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A Microsoft Suit With a Sure Winner
By Walter Olson
The New York Times, November 23, 1999

It had to happen: America's most successful industry, high technology, is under sustained assault from America's second-most successful industry, litigation.

Following on Judge Thomas Penfield Jackson's findings of fact in the Microsoft antitrust action, three lawyers have filed a class-action lawsuit against the company on behalf of millions of Californians. This private lawsuit could be the first of many, exposing Microsoft to billions of dollars in liability.

The lawsuit follows a case last month in which Toshiba agreed to cough up between $1 billion and $2 billion (including $147 million in lawyers' fees) to settle a lawsuit over a glitch in the floppy drives on its laptops.

The Toshiba settlement brought attention to a question that needs to be answered with care: Shouldn't computer makers -- like aircraft or automobile manufacturers -- be liable when defects in their products harm consumers?

Answering this question in the affirmative would open the floodgates to litigation. After all, crashes of high-technology equipment or systems often cost consumers far more than they originally paid for a program or device. Toshiba, incidentally, says none of the 5.5 million users of the disk drive under discussion in the case had ever reported a glitch in it, though the lawyers showed it could happen if someone set up the machine just so.

As for Microsoft, it faces a potentially huge liability. The plaintiffs' lawyers are charging that Microsoft used its monopoly in operating systems software to overcharge buyers of Windows 95 and Windows 98. Microsoft charged $89 for a Windows upgrade when, the Justice Department's antitrust suit shows, it also considered a price of $49. Thus, lawyers will surely claim that Windows was overpriced by at least $40. Because damages are officially tripled in antitrust cases, Microsoft would have to pay $120 for every copy sold. Even if you're Bill Gates, that can get very expensive very fast.

Defenders of the class-action lawsuit industry will be sure to insist that all this wrangling is great for consumers. But when lawyers recently sued the makers of Pokémon trading cards, charging that they were an unlawful form of gambling, no one asked most parents, let alone kids, what they thought of the idea. Likewise, class-action lawyers do not need to pay the slightest heed to the views of the average user of Microsoft Windows.

In fact, the benefits of the Microsoft lawsuits to anyone other than the lawyers can be hard to detect. Are consumers likely to receive a huge rebate from Microsoft? Don't count on it. Instead, they could well benefit from the latest trend in the class-action world: the coupon. A defendant settles a lawsuit by agreeing to give consumers, oh, let's say, a $50 coupon toward some future purchase.

But how would the same product have been priced in the absence of the coupon? Perhaps at quite a bit less. Coupon settlements allow lawyers to claim large benefits for the consumers, thus justifying their high fees. But many coupons go unredeemed, especially when consumers must fill out complicated paperwork. If coupons were really worth their face value, wouldn't a Sunday newspaper containing $50 in grocery coupons sell for $50?

Earlier this year, lawyers settled a class-action lawsuit, filed in Florida by flight attendants, against tobacco companies over secondhand smoke. The attendants received no money at all -- some of the money went to a nonprofit foundation to research smoking-related diseases, while lawyers took away $49 million.

You can love Microsoft or hate it. But should we really cheer a process whose only sure winners are the lawyers themselves?

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Walter Olson, a senior fellow at the Manhattan Institute, is the author of The Litigation Explosion.

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