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Saturday, July 25, 1992 - Page updated at 12:00 AM

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Z-Nix Files Countersuit Against Microsoft

A small $14 million computer mouse maker in California has once again invoked the magic word "anti-trust" in its legal battle with Microsoft.

Z-Nix Co. Inc., of Pomona, Calif., yesterday filed a counterclaim in Los Angeles federal court seeking $35 million in damages from Microsoft, which in June sued Z-Nix for alleged contract violation.

Redmond-based Microsoft is using its domination of the Windows market in IBM-compatible computers to control the computer mouse market, a Z-Nix attorney said.

A similar charge in November of 1990 led Microsoft to settle with Z-Nix the day after the charge was filed. A Microsoft spokesman said the company was studying Z-Nix's latest action and would have no immediate comment.

"This is a legal battle being fought through the media," said Marty Taucher, Microsoft spokesman. "When we go to court next week we'll have a chance to respond."

A hearing will be held in Los Angeles Tuesday on Microsoft's original suit and Z-Nix's counter claim.

Microsoft has been under investigation by the Federal Trade Commission since June of 1990 for possible monopolistic practices.

The two companies have had a stormy relationship since Z-Nix first charged Microsoft with an anticompetitive "tie-in" involving the two markets. Windows makes a computer easier to use by using pictograms to represent files and menus to list commands. The mouse-pointing device manipulates the files and executes commands.

The Sherman Act "states that one company cannot adopt policies or commit actions with the intent and inevitable effect of restraining trade, controlling prices and monopolizing the market," a Z-Nix press release stated.

"We are intentionally being conservative on our damage request because we want the judge to know we're serious (about being awarded the amount)," said Thomas Chan, a Los Angeles attorney specializing in anti-trust.

Z-Nix is asking $10 million for Microsoft's interfering with its customer relationships, another $10 million in punitive damages, and $5 million for antitrust violations. Plaintiffs normally seek treble the amount of an antitrust damage.

Chan said Borland International, a Z-Nix business partner and leading Microsoft competitor in personal-computer software, may participate in the action. Borland representatives were unavailable for comment.

In its original suit, Microsoft claimed Z-Nix was selling Windows 3.1 upgrades illegally and terminated its licensing agreement with the mouse maker.

Judge David Kenyon initially granted a temporary restraining order barring Z-Nix from further sales of its Windows upgrade. But Kenyon 10 days later overturned the restraining order.

Beside anti-trust, Z-Nix made eight other counterclaims charging Microsoft with making "false allegations and disparaging statements," trespassing, breach of contract and unfair competition under California state law.

"Microsoft has crossed the line between competing on fair ground and participating in illegal activities to gain a competitive edge," Chan said. He said Microsoft has called Z-Nix "a group of counterfeiters" and told potential customers the company's products are illegal.

Z-Nix has paid Microsoft more than $3 million in royalties for Windows, the counterclaim stated. Under the license agreement, Z-Nix was allowed to sell copies of Windows 3.0 "bundled" with its mouse, and copies of Windows 3.1 upgrades to customers of the original package.

Microsoft alleged in its suit that Z-Nix was selling upgrade packages to non-customers.

Ironically, Chan was a founder of the national Business Software Alliance, an anti-software piracy group today led by Microsoft and other software companies. Chan is no longer associated with the group.

Copyright (c) 1992 Seattle Times Company, All Rights Reserved.

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