Netscape sues Microsoft

Netscape Communications, a subsidiary of Internet and media giant AOL Time Warner, filed a lawsuit against Microsoft Tuesday, alleging that the software maker harmed Netscape with anti-competitive practices related to the Windows operating system.

The lawsuit was filed in the Federal District Court for the District of Columbia, according to a statement from Netscape. Best known for its Netscape Navigator Web browser, Netscape was acquired by America Online in 1999. AOL in turn merged with Time Warner last year.

Microsoft's illegal anticompetitive practices were confirmed in a ruling by a federal district court in June 2000 and upheld by a U.S. appeals court last June. Netscape argued in its lawsuit Tuesday that those anti-competitive practices "resulted in harm to competition and antitrust injury to Netscape in particular," the company said in its statement.

One legal observer wasn't surprised by Netscape's legal move.

"The district court found that liability in connection with Microsoft's conduct was in large part directed at suppressing Netscape," said Mark Schechter, a partner at the law firm Howrey Simon Arnold & White LLP in Washington, D.C. "The court of appeals affirmed it. It's not surprising (Netscape) would piggy back on those findings."

Microsoft declined to comment on the lawsuit in detail, but said it was disappointed at AOL's course of action. "The company has been using politics and legalese to compete against Microsoft for years. It's our feeling that this is just the next tactic in their plans," Microsoft spokesman Matt Pilla said.

The lawsuit is similar to the U.S. government's federal antitrust case against Microsoft, Netscape said. That case centered on a claim that Microsoft abused its monopoly power by cutting deals with PC manufacturers that ultimately hindered sales of Netscape Navigator. The U.S. Department of Justice and nine state attorneys general have reached a tentative settlement in the federal case, but nine other states and the District of Columbia have refused to sign off on the deal and continue to pursue legal action against Microsoft.

Netscape is seeking an injunction against Microsoft and an award of "treble damages," a type of award given in a private antitrust case that would be equal to three times any damages set by a court. The value of the damages and any Microsoft products that might be enjoined from shipping as a result of the suit would be determined by a federal judge, the company said.

The injunction Netscape is seeking resembles a settlement offer submitted in December by the nine states that have yet to agree on settlement terms with Microsoft. That offer included restrictions on how Microsoft would be able to sell Windows to consumers and PC makers.

The aims of Netscape's lawsuit are "entirely consistent" with the efforts of the nine states that have yet to settle, Randall Boe, general counsel to America Online, said in the statement.

The lawsuit includes seven counts alleging that Microsoft used illegal anti-competitive behavior to harm Netscape. The alleged pattern of behavior started in 1995, when Microsoft began promoting its own Internet Explorer browser in a way that Netscape argues was detrimental to the Netscape browser.

Rulings handed down against Microsoft in the federal antitrust case provide its competitors with ripe opportunities to file private antitrust suits against the software maker, said Emmett Stanton, an attorney with the law firm Fenwick & West LLP who has closely followed Microsoft's antitrust woes.

"Netscape was the clearest target of the actions that the court found illegal," Stanton said. "Many of us have been speculating since the court of appeals (affirmed the lower court ruling) that the potential private plaintiffs would have a much easier time bringing their private lawsuits."

Observers have suggested that Sun Microsystems Inc. might also be in a position to benefit from the federal rulings against Microsoft. The district court cited Microsoft's opposition to Sun's Java programming language in its criticism of the company. However, Netscape is in a better position than Sun to argue that it has been harmed, said Tom Bittman, vice president and research director with Gartner Inc.

"I don't think there are really that many (companies) that can take advantage of the rulings" Bittman said. "This is the big one."

Netscape has the upper hand in its private antitrust suit because past court rulings against Microsoft have already established that it violated antitrust laws, Stanton said. What will be difficult to determine is what damages should be awarded as a result of Microsoft's anticompetitive behavior, he said.

"The question is going to be proving what monetary loss Netscape sustained," Bittman said.

Sam Costello in Boston contributed to this report.