Microsoft settles Caldera case!

In a stunning move, Microsoft Corporation has settled with Caldera Corporation, which was suing it for $1 billion in damages for illegally killing the market for its DOS-like operating system in the early 1990's. Though the Caldera case got far fewer headlines than the federal antitrust case, it covered many of the same bases and the case was set to go to court in February after Microsoft repeatedly fought to have it delayed. Terms of the mutually agreeable settlement have not been revealed.

The case began with Digital Research, which marketed its DR-DOS operating system as an improvement over Microsoft's MS-DOS. After winning awards and besting MS-DOS in virtually every comparison, DR-DOS had the rug pulled out from under it when Microsoft released a beta version of Windows 3.0 that detected DR-DOS and gave bogus error messages. The code was removed from the shipping version of Windows, but the damage had been done: Publicly, Microsoft was saying that it would not support running Windows on top of any operating system but MS-DOS; privately, Microsoft was plotting to combine MS-DOS and Windows into a single operating system that would shut DR-DOS out of the market forever. That operating system was released in 1995 as Windows 95.

Digital Research sued Microsoft, but the company and its lawsuit were soon bought by Novell, which was on its own crusade against the software giant. However, even Novell couldn't stand up to Microsoft, and after losing millions of dollars from the purchase of WordPerfect, the company offloaded many of its products to other companies. It sold DR-DOS to Caldera, then a new company started by Ray Noorda, the ex-CEO of Novell. Caldera, like Novell before it, received the lawsuit against Microsoft along with the company, and pressed ahead with plans to bring Microsoft to court. Caldera's case was originally filed in July 1996, but Microsoft successfully delayed the beginning of the trial for almost three years. Finally, in November 1999, the judge overseeing the case denied Microsoft's remaining four motions and plans commenced for a February opening of the trial.

What's amazing, of course, is how similar the Caldera charges are to those that were eventually filed by the U.S. government. In what is now familiar language, Caldera charged Microsoft with illegal product and technology tying, illegal maintenance of a monopoly through predatory conduct and exclusionary practices, and the use of vaporware announcements and "fear, uncertainty and doubt" ("FUD") to prevent DR-DOS from succeeding in the market. However, unlike the federal case, which deals largely with events in the 1995-1998 timeframe, Caldera's case dates back to 1987, when Digital Research released its first DOS product because Microsoft had moved on to OS/2.

In any event, the terms of the agreement are confidential. Microsoft will record a one-time charge against its earnings in the current quarter, which ends March 31, 2000, reducing its earnings per share approximately three cents.

In a final note of irony, Caldera, which now markets a version of the Open Source operating system Linux, expressed its wish that Microsoft will develop its applications software for Linux. Microsoft Corporation had no comment