November 5, 1999 5:35 PM PST

Judge calls Microsoft a "monopoly"

WASHINGTON--A federal judge has determined that Microsoft holds a monopoly in computer operating systems, strongly criticizing the company in a decisive statement that could signal the outcome of the landmark antitrust case.

Although the lengthy statement--called a "finding of fact"--was not a verdict, the widely anticipated comments indicated that U.S. District Judge Thomas Penfield Jackson is leaning heavily in favor of the Justice Department (DOJ) and state prosecutors arguing against the software giant.

"Microsoft enjoys so much power in the market for Intel-compatible PC operating systems that if it wished to exercise this power solely in terms of price, it could charge a price for Windows substantially above that which could be charged in a competitive market," Jackson wrote.

"Moreover, it could do so for a significant period of time without losing Microsoft's day in court an unacceptable amount of business to competitors," he added. "In other words, Microsoft enjoys monopoly power in the relevant market."

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 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.

Microsoft's stock slid in after-hours trading into the high 80s after closing down 0.19 points at 91.45 during the day. Full text of Judge Jackson's findings of
fact Ramifications could spread to all markets, however, because of its enormous influence as a longtime bellwether and a historic addition to the Dow Jones Industrial Average just last week.

Even though the case is still awaiting an official verdict, the Justice Department wasted no time in claiming victory. "This is a tremendous victory for American consumers," said Joel Klein, assistant attorney general for the antitrust division of the Justice Department.

Iowa Attorney General Tom Miller said in a news conference that Jackson's finding affirms the position of 19 states in the case: "One, that Microsoft indeed does have a monopoly, two, that Microsoft has abused that monopoly, and third, that consumers have been harmed by that."

Gates's response
Microsoft founder and chief executive Bill Gates emphatically rejected those conclusions. "If you want to look at what's great for consumers you have to look at our work and the work of our partners over the last 20 years," Gates said in response to Klein's declaration of victory for consumers. "The law couldn't be more black and white...The kind of innovation we do is absolutely encouraged."

Bill Neukom, the company's general counsel, cited current law in supporting Gates. "It's important to remember that antitrust laws are very clear on

What comes next  
Either side could choose to file a motion for reconsideration if it disputes any portion of the judge's findings, no matter how small. Such motions could be filed as early as next week.  
Both sides are to present their conclusions of law, tentatively scheduled to take place in about 30 days. Jackson may put that off until after the holidays.  
Typically the briefings are staggered rather than presented simultaneously, which is likely to stretch out the next stage until late February.  
Unless the two sides settle, Jackson's ruling will likely spark a string of appeals that many antitrust experts expect will reach the Supreme Court.
the point that companies are supposed to compete vigorously against each other--that is how better products come to market quicker and with lower prices," he said. "The Sherman Antitrust Act is designed to protect consumers, not competitors."

Neukom predicted that the lawsuit could stretch into 2001, but Microsoft appeared willing to negotiate a settlement. "We will continue to look for ways to resolve these issues in a fair and responsible manner," a company spokesman said in a statement. "We believe any resolution must protect Microsoft's ability to innovate and improve its products for consumers."

Jackson's comments were based on a review of Microsoft's ubiquitous Windows software, which powers the vast majority of the world's personal computers. Prosecutors have argued that Microsoft unfairly leverages this market dominance to force acceptance of other products, most notably its Internet Explorer Web browser.

Prosecutors pointed to a portion of the statement devoted to that issue, calling it the "pivotal point" of the entire statement: "No consumer benefit can be ascribed...to Microsoft's refusal to offer a version of Windows 95 or Windows 98 without Internet Explorer or to Microsoft's refusal to provide a method for uninstalling Internet Explorer from Windows 98," Jackson wrote.

Many of the judge's harshest comments were reserved for the end of his statement, which was 207 pages long.

"Most harmful of all is the message that Microsoft's actions have conveyed to every enterprise with the potential to innovate in the computer industry," Jackson said. "Through its conduct toward Netscape, IBM, Compaq, Intel, and others, Microsoft has demonstrated that it will use its prodigious market power and immense profits to harm any firm that insists Joel Klein speaks at a
news conference on pursuing initiatives that could intensify competition against one of Microsoft's core products."

Jackson also took Microsoft to task in describing its past business practices. The empire has been infamous throughout the high-tech industry for its strong-arm tactics, though the company has steadfastly maintained that it has never violated any laws.

"Microsoft's past success in hurting such companies and stifling innovation deters investment in technologies and businesses that exhibit the potential to threaten Microsoft," the judge wrote. "The ultimate result is that some innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft's self-interest."

The findings of fact are essentially the judge's distillation of the points of view presented by both sides into what he believes to be true. Depending on how definitive they are, the findings can be tantamount to a jury's decision, legal experts say.

What's in store
Given the particularly strong wording of Jackson's statement, both sides have a far clearer picture about where the case is headed and what conclusions of law--the legal consequences of the findings--Jackson might reach.

Either side could choose to file a motion for reconsideration if it disputes any portion of the judge's findings, no matter how small. That is not unusual in an antitrust trial, say antitrust experts, who noted the motions could be filed as early as next week.

The next step for both sides is to present their conclusions of law, tentatively scheduled to take place in about 30 days. But Jackson is expected to put that off until after the holidays.

Typically the briefings are staggered rather than presented simultaneously, which is likely to stretch out the next stage until late February. Most antitrust attorneys do not expect the judge's conclusions of law until late spring.

And the case is not likely to end there. Unless the two sides settle, Jackson's ruling will likely spark a string of appeals that many antitrust experts expect will reach the Supreme Court.

Some have expressed concern that the case could have a lasting negative effect on the economy if Microsoft is found guilty. The current boom has largely been attributed to the high-tech industry, which in turn has been relatively free of government regulation.

"I'm troubled that Judge Jackson's decision may signal that the high-tech industry is open to regulation from the courts," said Rep. Tom Bliley (R-Virginia), chairman of the House Commerce Committee. "The high-tech industry is responsible for producing 30 percent of our economic growth [and] should not be burdened by excessive government regulations. That would be a disaster..."

But California Attorney General Bill Lockyer contends that the opposite was Government Printing Office true. "Silicon Valley is cautiously cheering," he said, because a blow to Microsoft would free the potential to increase innovation.

Legal experts have said that the Justice Department must prove consumer harm to win its case. Jackson determined that Microsoft's bundling of Internet Explorer with Windows did just that.

"To the detriment of consumers," the judge wrote, Microsoft engaged "in a series of actions designed to protect the application's barrier to entry, and hence its monopoly power."

Jackson further concluded that Microsoft made it difficult for PC manufacturers to offer Netscape Communications' rival Navigator browser preinstalled on PCs as they left the factory.

"Many of the tactics Microsoft employed have also harmed consumers indirectly by unjustifiably distorting competition," Jackson found. Consumers were prevented from having more choices and innovation, he concluded.

"The campaign against Navigator has retarded widespread acceptance of Sun's Java implementation," Jackson wrote.

Disputes over Java technology, which Microsoft has viewed as a significant threat, were the subject of another lawsuit filed by Sun. As expected, that company too had an opinion on today's events.

Jackson's "determination that Microsoft has monopoly power in the market for PC operating systems is supported by a wealth of evidence," Sun said in a statement. "Further, the court appears to have found that Microsoft has abused its power in very significant ways."

News.com's Stephanie Miles, Stephen Shankland, Jennifer Balderama, Corey Grice, and Beth Lipton contributed to this report.

 

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