Judge: Microsoft Has Monopoly Power

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November 05, 1999 (12:00 AM EST)

By Darryl K. Taft and Barbara Darrow,

At long last, the world officially knows what JudgeThomas Penfield Jackson thinks of Microsoft and its business practices.

Microsoft is, in fact, a monopolist, with practices that have wounded competition, according to findings of fact by the U.S. district court judge.

In his finding, Penfield said, "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. Through its conduct toward Netscape, IBM, Compaq, Intel, and others, Microsoft has demonstrated it will use its prodigious market power and immense profits to harm any firm that insists on pursuing initiatives that could intensify competition against one of Microsoft's core products."

While Microsoft argued it was not a monopoly because it offers competitive pricing to consumers, Jackson said the company also harmed consumers by limiting the innovations of others.

"The ultimate result is some innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft's self interest," he said.

The Federal Trade Commission was the first to investigate Microsoft, followed by inquiries from the U.S. Department of Justice and attorneys general of 19 states. The ruling, so long in coming, could rock the high-tech industry to its core, observers said.

Some argue it already has affected the way Redmond, Wash.-based Microsoft conducts its business, loosening what the government called onerous restrictions on contracts with ISPs, for example. Microsoft executives have been adamant in their claims that they have always acted ethically and legally and continued to do so throughout.

The Justice Department charged that Microsoft used illegal practices to leverage its operating system monopoly into new areas, especially the Internet, in effect riding roughshod over competitors and partners alike.

The government relied on damaging anecdotes from those competitors, including IBM, Netscape, and Apple. But perhaps more damaging were words extracted from the mouths and e-mail messages of Microsoft's own executives. Lead government David Boies attorney by all accounts did a masterful job outmaneuvering a phalanx of Microsoft legal talent, observers said.

Microsoft has adamantly defended its practices and ethics throughout. In one memorable interview, Steve Ballmer, then a Microsoft group vice president, told CRN that the company works hard and listens hard, but its executives always respect nondisclosure agreements and other contracts.

"We listen, listen, listen. And we live and die by our nondisclosure agreements," Ballmer said.

Opinion is divided on the matter.

"I don't think the DOJ intervention is a good thing for the industry. It's not that I think everything Microsoft does is good, but there are better mechanisms to deal with a company," said Howard Diamond, CEO of Corporate Software & Technology, in Norwood, Mass.

Michael Carpenter, president of CT Source, a Marblehead, Mass., reseller, said the government was right to take the case. "The Department of Justice was appropriate in raising the question. I think Microsoft was inappropriate by fighting it. I think they should have settled."

Many said they think this ruling will spur serious settlement discussions.

Others said Jackson's ruling is hardly a surprise. "This judge had a point of view. He was the one who originally interpreted the contract and invited the DOJ to look at the antitrust issues," said Rick Sherlund, partner with Goldman Sachs, a New York investment firm.

It could still take months to gage the full impact of the ruling, he said. But another analyst said the ruling is bound to harm Microsoft stock, which has been on an unprecedented tear.

Judge Jackson appeared to enjoy holding all the cards. He announced weeks ago that he would rule on a Friday, but declined to name the date.

The findings are available at http://usvms.gpo.gov.