A New Thorn for Microsoft

Microsoft Corp.s latest legal battle—fighting a misleading advertising suit filed by Novell Inc.—could have a negative effect on the outcome of its antitrust case with the Department of Justice.

Novell last week filed a lawsuit in U.S. District Court in Utah, accusing Microsoft of false and misleading advertising designed to create fear and uncertainty among Novell users and to discourage future customers from doing business with Novell, in Provo, Utah.

“These latest actions indicate Microsofts continued arrogance and complete disregard of the courts findings of its illegal anti-competitive behavior thus far,” said John Soma, a law professor at the University of Denver, who worked on the IBM antitrust case for the Justice Department in the 1970s.

“If a negotiated settlement is not reached, the government can introduce Novells charges in the remedy hearings before Judge [Colleen] Kollar-Kotelly as evidence of the need for strong behavioral remedies against the company to prevent its continued violation of antitrust law,” Soma said.

Kollar-Kotelly has left her options open regarding the remedy, according to Soma, a sign that a court-imposed breakup of the company is not impossible, though unlikely. She has rejected a Microsoft request to narrow the scope of possible remedies and said she has “large discretion” to design a remedy.

Dana Hayter, a lawyer with Fenwick & West LLP, in San Francisco, and formerly with the Justice Department, agreed, saying that claims of false advertising and unfair competition could be viewed as exclusionary acts that would support monopolization charges. Hayter agreed that a breakup is not impossible.

The latest brouhaha involves a Microsoft ad campaign last month that took aim at Novells NetWare network operating system, which competes with Microsofts Active Directory.

As part of the campaign, Microsoft sent Novell customers across the country a container shaped like a breakfast cereal box. But in place of the name of a cereal, the box read: “Microsoft Server Crunch.” Also on the box were numerous statements questioning the expiration date of the NetWare platform and claiming that “Novell is shifting its focus from software development to consultancy services.”

Another statement on the box read: “Youre left with a server platform without the full support of its manufacturer. Which means increasing costs as it rapidly becomes obsolete, forcing you to implement time-consuming retrofits.”

Microsoft, of Redmond, Wash., has not admitted any wrongdoing, but spokesman Jim Desler said the company has already tried to address the concerns by sending a clarification letter to all those who received the initial package. “We regret any inconvenience to these customers,” Desler said.

Some Novell and Microsoft customers said the move exposes Microsofts concerns about the threat of NetWare 6, which was released early last month.

“We have switched all of our file servers from Novell to Microsoft, and we all concur that Novell has a far superior product,” said a network manager in Los Angeles, who manages 500 nodes of Windows NT/Windows 2000 desktops and numerous NT servers. “There are lots of annoyances and problems with Active Directory.”