The state Supreme Court ruled Tuesday that the lawsuit could continue, overruling part of a lower court's decision that had sided with Microsoft.
"Microsoft's end-user license agreements with its prime customers, the computer manufacturers and distributors, insulate it only from product defect claims, not consumer injury complaints predicated upon claims of monopolistic and deceptive conduct," the Supreme Court said.
Microsoft successfully fended off much of the Justice Department's antitrust suit with a settlement finalised in 2002. But the outcome of the federal suit encouraged a multitude of trial lawyers to assail the Redmond, Washington, giant in state courts. The company has managed to settle the bulk of them so far, but at least seven are still in play.
Stacy Drake, a Microsoft spokeswoman, said the company's lawyers were still reviewing Tuesday's ruling and were not ready to disclose whether they would appeal. "We're disappointed in the ruling, but we will continue to defend ourselves against these meritless claims," Drake said.
The New York suit is not an antitrust case. Filed by the law firm of Milberg Weiss Bershad & Schulman, it contends Microsoft violated section 349 of the state's general business code. That section prohibits "deceptive acts or practices in the conduct of any business, trade or commerce" and lets private individuals sue for damages and attorney's fees.
At the heart of the New York lawsuit is the claim that Microsoft violated section 349 by entering into secret agreements with computer makers to throttle competition and creating an "applications barriers" in its Windows operating system that harmed competitors such as Linux. The suit alleges that those practices, which Microsoft denies, resulted in higher prices for New York consumers.
Microsoft had argued that the plaintiffs were prohibited from pursuing their case because of another New York law that sets out the rules for certain types of class actions. But the Supreme Court disagreed, saying that because "plaintiffs in their amended complaint expressly seek only actual damages, the motion court correctly found (the law) which prohibits class actions for recovery of minimum or punitive damages, inapplicable."
