December 6, 1999 3:00 PM PST

DOJ, states claim Microsoft violated Sherman Act

The Department of Justice and 19 states said in a filing today that Microsoft illegally used its market power to restrain trade in the high-tech field.

The separate "conclusions of law" briefs filed by the DOJ and the states in the landmark antitrust trial largely track the 207-page finding of fact submitted in November by U.S. District Court Judge Thomas Penfield Jackson, which strongly favored the government.

Today's court filings will lay the groundwork for Jackson's conclusions of law--in essence, his verdict--expected by March. Microsoft is scheduled to file its responsive memoranda on the conclusions of law on Jan. 17. The software giant, meanwhile, will be intensely scrutinizing the DOJ's brief for potential flaws as settlement negotiations continue.

In a 71-page filing, the DOJ argued that Microsoft wields a monopoly in computer operating systems and that it used this power to take over the Web browser market. Further, Microsoft imposed exclusionary contracts on computer makers, Internet service providers (ISPs) and content providers to further its own goals, the DOJ asserts.

Many legal experts believe that Microsoft's use, or misuse, of its power in these contracts is the government's strongest argument.

According to the DOJ brief: "This is not a case of a firm simply enjoying the fruits of economic forces that may produce a natural monopoly, with entry efforts failing on their own cost-and-quality merits. Nor is this a case where Congress or a State legislature has concluded that a particular market is better subjected to regulatory controls on entry than left to free-market competition. Rather, this is a case in which a monopolist in an unregulated market intentionally set out to squash promising marketplace efforts to lower the critical barrier to entry and expansion in the monopolized market.

"Whatever Microsoft may think of the value of Microsoft trial - Conclusions of Law preserving its platform, its calculated effort to prevent competition is fundamentally anathema to the commitment to competition embodied in the Sherman Act," the DOJ continued.

Each state's conclusions are listed separately in another 42-page filing.

Although each state's claims are treated separately, the points appear to be similar for each. Overall, they assert that Microsoft engaged in illegal conduct in five separate ways:

 by tying browser sales to sales of the operating system;
 by using its market power to illegally maintain a monopoly;
 by attempting to monopolize the browser market;
 by imposing exclusive dealing arrangements between itself and Internet service providers and/or developers; and
 by imposing first boot-up and screen restrictions on computer makers.

These five acts violate sections of the Sherman Act as well as state laws, the states assert, and constitute conduct that served to restrain trade.

The tone of the government's Microsoft's day in court conclusions could greatly affect settlement talks, which started last week in Chicago. If Microsoft detects the government has overplayed its hand and created a potential vulnerability, it could take a more aggressive posture during negotiations or bag them in favor of an appeals strategy, say legal experts.

Section 2 of the Sherman Act states, in part: "Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony..."

The antitrust trial has been one of the most closely followed corporate cases in recent history, raising complicated legal, political and philosophical arguments on topics ranging from capitalism to the Constitution. Because of Microsoft's sheer size and technology's important role in driving the global economy, the impact of the case will be felt well beyond the company's headquarters outside Seattle.

The government will be hardest pressed in trying to prove that tying the Internet Explorer Web browser to Windows violates antitrust law, said Bob Lande, an antitrust professor with the University of Baltimore School of law, among other experts.

The tying argument is tricky because Jackson--in a previous, but related, trial--issued a preliminary injunction forcing Microsoft to separate the browser from the operating system. An appeals court criticized that ruling.

The case is strongest in exclusive dealings, where the government alleges Microsoft used exclusive contracts with ISPs and others to preserve its Windows franchise, say legal experts.

News.com's Michael Kanellos contributed to this report.

 

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