Legal Battle Likely to Drag On for Years

Even after the long-awaited judgment that Microsoft Corp. has violated antitrust laws, only one outcome seems certain: The legal battle will rage for years to come.

The third and final “remedy” phase of the trial--in which U.S. District Judge Thomas Penfield Jackson could call for a breakup of the company or order other severe restrictions on Microsoft’s business practices--could stretch out until the fall.

Microsoft plans to appeal the case to the U.S. Court of Appeals in Washington, D.C., on both legal and procedural grounds. It could choose to do so immediately or wait until after the judge rules on remedies.

The appeals court could order a retrial by the district court or, if the appeals court accepts the case, it could take a year before issuing a decision. Should the case then be accepted for review by the U.S. Supreme Court, up to another year may pass, perhaps till 2002, before a final judgment is rendered.

By failing to settle the case, “clearly Microsoft decided to buy time. They figure that time is on their side,” said Robert Litan, director of economic studies at the Brookings Institution, a think tank in Washington. A settlement is still possible, but most experts view it as highly unlikely now that Microsoft has been formally deemed an antitrust violator.

Litan, a former Justice Department prosecutor who was involved in drafting the 1994 consent decree in an earlier antitrust case with Microsoft, favors a breakup of the company. But he views Microsoft’s current legal position as a sensible gamble. Given the anticipated severity of the remedies expected from Jackson--and the prospect that the remedies could be stayed while the case is on appeal--Microsoft could obtain a more sympathetic hearing on appeal.

“Microsoft does not want any future judge restricting their operating-system development,” Litan said. If that is really the company’s bottom line, they have much to gain if they win this high-stakes legal gamble, even if it takes years to conclude.

And in previous lawsuits, Microsoft has often prevailed on appeal, said Charles Rule, a Justice Department antitrust chief under President Reagan who now advises Microsoft. He suggests that the appeals court in the District of Columbia represents a particularly favorable venue for the company.

Meanwhile, how the Justice Department continues to prosecute the case may be affected dramatically by the presidential election this fall. The likely Republican candidate, George W. Bush, is widely viewed as less aggressive on antitrust issues than his Democratic opponent, Al Gore.

But Jackson’s ruling will be a major strain on Microsoft, even in the short run, analysts said. Microsoft already faces more than 100 private antitrust lawsuits filed since last fall, when Jackson issued his “findings of fact”--a document that declared Microsoft a monopoly.

“Those private lawyers will all run to court and say, ‘Show me the money,’ ” now emboldened by Jackson’s ruling Monday that Microsoft violated U.S. antitrust laws, said Litan.

Most of those cases involve claims that Microsoft used illegal monopoly power to overcharge for its Windows operating system products.

The software giant counters--and even some of its detractors agree--that those consumer suits could fail. That’s because the price of Windows PCs has consistently dropped as its capabilities have risen, and some other operating systems, such as those from competitors Sun Microsystems and Apple Computer, now cost more than Windows.

Microsoft has more than ample legal resources and could view even hundreds of millions of dollars in legal fees as a small price to pay to keep the legal fight going in hopes of winning its antitrust case.

But the overall effects of the legal problems can’t be measured in dollars alone. Several more years of court-inspired distractions for Microsoft’s top brass could cripple its innovative edge and disrupt strategic planning, observers say.

Already, Microsoft has lost many top engineers and executives to Internet start-ups over the last year, and it lags competitors in crucial areas such as online services and hand-held Palm-type devices--trends that ultimately could prove as damaging to the company as any court ruling.

Rob Enderle, an analyst with Norwall, Mass.-based Giga Information Group, says that Microsoft’s technical and business failures in newer businesses are directly linked to a general malaise within the company caused by the antitrust battles.

And he cites the increasingly restive stance of PC companies such as Dell, Gateway and Compaq--once Microsoft’s staunchest allies and crucial to the company’s hold over the computing industry--as a sign that the company faces battles on several fronts.

Those companies now promote machines using the upstart Linux operating system, a free competitor to Windows.

“Gateway is all but in full revolt” and is allying itself with Microsoft rival America Online, Enderle said. “They wouldn’t be doing that but for Microsoft appearing crippled.”

Even chip maker Intel Corp., Microsoft’s most important ally for more than a decade, is showing increasing independence, funding several Linux projects and companies.

Jim Barksdale, former CEO at Web browser rival Netscape Communications and a key prosecution witness in the trial, applauded the ruling. He said Microsoft has already been chastened, “causing them to be a little more respectful of others” and slowing integration of products into the Windows operating system.

And in technology, the line between caution and ineffectiveness can be thin, experts say, pointing to the troubling experience of IBM’s antitrust trials in the 1980s.

“IBM is widely regarded to have been enervated by the battle of the government against them,” said Litan. “The same thing could happen to Microsoft.”