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Monday, Apr 3, 2000 12:00 PM UTC

Judge to Microsoft: Guilty!

Thomas Penfield Jackson slams Microsoft for abuses of monopoly power.

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Topics: Microsoft,

Guilty, guilty, guilty. Pulling no punches, U.S. District Court Judge Thomas Penfield Jackson ruled on Monday that Microsoft had abused its monopoly power and was guilty of violating the Sherman Antitrust Act.

“The Court concludes that Microsoft maintained its monopoly power by anti-competitive means and attempted to monopolize the Web browser market,” declared Jackson in his “findings of law.” “Microsoft placed an oppressive thumb on the scale of competitive fortune, thereby effectively guaranteeing its continued dominance in the relevant market. More broadly, Microsoft’s anti-competitive actions trammeled the competitive process through which the computer software industry generally stimulates innovation and conduces to the optimum benefit of consumers.”

Specifically, Jackson determined that Microsoft violated the Sherman Antitrust Act by unlawfully “tying” its Web browser to its operating system, and by a series of other anti-competitive acts that included foregoing millions of dollars in revenue through its practice of giving away the browser for free, and applying extreme pressure on Internet service providers and hardware retailers. Jackson also declared that Microsoft’s creation of a version of the Java programming language incompatible with Sun Microsystems’ Java fit into the same pattern of abusive practices.

As he did in his findings of fact, released late last year, Jackson noted that Microsoft’s clear motivation was to defend against any possible threat to its operating-system monopoly. In the case of both Netscape and Java, argued Jackson, Microsoft feared that such so-called “middleware” programs would erode Microsoft’s dominance.

“Microsoft’s campaign to protect the applications barrier from erosion by network-centric middleware can be broken down into discrete categories of activity,” wrote Jackson. “But only when [they are viewed] as a single, well-coordinated course of action does the full extent of the violence that Microsoft has done to the competitive process reveal itself. In essence, Microsoft 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.”

Reactions to the ruling from the principal parties involved were hardly surprising: Microsoft declared it would appeal and the Justice Department applauded the decision.

“Microsoft has always believed and continues to believe fervently that we have a winning case.” said Bill Neukom, senior vice president for law and corporate affairs, in a press conference on Monday.

Microsoft Chairman Bill Gates told a press conference call, “This ruling turns on its head the reality consumers know — our software has helped make PCs more accessible and useful to millions of consumers … As we look ahead to the appeals process, innovation will be the No. 1 priority at Microsoft.”

Microsoft and the Justice Department had engaged in talks seeking a settlement up until 48 hours before Jackson’s release of the findings of law. Since the findings of fact last November, there had been 20 different drafts of a possible consent decree, according to a statement by mediator Richard Posner. According to Microsoft, the talks finally broke down over an inability to come to an agreement that satisfied Microsoft, the Department of Justice and the 19 states pursuing cases against Microsoft.

“There were divisions and extreme views on the other side that brought us to the point where a mediation wasn’t going to be successful,” said Gates on Friday.

Despite Jackson’s strong language, the antitrust trial is still far from over. The next step is the “remedy” phase, in which Jackson will decide exactly what punishment is appropriate for Microsoft’s crime. Over the next few months, Jackson will hear additional testimony as to recommended remedies before making his next pronouncement — probably sometime this summer.

And regardless of whatever punishment Jackson does decide upon, the case is still bound to go before a federal appeals court. In previous instances in which Microsoft has appealed antitrust-related decisions, the appellate courts have generally been friendly to Microsoft — on one occasion, directly reversing Jackson’s decision that Microsoft had violated the terms of an earlier consent decree agreed to between Microsoft and the Justice Department.

In one of the more intriguing passages in the findings of law, Jackson disagreed with the appellate court’s reversal of his own decision, by citing two Supreme Court precedents. Microsoft had managed to convince the appellate court that the Internet Explorer Web browser and the Windows operating system were an “integrated product.” But according to two separate Supreme Court rulings, noted Jackson, the “resolution of product and market definitional problems must depend upon proof of commercial reality, as opposed to what might appear to be reasonable. In both cases the Supreme Court instructed that product and market definitions were to be ascertained by reference to evidence of consumers’ perception of the nature of the products and the markets for them, rather than to abstract or metaphysical assumptions as to the configuration of the ‘product’ and the ‘market.’”

And what did the “market” itself think of Microsoft on Monday? Microsoft’s stock price declined nearly 15 percent, closing at $90.63, as the NASDAQ exchange experienced its worst day ever, declining a whopping 7 percent.

Lydia Lee is a San Francisco writer More Lydia Lee.

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