not by Novells decision to settle, but rather by Microsofts, saying that NetWare is all but a dead platform.

"The gravediggers are already working to prep that hole. If a company is currently on NetWare, I think Novell has given them sufficient reason to seriously consider SuSE Linux as a replacement over the standard move to Microsoft," John Kretz, president of Enlightened Point Consulting Group LLC in Phoenix, told eWEEK.

The money would be good for Novell and would help fill the coffers drained by the Ximan and SuSE acquisitions, he said. "Im hoping theyll use the money to bolster operations, like development, support and marketing staff."

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