Microsoft is a monopoly that is free to charge what it wants for its operating systems and is not threatened by rival platforms, such as Linux, said antitrust trial Judge Thomas Penfield Jackson in hard-hitting and long awaited findings in the landmark antitrust case.
His finding of fact appeared to rejected the company's defence that it was besieged by competitors.
Microsoft, said Jackson, "enjoys so much power in the market for Intel-compatible PC operating systems" that the company could charge what it wants "for a significant period of time without losing an unacceptable amount of business to competitors. In other words, Microsoft enjoys monopoly power in the relevant market."
The judge's conclusions follow a nearly year-long trial with 76 days of testimony over allegations by 19 states and the federal government that Microsoft used its monopoly power illegally to squash competition, impede innovation and dominate the industry. His final ruling in the case is still to come.
Silicon Valley antitrust lawyer Rich Gray said that the severity of the judge's language leads him to believe that a severe remedy could be imposed - even a breakup. That's something he didn't originally believe.
"In my wildest imagination I never imagined Microsoft would lose this big," Gray said. "Judge Jackson bought into just about every argument the government made," Gray said.
As evidence of the firm's monopoly power, Jackson cited the experiences of IBM in introducing the OS/2 Warp operating system and of Apple Computer's difficulties to "compete effectively" with the company.
The judge also completely dismissed Microsoft's repeated courtroom claims and a key part of its defence that the Linux operating system can compete against Windows.
Users "have by and large shown little inclination to abandon Windows with its reliable developer support, in favor of an operating systems whose future in the PC realm is unclear," he wrote.
Linux's open-source development "model shows no signs of liberating that operating system from the cycle of consumer preferences and developer incentives that, when fueled by Windows's enormous reservoir of applications, prevents non-Microsoft operating systems from competing."
The 207-page document is the first phase of a two-part ruling by Jackson. In this portion, the judge reviews the facts of the case. The next part of his verdict, his "conclusions of law," is due either late this year or early next.
What hurt Microsoft the most, in the judge's opinion, were the mountains of Microsoft e-mails that government introduced into court. These messages, which included brutally frank statements about company goals and tactics - such as, "How do we wrest control of Java away from Sun?" - were used by the government to challenge Microsoft witnesses.
But the biggest problem in this case concerns remedies.
If Microsoft is found guilty, the court must decide how to return competition to the operating systems market. The sentiment among the states has been to break the company up - possibly separate its operating systems from its applications. If Word and Excel were available for Linux, the argument goes, then those operating systems would become true competitors.
A regulatory remedy is also possible. The judge could require Microsoft to charge a single price for its operating system to all vendors.
Microsoft said the District Court's findings of fact in the antitrust lawsuit with the US Justice Department do not reflect the phenomenal competition and innovation in the software industry, and that consumers make decisions based on the best products in the marketplace. Microsoft said it would continue to defend the principle of innovation and pointed out that today's findings are just one step in an ongoing legal process that has many steps remaining.
Looking ahead, Sun Microsystems said Microsoft should be prohibited from "buying the distribution channels of the future (eg cable and wireless) and from buying rather than inventing technologies." It also said the government should make sure that the technical interfaces of Microsoft's monopoly software are open.
"Sun believes it is important that steps be taken to ensure that one company is not allowed to stifle true competition in an increasingly networked and dynamic industry," the company said. "It appears that the factual record, as determined by the court, will amply support such remedial approaches."