Judge Blasts Microsoft On Most Antitrust Charges

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November 05, 1999 (12:00 AM EST)

Judge Blasts Microsoft On Most Antitrust Charges

Microsoft is a monopoly that needs to be stopped in its tracks, a U.S. district court judge ruled Friday.

In a blistering 207-page summary of his findings offacts in the case, Judge Thomas Penfield Jackson blasted Microsoft on nearly every antitrust charge leveled against it by the U.S. Department of Justice last year.

Among them: Microsoft illegally tied Internet Explorer to Windows, attached illegal conditions in its OEM contracts to lock up a monopoly with the Windows desktop, employed anticompetitive tactics to crush Netscape Navigator in the browser market and Sun Microsystems' Java programming language in the development tools market, stymied Intel's innovations in the Native Signal processing (NSP) software efforts, and tried to kill Apple QuickTime.

While not disputing the value of integrating a Web browser with an operating system, the issue that first touched off the DOJ antitrust investigation in the fall of 1997, the judge threw the book at Microsoft, saying that by "refusing to offer those OEMs who requested it a version of Windows without Web browsing software and by preventing OEMs from removing Internet Explorer -- or even the most obvious means of invoking it -- prior to shipment, Microsoft forced OEMs to ignore consumer demand for a browserless version of Windows."

With the exception of a handful of points, Jackson threw the gavel at the Redmond, Wash.-based software giant, saying Microsoft is a monopolist because its share of the PC OS is "large and stable," that its dominant share is "protected by a high barrier to entry," and that Microsoft's customers "lack a commercially viable alternative to Windows."

According to early 1999 estimates provided by San Jose, Calif.-based Dataquest this week, Microsoft now owns more than 96 percent of new OS shipments on the desktop and 62 percent share of new server OS shipments.

"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. "In other words, Microsoft enjoys monopoly power in the relevant market."

During a news conference immediately following the case, Bill Gates, Microsoft's co-founder, chairman and CEO, vigorously defended his company's business practices, contribution to the industry and society at large.

"The American legal system will affirm that Microsoft's actions and innovations were fair and legal and has brought benefits to millions of consumers," Gates said.

When asked for his response to the Attorney General Janet Reno's statements that Friday's findings represented a victory for American consumers, Gates unemotionally retorted: "The law couldn't be more black and white. The kind of innovation we did is absolutely legal."

A Microsoft spokesman said his company would continue to vigorously contest the many findings against the software giant.

The court will now work on possible remedies in the case with the cooperation of the U.S. Department of Justice and Microsoft.

Microsoft's posture during the 18 months of this case has been to fight every issue -- legal, factual and political -- aggressively.

After the announced finding Friday, however, the company's chief legal counsel, demonstrating an unusual deference before the court, would not say whether or not Microsoft would appeal the finding of facts.

"We could exercize our right of appelate review, we've been fortunate," said Bill Neukon, vice president of Law and Corporate Affairs at Microsoft. "We continue to be prudent about this and sensitive about this."

At least one of Microsoft's Large Account Resellers (LARs) reacted defensively to the ruling.

"I'm disappointed the judge ruled against Microsoft because it'll hurt resellers and everyone," said Howard Diamond, CEO of Corporate Software & Technology, in Norwood, Mass. "I'm against the premise that they say, 'we're the government and we should fix this business problem.' I don't buy it.

"Whatever problem we have in the technology industry, I don't buy trying to solve it through the Department of Justice," he said. "The technology industry is one of the few industries flourishing on an international basis. We've had the best economy the country has seen in the last six years and it is fueled by the technology industry. The idea that the government should dictate changes in this industry scares me. I just don't buy it."

While the court has yet to determine the conclusions of law -- and possible remedies in the sweeping antitrust suit -- at least one solution provider already has begun worrying about the effect on the software giant's empire.

"I'm torn about it. I believe they've taken gross liberties in the marketplace and I suspect they'll be ruled against, but I'm concerned about my vendor and its stability. We have our eggs in Microsoft's basket," said Clay Borkholm, chief technology officer at BSD Consultants, a Tampa, Fla.-based computer consulting firm and Microsoft Certified Solution Provider. "If they try to convert Microsoft into a differently shaped company, putting the applications and development tools and the operating system into separate organizations wouldn't be so bad for shareholders.

"But even then, my big concern is that my development tools continue to be developed and improved as time goes on," he added. "Microsoft still produces some of the best development tools in the market."

With an eye to next year's presidential elections, one legal expert speculated on Microsoft's chances of appeal with a new administration:

"If George W. Bush comes to Washington and moves into 1600 Pennsylvania Avenue and picks Bill Neukom or Rick rule to be the attorney general, and the new assistant attorney general for antitrust said, 'we're out of the case,' which would be breathtaking, the states would still go ahead," said William Kovacic, antitrust expert and law professor at George Washington University law school and a former Federal Trade Commission commissioner. "Because I don't think they take orders from Pennsylvania Avenue. That's where having the two-headed plaintiff is mighty important here."

One industry observer said the judge's findings -- not Microsoft -- will hurt consumers and the U.S. economy.

"This is like dropping a bomb in the middle of the most successful industry in the history of this economy," said Jonathan Zuck, president of the Association for Competitive Technology, a pro-Microsoft organization. "I can only express hope that in a final ruling, the judge remembers three things: There was no harm done five years ago, there's no relevance now, and the impact of the wrong decision can be terrible for the future of this industry."

Friday's findings of fact represents an interim step in the ongoing antitrust case, which was announced by the government on May 18, 1998, and went to trial Oct. 19, 1998.