Article 31 of 200
Microsoft has years to fight ruling if it chooses
Kevin Coughlin
The Star-Ledger Newark, NJ
Page 001
(c) 1999. The Star-Ledger. All rights reserved.


In declaring Microsoft Corp. a monopoly that harms consumers, Judge Thomas Penfield Jackson sent a powerful message to the strongest engine of the American economic miracle: Settle with the government now or face possible derailment later.

But while Bill Gates hinted he might be willing to talk, on Friday the federal judge slammed Microsoft so hard that the software titan may have no choice but to keep pressing appeals that could last years, legal experts said yesterday.

Meanwhile, as rival businesses cheered and analysts debated whether Microsoft's lawyers fumbled or if the judge's ruling went too far, stock analysts said Americans whose nest eggs begin with the letters "MSFT" should not panic.

The final outcome of the historic antitrust case remains a long way off, and Microsoft's "fundamentals" remain strong, predicted Michael Kwatinetz of Credit Suisse First Boston.

''This is an event that may cause the stock to ratchet down in one day, but then it will reverse itself," Kwatinetz said of Friday's seismic ruling.

Jackson's 207-page "findings of fact" stunned many observers by siding with the Justice Department and 19 state attorneys general on virtually every argument leveled against Microsoft in the antitrust trial that began 13 months ago.

The judge concluded Microsoft strong-armed rivals, stifled competition and harmed consumers in a no-holds-barred quest to preserve the dominance of its Windows operating system, which runs more than 90 percent of the world's personal computers.

Microsoft's actions "harmed consumers in ways that are immediate and easily discernible," Jackson wrote.

His next ruling, expected within two months, will determine if those actions violated the Sherman Antitrust Act. Then Jackson could impose penalties ranging from breaking Microsoft into separate companies to forcing Microsoft to license Windows to competitors, or otherwise altering its dealings with computer makers.

Those remedies would be so severe, and Jackson's findings appear to leave so little room for compromise with the Justice Department, that Gates may take his chances in appellate court - where he has won before - and possibly, in the Supreme Court.

Though difficult and costly, the appeals process might buy Microsoft time to see whether a Republican wins the White House and the Justice Department softens its stance, said Nicholas Economides , an economics professor at New York University's Stern School of Business.

Prior settlement attempts have stumbled. After Jackson's findings, Gates left the door open, saying, "Microsoft is committed to resolving this matter in a fair and responsible manner."

But the world's richest man added he "respectfully" disagreed with the findings, and felt the courts ultimate would vindicate Microsoft's practices in innovating and competing.

Assistant U.S. Attorney General Joel Klein said any settlement would have to fully "address our competitive concerns." Browsing battle The case began in October 1997 with charges that Microsoft combined its Web browser, Internet Explorer, with Windows, violating an earlier consent decree. Microsoft said the combination was an improvement to make Windows more useful to customers. The government said Microsoft was using its Windows monopoly to kill the Netscape Corp., producer of a competing Web browser.

Jackson agreed, and went further. Microsoft, he said, bullied IBM, Compaq Computer, Apple Computer, Intel Corp. and anyone else who disagreed with dictates from Microsoft's campus in Redmond, Wash.

''Through its conduct toward Netscape, IBM, Compaq, Intel and others, 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 against one of Microsoft's core products," Jackson wrote.

''Microsoft's past success in hurting such companies and stifling innovation deter investment in technologies and businesses that exhibit the potential to threaten Microsoft," he added. "The ultimate result is that some innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft's self-interest."

Microsoft competitors were thrilled by the findings. They showed that the firm used underhanded tactics to "steamroller companies and force unwanted business deals on most, crushing the few who would not bend to their will," said Ed Black of the Computer & Communications Industry Association, an industry trade group.

But a taxpayers group condemned the government's $7 million case as unjustified, and said the judge failed to suggest what prices Microsoft should charge for its products.

''Judge Jackson bought the government's side of the case, hook, line and sinker," said Thomas Schatz, president of Citizens Against Government Waste. "He went out of his way to berate the world's most successful and innovative company simply for being a tough competitor."

Microsoft's handling of the case will be studied for years. Jonathan Zittrain, director of Harvard's Berkman Center for Internet and Society, said Microsoft's key mistakes "have been to engage in the behavior the government is now coming to prove happened."

But NYU's Economides said it was Microsoft's lawyers who blew it - and Gates was his own worst enemy.

Gates not only avoided live testimony, he gave a videotaped deposition so evasive and uncooperative that it provoked laughter from the judge.

''He took a long time to answer some questions and, being on videotape, it showed. People don't like that. People think if you're as smart as Bill Gates, you should answer immediately," said Economides .

Economides argued that Microsoft lawyers should have coached Gates better, lined up stronger witnesses, and hammered home a few themes, such as the benefit to consumers of Microsoft's free Internet browser, its decision to price Windows reasonably when it could have charged much more, and the thousands of programs written for Windows.

''These are simple points, but they were not really made effectively by Microsoft witnesses," said Economides .

Microsoft also was haunted by a mountain of its own internal e-mail.

If the government prevails and the final penalty is a breakup of Microsoft, the personal computing world could be Balkanized into a confusing welter of incompatible systems, said Economides . Unlike AT&T, he added, Microsoft has few top managers and might not weather a breakup very well.

''I'm not so sure consumers won," Economides said. "If there's a settlement breaking Microsoft into pieces and there are three different versions of Windows, consumers lose."

An antitrust defeat also could embolden other companies to sue Microsoft, and affect ongoing cases by Caldera and Blue Mountain Arts.

Caldera contends Microsoft illegally crushed the competing DR-DOS operating system in the early 1990s. Blue Mountain claims Microsoft programs sabotaged its electronic greeting cards to boost the company's own e-card business. Shifting landscape Whatever the outcome of the antitrust case, there are signs that the computing landscape already is shifting in ways that clearly concern Microsoft.

Since the government prosecution began, America Online and Netscape Communications have teamed to become an Internet colossus.

The iMac has breathed new life into Apple Computer, and the free Linux operating system is making gains. Computer makers once cowed by Microsoft now offer Linux as a substitute for Windows, and Netscape's browser along with Microsoft's.

The hegemony of desktop PCs, Microsoft's bread and butter, eventually may be eroded by TV set-top boxes and Web-centric hand-held devices like the Palm Pilot and advanced cell phones.

Cisco Systems and Motorola are leading a push for new wireless Web devices, and Sun Microsystems is using the Web to offer the type of business software that has been a pillar of Microsoft's sales.


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