US Report: Experts - MS paying fortune in legal fees

Microsoft Corp.'s legal battles could be costing the company as much as $5 million (£3.1 million) a month, according to experts.

The software giant is simultaneously in litigation with government trustbusters, Caldera Corp., Bristol Technology Inc. and Sun Microsystems Inc. All have accused Microsoft of unfair business practices.

Like its well-heeled partner in the Wintel duopoly, Intel Corp., Microsoft can afford to hire top legal talent and Silicon Valley lawyers say the software company never balks at legal fees -- whatever the amount.

In its legal battles against the government and sundry business rivals, Microsoft has dispatched an army of experts from top-notch firms to each case. Those include San Francisco-based Orrick, Herrington & Sutcliffe, which represents the company against Sun, and New York-based Sullivan & Cromwell, which is fighting against government prosecutors and Bristol.

Footing the bill

A lawyer involved in one of the cases against Microsoft estimated the total monthly bill for litigation was costing the company between $3.5 and $5 million.

"It's off the charts," said the attorney, who asked not to be identified. "When you're under the gun, you hire every lawyer in town."

Even so, $5 million is a tiny dent in the deep pockets of the company, which hauled in $14.4 billion (£9 billion) in revenue this year and has $13.9 billion (£8.7 billion) in cash and short-term investments at its disposal.

Rich Gray, an attorney with San Jose-based Bergeson, Eliopoulos, Grady & Gray came up with a similar figure, estimating Microsoft had hired about 90 attorneys to handle a gamut of cases -- including litigation and appeals. If each worked 200 hours per month at an average rate of $300 per hour, Gray calculated that Microsoft would be paying at least $5.4 million (£3.4 million).

However, a government source said the DOJ actually put more attorneys on its case against Lockheed Martin than it assigned to the Microsoft case -- at first.

Limitless resources?

But as the MS-DOJ case widens in scope, the numbers of lawyers taking part has also climbed, the source said.

"In the back room [Microsoft] undoubtedly [has] unlimited resources," the source said.

Microsoft representatives were unavailable to provide information about litigation costs, but the company has repeatedly stated in SEC filings that pending litigation is having no material effect.

Even at $5 million per month, Microsoft could go on litigating for more than 23 years with just the cash it has on hand now -- $13.93 billion, according to its latest SEC filing.

And its cash reserves continue to grow, jumping 36 percent this year from $8.97 billion in 1997.

The $5 million per month figure could be conservative, if IBM Corp.'s antitrust case is any indication. IBM spent about $200 million on the case between 1968 and 1972, although industry watchers warned against comparing the two because the Microsoft case is moving much faster.

Yet another lawyer involved in a case against Microsoft said the company's penchant for throwing money at heavy-duty lawyers doesn't surprise him, considering its size. He's been more impressed by Microsoft's push to keep documents sealed. "They are extremely overzealous in protecting material from public disclosure, and to make it seem as if the other cases are not connected," he said.

The company has repeatedly said information such as source code is a trade secret that should not be revealed to either the public or its competitors. However, judges in both the Caldera and DOJ cases have ordered the company to turn over documents Microsoft had sought to keep under wraps.

The hidden cost of litigation

Perhaps the highest cost to the company comes in the form of distracted executives and a bruised public image.

"It's not just the money spent on lawyers, it's the time diverted from important executives doing other things," attorney Rich Gray said. "That's a much higher cost than any paycheck they hand over to their lawyers."

Many executives are being deposed in multiple cases. And it appears Microsoft is starting to feel the heat.

In a September 14 filing related to the Caldera case, Microsoft attorneys requested a 120-day extension in the trial because its lawyers will be tied up in the DOJ case. "The monumental task of scheduling, preparing for, and taking the depositions of these recently identified witnesses, a near impossibility under the best of circumstances, is utterly unmanageable for Microsoft in light of the impending trial in the DOJ case," the attorneys wrote.

In addition to the time spent in the courtroom, those testifying have to spend hours preparing. Gray said, noting that the pressure has only increased in the DOJ case because the witness list has been severely limited.

"You only have twelve. They better be perfect," he said.

The DOJ case is scheduled to start on October 15. The Caldera case is expected to go to trial next June. The other cases are still in pre-trial phases.

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