Some battles never end, or so it seems. Novell v. Microsoft is the Yankees-Red Sox of the tech world – albeit not as exciting. Microsoft first released its Windows95© operating system in August 1995. Nine years later, on November 12, 2004, Novell sued Microsoft, alleging that Microsoft's refusal to license certain application programming interfaces ("APIs") for its "Office" suite application was an illegal refusal to deal that had the purpose and effect of maintaining its Intel-compatible operating system monopoly in violation of Section 2 of the Sherman Act.[102]

That even a monopolist has no duty to deal with its competitors is one of the bedrocks of antitrust law.[103] Yet, like all rules – even the rule against price-fixing – the law recognizes exceptions. [104] Novell claimed that Microsoft's conduct fell within the well-recognized exception that a monopolist that terminates a prior voluntary course of dealing with a rival without a legitimate business rationale violates Section 2 of the Sherman Act. After 11 years of litigation, a two-month trial, and a hung jury,[105] the district court entered judgment for Microsoft, finding that Microsoft's conduct did not violate the Sherman Act as a matter of law. On appeal, in Novell, Inc. v. Microsoft Corp.,[106] the Tenth Circuit affirmed the lower court, holding that "Microsoft did nothing unlawful," and in fact "engaged in legally permissible competition."

Ancient History

A computer operating system is a software program that mediates the computer hardware and application software, such as word processing, spreadsheet, presentation, and graphics software. Microsoft's first operating system was MS-DOS, which it had acquired from Seattle Computer Products in 1981, and then licensed to IBM. MS-DOS was not the only version of DOS, but by the mid-1990s, Microsoft was the dominant supplier of DOS, the operating system used in Intel-compatible personal computers.

Users communicated with DOS by typing commands on a keyboard. Apple developed an operating system which allowed users to communicate with the computer by pointing and clicking An input device (a "mouse") on pictures ("icons") on the computer screen, a so-called graphical user interface. Building off of the experience it learned in developing applications software for Apple's graphical operating system, Microsoft, in the mid-1990s, began to develop its own graphical user interface operating system, which would become Windows95©.[107]

In addition to operating systems, Microsoft sold application software, including Word, Excel, and Power Point, which it bundled in an offering called "Microsoft Office." Microsoft, however, was not the only vendor of application software. Independent software vendors ("ISVs"), including Novell, also offered application software in competition to Microsoft Office. Novell offered PerfectOffice©, which included WordPerfect and Quattro Pro (a spreadsheet program). Prior to the introduction of Windows95©, WordPerfect was the leading word processing program on computers using DOS.

The success of an operating system in the marketplace depends in part on the number of applications written for it. In order to write applications for an operating system, the developer needs access to the operating system's programming interfaces ("APIs"). In developing Windows 95©, Microsoft needed to decide to what extent should it provide access to Windows95©'s APIs before its official release. Providing prerelease access to APIs to ISVs, like Novell, would mean that upon Windows95©'s official release, consumers would have the choice of software not just from Microsoft, but from other developers. Microsoft, in fact, provided a prerelease of Windows95© with APIs to ISVs, including Novell, in June 1994. However, in October 1994, Microsoft changed course and advised ISVs that they could no longer rely on the previously published APIs and would not guarantee the operability of the previously published APIs in the final version of Windows 95©.[108]

Good Manners and Antitrust

As noted, as a general rule, no firm, not even a monopoly firm, has a duty to deal with its competitors.[109] "Antitrust evinces a belief that independent, profit-maximizing firms and competition between them are generally good things for consumers... Experience teaches that independent firms competing against one another is almost always good for the consumer and thus warrants a strong presumption of legality."[110] The rationale for this rule is straightforward. Helping a rival would (i) "paradoxically risk encouraging collusion," (ii) "risk reducing the incentives both sides have to innovate, invest and expand," and (iii) would put courts in the role of central planners required to choose the applicable terms and conditions.[111]

Under certain limited circumstances, however, a monopolist's refusal to deal with its competitors may violate Section 2 of the Sherman Act,[112] which proscribes actual and attempted monopolizations, and conspiracies to monopolize. To establish that the refusal to deal constitutes the offense of unlawful actual monopolization, the plaintiff must prove that the seller possesses monopoly power in relevant product and geographic markets.[113] In the Novell case, Microsoft conceded that it had a monopoly in Intel-compatible operating systems in the 1990s.[114]   

Having a monopoly, however, is not enough to make an act illegal under Section 2.[115] In addition, Novell had to prove that Microsoft "willfully" maintained or extended its monopoly.[116] To prove "willful" acquisition of monopoly power, the plaintiff must prove that the seller engaged in exclusionary conduct, which, generally, is conduct that does not have a valid business purpose and harms consumers.[117] In the context of a unilateral refusal to deal, exclusionary conduct may be demonstrated by showing that there was a prior voluntary profitable course of dealing, which the monopolist terminates and in so doing sacrifices short-term profits in order to harm a rival (that is, acts without an efficiency justification).[118]   

Wasn't this exactly what Microsoft did? Initially, Microsoft shared its APIs with ISVs "in an effort to spur them into writing software," and then pulled the rug out from under them. [119] "A voluntary and profitable relationship clearly existed between Microsoft and Novell";[120] and Microsoft understood that the withdrawal would make it "harder for the likes of Notes [and] WordPerfect" to compete and would give "Office a real advantage."[121] In Aspen Skiing Company v. Aspen Highland Corp.,[122] both the Tenth Circuit and the Supreme Court upheld a jury verdict finding liability when Aspen Skiing, a monopolist, agreed to a sales and a marketing joint venture with its smaller rival, Aspen Highlands, and then discontinued the venture even though the arrangement was profitable.[123] Aspen offered no efficiency rationale for its conduct; instead Aspen "discontinued the arrangement simply to reduce the value of Aspen Highlands, force Highlands to sell, and in this way ... control all four ski mountains in Aspen."[124]

Even though the Aspen Skiing rule was "at or near the outer boundary of § 2 liability,"[125] surely after years of struggle Novell had finally scored the winning run in the ninth inning. Like mighty Casey, however, Novell struck out. True, Microsoft was a monopolist and, yes, it voluntarily entered into a profitable course of dealing with ISVs; it was also true that Microsoft may have had "an uncharitable intent toward rivals, maybe even a wish to 'hurt' or 'destroy' them.'"[126] But the antitrust laws are not "designed to be a guide to good manners"[127] and the difficulty was that Microsoft "did not sacrifice short term profits, let alone in a manner that was irrational but for its tendency to harm competition."[128] Indeed, Microsoft presented evidence that its "decision came about as a result of a desire to maximize the company's immediate and overall profits."[129] Moreover, even if Microsoft made Windows 95© less attractive in the short term, the withdrawal of the APIs "allowed it to win significant profits in the sale of Office suite applications – and to do so immediately."[130] Thus, the withdrawal of the APIs was a double-edge sword. On the one hand, Windows95© would not be as popular upon its initial release because a wide range of software from different vendors would not be available; on the other hand, "withdrawing access would also make Microsoft's own applications, including Microsoft Office©, more immediately attractive."[131]

Efficiency and Antitrust

Given that Novell claimed that Microsoft was willfully extending its operating system monopoly, why was it not enough that Microsoft arguably made Windows95© less attractive in the short run? Aspen held that a plaintiff had to show that the defendant's conduct "had no economic justification except its tendency to exclude a rival."[132] In contrast, even though Novell claimed that Microsoft's conduct was directed at monopolizing the operating system market, as long as Microsoft's conduct was profit-maximizing overall, its withdrawal of help was not anticompetitive. "Microsoft is an integrated firm with the goal of maximizing overall profits."[133] According to the Tenth Circuit, antitrust requires firms to seek overall profitability and does not require courts to "disaggregate profits from different lines of business."[134] Any other rule would require large firms "to forego immediate overall gains in order to subsidize a less efficient rival that happens to do business only in one particular product line."[135]


The Tenth Circuit's "no disaggregation/overall profit maximizing" rule could prove to be very beneficial to many high-tech companies whose practices are being scrutinized through the lens of the Sherman Act by enforcers and the plaintiffs' bar. Google, Apple, and Amazon, for example, operate in many different, but related, lines of business. Suppose one of these companies sold certain products below cost. The "no disaggregation/overall profit maximizing" rule may prove to be a very effective defensive argument against a monopolization charge.