Microsoft Settles DR-DOS Antitrust Lawsuit

On January 10, Microsoft and Caldera settled the DR-DOS lawsuit 2 weeks before it was slated to go to trial. According to Microsoft, the settlement amount is worth about $155 million. Industry insiders, however, speculate that the settlement is much higher, and the results of the payment have affected Microsoft’s quarterly earnings. Caldera acquired DR-DOS from Novell and filed suit against Microsoft in July 1996. Caldera charged that Microsoft unfairly used its OS market monopoly to edge DR-DOS out of the market. The charges were that Microsoft intentionally created incompatibilities between its products and DR-DOS to weaken DR-DOS’s salability, generated fake error messages while DR-DOS was running to make it look worse, merged MS-DOS and Windows illegally to destroy DR-DOS’s competitive capability, and singled out DR-DOS developers to deny them access to the Windows 3.1 beta code. Caldera planned to show that Microsoft bundled MS-DOS into Windows 3.x, obscuring the fact that Windows still required DOS for important system I/O. This trial could have exposed Microsoft to the same antitrust charges that the company faced in the Department of Justice (DOJ) trial but with a more substantive behavioral example. The trial’s timing posed serious risks to Microsoft in expanding its legal exposure. For more information on the original lawsuit, see "Caldera’s Antitrust Lawsuit Against Microsoft Will Go to Trial." Details about the settlement are scarce. Typically, Microsoft demands non-disclosure of the terms as part of the settlement. Microsoft has announced a one-time earnings decrease of 3 cents a share to be filed at the end of the first quarter. Because Novell holds a stake in Caldera, Novell will take about 25 percent of the settlement’s proceeds as income. If the case had gone to trial, Microsoft’s total exposure might have exceeded $1.6 billion. Within days of the settlement, Caldera filed for an IPO. Considering how long it takes to prepare an IPO filing, the timing is probably just coincidence. However, the publicity that Caldera received in this case will likely make the company's IPO very lucrative. Caldera distributes OpenLinux, a supported version of Linux. The stocks of two previous high-profile Linux IPOs (Red Hat and VA Linux) took a rocket ride upward. In addition, Caldera recently received an infusion of investment money from Sun Microsystems, SCO, Citrix, Novell, Egan Managed Capital, and Chicago Venture Partners.

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