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Overcharging for Windows: how MS may beat the rap

There's evidence, but it's not clear if anyone will mount the killer lawsuit

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This week Microsoft scored its second victory against a class action claiming it overcharged for Windows, when a Nevada judge granted the company's motion to throw out the case. This follows on from an Oregon ruling last week, where the judge rejected the claim on the basis that consumers could only sue if they'd bought directly from Microsoft.

It's been widely reported that Microsoft doesn't sell direct, but although that isn't entirely true, it's reasonable to say that the vast majority of Microsoft's sales to consumers have gone either through retailers or via PC OEMs. So to that extent, Microsoft is largely in the clear, and stands a good chance of getting quite a lot of the private suits against it thrown out.

But it does still have to deal with suits in US states that do allow consumers to sue when they've bought through an intermediary. And then there's the international angle - the EU, individual European states, or both, could still mount actions, and there have been rumblings of discontent over pricing from the East - Korea in particular.

There are a couple of points to bear in mind while we watch Microsoft bat aside class actions over the next few months. First of all, quite of a few of the cases are likely to be pretty ramshackle operations mounted by ambulance-chasers, and secondly, a substantial body of useful evidence on pricing was uncovered during US Government versus MS; the Nevada and Oregon suits were thrown out because the judges ruled they couldn't be brought, rather than that there wasn't a case to answer, and not all suits are going to be like that.

It's a matter of fact that Microsoft has employed differential pricing, discriminating between OEMs. That's helped some of them, particularly the likes of Compaq and Dell, but it's hurt others. Microsoft's case is that there were sound business reasons for the price differences, but the government argued to the contrary, and that argument was accepted by Judge Jackson. So at least some OEMs could rough up a case - they probably won't, but they could.

Aside from the variations in pricing, there's some pretty damning evidence supplied via subpoenaed emails from our old friend, Microsoft OEM chief Joachim Kempin. You'll recall that, as hardware prices fell in the direction of $500, Kempin was writing about how important it was to hold the line - Microsoft should not allow the cost of Windows to OEMs to fall in line with the fall in hardware prices, or even to fall at all.

This meant of course that as PC sales rose, although margins fell for the PC manufacturers, Microsoft would make a lot more money, because it would get the same price per PC. Kempin helpfully pointed out that Microsoft's share of revenues per PC would rise as this happened, but we can work this out for ourselves, and so can lawyers (albeit only with the aid of expensive economist consultants).

Kempin's active resistance to the notion that prices should go down as volumes go up could be seen as providing some basis for overpricing suits - this, and the differential pricing operated via Microsoft's secret Market Development Agreements, could still add up to a case.

But who would bring it? Somewhere out there there may be a private suit that doesn't fall at the first hurdle, and that's sufficiently well put together to stick. But there probably won't be many in this category; the failure of the Bristol suit showed that it's not always as easy as the DoJ made it look, and that even if you've got some pretty compelling evidence you can still blow it (on market definition, in this case).

As we've already noted, an OEM probably won't bring one. A desperate or publicity-hungry one might, but the most desperate ones are no longer with us (Germany's Vobis might have, but it's no more), and the rest are too used to the status quo to go for it. They'll want to leverage better pricing in the future, and they'll see the past as been and gone.

So maybe Microsoft really won't find itself being whacked for billions, not because there's no case to answer, but because nobody's going to bring it. If Judge Jackson's verdict stands through the appeal process, then Microsoft will remain guilty of harming consumers and business rivals to the tune of billions, but it could actually escape without drastic penalties being exacted. You might reckon that a split company and a stack of conduct restrictions could be classed as penalties, but of course they're not, or not at least designed to be such. They're intended to stop past misconduct being repeated, not as a punishment for that conduct.

Will Sun stand up? Or Netscape? France? Brussels? If there's a killer lawsuit out there, it hasn't been brought yet, and maybe it never will be. ®

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