Caldera, Inc. v. Microsoft Corp.

• Decision Date: 03 November 1999
• Docket Number: No. 2:96-CV-645 B.,2:96-CV-645 B.
• Citation: 72 F.Supp.2d 1295
• Parties: CALDERA, INC., Plaintiff, v. MICROSOFT CORP., Defendant.
• Court: U.S. District Court — District of Utah

72 F.Supp.2d 1295

CALDERA, INC., Plaintiff, v. MICROSOFT CORP., Defendant.

No. 2:96-CV-645 B.

United States District Court, D. Utah, Central Division.

November 3, 1999.

Stephen D. Susman, Charles R. Eskridge III, Harry P. Susman, James T. Southwick, Susman Godfrey L.L.P, Houston, TX, Ralph H. Palumbo, Matthew R. Harris, Lynn M. Engel, Philip S. McCune, Lawrence C. Locker, Summit Law Group PLLC, Seattle, WA, Parker C. Folse III, Timothy K. Borchers, Susman Godfrey L.L.P., Seattle, WA, Max D. Wheeler, Stephen J. Hill, Ryan E. Tibbitts, Snow, Christensen & Martineau, Salt Lake City, UT, for Plaintiff Caldera, Inc.

Richard J. Urowsky, Richard H. Klapper, Steven L. Holley, Richard C. Pepperman, II, Jay Holtmeier, Sullivan & Cromwell, New York, NY, Michael H. Steinberg, Sullivan & Cromwell, Los Angeles, CA, James S. Jardine, Mark M. Bettilyon, John W. Mackay, Ray, Quinney & Nebeker, Salt Lake City, UT, William H. Neukom, Thomas W. Burt, David A. Heiner, Jr., Steven J. Aeschbacher, Microsoft Corporation, Redmond, WA, James R. Weiss, Preston Gates Ellis & Rouvelas Meeds, Washington, DC, for Defendant Microsoft Corporation.

MEMORANDUM OPINION & ORDER

BENSON, District Judge.

I. INTRODUCTION

Presently before the Court are four motions for partial summary judgment brought by defendant, Microsoft Corporation. In its complaint, plaintiff, Caldera, Inc., alleges that Microsoft engaged in anticompetitive conduct in violation of §§ 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1, 2, as well as § 3 of the Clayton Act, 15 U.S.C. § 14. Microsoft has attempted to separate what it believes are Caldera's individual claims by filing the following nine motions for partial summary judgment on: (1) "Plaintiff's Preannouncement Claim," (2) "Plaintiff's Product Disparagement Claim," (3) "Plaintiff's Claim Regarding Microsoft's Licensing Practices," (4) "Plaintiff's Perceived Incompatibilities Claim," (5) "Plaintiff's Intentional Incompatibilities Claim," (6) "Plaintiff's `Predisclosure' Claim," (7) "Plaintiff's Technological Tying Claim," (8) "Plaintiff's European & Japanese Claims," and (9) "Plaintiff's State Law Tortious Interference Claims." In addition to responding to each of Microsoft's motions for partial summary judgment, Caldera filed its own "Motion to Strike Microsoft's Partial Summary Judgment Briefs Relating to Substantive Antitrust Violations."

In its Memorandum Opinion and Order dated June 28, 1999, the Court denied three of Microsoft's motions for partial summary judgment. The motions denied were "Plaintiff's Product Preannouncement Claim," "Plaintiff's Product Disparagement Claim," and "Plaintiff's Claim Regarding Microsoft's Licensing Practices." Additionally, the Court denied from the bench defendant's motion for partial summary judgment on "Plaintiff's Japanese and European Claims," as memorialized in its Order dated July 27, 1999. With respect to "Plaintiff's State Law Tortious Interference Claims," the Court continues to take the matter under advisement. This Opinion addresses defendant's motions for partial summary judgment on "Plaintiff's Claim of Intentional Incompatibilities," "Plaintiff's Claim of Predisclosure," "Plaintiff's Claim of Perceived Incompatibilities," and "Plaintiff's Claim of Technological Tying," as well as plaintiff's motion to strike.

The Court heard oral argument regarding defendant's present motions for partial summary judgment and plaintiff's motion to strike on June 8, 10, 29, and July 6, 8, 1999. Based on the motions presently before the Court, the memoranda, exhibits submitted by both parties, and the statements presented in oral argument, the Court makes the following findings and issues this Memorandum Opinion and Order.

II. BACKGROUND & DESCRIPTION OF PLAINTIFF'S CLAIMS

This case finds its genesis in the mid-1970s with the advent of the personal computer. Critical to the evolution of the personal computer was the development of the computer operating system. An operating system functions as the control center of the computer. It controls the computer's interaction with peripheral hardware such as keyboards, modems, and printers and also serves as the underlying support structure for software applications. An operating system functions as the interface between the computer and the software applications. Independent software venders (ISVs) write software application programs, such as games, spreadsheets, and wordprocessors, that rely for their operation on certain general functions written into the operating system.

As the computer age dawned, new and old companies alike scrambled to pioneer the emerging frontier. Founded in 1976 by Gary Kildall, Digital Research, Inc. (DRI) developed one of the first operating systems for personal computers, known as CP/M (Control Program for Microprocessors). According to plaintiff, CP/M was the dominant operating system for 8-bit personal computers in the late 1970s and early 1980s. CP/M operated much the same as a disc operating system (DOS) operates today. Both CP/M and DOS are character based, requiring the user to direct the computer to perform desired operations by using specific keystrokes.

At the same time DRI was making inroads into the operating systems market, a new start-up partnership called Microsoft was formed which focused on programming languages. In July 1980, IBM approached Microsoft about designing 16-bit versions of its most popular products to be used with IBMs forthcoming personal computer, which at the time was still undisclosed to the public. IBM was also looking for an operating system to install onto its personal computers. At that time, DRI had preliminary designs for a 16-bit version of CP/M. IBM contacted DRI about obtaining a license of this 16-bit version, known as CP/M-86, but the parties were unable to reach an agreement.

Microsoft also began exploring the possibility of developing or acquiring its own operating system. In 1981, Microsoft first licensed and later purchased for a reported $50,000 a 16-bit CP/M clone from Seattle Computer Products, a small original equipment manufacturer (OEM). This system, named QDOS (Quick and Dirty Operating System), mirrored the functionality of CP/M. Thereafter, IBM obtained a license from Microsoft for QDOS. When IBM launched its personal computer in August 1981, this operating system was installed on each computer, offered as PC-DOS 1.0 to IBM's direct customers, and offered by Microsoft as MS-DOS 1.0, to all other OEMs. IBM's personal computer incorporated the Intel x86 microprocessor. Other OEMs were able to use this same microprocessor to essentially clone the IBM personal computer, and MS-DOS was compatible with all of these clones. Accordingly, literally millions of Microsoft's operating systems were installed worldwide. By 1985, MS-DOS was the prevalent operating system in the world for personal computers using Intel x86 microprocessors. As a result, Microsoft enjoyed enormous financial success. By 1988 Microsoft had obtained a monopoly position in the DOS market. For purposes of the present motions, Microsoft does not dispute the contention that it has such a monopoly in the operating systems market.

By the mid-1980s, the computer industry began exploring alternatives to DOS, which were considered by many to be difficult to use because they required the user to type in commands in order to operate the computer. As a result, graphical user interfaces (GUIs) were developed, which replaced some of the character-based commands of DOS with graphical commands that users could execute through the use of point-and-click technology. In using a GUI, the user operates a "mouse" that controls an arrow on the screen and enables the user to control the computer by pointing at screen icons and clicking on them. GUIs were initially utilized by Apple Computer, Inc. In the early 1980s Apple developed the Macintosh microprocessor, which, unlike the IBM personal computer, ran on the Motorola 68000 microprocessor chip. However, unlike Microsoft's GUI, called Windows, Apple's GUI was a complete operating system. Windows had the appearance of running the computer as its own operating system, but it was in essence merely operating on top of DOS, unable to function without the underlying DOS program. Notwithstanding, Microsoft's Windows gained widespread popularity due to the dominance of the Intel x86 microprocessor chip. Since its inception in 1985, Windows has maintained a monopoly position in the GUI market.

Despite the dominant market position of MS-DOS, DRI continued development of its operating system. In 1987, DRI developed DR DOS, an operating system that competed directly with MS-DOS and was compatible with software written for use with MS-DOS. In May of 1988, DRI launched DR DOS 3.31. Plaintiff claims DR DOS was a better product than MS-DOS, as it included features MS-DOS did not have, operated at a faster speed, and was less expensive. Plaintiff contends that DR DOS's superiority over MS-DOS was due in part to Microsoft's assumption that the new operating system it was developing with IBM, called OS/2, would replace DOS as the preferred operating system. Therefore, according to plaintiff, Microsoft spent little time in further developing or improving MS-DOS.

Contrary to Microsoft's and IBM's projections, computer users did not switch to OS/2 at the rate anticipated, and DOS continued to be the preferred operating system. In July 1990, DRI launched DR DOS 5.0, an updated and improved version of DR DOS 3.31. Nicknamed "the Leopard," DR DOS 5.0 received positive reviews from several trade magazines as well as computer industry awards.¹ In an internal Microsoft e-mail sent to Phil Barrett, a Microsoft executive, from one of his subordinates, DR DOS 5.0 received similar high praise when compared to MS-DOS:

Last Thursday you asked me for a user's view of DR DOS 5.0.... I used DR DOS 5.0 with a HUGE number of apps. I found it INCREDIBLY superior to MS DOS 3.31 and...