IMPACT OF THE SOFTWARE RULING : Renewed Probe of Microsoft? : U.S., Company Weigh Next Moves After Settlement’s Rejection
A few weeks after signing an antitrust settlement with the Justice Department last summer, Microsoft Chairman Bill Gates joined his friend, financier Warren Buffett, in a friendly game of golf with President Clinton. Gates’ troubles with the U.S. government, it seemed, were over.
But Microsoft now finds itself facing the possibility of a renewed antitrust probe after a federal judge on Tuesday shocked the legal community and the computer industry by throwing out the settlement. Nervous investors sent Microsoft stock down $1.125 to $60.75 in heavy Nasdaq trading, while industry analysts and competitors offered divergent views on the ultimate impact of the decision.
In Washington, meanwhile, Justice Department lawyers remained closeted in meetings as they tried to figure out what to do next. None of the options are pleasant for antitrust chief Anne K. Bingaman. Legal experts noted that appealing Judge Stanley Sporkin’s decision, dropping the case altogether or taking Microsoft to court all carry serious risks, and it may be hard to persuade Microsoft to enter into a more stringent agreement.
Atty. Gen. Janet Reno is expected to give some indication of what the Justice Department intends to do at a weekly briefing with reporters scheduled for today.
In a prepared statement, Microsoft said it is disappointed in Sporkin’s decision, saying it had cooperated fully with the government and provided ample information to support the settlement. (In his ruling, Sporkin alleged that the company had provided inadequate and misleading information.) Microsoft will now probably wait for the Justice Department to take action before making any move on its own.
While analysts expect Microsoft to voluntarily adhere to the terms of the rejected settlement, at least for the moment, it is less clear whether the prospect of a renewed antitrust case will alter the way it does business.
Since signing the consent decree, Microsoft has been more aggressive than ever. In October, it offered $1.5 billion for Intuit Inc., a small but tenacious maker of personal finance software, which could give it entree to the home banking industry. A month later, Microsoft followed up that announcement with a declaration of its intentions in the on-line services arena--and specifically its intention to include Microsoft Network with Windows 95, its upcoming version of the popular software operating system. The company’s grip on PC productivity software--such as word processors, databases and spreadsheets--grew even stronger.
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Some believe Microsoft’s market position is so formidable that even another antitrust investigation would hardly make a dent. Gates has said in the past that neither he nor other managers would make decisions with an eye on how government lawyers might react.
“Right now, the biggest competitive problem for Microsoft is if Bill Gates gets run over by a car,” quipped industry pundit Stewart Alsop.
The company’s aggressive moves since the decree was signed may have worked against it, encouraging Sporkin to throw out the deal.
Microsoft hasn’t been infallible. The company has spent enormous sums developing dozens of CD-ROMs for consumers, but only two--the electronic encyclopedia Encarta and a version of the venerable Flight Navigator software--have been hits. And it has struggled in the market for networking software.
“Microsoft’s two priorities in the ‘80s were Windows and (networking),” notes Intuit Chairman Scott Cook. “And guess what? One was a hit and the other was a failure. And it wasn’t until 1990 that Windows was a hit.”
That said, Gates has never let one failure discourage him. There are countless examples of Microsoft’s releasing version after version of a product until improvements and its formidable marketing savvy have made them successful.
But the company does risk getting overextended. “I like to see them do something like buy Intuit,” said Gordon Eubanks, chief executive of Symantec. “Let them take on Visa.”
And tangling with the Justice Department can be a dangerous game--even if the case ends with another settlement. For one, the government could block the Intuit buyout.
And one industry veteran who asked not to be named noted that IBM was hurt in many small ways by a 1956 antitrust consent decree.
“IBM had warehouses filled with documents that it was required to keep under the consent decree,” he said. “The focus on compliance at IBM has been agonizing.
“And competitors became very astute at using the consent decree and run screeching to the government with complaints to get IBM to back off, even though it was never found that it violated it,” he said. “It fostered a conservative approach to the market.”
The legal situation is especially difficult for Microsoft--and for the government--now that Judge Sporkin has declared his belief that Microsoft is violating the antitrust laws. If the case were to go to trial, Sporkin would preside.
“If I’m Microsoft, I’m not anxious to have Judge Sporkin decide the case,” said Phillip Rudolph, a Washington antitrust expert who is a partner in the Los Angeles-based law firm Gibson Dunn & Crutcher.
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Rudolph added that even if Sporkin’s rejection of the consent decree is vulnerable on appeal--as many believe it is--”I don’t think they (the Justice Department) will get away with the argument that the judge abused his discretion. He may have gone far out there with this decision, but I don’t think he crossed the line.
“After all, there is something to be said for a judge looking very closely before he or she determines if something is in the public interest,” as required by the Tunney Act, he said.
Pitta reported from San Francisco, Shiver from Washington.
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Microsoft’s Power
The software giant is ore dominant than ever in personal compute operating systems. But the company is wrestling with product delays, and a renewed antitrust probe could hurt badly.
Microsoft stock price
Weekly closes since January, 1994, except latest:
July 16: Microsoft agrees to settle the Justice Department antitrust probe.
Wednesday: Antitrust agreement rejected by federal judge.
February, 1995: $60.75, down $1.125
Market Share
1994 operating system market share:
Microsoft (DOS, Windows): 83%
Macintosh System 7: 8%
OS/2: 4.5%
Unix: 4%
Other: 0.5%
Source: Dow Jones
