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Guild Companies - The Enterprise Windows & Linux Advisor
Windows & Linux Edition
Volume 1, Number 4 - February 27, 2002

Be Sues Microsoft for "Destruction of its Business"

by Kristin Palitza

Failed operating systems developer Be has filed a lawsuit against Microsoft claiming the company destroyed its business through anticompetitive practices. The suit, filed with the U.S. District Court in San Francisco, accuses Microsoft of "the destruction of its [Be's] business as a direct result of illegal and anticompetitive practices. Microsoft has long held and willfully maintained monopoly in the worldwide market for Intel-compatible PC operating systems." Be also claimed that Microsoft created exclusive dealing arrangements with major computer manufacturers that required to preinstall Windows exclusively.

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"Microsoft deprived Be of future profits," Be said. The company further claimed that Microsoft exercised its monopoly power to exclude Be's operating system from the market because the startup's system threatened to "undermine the barriers of entry that protect the dominant position of Microsoft's Windows line of products."

The lawsuit is the latest legal effort against Microsoft. The giant is still dealing with the U.S. government's antitrust suit, private class-action suits, and it is facing a suit recently filed by rival AOL Time Warner Inc alleging Microsoft harmed its Netscape browser unit. Microsoft spokesperson Jim Desler said the company will officially respond to Be's lawsuit when its reply is due--usually 30 days after the lawsuit is filed. "This sort of litigation is not in the interest of consumers, nor is it good for the industry," Desler further said. "The industry is at its best when it's developing new products and focusing on innovation."

Be was founded in 1990 to create from scratch a graphical, easy-to-use computer operating system particularly targeting multimedia tasks. BeOS was designed to be portable to be easily adapted to run on a wide range of architectures. Seven years later, BeOS was emerging from its development stages and approaching readiness, the Mountain View, California-based company said. It teamed up with Intel that year to create an Intel-compatible version of its operating system, which it released in the fall of 1998.

Be's business never commercially took off, although some technical insiders praised its operating system. It not only had to face Microsoft as a rival, but also competed against the emerging Linux operating system in the late 1990s. In mid-November 2001, the company sold its intellectual property and technology assets to a subsidiary of handheld computer maker Palm for $11 million, and announced the dissolution of the company. Components of the BeOS are expected to be part of the next version of Palm's operating system, Palm OS 5.

Be retained certain rights, assets, and liabilities, including its cash and cash equivalents, receivables, and rights to assert and bring certain claims and causes of action, including those under the antitrust laws. Following the sale, Be's president and CEO Jean-Louis Gassee resigned in late December. Be's general counsel Dan Johnston took over as president.

Be missed its biggest opportunity to success when its Jean-Louis Gassee turned down a purchase offer from Apple in 1996, which reportedly wanted to pay $125 million for the start-up, but Gassee wanted $200 million. Apple purchased Next, a company launched by Steve Jobs, Apple's co-founder and former CEO, for $400 million instead. Next's OS now powers Apple's computers in the form of MacOS X.

Now, Be says its failure was Microsoft's fault, since the company already possessed monopoly power for operating systems for Intel-compatible PCs in 1998. Microsoft's share of this market is about 95 percent, Be says, referring to a U.S. District Court decision from June 2000 that said Microsoft had illegally maintained a monopoly in the market for desktop operating systems, a ruling that was later upheld by a U.S. Court of Appeals.

Be says in its suit that in early 1998 equipment manufacturer Hitachi committed verbally that it would load BeOS alongside Windows on a line of its PCs. Several months later, Hitachi told the start-up that it could not install the BeOS on its computers and that BeOS would have to be booted off a floppy disk, according to Be. Hitachi explained that the terms of its license with Microsoft prohibited pre-installation of another OS in a dual-boot configuration. Be further claims Hitachi revealed that Microsoft expressed its "anger" with Hitachi over its arrangement with Be.

Hitachi eventually shipped a line of computers with BeOS preinstalled on the hard drive. However, those computers were not preconfigured to allow the user to boot into the BeOS. "Hitachi's decision [...] resulted directly from threats by Microsoft," Be claimed in its filing. Be says that the same restrictions that deprived it from financial benefit through its Hitachi deal precluded it from entering pre-installation deals with other PC makers.

Be further said that two other major PC makers, Compaq and Gateway, also told Be that Microsoft's licensing restrictions would prevent them from offering preinstalled dual-boot computers. Be details a failed initiative with Compaq in its court document, where Be partnered with Compaq to develop a BeOS-based Internet appliance for Compaq computers. In October 1998, Compaq informed Be, however, that it had disclosed data about the Internet appliance project to Microsoft, and Microsoft chairman Bill Gates visited Compaq CEO Eckhard Pfeiffer later that month for a "Digital Appliances Review," Be said in a statement. In early November, Compaq told Be it was no longer interested in licensing the BeOS.

"Computer manufacturers have always been able to ship multiple operating systems with their computers," was Microsoft's comment on Be's allegation, and that vendors "could and did install Be's operating system on their computers." Desler did not want to explain how his statement is compatible with Be's claim that Microsoft did impose restrictions on PC makers.

Gateway and Hitachi said they do not comment on pending litigation. Compaq was not available for comment.

Be further accused Microsoft of artificially depressing Be's IPO price and preventing the start-up from raising post-IPO funding with the help of third-party agents. Be never achieved profitability.

One sign that Be used to be on Microsoft's competition radar is that the software maker stated at court that Be could become a serious rival. Microsoft told the U.S. District Court for the District of Columbia in September 1998 that BeOS posed a "serious threat to Window's category leadership and well could displace Windows over time."

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TABLE OF CONTENTS
Intel Debuts Prestonia Pentium 4 Xeons, Plumas Chipset
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System Integrators Get to Peek at Windows Source Code
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David Lindows Strikes Back against Goliath Microsoft
Be Sues Microsoft for "Destruction of its Business"
Sun Attacks Windows NT Base with Cobalt Appliances
SSB Takes a Closer Look at IBM's Server Sales for 2001
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  Last Updated: 2/27/02
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