Original Complaint in Novell v. Microsoft.
U.S. District Court, District of Utah.
October 1, 2001.
Source: Novell kindly provided Tech Law Journal with a PDF version of the complaint, which TLJ converted into HTML. Several features were eliminated during the conversion, including double spacing and pagination. The Verification has been omitted here.

RAYMOND J. ETCHEVERRY (1010)
MICHAEL L. LARSEN (4069)
CATHERINE AGNOLI (6161)
DIANNA M. GIBSON (7533)
PARSONS BEHLE & LATIMER

One Utah Center
201 South Main Street, Suite 1800
Post Office Box 45898
Salt Lake City, Utah 84145-0898
Telephone: (801) 532-1234
Facsimile: (801) 536-6111

Plaintiff Novell, Inc. ("Novell"), by and through its counsel of record, hereby states its claims for relief against Defendant Microsoft, Inc. and alleges as follows:

1. Plaintiff Novell, Inc. is Delaware Corporation with its principal place of business in Provo, Utah. Novell is a leading provider of network services software that secures and powers all types of networks-intranets, the Internet and extranets, corporate and public, wired to wireless – as one Net, across leading operating systems.

2. Defendant Microsoft, Inc. is a Washington Corporation with its principal place of business in Redmond, Washington. Defendant Microsoft is a world-wide leader in software for business and personal computing. Defendant Microsoft is doing business in and is registered to do business in the State of Utah.

3. This court has subject matter jurisdiction over this action pursuant to 15 U.S.C. §1121(a), 28 U.S.C. § § 1338(a) & 1138(b) and 28 U.S.C. § 1367(a) in that the claims asserted herein arise under the Lanham Act and are joined with substantial and related Utah State law claims under the Utah Truth in Advertising Act.

4. Venue in this jurisdiction is proper pursuant to U.S.C. § 1391(b) & (c) as Defendant Microsoft resides in this district.

5. Pursuant to Utah Code Ann. § 78-27-24(a), this Court has personal jurisdiction over Defendant Microsoft. This court has "general" personal jurisdiction over Defendant Microsoft Corporation because of Defendant’s substantial, continuous and systematic contacts with the State of Utah.

6. On September 9, 2001, Novell launched its newest software product NetWare 6 ("NetWare"). NetWare, one of Novell’s premier products, is a platform for the development of net services and is being positioned as an easy means to enable networks, composed of Windows, Unix or Mac Clients, to access services over the internet. NetWare also includes features providing better support for clustering, improved storage management and support for multi-processor servers.

7. Defendant Microsoft sells various software products, including network operating systems software, that compete with NetWare. One of the versions of Microsoft’s network operating systems that competes with NetWare is known as "Windows 2000 Server;" Microsoft’s competing network operation system is also commonly referred to as "Windows NT."

8. In March 2001, Novell announced its plans to acquire to Cambridge Technology Partners, which acquisition was consummated on July 10, 2001. At the time of the announcement, Novell explained that the acquisition was designed to increase Novell’s ability to support its customers who buy its software, with consultancy services, and to enhance Novell’s ability to sell its products through the consultant group. At this time, Novell also stated it would very much remain a product company.

9. On or around April 4, 2001, Defendant Microsoft published an article on the Internet at TheStreet.Com in which it made the following false statement about Plaintiff Novell: "Novell recently announced that it is moving out of the software business and into the network consulting and services business." (Ex. A, Article dated April 4, 2001 by Jon D. Markman, Managing Editor, MSN Money Central appearing in "TheStreet.Com.")

10. Subsequently, clients and partners of Novell contacted Novell with significant concerns about whether the statement made by Microsoft concerning Novell was true.

11. Novell’s public relations department immediately (on or around April 4, 2001) contacted the article’s author, Jon Markman, and advised him that the statement regarding Novell and Cambridge was false and requested that the article be corrected. Initially, after being contacted by Novell, Mr. Markman agreed to change the statement in some respect as follows: "Novell recently announced that it is transitioning away from a reliance on its core software business in favor of its growing network consulting and services business." Ultimately, this proposed changed statement was superceded by another changed statement, which is set forth in Paragraph 14 below. (Ex. B, Letter dated April 5, 2001 from Ryan Richards, Novell Vice President and Deputy General Counsel to Microsoft’s General Counsel, William H. Neukom.)

12. On April 5, 2001, Novell’s Deputy General Counsel, Ryan L. Richards, sent a letter to Microsoft’s General Counsel advising Microsoft that all of the Microsoft statements, including the statement as changed by Mr. Markman, were false, misleading, disparaging and damaging to Novell, and requesting that Microsoft immediately acknowledge the statements were erroneous and issue corrections. (Id.)

13. By letter dated April 6, 2001, a Senior Attorney for Microsoft, Diane D’Arcangelo advised Novell that "in the spirit of attempting to alleviate any concerns that Novell has, [the author] intends to publish a clarification today that Novell is not leaving or transitioning from the software business in favor of consulting." (Ex. C, Letter dated April 6, 2001 from Diane D’Arcangelo, Esq. to Ryan Richards, Esq.)

14. The original MSN Money Central article published in TheSteet.com was republished on or about April 9, 2001, under the same title "Wanted: Homes for Orphaned Growth Stocks," and the statement regarding Novell was changed to: "Novell recently indicated that it plans to enhance its software business by adding additional consulting resources. To that end, it recently announced plans to purchase Cambridge Technology Partners." (Ex. D, Article dated April 9 (approximate), 2001 by Jon D. Markman, Managing Editor, MSN Money Central, made available on-line at http://moneycentral.msn.com/articles/invest/models/6606.asp.) Further, at the end of the article, there was a note entitled, "Clarification," that stated:

When first published, this column addressed Novell’s focus on software relative to its consulting and services business. Novell tells us that it is not leaving or transitioning from the software business in favor of consulting, but rather is growing and expanding its software business while increasing its consulting resources.

(Id.)

15. On April 6, 2001 the Staff of the TheStreet.Com published "Market News: Corrections and Clarifications" that included the following:

An April 4 SuperModels column by Jon Markman, Wanted: Homes for Orphaned Growth Stocks, incorrectly rendered Novell’s (NOVL:Nasdaq) plans for its cons ulting and services business in relation to its software business. Novell said it is not leaving or transitioning from the software business in favor of the consulting, but rather is growing and expanding its software business while increasing its consulting resources.

(Ex. E, Correction dated April 6, 2001 by the Staff of TheStreet.Com appearing at the TheStreet.Com.)

16. Through one of its customers, on or around September 5, 2001, Novell first learned that Microsoft was again disseminating the same false statements regarding Novell and the Cambridge acquisition that Microsoft had previously published in the corrected article. Novell learned about Microsoft’s conduct in the days before it was preparing to release its newest version of one of its premier products, NetWare 6, on September 9, 2001.

17. This time Microsoft disseminated the false statements on a box that contained a free copy of one of Microsoft’s software server programs. On information and belief, Microsoft was distributing the box to existing Novell NetWare customers and potential NetWare 6 customers. The free software is "Microsoft Services for NetWare v.5.0" ("Free Microsoft Software"), and the box is entitled "Server Crunch," which appears to be a parody of a "Captain Crunch" cereal box. (Ex. F, Copy of "Server Crunch" Box.)

18. The stated purpose of the Free Microsoft Software is to provide "a complete set of new interoperability services and tools for integrating Windows 2000 Server into your existing NetWare environments." The Free Microsoft Software has a stated retail value of approximately $150.00. (Id.)

19. The "Server Crunch" box contains false, misleading and disparaging statements about Novell, its software, NetWare, and commercial activities. It states in pertinent part:

What’s the expiration date on that NetWare platform?

With transaction processing, e-business application compatibility and directory integration becoming mandatory for today’s enterprise, you’ve long known the day would come when access to files and printers is not enough.

That day is here.

Which is why now’s the time to examine alternatives to NetWare. As a result of the recent Cambridge Technology Partners Merger, Novell is shifting its focus from software development to consultancy services.

You’re left with a server platform without the full support of its manufacturer. Which means increasing costs as it rapidly becomes obsolete, forcing you to implement time-consuming retrofits.

(See id.)

20. All of the statements in bold and italics are disparaging, false and misleading ("the False Statements"). As Novell has previously advised Microsoft in early April of this year, Novell is not "shifting its focus from software development to consultancy services." Consequently, as Microsoft is also aware, Novell will not cease to fully support its software and customers, and its product, NetWare will not thereby become "obsolete" and time-consuming to maintain.

21. As a result of the False Statements disseminated on the "Server Crunch" box, Novell has been contacted by Novell clients and business partners who are concerned that Microsoft’s False Statements are true, and that Novell will no longer be in the business of software development and will not fully support Novell’s software products in the future.

22. By letter dated September 13, 2001, Novell, Inc. provided Microsoft with notice that its False Statements constituted a violation of the Utah Truth In Advertising Act ("Notice of Violation"). The Notice of Violation was sent to Microsoft’s General Counsel, William H. Neukom on September 14, 2001 by facsimile, overnight mail and certified mail. (See Ex. G, Letter dated September 13, 2001 from Catherine Agnoli, Esq. to William H. Neukom.) Microsoft received the Notice of Violation by at least September 17, 2001, as evidenced by the attached receipt. (Exhibit H, Signed Return Receipt.)

23. Novell sent the Notice of Violation pursuant to the requirements of Utah Code Ann. § 13-11a-4(5) which states:

No action for injunctive relief may be brought for a violation of this chapter unless the complaining person first gives notice of the alleged violation to the prospective defendant and provides the prospective defendant an opportunity to promulgate a correction notice by the same media as the allegedly violating advertisement. If the prospective defendant does not promulgate a correction notice within ten days of receipt of notice, the complaining person may file a lawsuit under this chapter.

24. By that same letter, Novell advised Defendant Microsoft of its intent to file its claims against Microsoft for Microsoft’s violations of the Utah Truth In Advertising Act unless Microsoft met the requirements of Utah Code Ann. § 13-11a-4(5), and Novell’s intention to pursue all of its other legal remedies. (Id.)

25. Microsoft first responded by letter dated September 21, 2001, which was received on September 24, 2001, and stated that it disputed that the Server Crunch package contained false, misleading and disparaging statements about Novell and its software with the meaning of Utah Code. Ann. § 13-11a-3. Despite the fact it disavowed the falsity of the statements (which it had previously corrected in April), Microsoft stated that to eliminate any misunderstanding, it would immediately begin to send to all who received the Server Crunch box the following communication:

You received recently from Microsoft Corporation a "Server Crunch" package, which included a free copy of "Microsoft Services for NetWare v. 5." That package carton contained certain statements about the NetWare platform and Novell. Microsoft hereby clarifies those statements to the effect that, while the press has reported that by virtue of its merger with Cambridge Technology partners, Novell was shifting its focus from software to consultancy services, Microsoft has no other information that Novell is not currently supporting fully its server platform.

We [Microsoft] believe that statement clarifies the package carton and satisfies Section 13-11a-4(5).

(Ex. I, Letter dated September 21, 2001 from James S. Jardine, Esq. to Catherine Agnoli (emphasis added).)

26. Because Microsoft proposed "clarification" denied that the False Statements about Novell and its products were false, misleading and disparaging and intended only to send out a statement that purported to "clarify" the False Statements, Novell advised Microsoft its proposed communication was insufficient as a corrective notice under Utah Code Ann. § 13-11a-4(5). (Ex. J, Letter dated September 25, 2001 from Catherine Agnoli to James Jardine.)

27. On information and belief, Microsoft did not disseminate this first proposed communication.

28. After it received Novell’s letter explaining its communication was inadequate, by letter dated September 27, 2001, Microsoft advised Novell that it had considered Novell’s "proposed language" and that it had made changes to its communication. However, Microsoft again reiterated that it did not believe that the Server Carton box contained false, misleading and disparaging statements within the meaning of Section 13-11a-3 of the Utah Act. Further, Microsoft stated that it would "immediately send to all those who received the carton the following communication:"

You received recently from Microsoft Corporation a "Server Crunch" package, which included a free copy of "Microsoft Services for NetWare". That package carton contained certain statements about Novell and Novell NetWare. Microsoft hereby clarifies and corrects those statements. The press has reported that by virtue of its merger with Cambridge Technology Partners, Novell is shifting its focus from software to consultancy services. However, Novell advises that it is growing and expanding its software business while adding significant resources to its existing consulting services business as a result of the recent merger. Microsoft has no other information that Novell is not currently supporting fully its server platform and hereby retracts any statement on its Server Crunch package to the effect that Novell's merger will cause its server platform customers now or in the future to be left without Novell's full support or will require costly time-consuming retrofits.

(Ex. K, Letter dated September 27, 2001 from James S. Jardine to Catherine Agnoli.)

29. Microsoft’s proposed communication as stated in Paragraph 28 is very similar to the correction it published to the article it wrote on April 4, 2001 because, like that correction, it came only after Novell advised it is was publishing false statements, and it advises the recipient that "Novell advises that it is growing and expanding its software business while adding significant resources to its existing consulting services business as a result of the recent merger." Further, and most importantly, Microsoft continues to deny that any of the statements about Novell and NetWare on the Server Crunch box are false, misleading or disparaging.

30. On information and belief, Microsoft began to disseminate the communication stated in Paragraph 28 to "all those who received the carton" beginning on or around September 27, 2001. (Id.) Novell has no information regarding the method by which Microsoft is or will be disseminating the communication stated in Paragraph 28 herein.

31. Further, Novell believes that Microsoft disseminated at least several thousand of the Server Crunch boxes, and it is aware of the identity of some of the recipients of the box, but Novell has no knowledge regarding the identity of the bulk of the recipients.

32. In its communications to Novell, Microsoft has not advised Novell that it will cease its dissemination of the Server Crunch box, or that it will cease making the False Statements about Novell and its acquisition of Cambridge Partners Technology and its products, in particular NetWare, in the future through the Server Crunch box or through other means. To the contrary, Microsoft continues to disavow that the statements it has made about Novell on the Server Crunch carton are false, misleading or disparaging. (Ex. K, Letter dated September 27, 2001 from James S. Jardine to Catherine Agnoli.)

(Lanham Act – False Advertising and Product Disparagement)

33. Plaintiff Novell hereby incorporates Paragraphs 1 through 32 as if fully stated herein.

34. Defendant’s False Statements about Novell violate § 43(a) of the Lanham Act, U.S.C.A. § 1125(b) (1998), because they are false and misleading descriptions and representations of fact in commercial advertising in connection with goods in interstate commerce, which descriptions and representations misrepresent Plaintiff Novell’s products, services and commercial activities.

35. Defendant’s False Statements about Novell further violate § 43(a) of the Lanham Act, U.S.C.A. § 1125(b) (1998), because they are false and misleading descriptions of and representations of fact in commercial advertising in connection with goods in interstate commerce, which descriptions and representations disparage Plaintiff Novell’s products, services.

36. By reason of Defendant Microsoft’s acts alleged herein, the dissemination of the False Statements, Plaintiff Novell has and will suffer damage to its business, reputation and good will and loss of sales and profits Plaintiff would have made but for Defendant’s acts.

37. Defendant Microsoft threatens to continue to do the acts complained of herein, the dissemination of the False Statements, and unless restrained and enjoined, will continue to do so, all to Plaintiff Novell’s irreparable damage.

38. Plaintiff Novell hereby incorporates Paragraphs 1 through 37 as if fully stated herein

39. Pursuant to Utah Truth in Advertisings Act, § 13-11(a)-3(1)(h), Microsoft’s False Statements about Novell and NetWare are deceptive trade practices because they "disparage the goods, services, or business of [Novell] by false or misleading representation of fact."

40. Microsoft’s False Statements about Novell and NetWare also constitute a violation of the Utah Truth in Advertising Act, § 13-11(a)-3(1)(t), which states that a deceptive trade practice occurs when a company "engages in any other conduct which similarly creates a likelihood of confusion or of misunderstanding."

41. By letter dated September 13, 2001, and received by Microsoft on September 17, 2001, Novell, Inc. provided Microsoft with notice of its violation of the Utah Truth In Advertising Act pursuant to the requirements of Utah Code Ann. § 13-11a-4(5):

No action for injunctive relief may be brought for a violation of this chapter unless the complaining person first gives notice of the alleged violation to the prospective defendant and provides the prospective defendant an opportunity to promulgate a correction notice by the same media as the allegedly violating advertisement. If the prospective defendant does not promulgate a correction notice within ten days of receipt of notice, the complaining person may file a lawsuit under this chapter.

42. By that same letter, Novell advised Defendant Microsoft of its intent to file its claims against Microsoft for Microsoft’s violations of the Utah Truth In Advertising Act unless Microsoft met the requirements of Utah Code Ann. § 13-11a-4(5).

43. Microsoft has not met the requirements of Utah Code Ann. § 13-11a-4(5) within the time period proscribed by that statute because the proposed communication set forth in Paragraph 28 herein is not a correction notice that is promulgated by the "same media" as the Server Crunch box. Moreover, Microsoft continues to deny that any of the statements on the Server Crunch box about Novell are false, misleading or disparaging.

44. By reason of Defendant Microsoft’s acts alleged herein, Plaintiff Novell has and will suffer damage to its business, reputation and good will and loss of sales and profits Plaintiff would have made but for Defendant’s acts.

45. Defendant Microsoft threatens to continue to do the acts complained of herein, the dissemination of the False Statements, and unless restrained and enjoined, will continue to do so, all to Plaintiff Novell’s irreparable damage. Plaintiff Novell’s remedy at law is not adequate to compensate it for injuries threatened.

WHERFORE, Plaintiff Novell, Inc. prays for the following:

1. On Plaintiff’s First Claim for Relief that this Court grant a temporary restraining order and a preliminary and permanent injunction pursuant to the powers granted to it under 15 U.S.C.A. § 1116 (1998), enjoining and restraining Defendant and its agents, servants, employees from directly or indirectly disseminating the False Statements in the form of the "Server Crunch" carton or in any other form of advertising; and,

(a) Order that Defendant promulgate correcting advertising by the same media and with the same distribution and frequency as the advertising found to violate the Lanham Act, including:

(i) ordering Defendant to recall all of the Server Crunch cartons it has disseminated;

(ii) ordering Defendant to provide Plaintiff with the identities and addresses of all the recipients of the "Server Crunch" carton; and,

(b) Grant Plaintiff an award of monetary damages pursuant to U.S.C.A. § 1117(a) (1998) in amount to be determined at trial;

(c) Grant Plaintiff an award of its costs and all of its attorneys fees pursuant to U.S.C.A. § 1117(a) (1998); and;

(d) Grant Plaintiff an award trebling its damages pursuant to U.S.C.§ 1117(a) (1998).

2. On Plaintiff’s Second Claim for Relief that this Court grant a temporary restraining order and a preliminary and permanent injunction pursuant to the powers granted to it under Utah Code Ann. § 13-11a-(2)(a) enjoining and restraining Defendant and its agents, servants, employees from directly or indirectly disseminating the False Statements in the form of the "Server Crunch" carton or in any other form of advertising; and,

(a) Order that Defendant, pursuant to Utah Code Ann. § 13-11a-4(3), promulgate correcting advertising by the same media and with the same distribution and frequency as the advertising found to violate the Utah Truth In Advertising Act, including:

(i) ordering Defendant to recall all of the Server Crunch cartons it has disseminated;

(ii) ordering Defendant to provide Plaintiff with the identities and addresses of all the recipients of the "Server Crunch" carton; and,

(b) Grant Plaintiff an award of monetary damages pursuant to Utah Code Ann. § 13-11a-4(2)(b) (1999); and

(c) Grant Plaintiff an award of its costs and all attorneys’ fees pursuant to Utah Code Ann. § 13-11a-4(2)(c) (1999).

3. On all of Plaintiff’s claims for relief, all such other relief this Court deems just and proper.

Respectfully submitted this _____ day of October, 2001.

Plaintiff’s Address

Novell, Inc.
1800 South Novell Place
Provo, Utah 84606-6194