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Microsoft found guilty of antitrust violations

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Microsoft was found guilty of violating the Sherman Antitrust Act and held liable for violating the antitrust laws in 19 states, in an opinion filed by Judge Thomas Penfield Jackson on Monday.

Jackson's ruling was a blistering attack on Microsoft, coming after almost two years of the government's antitrust case against the software maker. But the ruling also included a crack that Microsoft may well exploit on appeal, according to some legal experts.

Microsoft Chairman Bill Gates quickly issued a statement saying Microsoft would appeal the ruling.

Forum: Guilty
Your thoughts on the verdict.

Before that happens, though, Jackson will conduct the penalty phase of the case, which could happen in the next 60 days and include an order to break up Microsoft.

In his ruling, Jackson said, "the court concludes that Microsoft maintained its monopoly power by anti-competitive means and attempted to monopolize the Web browser market, both in violation of Section 2 [of the Sherman Act]. Microsoft also violated Section 1 of the Sherman Act by unlawfully tying its Web browser to its operating system."

Jackson said that, taken as a whole, Microsoft's campaigns to thwart the growth of Netscape's Navigator Web browser and Sun Microsystems' Java programming language, as well as the company's aggressive dealings with OEMs and service providers, reveal "the full extent of the violence that Microsoft has done to the competitive process." He went on to say, "Microsoft placed an oppressive thumb on the scale of competitive fortune, thereby effectively guaranteeing its continued dominance in the [operating system] market."

Jackson's finding that Microsoft illegally bundled, or "tied," its operating system and Internet Explorer browser to crush rival Netscape was the centerpiece of the case. Jackson said the decision to tie the products together was the result of "a deliberate and purposeful choice to quell incipient competition before it reached truly minatory proportions."

Jackson found in favor of Microsoft on one charge filed by the Department of Justice and 19 state attorneys general. Jackson wrote, "The facts found do not support the conclusion, however, that the effect of Microsoft's marketing arrangements with other companies constituted unlawful exclusive dealing."

More significantly, Jackson found that Microsoft did not shut off rival Netscape from all the distribution channels it had for distributing its browser, a stipulation of anti-competitive behavior in Section 1 of the Sherman Act. That ruling could prove significant to Microsoft, since the appellate court could rule that a claim of antitrust behavior isn't relevant if any distribution channels remained open. Jackson made several references to other legal cases that arrived at that very conclusion.

"Surprisingly, Judge Jackson gave Microsoft an important concession by saying Netscape was not foreclosed from other distribution channels," says Hillard Sterling, senior litigator for Gordon & Glickson P.C. in Chicago. "It's an important crack in this decision. Without real foreclosure, it's hard to maintain a finding of exclusionary conduct. This will be on Page 1 of Microsoft's appellate brief."

Regardless of the foreclosure issue, some industry observers say the judge's ruling is clear.

"There is little doubt that the government's contention of Microsoft's illegal conduct has been sustained," said Ed Black, president of the Computer and Communications Industry Association, an international, nonprofit association of computer and communications firms. "The ruling shows Microsoft was a persistent violator of antitrust law, and that conduct was core to its overall business strategy."

Black says the only effective remedy is a breakup of the company, a remedy that Microsoft has said would be reckless.

Others agree.

"Now we have a good idea of what it would be like to have the government run the computer industry. Not surprisingly, the conclusions made by Judge Jackson reveal a fundamental lack of understanding of the IT industry," said Jonathan Zuck, president of the Association for Competitive Technology, an advocacy group for restricting government intervention into the IT industry. "At a time when everyone outside the courtroom is experiencing a period of unprecedented growth and innovation in information technology, Judge Jackson describes a world of limited competition and hampered innovation. Ironically, Judge Jackson is painting a vivid picture of an industry run by lawyers and judges."

Gates took the same tone during an afternoon press conference, making numerous references to the company's focus on innovation as a means of survival in the industry. "We believe we have a strong case on appeal," Gates said. "The appeals court has already affirmed Microsoft's rights to build Internet capabilities into the Windows operating system."

In the ruling Gates cited, the District of Columbia Court of Appeals said it was difficult for a plaintiff to prove unlawful tying of products in the technology market. The court said the union of Windows 95 and Internet Explorer was "a genuine integration" and said Microsoft isn't prevented from offering the browser as an integrated product.

"This is a big setback for Microsoft as a company, but this case is far from over," says Michael Gartenberg, an analyst with the Gartner Group. "Microsoft will have to fight hard in court and in the court of public opinion. The twists and turns of the justice system are sharp."

What does this mean for customers? "Not much," Gartenberg says. "They may use this ruling as a negotiating tool to get better licensing terms from Microsoft. But for the user planning a rollout of say, Windows 2000, this won't likely have an impact. There is no reason for people to panic."

Still, Wall Street didn't wait around for the bad news. Microsoft stock took a beating, dropping 14.47% and closing down 15 at 90 . The stock had been as high as $109 last week, when there were strong reports of a settlement. Some 130 million shares of Microsoft stock traded Monday, almost 100 million shares over the average volume.


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