Judge Declares Microsoft a Monopoly

Saturday Nov 6th 1999 The Boston Globe

Ruling Near a Total Defeat

"Microsoft has demonstrate that it will use its prestigious market power and immense profits to harm any firm that insists on pursuing initiatives that could intensify competition ..."

Judge Thomas Penfield Jackson's holding that Microsoft is a monopoly that abused its power and harmed consumers raises the pssibility that the US Justice Department might demand the corporate equivalent of the death penalty - the dismantling of Microsoft. Joe Klien antitrust cheif at the Justice Department, yesterday would not rule out this Draconian penalty.

But even if Microsoft avoids action of this magnitude, years of tough legal battle lie ahead, with a potential to sap the firm's ability to keep up with its competitors. And those competitors can use yesterdays ruling to make life even tougher for Microsoft as the basis of their own anti-trust suits against the company. "Based on these documents alone, anybody who feels he's been harmed by Microsoft, can walk into a court and get a jury trial ... If you're a company like Microsoft, the last place you want to be is in front of a jury.


Bill Gates defending his company's position on the air waves

Bill Gates in reply on television said "Microsoft is a company that operates within the law. Microsoft competes vigorously and fairly".

Commentary

In the first major ruling in the government's epic antitrust lawsuit against Microsoft Corp., a federal judge found yesterday that the global software giant founded by Bill Gates is a monopoly that repeatedly punished corporate foes and thwarted the introduction of innovative products.

Agreeing almost down the line with government prosecutors, US District Judge Thomas Penfield Jackson laid out a ''finding of facts'' that could push Microsoft to seek a settlement to avoid huge fines or a government-ordered breakup along the lines of Standard Oil or AT&T.

''We're enormously pleased by the court's decision,'' said Joel Klein, the top antitrust lawyer with the US Justice Department. ''The judge found what the department charged: Microsoft is a monopolist, and it engaged in massive anticompetitive practices.''

But Gates, in a news conference from his Redmond, Wash., headquarters broadcast live throughout the world, said: ''Microsoft is a company that operates within the law. Microsoft competes vigorously and fairly.''

Jackson's ruling was released at 6:30 p.m. yesterday after the stock market closed for the week, in order to give investors considerable time to digest it before exchanges reopen for trading Monday morning. The judge will follow the findings with rulings on whether Microsoft broke laws and, if so, how it should be punished.

While any sanctions Microsoft faces are likely to be appealed for years, legal experts said Jackson's determination of facts severely undercuts Microsoft's efforts, because appeals courts virtually never challenge a trial judge's version of what happened in a case unless it can be proven ''clearly erroneous.''

Jackson's findings were stark, filled with descriptions of Microsoft threatening, berating, quashing, and punishing rivals. ''Some innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft's self-interest,'' wrote Jackson, who was named to the federal bench in 1982 by President Ronald Reagan.

Broadly speaking, it is not illegal for a company such as Microsoft to be a monopoly if it attains that position by selling popular products, but it is illegal for a monopoly firm to use its power to thwart rivals from competing.

The government's case, filed in May 1998, makes three general charges: Microsoft illegally maintained its dominance of the market for computer operating systems; it tried to monopolize the market for Internet browsers and block computer makers from installing Netscape Communications Corp.'s competing product, known as Navigator; and it signed other exclusive deals with computer makers to choke out software competitors.

In a 207-page ruling, the judge recounted numerous run-ins between Microsoft and rivals such as Apple, IBM, Intel, Netscape, and Sun Microsystems. ''These interactions demonstrate that it is Microsoft's corporate practice to pressure other firms to halt software development that either shows the potential to weaken'' barriers to companies competing with Microsoft ''or competes directly with Microsoft's most cherished software products.''

Elsewhere in the ruling, Jackson wrote, ''Microsoft has demonstrated that it will use its prodigious market power and immense profits to harm any firm that insists on pursuing initiatives that could intensify competition.''

Given the daunting picture the judge paints of Microsoft's conduct, many observers suggested the company should escalate efforts to settle the case before it goes to trial.

Microsoft president Robert Herbold said, ''As we've stated right from the beginning, there's nothing that we would like more than to settle this case and get on with things.''

Connecticut Attorney General Richard Blumenthal, speaking for a group of 19 states that joined the Justice Department in the suit, said: ''We do not rule out any of the remedies that may be available.''

Klein said, ''We have always said we are prepared to discuss settlement, so long as the important competition issues are fully addressed.'' Several earlier settlement efforts have failed.

While Jackson is still weeks away from ruling on whether Microsoft broke the law - and if so, probably months away from ruling on what punishment it should face - Klein and Attorney General Janet Reno portrayed yesterday's ruling as a victory in its own right.

''This is a great day for American consumers,'' Reno said, with Klein adding that the judge's finding ''shows once again in America that no person - and no company - is above the law.''

Citing reaction such as that, Thane D. Scott, a top antitrust lawyer with the Boston firm Palmer Dodge, said, ''This makes it way more difficult to settle today than it was yesterday. This is a very severe ruling, and the Justice Department has got to be emboldened by this. A slap on the wrist is not going to do it.''

'The thing that is the most noteworthy about it is that it rejects virtually every factual position advanced by Microsoft,'' Scott said. ''The judge puts them through the wringer, pulls them back, and puts them through the wringer again.''

Investors, however, have seemingly shrugged at the prospect Microsoft could face huge fines or a breakup at the hands of the government. Microsoft's share price has risen 72 percent in the last 12 months and more than doubled since the day the federal suit was filed, boosting Gates's wealth to some $85 billion. At current stock prices, the company is worth $472 billion, making it the most highly valued public corporation in the country.

Microsoft shares began to drop by more than 2 1/2 in the first 60 minutes of after-hours trading following the issuance of Jackson's ruling.

If Jackson rules that the company violated antitrust laws, it could face penalties ranging from large fines to an order that it license its Windows operating system to competitors all the way up to a breakup of the company into multiple units. Jackson's findings also could serve as a blueprint for dozens of companies that want to file private civil antitrust cases against Microsoft.

Windows, which is now estimated to power more than 90 percent of the world's personal computers, provides more than 40 percent of Microsoft's $19 billion in yearly revenue.

Without directly commenting on whether the company agrees with Jackson's findings, Gates said what they describe are chiefly efforts by the company to make its products ''more useful to consumers'' by adding features such as Internet-browsing capabilities.

The central question of the case, Gates said, is: ''Can a successful American company continue to improve its products for the benefit of the consumer?''

''The of our products is completely driven by the benefits these products bring to people,'' not efforts by Microsoft to force computer makers to install only Microsoft software, he said.

''We respectfully disagree with a number of the court's findings and believe the American legal system ... will affirm that Microsoft's actions and innovations were fair and legal and have brought tremendous benefits to millions of consumers,'' Gates said.

But in evaluating 76 days of testimony, including thousands of pages of internal Microsoft electronic mail subpoenaed by prosecutors, the judge concluded that Microsoft repeatedly engaged in anticompetitive practices. He cited examples such as Gates directly pressuring Intel not to make competing software and company officials threatening IBM with higher software prices if it did not stop installing Netscape's Web browser.

Former Netscape chief executive officer James Barksdale, whose company was portrayed as one of Microsoft's leading victims, said of Jackson's strong language: ''I would think it would make Microsoft feel compelled to find some settlement before a remedy comes from this judge, because he seems determined to stop this kind of behavior.''

This story ran on page A01 of the Boston Globe on 11/06/99.
©1999 Globe Newspaper Company.

Microsoft, federal officials say settlement possible

By William C. Mann, Associated Press, 11/08/99    

WASHINGTON -- Officials of the government and Microsoft Corp. say a negotiated settlement is possible in the protracted antitrust case against the software giant despite a judge's finding that the company misused its monopoly power.

Meanwhile, the top federal antitrust official says the government is preparing arguments that cover "a full range of remedies," including a breakup of the company, to recommend to the court in the next phase of the lawsuit.

An out-of-court settlement was the talk of Sunday's news interview shows, as Assistant Attorney General Joel Klein and Bob Herbold, Microsoft's chief operating officer, put forth their cases.

Neither would suggest just what an agreement might entail.

"We would need a settlement that deals with the very findings that the court made in this case, a settlement that produces consumer choice, innovation and competition in the market," Klein, head of the Justice Department's antitrust division, said on "Fox News Sunday."

He cited "serious issues here about law enforcement and the antitrust laws. And, of course, if Microsoft were prepared to engage on those issues, we would be prepared as well."

Herbold largely repeated what Microsoft Chairman Bill Gates said in an open letter run as a full-page ad in The Washington Post: The "findings of fact" issued Friday by U.S. District Judge Thomas Penfield Jackson were only a first step in a long process, to which the company is committed to "a fair and responsible" resolution.

"There's nothing we'd like more than to settle this case," said Herbold, who appeared on three television shows with Klein.

In his letter, published as a full-page advertisement Sunday in The Washington Post, Gates said "Microsoft is committed to resolving this matter in a fair and responsible manner, while ensuring that the fundamental principles of consumer benefit and innovation are protected."

"At the heart of this case," he said, "is whether a successful American company can continue to improve its products for the benefit of consumers."

The letter, addressed "To Our Customers, Partners and Shareholders," also appeared on Microsoft's Web site. It was similar to a statement Gates read on a videotape issued Friday.

Jackson, who presided over 77 days of testimony, declared in a bluntly worded, 207-page decision that Microsoft's aggressive use of its monopoly status stifled innovation and hurt consumers by limiting their choices and charging them unfair prices.

On ABC's "This Week," Klein said Jackson found that "Microsoft was able to control personal computers and control investment in that area."

"You know, in America you have a choice," he said. "And if (computer makers) IBM or Gateway or Compaq or Dell ... had choice, they could go to Microsoft and negotiate (or) they could go to somebody else and negotiate. Here, everybody's got to go to one place -- that's what's hurting us."

He said both sides will submit to Jackson legal analyses of the findings, after which Jackson will decide whether sanctions are warranted. A decision could come later this year.

Government lawyers are "doing an analysis that will look at the full range of remedies," Klein said. Asked if breaking up Microsoft is among them, he replied: "That is in the range, but ... it is premature for us now to get ahead of the story."

One thing the government won't seek is a fine.

"Let me make clear we are not looking for any financial penalties," Klein said on CNN's "Late Edition." "We're concerned with competition. This is not a penal action, and we're not going to seek monies."

On the same program, Sen. Orrin Hatch, R-Utah, chairman of the Senate Judiciary Committee, praised Klein and counseled Microsoft to negotiate.

"If I was Microsoft, I would really sit down with Justice and see if we can resolve this matter in a settlement that would really keep Microsoft going, keep this industry going, and of course keep innovation moving," said Hatch, a Republican presidential hopeful.

He said the protracted trial and Judiciary Committee hearings on the case already have paid off for the computer industry, with Microsoft becoming "a much better corporate citizen" in recent months.

"People have said that to me all over the industry," Hatch said. "They've been pleased that there isn't the heavy hand any more."