Microsoft’s Influence at Stake in Judge’s Finding
U.S. District Judge Thomas Penfield Jackson’s finding Friday that Microsoft Corp. uses monopoly power to harm potential competitors could accelerate a dilution of the company’s once-unquestioned dominance over the software industry.
Antitrust experts called the findings a resounding victory for the Department of Justice. The action foreshadows a final ruling in the landmark antitrust case against the high-tech titan, strongly suggesting Jackson will rule that Microsoft violated antitrust laws. That likelihood sets the stage for an out-of-court settlement, experts say.
“The predatory nature of the acts are factual, not legal, questions,” said James Loftis, a leading Washington antitrust attorney. “So there is precious little room to maneuver on appeal there.”
In a statement after the judge’s ruling, Microsoft Chairman Bill Gates said the company disagrees the court’s findings. “Microsoft is committed to resolving this case in a fair and a factual manner, while ensuring that the principles of consumer benefits and innovation are protected,” Gates said.
Loftis said: “They are recognizing that the findings of fact compel conclusions of law that are not in their favor” and could result in severe antitrust actions, including the possible divestiture of portions of the company. Loftis also represents Microsoft rival Oracle Corp.
He and other experts consider that radical remedy, used in the famous breakup of AT&T; Corp. in 1984, to be an unlikely outcome. But given Jackson’s findings, the Justice Department could well hold out for significant changes in Microsoft’s business practices, including requirements that the company license its technologies to competitors, who could then compete more effectively, Loftis said.
More important, it could result in restrictions on how Microsoft can integrate new products into its Windows operating system.
A central point in the case was whether Microsoft’s inclusion of its Web browser, Explorer, in Windows made it impossible for rival Netscape Communications to compete effectively with its product, Navigator. Even though the browser was given away as a free addition to Windows, consumers were ostensibly harmed because the method by which Microsoft included Explorer inhibited the use of Navigator, the judge said, and that reduced consumer choice and competition in browser software.
“I’m troubled by what he found to be the harm to consumers. It’s much less detailed and supported,” said Steven Sunshine, a former Justice Department enforcement chief. “That goes to the tough question: What’s the right remedy? The answer really is to police the hell out of them, try to keep them restricted from thwarting new competitors.”
Jim Barksdale, former chief executive of Netscape and a principle Justice Department witness in the case, called the ruling a “tremendous victory” and urged that the company be broken up. “That’s the appropriate action to give [antitrust enforcement] some teeth,” he said.
Regardless of the ultimate outcome of the case, fast-changing industry forces and shifting alliances have already fragmented the software giant’s dominance. With antitrust sanctions now likely, key competitors--such as America Online, which acquired Netscape Communications in March--could move to exploit Microsoft’s weaknesses in that face of legal uncertainties.
To be sure, Microsoft remains the world’s most powerful technology company. Its Windows product family continues to run the vast majority of the world’s personal computers; its share of the market for Web browsers has risen to 64%, up from only 40% when the trial began a year ago, according to Zona Research. And Microsoft continues to largely control the lucrative market for office productivity software.
But a number of counter-trends suggests that Microsoft has been chastened by the government’s antitrust offensive.
Microsoft was caught off guard by the Internet’s rapid rise as the center of the computing experience. Its presence in electronic commerce, which is seen as the key to converting Web users into buyers, has lagged well behind industry leaders Yahoo! Inc., Amazon.com Inc., eBay Inc. and America Online Inc.
AOL’s purchase of Netscape Communications created an Internet titan widely viewed as the most important company in cyberspace.
“Microsoft had a chance with MSN [Microsoft Network, the company’s principle Web site] to come up with a real alternative to AOL, and they clearly didn’t do it,” said Rob Enderle, an analyst with Giga Information Group. The decision was due to the company’s missteps and the cloud of the antitrust trial, he said. “They had an almost unlimited budget and they could have taken AOL out.”
At the same time, once-docile computer makers are acting with increased independence, in part by including AOL’s Netscape Web browser on new PCs along with Microsoft’s Explorer software, and by offering the upstart Linux operating system as a substitute for Windows on new PCs.
Even Dell Computer Corp., once so loyal as to be considered “almost part of the Microsoft family,” is now offering Linux, Enderle said.
And PC manufacturer Gateway “feels perfectly free with being generally critical of Microsoft--on pricing, product quality, product release cycle,” Enderle added.
Last month, Gateway announced a far-reaching pact with AOL that calls for a tight bundling of AOL software and Internet services with Gateway computers. The agreement also includes a joint program to develop television set-top boxes and information appliances that do not operate on Microsoft software.
Meanwhile, Web-connected information appliances--handheld computers such as 3Com Corp.’s Palm, set-top boxes and high-end cellular phones--are becoming a major force in computing. Microsoft offers Windows CE, a reduced version of its Windows product for PCs, for such devices. But its acceptance has been limited.
Judge Jackson’s findings, some industry observers say, will motivate other companies to move aggressively to develop PCs and Internet devices that use no Microsoft products, something only Apple Computer Inc. has done successfully for large numbers of consumers.
Also, software applications that are sold or rented over the Internet have emerged as a major competitor to the traditional software sales model dominated by Microsoft’s Office suite of business tools.
Sun Microsystems Inc. recently jumped in with its purchase of Star Office, which it now makes available on the Web. Microsoft was forced to respond with a tentative plan to offer its own suite online. “There’s certainly been some changes that have ocurred,” Barksdale said, “but if they’re let off the hook they’ll go right back to their previous practices.”
Microsoft shares, which have risen precipitously in the last year despite the antitrust cloud, fell 19 cents to $91.56 in regular Nasdaq trading before the ruling was announced. In after-hours trading it dived as low as $86.75, and at least one after-hours trading venue stayed open later to accommodate traders.
