Microsoft Abused Power

SAN FRANCISCO (04/04/2000) - Two years of legal wrangling reached a climax Monday when a federal judge ruled that the world's largest software company has violated antitrust law. As expected, U.S. District Court Judge Thomas Penfield Jackson stated that Microsoft Corp. is a monopoly and has illegally misused that power to the detriment of consumers.

Microsoft, said Jackson, has kept "an oppressive thumb on the scale of competitive fortune, thereby effectively guaranteeing its continued dominance."

Next, the U.S. Department of Justice and 19 state attorneys general who filed the original complaint in May 1998 will push for appropriate punishment and remedies. Meanwhile, the software giant is focusing on its inevitable legal appeal and, its executives hasten to add, on business as usual.

Jackson ruled Monday that Microsoft "has waged an unlawful campaign in defense of its monopoly position in the market for operating systems ..." and that Microsoft violated two sections of the Sherman Act.

His conclusions of law came after settlement discussions mediated by federal judge Richard Posner failed.

The ruling was hardly a surprise to anyone who has been following the case, including Microsoft. It was foreshadowed last November when Jackson declared Microsoft a monopoly in his findings of fact.

The findings are "not good news, certainly, but not unexpected," said Bill Neukom, Microsoft executive vice president for law and corporate affairs.

Jackson's companion ruling Monday must have been somewhat better news to the company: Microsoft's marketing arrangements with partners, particularly systems vendors, were found not to be illegal under antitrust law.

Microsoft: We'd Still Talk

Microsoft did all it could to could to work out a settlement and would have kept negotiating, said Steve Ballmer, Microsoft president and chief executive officer.

"We were committed to putting more time into the settlement," Ballmer said.

Posner declared last Saturday that a settlement could not be reached.

Microsoft founder Bill Gates, now chairman and chief software architect, echoed Ballmer's remarks and went further to defend Microsoft's position in the market.

"The public is our customer and we're incredibly sensitive to what they want," a subdued Gates said in a press conference Monday afternoon. "We have stood for low-priced products sold at high volume to empower everyone. Our competitors are not in the same position, not going for the low-price, high-volume approach. Look at people who complain about Microsoft. There's an irony there in our focus on the consumer."

Microsoft faces not only the ongoing antitrust case, but also a handful of class-action lawsuits filed after the November findings.

The lawsuits will not detract from Microsoft's business or its appeal of the federal case, Ballmer said.

"We think they're misguided," Ballmer said. "Consumers haven't been harmed.

This is a company and an industry that has created consumer benefit. We feel very strongly about our legal standing."

More Than Fierce Competition

For the most part, Jackson came down on Microsoft for trying to protect its monopoly--primarily by bundling Internet Explorer with Windows.

"Microsoft's decision to tie Internet Explorer to Windows cannot truly be explained as an attempt to benefit consumers and improve the efficiency of the software market generally, but rather as part of a larger campaign to quash innovation that threatened its monopoly position," Jackson wrote.

Jackson rejected Microsoft's contention that bundling serves customers, writing, "no quality-related or technical justifications fully explain Microsoft's refusal to license Windows 95 to hardware vendors without Internet Explorer."

Likewise, Microsoft should not have refused to license a "browserless" version of Windows 98, Jackson added; he also questioned Microsoft's claim that IE is demonstrably the best browser.

Jackson also asserted that Microsoft harmed other companies with its anticompetitive campaign.

Competitors, Partners Subdued

One company Jackson mentions, RealNetworks, voiced approval of the court's opinion, though many Microsoft competitors have not commented publicly.

"I believe that ruling was thorough and appropriate and will result in a better, more open Internet," said Rob Glaser, RealNetworks CEO and a former Microsoft executive.

Since its inception, the digital- and streaming-media company has had Microsoft's Windows Media technology as a primary competitor. Just as Microsoft challenged Netscape by bundling IE with Windows, Microsoft will bundle Windows Media Player 7 with the upcoming Windows Millennium.

Most hardware vendors were quiet about the ruling. Representatives of Dell, IBM, and Toshiba declined to comment.

A Hewlett-Packard spokesperson reiterated the company's support for Microsoft.

"HP has always had a close partnership with Microsoft, and we expect that relationship to be unaffected by today's decision," he said.

Compaq spokesperson Alan Hodel warned against an activist court system slowing the growth of the computer industry.

"We believe it is important that any resolution of the case protect the industry's ability to continue to provide customers with the benefits of technical innovation," Hodel said.

American Dream

Any red-blooded American entrepreneur dreams of taking over and squashing competitors, said Jeff Tarter, editor of industry publication Softletter.

Monday's findings will not affect Microsoft's place in the operating system market, and although the trial is far from over, the worst is behind the company, Tarter predicted.

"Nothing's going to happen," Tarter says. "What's the big issue? That (Gates was sending) nasty e-mails and picking on competitors are not legal issues. So Microsoft was caught doing nasty things, but one of the problems with this is the plain meaning of the law gets twisted. I'm not sure the case will survive appeal. It's not about fact, it's about law."

--Cameron Crouch and Tom Mainelli contributed to this report.

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