Microsoft Quashes Innovation, Judge Rules

WASHINGTON (04/04/2000) - In powerful and emotive language, Microsoft antitrust trial Judge Thomas Penfield Jackson today delivered a stinging ruling against the company, accusing it of breaking the law in pursuit of monopoly profits.

Microsoft Corp. maintained its monopoly desktop operating system by placing an "oppressive thumb" on its rivals and broke antitrust law through a variety of methods, including tying its browser to the Windows operating system, said Jackson, in a decision posted today on a government Web site.

Jackson's verdict appears to have given the government the argument it needs to seek harsh remedies against Microsoft - such as breaking it up - but it also gives the company some ammunition to use on appeal.

Microsoft immediately announced its intent to appeal this decision.

The verdict caps a nearly two-year-long process that began with a lawsuit filed in May 1998 by 19 states and the federal government. Jackson will now have to consider what remedies to impose on Microsoft.

Jackson wrote that Microsoft "trammeled the competitive process through which the computer software industry generally stimulates innovation."

The company "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," he charged. Jackson accused the company of doing "violence" to the competitive process.

But the judge also gave some due to Microsoft's court claims.

Despite the company's exclusive agreements with PC makers and others, Jackson found that the company "did not ultimately deprive" Netscape of the ability to distribute its browser.

U.S. Department of Justice officials said they were pleased with the decision.

"Today's ruling makes it absolutely clear how important it is to vigorously enforce the law," said U.S. Attorney General Janet Reno at a press conference.

"We are pleased that the court agreed with the (Justice) Department. Microsoft has been held accountable for its conduct by a court of a law."

Government officials didn't say at today's press conference what legal remedies they would seek.

Steve Ballmer, Microsoft CEO and president, said the company tried its best to settle the case but is looking forward to an appeal - a process that could take two or more years and may ultimately put this case in the U.S. Supreme Court.

"We have the right to appeal and until the appeal is over, nothing is settled," Ballmer said. "I couldn't be more proud of this great company."

Ballmer added that Microsoft, like other companies in the industry, has competed hard - and that that has gotten in its way. "Our passion for being the best has been misinterpreted," he said.

The decision gives Microsoft room to appeal, said Hillard Sterling, an attorney at Gordon & Glickson PC in Chicago, which isn't involved in the case.

"There's a real crack in the dam of this decision," said Sterling. Jackson made the "surprising admission" that Netscape had alternative ways to compete with Microsoft via distribution of its browser on the Internet. "This admission threatens the foundation of his adverse ruling," he said.

Jackson also found that Microsoft's marketing arrangement with other companies didn't constitute unlawful exclusive dealing.

A critical point for Microsoft to raise in its appeal will be an apparent lack of the "object standard" by which Jackson measured Microsoft's conduct, said John Stuart Smith, a lawyer at Nixon Peabody LLP in Washington, which isn't involved in the case.

Microsoft's special pricing deals with PC makers or inducements to Internet service providers "aren't inherently wrong," Smith said. But Jackson said that because Microsoft used these tactics, it violated antitrust laws.

"Those sorts of contracts and coercion don't justify the judge's scope," Smith said.

Jackson agreed completely with the government contention that Microsoft's share of the desktop operating system market is impenetrable.

Microsoft, the judge wrote, "early on recognized middleware as the Trojan horse that, once having . . . infiltrated the applications barrier could enable rival operating systems to enter the market for Intel-compatible PC operating systems unimpeded."

Its two biggest threats were Netscape Navigator Web browser and Sun Microsystems Inc.'s implementation of Java technology. In court, the government argument that Netscape's browser and Java could have served as development platforms for third-party developers.

"Alerted to the threat, Microsoft strove over a period of approximately four years to prevent middleware technologies from fostering the development of enough full-featured, cross-platform applications to erode the applications barrier," Jackson wrote.

The company sought to convince developers to concentrate instead on Windows-specific application programming interfaces, the links that allow applications to run with the operating system, and ignore the Java and browser interfaces.

"Microsoft's campaign succeeded in preventing - for several years and perhaps permanently - Navigator and Java from fulfilling their potential to open the market for Intel-compatible PC operating systems to competition on the merits," Jackson wrote.

When Netscape refused to abandon its efforts to develop Navigator into a substantial platform for applications development, wrote Jackson, Microsoft "set out to maximize Internet Explorer's share of browser usage at Navigator's expense. . . .

"Not willing to take actions that would jeopardize their already slender profit margins," Jackson wrote, PC makers "felt compelled by Microsoft's actions to reduce drastically their distribution and promotion of Navigator."

In a direct hit on Microsoft's claim that it was necessary to integrate the browser with the operating system, Jackson said he could find no quality or technical justification to explain Microsoft's refusal to produce a version of Windows without Explorer.

Officials at Compaq Computer Corp. declined to discuss the judge's ruling in detail. But the Houston-based computer maker issued a statement saying it's "important that any resolution of the case protects the industry's ability to continue to provide customers the benefits of technical innovation."

Tony Lacy-Thompson, vice president of marketing at software vendor IntelliCorp Inc. in Mountain View, Calif., said having a single desktop operating system to support has its good points for companies such as his.

"But in the long run, I don't think monopolies are in the general interest of the industry," he said. "You don't like to see somebody having a stranglehold, because that can strangle innovation and development."

No matter how the antitrust case plays out, Microsoft's "hegemony in the market has never been in more doubt," said Joshua Greenbaum, an analyst at Enterprise Applications Consulting in Berkeley, Calif. Microsoft has only a secondary role in emerging markets such as handheld computing and "is basically nowhere to be seen" in business-to-business e-commerce, Greenbaum said.

Others saw the ruling differently.

While not a surprise, given Jackson's earlier finding of facts, today's decision is a big setback for Microsoft and "a landmark for the judicial system," said Michael Gartenberg, an analyst at Gartner Group Inc. in Stamford, Conn. But Microsoft users have no immediate cause for concern about the ruling's potential impact on the company because a lengthy appeals process is sure to follow, he added.

And if an appeal does drag on for several years, the rapid development of new technology could make the case largely irrelevant, Gartenberg said. So far, he said, Microsoft hasn't come close to extending its desktop dominance to newer platforms such as the Internet, handheld devices and wireless computing.

"Over time, we may look back and ask what all the fuss was about," Gartenberg said. "People are learning how to compete with Microsoft."

(Craig Stedman, Michael Meehan and Keith Perine at The Industry Standard contributed to this report).

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