by computer industry analyst Graham Lea

The surprise settlement of the private antitrust action by Caldera Inc of Utah against Microsoft has increased the possibility that there may now be a settlement of the unrelated antitrust action brought by the US Department of Justice.

In 1996, Caldera purchased DR-DOS, a serious rival to the MS-DOS operating system, from Novell for $400,000. DR-DOS was originally developed in Hungerford, England, by Digital Research, which was subsequently acquired by Novell.

Caldera inherited the right to sue Microsoft for alleged anti-competitive actions against DR-DOS when it was a rival to MS-DOS in Windows 3.1.

False error messages

Beta testers of Windows found that if they were using DR-DOS, this was detected and false error messages were generated.

Microsoft's encrypted code to disguise what it had done was unravelled by Geof Chappell in England, who commented at the time that "the only error' is that the user is running Windows with someone else's version of DOS."

The development of DR-DOS caused Microsoft to resume the development of MS-DOS, which had languished because of the lack of a competitor. Microsoft also undertook a worldwide campaign to persuade users of DR-DOS to switch to MS-DOS.

In its action against Microsoft, Caldera also alleged that Microsoft had combined MS-DOS 7.0 with Windows 95 in an attempt to prevent DR-DOS substituting for MS-DOS. Microsoft denied this, but Caldera was able to demonstrate publicly Windows 95 running with DR-DOS rather than MS-DOS.

The basis of Caldera's legal claim was that Microsoft had competed unfairly, reducing the sales that DR-DOS might otherwise have achieved.

Microsoft seeks to settle

Microsoft contested the case vigorously, but was unable to get the case moved from Utah, or to get it dismissed. The jury trial was to have started on 1 February, and it was thought unlikely that Microsoft would win because of the strength of the evidence that Caldera had partially disclosed in documents filed at the US District Court in Salt Lake City.

Last Friday there was a meeting, at Microsoft's request, in a mediator's office in Seattle, and at the end of the day, a settlement was agreed.

The terms are confidential, but Microsoft has admitted that it has made a substantial payment to Caldera. Microsoft was also able to control the text of the press release that announced the settlement.

Microsoft said it would take a 3 cents charge in the present quarter, but it is not known whether this represents the whole of the settlement. Certainly the cost to Microsoft will be several hundreds of millions of dollars.

Tom Burt, General Counsel - Litigation for Microsoft said:"We are pleased to put this issue behind us. Rather than litigating, we prefer to focus on building great software for our customers in this dynamic and competitive industry."

Caldera bets on Linux

Bryan Sparks, CEO of Caldera commented: "We are pleased with the result of this lawsuit. We now look forward to vigorous competition in the marketplace with our Linux products and strategies both from Caldera Systems Inc. and Lineo Inc."

The result is a great victory for Ray Noorda, the former Novell chairman and backer of Caldera, who has over many years sought to encourage ethical competition in the computer industry, for which he coined the term "co-opetition".

Attorney Steve Hill for Caldera considered that the most important aspect of the result in both the Caldera case, and in the DoJ's case so far, is that Linux has now reached a position of general acceptance as a major operating system contender.

Microsoft morale

A factor cited that may have influenced the settlement is the adverse effect on Microsoft's morale as a result of the various legal actions that it is defending.

Mr Sparks said that personally he expected that if Microsoft were going to settle with the DOJ (the case is currently being privately mediated by Judge Posner in Chicago), this would probably happen in the next two weeks, before Judge Jackson in the Washington DC court issued his findings of law, which were expected to provide unwelcome reading for Microsoft.

Just before the settlement was announced, Caldera Systems announced it had received a $30 million investment from Sun, SCO, Citrix and Novell.

By a remarkable and completely unrelated coincidence, Caldera Systems also announced on Monday that it had filed to go public. With the precedent of Linux distributor Red Hat's IPO, it is likely that Caldera's shares will open at a significant premium.

Graham Lea is a leading computer analyst specialising in Microsoft - his views do not represent those of the BBC.