Microsoft Found Guilty of Antitrust Violations

FRAMINGHAM (04/03/2000) - Microsoft Corp. was found guilty of violating two sections of the Sherman antitrust act and held liable for violating the antitrust laws in nineteen U.S. states, in an opinion filed by Judge Thomas Penfield Jackson today.

In his ruling, Jackson wrote, "the court concludes that Microsoft maintained its monopoly power by anticompetitive means and attempted to monopolize the Web browser market, both in violation of Section 2 (of the Sherman Act). Microsoft also violated Section 1 of the Sherman Act by unlawfully tying its Web browser to its operating system."

Jackson found in favor of Microsoft on one charge filed by the U.S. Department of Justice (DOJ) and 19 U.S. state attorneys general. Jackson wrote, "The facts found do not support the conclusion, however, that the effect of Microsoft's marketing arrangements with other companies constituted unlawful exclusive dealing under criteria established by leading decisions under Section 1."

The ruling could lead to harsh penalties for Microsoft, including a breakup of the company. The penalty phase of the trial could begin within the next 60 days.

Microsoft said it plans to appeal Jackson's ruling.

Michael Gartenberg, an analyst with Gartner Group Inc., said Microsoft still has a shot.

"This is a big set back for Microsoft as a company, but this case is far from over," he said. "Microsoft will have to fight hard in court and in the court of public opinion. Remember, Microsoft won on appeal last time. The twists and turns of the justice system are sharp.

"What does this mean for customers? he asked. "Not much. They may use this ruling as a negotiating tool to get better licensing terms from Microsoft. But for the user planning a rollout of say Windows 2000 this won't likely have an impact. There is no reason for people to panic."

Still, Wall Street didn't wait around for the bad news. Microsoft stock took a beating, dropping 14.47 percent and closing down US$15 3/4 at 90 1/2. The stock had been as high as $109 last week when there were strong reports of a settlement. Some 130 million shares of Microsoft stock traded today, almost 100 million shares over the average volume.

"Now we have a good idea of what it would be like to have the government run the computer industry. Not surprisingly, the conclusions made by Judge Jackson reveal a fundamental lack of understanding of the IT industry," said Jonathan Zuck, president of the Association for Competitive Technology (ACT), an advocacy group for restricting government intervention into the IT industry.

"At a time when everyone outside the courtroom is experiencing a period of unprecedented growth and innovation in information technology, Judge Jackson describes a world of limited competition and hampered innovation. Ironically, Judge Jackson is painting a vivid picture of an industry run by lawyers and judges."

Judge Jackson's conclusions come after nearly four months of talks between the two sides to reach a settlement. Those talks broke off over the weekend when settlement negotiator Richard Posner, the chief judge of the 7th Circuit Court of Appeals, said the differences between the two sides were "too deep-seated to be bridged." Posner was appointed by Jackson last year.

Microsoft Chairman Bill Gates said Microsoft blamed the government for the end of settlement talks, saying the DOJ and the 19 states that had joined the antitrust case could not build a unified front. Gates said he personally devoted hundreds of hours to the settlement process, although it is unclear how many of those hours were spent in face-to-face talks. Gates did meet several times with Posner.

"We went the extra mile to resolve this case, but the government would not agree to a fair and reasonable settlement that would have resolved this case in the best interests of consumers and the industry," Gates said.

U.S. Assistant Attorney General Joel Klein said over the weekend that the remedies in the case have to deal with fixing the effect Microsoft's Windows operating system monopoly has had on the marketplace. The government contends that Microsoft leveraged that monopoly to make inroads into the Internet browser market.

Jackson's ruling today also means that his earlier "findings of fact" will stand, which means the judge's ruling that Microsoft is a monopoly can be used as a fact in civil lawsuits. Dozens of such lawsuits have been filed since Jackson issued his findings in November, and many more are likely to appear, according to legal experts.

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