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The Microsoft Corp. may be on a losing streak in its epic antitrust battle with the federal government, but the software giant is winning most of the early skirmishes in a war with legions of consumers who have filed private actions against the company. Microsoft is facing no fewer than 137 antitrust class actions filed in federal and state courts across the United States by consumers who claim they were overcharged for the company’s software. The stakes are high. If the company loses at trial or is forced to settle even a small number of these cases, it would probably have to shell out billions of dollars in damages. Thus far, Microsoft has enjoyed a string of victories, quietly winning dismissals in seven states since July. But in late August, the plaintiffs won an early round in one case when a California state judge permitted the litigation to go forward as a class action. Digging in against a small battalion of 80 plaintiffs’ lawyers working on the private cases, Microsoft has deployed at least two dozen law firms around the nation on its defense team. They are led by David Tulchin, a partner at New York’s Sullivan & Cromwell, and by in-house lawyer Richard Wallis. Leading the anti-Microsoft charge are two of the best-known plaintiffs’ lawyers in the U.S. — coordinating counsel Michael Hausfeld of D.C.’s Cohen, Milstein, Hausfeld & Toll and Stanley Chesley of Cincinnati’s Waite, Schneider, Bayless & Chesley. More than 60 of the cases have been consolidated in U.S. District Court in Baltimore before Judge J. Frederick Motz. Microsoft filed a motion in July to dismiss this mammoth case. At this early stage of litigation that could last well into the decade, both sides are expressing confidence. “We feel very secure that consumers were not harmed by any of Microsoft’s activities,” says the Redmond, Wash.-based Wallis. “At the end of the day, the question is, ‘Did Microsoft overcharge consumers?’ Microsoft has not overcharged consumers.” Hausfeld replies, “I think Microsoft has serious exposure.” Because so much of the litigation is now in Baltimore, Microsoft brought in litigator Michael Brockmeyer of Piper Marbury Rudnick & Wolfe’s home office as a prominent member of its defense team. Brockmeyer declines comment. Another key Microsoft litigator is former Federal Trade Commission member Mary Azcuenaga, now a partner at the D.C. office of San Francisco’s Heller Ehrman White & McAuliffe. Heller Ehrman represents Microsoft in many antitrust matters in California. Azcuenaga says her task is not to appear in court so much as “to look at the government’s case [before U.S. District Judge Thomas Penfield Jackson] and to see how it relates to the class actions. They are all based on Judge Jackson’s decision, so we need to understand that first.” But before Microsoft argues the substance of the antitrust laws in the private cases and tries to show that Jackson was wrong, it is making several procedural arguments early and often. (Jackson’s ruling has been suspended while the U.S. Supreme Court decides whether it will accept an immediate appeal, as the Department of Justice has urged, or lets the U.S. Court of Appeals for the D.C. Circuit rule on the matter first, as Microsoft prefers.) ‘ILLINOIS BRICK’ IS BACK Thus far, Microsoft’s chief weapon in the consumer cases has been an obscure but powerful antitrust concept known as the indirect purchaser doctrine. The doctrine was established in the 1977 Supreme Court decision in Illinois Brick v. Illinois. It provides that customers can win money damages for antitrust violations only if they bought the product in question directly from the alleged antitrust violator, in this case Microsoft. People or companies that purchased products from a wholesaler, a retailer, or another go-between are out of luck. Microsoft’s software is not sold directly to computer users, but is loaded onto machines that are made by such companies as IBM, Dell, or Hewlett-Packard. The computers are then sold in stores or by mail. So, the Illinois Brick decision, which interprets the federal Sherman Act, goes a long way toward knocking out consumers’ claims, as long as a court finds that it applies. But all 50 states have their own antitrust laws as well, and many of the private cases against Microsoft were filed under these state laws. Most, but not all, of the state statutes provide that courts should be guided by federal antitrust law. On July 21, in a strongly worded decision, a Kentucky state judge ruled that “this court adopts the holding of Illinois Brick and rules that indirect purchasers have no standing.” Judge Judith McDonald-Burkman of Jefferson Circuit Court in Louisville also ruled that whatever antitrust laws Microsoft might conceivably have violated, it had not caused harm to people who bought computers that ran its software. “Microsoft may have done wrong, but not to these plaintiffs,” she wrote in dismissing the case. However, 17 states, including California, have passed laws that eliminate the indirect purchaser defense in their state courts. That gives consumers a better shot at preventing their cases from being dismissed and increases the chances that they can eventually go to trial. “We have other arguments to make in these 17 states,” says Wallis. “We will contend that it is very rare for a court to permit a class action in an antitrust case. Most courts have said you have to look at the damages on a purchaser-by-purchaser basis.” A LOSS IN SAN FRANCISCO Microsoft’s arguments along these lines were rejected on Aug. 29 by Judge Stuart Pollak of the California Superior Court in San Francisco. “Most consumers have little incentive to litigate independently since the costs of litigation undoubtedly would overwhelm their potential recovery. … Under the circumstances, the superiority of a class action is apparent,” Pollak wrote. Plaintiffs’ lawyer Hausfeld says there will be more rulings like Pollak’s. “If Microsoft is looking at the result of a class certification motion as either a victory or a setback, they will have a lot of setbacks,” he says. The seven recent victories, Hausfeld adds, “were almost giveaways. They were in states where cases probably shouldn’t have been filed in the first place, given the state of the law.” No one expects a trial in any of these cases until late 2001 at the earliest, and a good deal will depend on whether Jackson’s ruling eventually holds up on appeal.

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