A newly filed class-action suit claims that Microsoft is not doing enough to protect users against security vulnerabilities. The suit is interesting because it challenges the company's ability to protect itself against liability through licensing terms—the first such challenge since Microsoft was determined to have a monopoly in the desktop OS market.

In other legal news, the company has settled an antitrust claim brought by a class of consumers who purchased Windows through a Microsoft Web site, and patent skirmishes continue to take up much of the Microsoft legal team's attention.

Security Suit Challenges Precedents

A California user has filed a class-action suit against Microsoft alleging that the company is not doing enough to stop viruses and worms from exploiting security holes in its products. Plaintiff Marcy Hamilton claims that Microsoft is liable for damages under the recently passed California Security Act (CSA), which mandates that companies inform California users when a security breach has caused personal information to be shared with unauthorized parties. In particular, Hamilton alleges that Microsoft's security bulletins are too difficult to access and too hard for the general public to understand, and the company's chosen method of fixing security holes—forcing users to download and install patches—is too complex. According to the suit, because Windows and Microsoft applications are on so many computers (a "virtual monopoly"), the bulletins actually increase the risk of attacks, as average end-users take no action while "hackers" learn about breaches in the OS that they can exploit.

The filing appears to challenge a common practice among software companies: seeking legal protection through licensing terms. For instance, the Windows XP Professional End User License Agreement (EULA), which users must accept before using the product, says that Microsoft cannot be held liable for damages exceeding the price of the product, that the product is provided "as is and with all faults," and that Microsoft is not responsible for any damage resulting from "loss of privacy." (A copy of the Windows XP EULA can be found in the systems directory, typically at \Windows\System32\eula.txt.)

In the past, courts have upheld this practice. However, this is the first such challenge to Microsoft since a U.S. federal court determined that the company has a monopoly in the desktop OS market. In many instances, courts have disallowed contracts that are deemed "unconscionable," or extremely unfair. Because many consumers and businesses effectively have no choice but to buy Windows, a court might find that the EULAs are unconscionable.

Hamilton's suit was filed in the Los Angeles branch of the Superior Court of California, where a judge will now consider whether to certify the class—that is, whether Hamilton may sue Microsoft on behalf of anybody who has purchased Windows in the U.S. (not just in California).

Another Settlement in Federal Antitrust Case

Plaintiffs continue to settle with Microsoft in the private antitrust case being heard in the federal district of Maryland. In Sept. 2003, Microsoft announced it would pay an estimated US$10.5 million to settle antitrust claims brought by consumers who purchased Windows through a company Web site or certain direct mail campaigns. Each of the approximately 550,000 affected consumers will be entitled to receive about US$19 per copy of Windows purchased.

This is the third settlement in four months in this case: in June 2003, Microsoft settled with AOL for US$750 million, and in September it settled with Be for US$23 million. The two remaining plaintiffs are Sun Microsystems and Burst.com.

Patent Lawsuit News

Eolas seeks IE injunction. Eolas Technologies has filed a motion to prevent Microsoft from continuing to distribute its Internet Explorer (IE) Web browser. In Aug. 2003, a jury found that IE violated an Eolas patent governing the ability of browser programs to automatically launch and execute interactive content embedded in a hypertext document, such as a Web page (see "EU Warns, Patent Disputes Heat Up, and Other Legal News" on page 30 of the Sept. 2003 Update). However, that verdict does not address Microsoft's legal right to distribute the infringing technology beyond Sept. 2001. Now, Eolas wants a judge to stop Microsoft from distributing IE altogether.

The move may be an attempt to influence negotiations over the patent. Shortly before Eolas's motion, Microsoft released a test version of IE that Microsoft claims would not infringe the patent. However, it would either force Web developers to rewrite some material on their pages or would cause considerable inconvenience for end users. (See "Lawsuit Drives Browser Changes".) This suggests that Microsoft is willing to risk IE's compatibility with millions of Web pages to evade the Eolas patent. But if a judge prevents Microsoft from distributing IE, this would increase pressure on Microsoft to negotiate for the patent—even if it means paying a steep price.

If no settlement can be reached, the case will proceed to a federal appeals court.

Suit filed over music services. E-Data, a small New York firm, has filed a patent infringement suit against Microsoft, European online music distributor Tiscali, and European ISP OD2. E-Data owns a European patent covering the distribution of digital information over a network and the subsequent creation of a physical object containing that information. According to E-Data, this patent covers services that allow users to download music and copy it to a hard drive or CD-ROM. U.S. courts have rejected such claims in the past, saying that E-Data's similar U.S. patent (now expired) does not apply to downloads copied to a computer's hard drive. E-Data is asking for an injunction shuttering the MSN Music Service and Tiscali Music Club, both of which offer downloads (via OD2) in Microsoft's Windows Media Format.

Smart Tags suit dismissed. Even as Microsoft continues to fight more than 20 patent-related lawsuits, the company can count one victory: a judge has dismissed a patent-infringement claim over Smart Tags, a feature that first appeared in Office XP. Smart Tags present context-specific menus to users based on their actions—for instance, when a user types an address, a Smart Tag will appear on the screen and offer the option of embedding a map in the page. Wisconsin company Hyperphrase filed a suit in 2002 claiming that Smart Tags infringed three patents related to searching information in tiered databases. U.S. District Judge Barbara Crabb disagreed, saying that Smart Tags worked differently, and dismissed the case.