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
"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
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
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