Novell Sues Microsoft Over WordPerfect

Just days after Microsoft settled outstanding claims regarding Novell Netware with a $536 million cash payout, Novell has filed a lawsuit in the U.S. District Court of Utah seeking unspecified damages for what it says is unfair competition in the productivity applications market.

The suit alleges that Microsoft withheld critical technical information from Novell when the company owned the WordPerfect word processing application immediately following a 1994 merger with WordPerfect Corporation. Furthermore, Novell's complaint makes the accusation that Microsoft strong-armed partner OEMs into not carrying the software.

In 1996, Novell sold WordPerfect to Corel for $170 million USD along with its Quattro Pro spreadsheet application acquired from Borland.

According to Novell, "WordPerfect's 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 Word's share of the word processing market rose from approximately 20 percent prior to 1990 to a monopoly share of approximately 90 percent by 1996."

In response to Novell's filing, Microsoft's counteroffensive has already begun.

Microsoft has called Novell's decision to litigate "unfortunate," stating that, "Novell seeks to blame Microsoft for its own mismanagement and poor business decisions. It's 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."

"Prior to Novell's purchase of WordPerfect in 1994, WordPerfect had already begun to decline. Indeed, Novell's 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. This and other missteps led to a decline in WordPerfect popularity that resulted in Novell selling it for approximately one-eighth of what was paid for it only 20 months earlier," read a statement issued from Microsoft.

The allegation that Microsoft withheld crucial information that gave its own products a competitive advantage over the competition rests at the heart of the complaint. Plaintiffs in the U.S. and European antitrust cases cried foul on this talking point, and as a result, the U.S. ordered Microsoft to be more transparent and to reveal Windows' inner workings. Microsoft was also berated by the court for its anticompetitive licensing terms.

"Windows licensing practices played an important role in the U.S. antitrust case. What Office licensing practices might the Novell case expose? The U.S. courts rapped Microsoft for exclusive arrangements. Are there any that a judge might consider anticompetitive? My point: The issues surrounding the case are complex, and I'd be surprised if they ultimately even remotely resemble the black-and-white positions the companies took today," remarked Jupiter Research senior analyst Joe Wilcox in his Microsoft Monitor Web log.

But the inner workings of Novell WordPerfect may be more applicable to the situation at hand. In context, upgrades from DOS versions of WordPerfect to Windows 3.x and 95 were notoriously buggy, although the upgrade path was forged within a period of four years. Product pricing will also be examined; WordPerfect cost nearly $500 USD at the time and was a standalone application, while Microsoft packaged together an entire suite of products to run the workplace gauntlet from word processing to presentations to spreadsheets.

"The case is opportunity for Novell to air Microsoft's laundry. I won't guess as to dirty or clean. So far, most antitrust cases focused on Windows. Novell is going after Office, Microsoft's other cash cow product and arguably another monopoly given the product's enormous market share (Remember, I'm not a lawyer),"said Jupiter's Wilcox.