A telecommunications company's federal antitrust suit in Trenton alleges it lost millions of dollars because of Microsoft's Skype in India.
Microsoft paid $8.5 billion in 2011 for Skype, which uses Voice over the Internet Protocol, or VoIP, to enable telephone conversation at a lower cost than through wired systems.
The plaintiffs in TI Investment Services v. Microsoft Corp., 13 cv-4823, allege that Microsoft has been violating Indian law in pursuit of monopoly power and not telling VoIP customers they risk being fined for being part of the illegality.
World Phone Internet Services PVT Ltd. of New Delhi and its majority owner, TI Investment Services of Colt's Neck, filed the complaint in Trenton on Aug. 12.
They seek $9 million or more in compensatory damages, plus punitive damages, legal fees and injunctive relief on claims that Microsoft violated federal and state antitrust law.
They also assert common-law claims for unfair competition and tortious interference.
The complaint depicts World Phone as an Indian VoIP company playing by the rules and unable to compete with international companies that disregard them.
India started requiring that VoIP providers be licensed in April 2002, and World Phone got a license by April 8, 2002.
In contrast, Microsoft allegedly has been operating without one and without paying the license fee of 6 percent of gross revenues, the suit charges.
In addition, it has been flouting regulations that require VoIP providers to house equipment and hardware in India and file twice annual performance reports, the plaintiffs say.
They moved their servers from New Jersey to India after the infrastructure rule took effect on Jan. 1, 2008.
But they contend that Microsoft has not yet done so despite a request from the Indian government in September 2010.
They claim they have an opinion from an attorney, described as "an Advocate of the Supreme Court of India," who confirmed that Microsoft is breaking the law by doing business without a license and is subject to prosecution for civil and criminal violations as a result.
Microsoft's inclusion of Skype in Windows 8 and supposed plans to extend Skype to the Xbox platform further illustrate its ability to leverage its market power to give it a foothold for a monopoly in the gaming world and not just PCs, the plaintiffs allege.
Consumers are allegedly being hurt despite being able to pay less for VoIP services as the result of Microsoft's "predatory pricing" because of their exposure to potential fines by the Indian government for using illegal services.
By not warning them, Microsoft is violating New Jersey's deceptive business practices law, which bars false and misleading statements, the plaintiffs claim.
Further, Microsoft allegedly attempts "to inoculate itself from its illegal conduct by passing the responsibility for legal compliance to its customers" in the Skype terms of service, which say they have to use it "in accordance with the laws of where you are located."
As for damages, the plaintiffs say they spent more than $3 million on advertising and marketing between 2008 and 2012, only to see VoIP revenues go down while their broadband revenues rose.
Auditors they hired to look into the reason allegedly determined that illegal competition from Skype was to blame.
To proceed with their Sherman Act claim, the plaintiffs will have to overcome the Foreign Trade Antitrust Improvements Act, which limits U.S. courts' ability to hear antitrust cases about international business transactions.
To get over that hurdle, they claim that Microsoft's alleged actions affected domestic commerce, based on New Jersey's Asian-Indian population of nearly 300,000, with business and personal ties in India, to whom Microsoft marketed its VoIP services.
The plaintiffs' attorney, Jean-Marc Zimmerman of Zimmerman & Weiser in Westfield, did not return a call.
As of Thursday, Microsoft had not been served but said in a statement, "These claims are without merit and we look forward to responding in court.
Stories in Indian newspapers support some of the allegations.
For example, the Hindu Business Line reported on Feb. 11 that the government would re-examine the legality of VoIP services offered by global companies such as Skype and Google.
"While Indian telecom companies and Internet service providers will have to pay a revenue share for offering voice over Internet, global players such as Skype are offering the service without paying anything to the government," it stated.
Similarly, on May 20, The Times of India ran an article headlined "Government wants Skype to set up servers in India."
The case has been assigned to U.S. District Judge Freda Wolfson and U.S. Magistrate Judge Tonianne Bongiovanni. •