Browser Wars Are Back: Netscape Sues Microsoft

Updated from 5:05 p.m. EST

Some very heavy shoes dropped Tuesday at AOL Time Warner (AOL).

Six months after an appeals court affirmed that software giant Microsoft (MSFT) violated antitrust laws and harmed the once-independent Netscape Communications, Netscape parent AOL Time Warner filed a private antitrust suit against Microsoft, seeking unspecified damages against the Redmond, Wash., company.

The lawsuit follows dozens that have already been filed in the wake of federal court decisions finding that Microsoft has behaved anticompetitively. Earlier this month, a federal judge rejected a proposed settlement of more than 100 such private class-action suits. Separately, the Justice Department and nine states have agreed to a settlement in their antitrust case against Microsoft, while nine other states are rejecting the current settlement proposal.

AOL Time Warner isn't specifying the amount of monetary damages that it is seeking, but the company says it wants "injunctive relief sufficient to prevent further antitrust injury to Netscape, and an award of treble damages to be determined at trial." America Online acquired the struggling Netscape in 1999, and subsequently merged with Time Warner to form AOL Time Warner.

Monetizing It

"That will be a very, very interesting question -- to determine the scope of the monetary damages," says Mike Pettit, the president of ProComp, a trade association, perceived to be anti-Microsoft, that has received funding from Netscape Communications and America Online. "You can make the case, had Microsoft not acted unlawfully, that Netscape would have supplanted Microsoft over time and commoditized at least their operating system."

Pettit isn't willing to hazard a specific guess as to what a successful Netscape would be worth, but he has a general idea: "That number's in the billions," he says. "Well into the billions, before treble damages."

Given the money at stake, he says, AOL Time Warner owes it to its shareholders to sue Microsoft. "After the Court of Appeals decision," he says, "this was an asset on their books. ... I can't imagine anything short of bringing the lawsuit that would have monetized that asset."

A Microsoft representative couldn't immediately be reached for comment.

Old Friends

Microsoft and Netscape are longtime rivals, going back to the mid-1990s, when Netscape executives boasted they would demolish Microsoft's business. Netscape and other foes had long argued that allowing Microsoft to integrate its browser with Windows was an unfair advantage and would badly undermine the competitive position of all rivals. Netscape CEO Jim Barksdale's testimony about discussions with Microsoft over the issue played a key role in the two-year trial.

Quoting the June 2001 appeals court ruling upholding the lower court's decision against Microsoft, AOL Time Warner repeats, "Microsoft undertook a number of anticompetitive actions that seriously reduced the distribution of Navigator," the Netscape browser software. Furthermore, AOL Time Warner quotes the appeals court's finding that Microsoft's actions "have a significant effect in preserving [Microsoft's] monopoly; they help keep usage of Navigator below the critical level necessary for Navigator or any other rival to pose a real threat to Microsoft's monopoly."

AOL Time Warner's lawsuit alleges that because of Microsoft's actions, Netscape "lost browser licensing revenues; it lost browser market share that would have led to other significant sources of revenues, including portal revenues and revenues from its enterprise software and products businesses; its marketing and distribution costs were significantly increased; it lost goodwill and going concern value; and it lost the profits that would have existed if Microsoft had not acted illegally to prevent Netscape's browser technology from providing a competitive alternative to Microsoft's monopoly operating system as a development platform."

Microsoft, which fell $1.64 to $64.46 in regular trading Tuesday, gained 30 cents back after hours. AOL Time Warner, down $1.18 to $28.40 in normal trading, was up 32 cents after hours.

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