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After the Microsoft-Novell Deal

By Stephen H. Wildstrom Microsoft (MSFT) has taken another huge step in what has become a $3 billion-plus campaign to rid itself of the legal fallout of its 2002 settlement of an antitrust case brought by the U.S. government. Gates & Co. agreed on Nov. 11 to pay Novell (NOVL) $536 million to resolve claims regarding Novell's NetWare networking software. That's a drop in the bucket for Microsoft, which had $37 billion in annual revenue last year. But over the long haul, the price of the latest deal, which settles a private antitrust suit brought by Novell and a complaint by the Computer & Communications Industry Assn. (CCIA), could be more significant than the settlement's dollar cost.

Earlier Microsoft paid a total of nearly $1.5 billion to settle cases brought by Sun Microsystems (SUNW) and Time Warner's (TWX) AOL unit, and it has reserved $1 billion to settle state class actions. The software giant is appealing a $613 million fine levied by the European Commission. But with the latest settlements, the only private antitrust cases still hanging over Microsoft are complaints by RealNetworks (RNWK) and (BRST).

PESKY RIVAL. For Novell, however, this deal should be a huge shot in the arm since it's equal to nearly half of Novell's gross revenues for the 12 months ended July 31 (the company suffered a loss of $69 million in the period). And while Waltham (Mass.)-based Novell is a fraction of Microsoft's size, it has emerged as one of the Windows giant's peskier rivals. After watching its NetWare business get squeezed between Windows and the rise of Linux servers, Novell decided that if it couldn't beat the open-source software movement, it would join in.

Novell's acquisition in 2004 of SuSE, a leading distributor of Linux in Europe, and its purchase of applications publisher Ximian in 2003 have made Novell a leader in the small but fast-growing field of Linux for corporate desktop computers. And while a company spokesman declined to say what Novell would do with the settlement money other than apply it to "general corporate purposes," it clearly strengthens Novell's ability to promote its Linux-based products for corporate desktops.

And the deal doesn't end its legal conflict with Microsoft. Even as Novell was settling this suit, it announced it would file a new private antitrust action charging that Microsoft illegally restrained trade in the market for office-productivity software from 1994 to 1996. At the time, Novell owned word-processing software Word Perfect and the Quattro Pro spreadsheet, programs that competed with Microsoft Office. (Novell has since sold both products to Ottawa-based Corel.)

A VOCAL CRITIC. Although the new case, to be filed in federal court in Salt Lake City, uses some facts that emerged in the U.S. government's antitrust suit, it isn't directly related to that case, which concerned Windows and Internet Explorer, but not the Office product line.

The significance of the settlement for the Washington-based CCIA is somewhat less clear. The agreement announcement had no specific description of financial terms except that Microsoft said it would pay some of the trade association's legal expenses incurred during the long struggle and "provide substantial institutional support" in the future. Neither Microsoft nor CCIA would elaborate.

The CCIA agreed to drop a petition to the U.S. Supreme Court to review the Justice Dept.'s 2-year-old settlement with Microsoft and to end its role as an intervener in EC cases involving Microsoft. The CCIA, which has long been a vocal critic of Microsoft, says the settlement doesn't change any of its views past or present.

With the antitrust case out of the way, the association is expected to focus on intellectual property issues including open-source, patents, and copyright, all of which provide plenty of opportunity for conflict with Microsoft in the future. Wildstrom is BusinessWeek's Tech & You columnist

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