Judge: Microsoft Broke Antitrust Law

WASHINGTON (04/03/2000) - In a stingingly worded decision, a U.S. federal judge found today that Microsoft Corp. violated antitrust laws by maintaining monopoly power in the operating system software market "by anticompetitive means," attempting to monopolize the Web browser market and illegally tying its Internet Explorer browser to the Windows operating system.

The ruling by U.S. District Court Judge Thomas Penfield Jackson came after settlement talks in the case collapsed over the weekend and set the stage for the next stage of the process, the determination of "remedies" to address the company's conduct, including whether the company should be broken up.

"It demonstrates once again that no company, no matter how powerful or successful, can refuse to play by the rules and thwart competition," said Joel Klein, the Assistant U.S. Attorney General who oversaw the case. "We now turn to the remedy phase of these proceedings. While no decision has yet been made, the department is committed to finding a remedy that protects consumers, innovation and competition."

"Microsoft has been held accountable for its illegal conduct by a court of law," U.S. Attorney General Janet Reno said at a press conference today following the release of the 43-page decision after financial markets closed for the day. "Thanks to this ruling, consumers who have been harmed can now look forward to benefits."

Anticipating a ruling against Microsoft, investors reacted by dumping the company's stock, which ended the day down 15 points. In a release, Microsoft said it plans to appeal Jackson's ruling and that the company will continue to focus on creating the next generation of innovative software "that benefits consumers, the high-technology industry and the American economy."

At a news conference in Redmond, Washington, Microsoft Chairman and Cofounder Bill Gates said the ruling was "not unexpected," but added that "there are several steps ahead," including continued efforts to resolve the case. "We believe we have a strong case on appeal," Gates said. "The appeals court has already affirmed Microsoft's right to build Internet capabilities into the Windows operating system to benefit consumers. Our software has helped make PCs more accessible and affordable to millions."

"Until the appeal is over nothing is settled," said Microsoft Chief Executive Officer Steve Ballmer. "We've learned that from experience."

Jackson's ruling met expectations that he would find the company violated the Sherman Antitrust Act, given the harsh assessments he made last November in his findings of fact, and the wording of his ruling repeatedly pounded the software giant.

"In essence, Microsoft mounted a deliberate assault upon entrepreneurial efforts that, left to rise or fall on their own merits, could well have enabled the introduction of competition into the market for Intel-compatible PC operating systems," Jackson wrote at one point.

"Microsoft placed an oppressive thumb on the scale of competitive fortune, thereby effectively guaranteeing its continued dominance in the relevant market," he wrote at another point. "More broadly, Microsoft's anticompetitive actions trammeled the competitive process through which the computer software industry generally stimulates innovation and conduces to the optimum benefit of consumers.

Jackson also found that Microsoft bound Internet Explorer to Windows "with contractual and, later, technological shackles in order to ensure the prominent (and ultimately permanent) presence of Internet Explorer on every Windows user's PC system." That action increased the costs of installing a rival product, Netscape Communications' Navigator browser, on any PCs running Windows.

In one of the more interesting aspects of his ruling, Jackson found the company illegally tied its browser to Windows, despite a U.S. Court of Appeals ruling in a related case from 1998 that sided with Microsoft. "Read literally, the D.C. Circuit's opinion appears to immunize any product design (or, at least, software product design) from antitrust scrutiny, irrespective of its effect upon competition, if the software developer can postulate any 'plausible claim' of advantage to its arrangement of code," Jackson wrote. "This undemanding test appears to this Court to be inconsistent with the pertinent Supreme Court precedents," the judge continued.

The U.S. Department of Justice, along with 19 U.S. states and the District of Columbia, brought the broad antitrust case against Microsoft in May 1998. A lengthy trial concluded last summer. The court has not yet scheduled the time frame for hearing suggestions in the case's final phase, which is likely to determine what remedies should be imposed on the company.

The judge ruled that Microsoft's marketing deals with other vendors were not unlawful, but his opinion overwhelmingly embraces the U.S. government's view that the company engaged in a pattern of anticompetitive behavior because it was bent on controlling the Internet browser market and maintaining its operating system monopoly at all costs.

The judge also accepted 23 of 26 arguments put forward by the state attorney generals who joined the federal government in the case.

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