Happy anniversary! Three years and counting

Three years of legal maneuvering, two attorneys general and one bruised computer industry later, the U.S. Department of Justice (DOJ) and 19 states remain pitted against software behemoth Microsoft in a high-stakes antitrust battle.

Friday marks the third anniversary that the software maker officially became defendant in what has become one of the most important cases in the history of U.S. antitrust law. On May 18, 1998, after four years of prior courtroom activity and six more of behind-the-scenes government inquiry, a legal team headed by then U.S. Assistant Attorney Joel Klein filed a 53-page document with a U.S. District Court alleging that the world's largest software maker was in violation of antitrust laws.

Following a year of trial court hearings, District Court Judge Thomas Penfield Jackson delivered a verdict that essentially bought wholesale the government's charges that Microsoft used a monopoly in the PC operating systems market to illegally quash competition.

But Judge Jackson's decision only set off more legal noise in the industry, including Microsoft's appeal in the U.S. Court of Appeals in the District of Columbia, which is set to decide on the case any day now. It also gave footing to a number of private lawsuits against the software giant and an inquiry by the European Commission over similar anticompetitive practices.

It has also set a new precedent for the concept of judicial time, legal experts say.

"As large U.S. monopolization cases go, this case is moving very quickly," said Bill Kovacic, a law professor at George Washington University law school in Washington, D.C. "To a layperson it may seem like the progress of a glacier, but in antitrust terms this is the speed of light."

Compared to previous antitrust cases against such technology heavyweights as IBM Corp. and AT&T Corp., which lasted as long as 12 years, Microsoft's case, at three years in court and counting, has been a short one.

"Usually the trial phase lasts years and years," says Dana Hayter, an attorney with San Francisco-based Fenwick & West LLP, who worked for the DOJ during its early inquiry into Microsoft. "Now the appeals process is going to take longer than the trial case. That's unheard of."

While the federal case against Microsoft has been swift legally speaking, it has seemed like eons for the software industry. As lawyers duke it out with rhetoric, new products -- and, according to critics, the same old tough-as-nails business strategies -- continue to emanate from Redmond. Microsoft's .Net initiative, its Xbox video game console, its wireless and mobile devices and its new version upgrades to Windows and the Office desktop software suite all continue to make headlines.

"Microsoft has to continue to innovate and develop new products or some other competitor will take our place," said Jim Cullinan, a Microsoft spokesman. "Our belief is that this industry is, and remains, very dynamic. We see competition continuing today just as was yesterday and just as it was three years ago."

Three years after the government filed its charges, the DOJ continues to argue that PC manufacturers had "no commercially reasonable alternative to Microsoft's operating systems for the PCs that they distribute." With the market power it wielded, the government says, Microsoft forced PC manufacturers and distributors to bundle Internet Explorer with Windows, illegally putting a halt to the momentum of Netscape Communications Corp., which was winning wide industry support with its Navigator Web browser. The government further alleged that while only an alternative operating system and development architecture such as Sun Microsystems Inc.'s Java had the potential to knock Windows from its OS perch, efforts to promote Java were illegally undermined by Microsoft's strong-arm tacticsProponents, including Microsoft, argue that a "commercially reasonable alternative" exists today in a number of competitors, from Java to the open-source operating system underdog Linux.

"The industry is different today but it's no less fierce," Cullinan said.

Lately it has been difficult to see that argument through, since even though the huge Windows-related software portfolio may face a growing threat from alternative technologies such as Linux, unsettling financial markets have dampened the momentum of many Microsoft competitors. Critics contend that after three years under the microscope of U.S. law, Microsoft still controls not only 90 percent of the world's desktops but is working to extend its reach into other markets, from enterprise software to telecommunications and the wireless world to the trojan horse into home computing -- the television.

Microsoft unveiled further details into its Xbox video game console this week when it descended on the Los Angeles Convention Center with its next-generation video games projected on larger-than-life screens at the Electronic Entertainment Expo. While Microsoft is a late-comer in the video game console market, analysts say it is poised to take a chunk from competitors, Sony Corp. and Nintendo Co. Ltd., thanks to its $10 billion investment into research, development and production of its Xbox.

Then there is Microsoft's WebTV division, lead by its Internet-enabled digital video recorder UltimateTV, as well as its foray into wireless and mobile computing. While Microsoft's Pocket PC trails Palm Inc. and Handspring Inc. for market share in the PDA (personal digital assistant) market, Microsoft -- and some market analysts -- assert that the computing device based on a customized version of the Windows CE operating system actually stands alone in its own market segment.

In the industries that Microsoft is not the largest in market share, it makes up for that lack of dominance in marketing. For example, Microsoft pledged early this month that it will spend "hundreds of millions of dollars" to bring the new Windows XP operating system to a market it already dominates, and it has also said it will budget a half billion dollars to promote the Xbox.

With Microsoft making inroads beyond the coveted desktop PC, and getting a more diversified grip on the technology market, concerns that the end result of the antitrust case will have little effect on the industry are becoming more acute.

"The initial concern was that government might be embarking on a process that would take so long that the result would be irrelevant in this industry," Kovacic said.

While the case has been considered the fastest federal antitrust matter yet to pass through the trial level, technology will still likely outpace justice, according to Charles King, a senior industry analyst with Zona Research Inc.

"The Justice Department's antitrust case seems to be dying a death of a thousand cuts," he said. "If it ever does get to the Supreme Court I wouldn't expect any serious repercussions to come of it."

Microsoft shares a similar optimism. The company continues to bundle more of its applications, such as its Windows Media Player, into new versions of its operating system, irking many critics who say Microsoft is engaging in anticompetitive behavior more than ever. Similarly, as it unveils more news about the .Net Web services platform, Microsoft looks like it may just manage to once again latch on to yet another shift in the computing industry, toward software systems distributed across the Internet.

"I suppose we've seen in some of the announcements (from Microsoft) in the past six months a confidence that the federal lawsuit will be resolved favorably for the company on key issues such as what constitutes illegal tying or bundling," Kovacic said. "Some of the new strategies reflect confidence that they're going to prevail on those issues."

If Microsoft doesn't prevail legally, analysts say, the company's architects have already thought of Plan B. Judge Jackson ruled that Microsoft was in violation of the Sherman Antitrust Act, and ordered that it be split in two with separate companies organized around its operating system and applications groups. Jackson also ordered a series of behavioral remedies -- such as publication of API (application programming interfaces) code to all relevant third parties -- meant to force Microsoft to play fair. All judgment has been "stayed" pending appeals.

Gartner Group Inc. has taken the stance that the widely extended .Net initiative is part of that alternate plan. If Microsoft is split in two with the operating system leading one company and applications the other, .Net will create an anchor for Microsoft to become two industry giants, the research firm has noted.

Chances are that new political posturing and a slip in the economic tide could create the perfect conditions for Microsoft to get off clean in the case, Zona's King suggests.

"From a political standpoint -- with the election of George Bush and the changing face of the Justice Department -- the politics is more favorable now towards Microsoft than it's been since the mid 1990s," he said.

But for now, an end to this historic legal case remains elusive. Even if legal pundits are correct in their estimations that the federal case will come to a close within the next two years, the industry can expect a serious mess to clean up for years to come.

Nevertheless, Kovacic says of the federal case, "I would guess we would not likely see a fifth anniversary."

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