Microsoft loses federal ruling

Software company called `oppressive,' antitrust law violator

Gates to seek settlement

Judge to consider how to end monopoly

breakup possible

April 04, 2000|By Lyle Denniston | Lyle Denniston,SUN NATIONAL STAFF

WASHINGTON -- Lambasting Microsoft Corp. for putting "an oppressive thumb on the scale" of competition, a federal judge ruled yesterday that the software giant repeatedly violated federal and state antitrust laws.

Two days after the collapse of private negotiations over an out-of-court settlement, U.S. District Judge Thomas Penfield Jackson issued a 43-page ruling that on almost every page sharply disparages Microsoft's conduct.

Jackson's ruling could lead to a ruling this year to dismantle Microsoft or at least to alter drastically the way it does business, such as requiring it to share some of its secret technology with rival companies.

Anticipating the withering verdict that emerged at 5 p.m., after the financial markets had closed for regular trading, investors abandoned Microsoft shares in droves yesterday. The company's overall market value fell $80 billion as Microsoft shares closed at $90.875, down $15.875. Microsoft Chairman Bill Gates suffered about $12.1 billion in paper losses.

The company's stock dragged technology stocks downward on the Nasdaq, which lost 349.15 points, or 7.6 percent, to close at 4,223.68. It was the Nasdaq's biggest point decline and its fifth-largest percentage drop.

In his verdict, the judge said the company had "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" dominated by Microsoft's Windows operating system.

Attorney General Janet Reno praised the ruling, saying that "Microsoft has been held accountable for its illegal conduct by a court of law."

Joel Klein, the assistant attorney general who has pursued Microsoft in the 22-month-old case, said the ruling would "set the ground rules for the information age."

Gates said, "This ruling turns on its head the reality that consumers know, that our software has helped make PCs more accessible and more affordable to millions.

"While we did everything we could to settle this case, and will continue to look for new opportunities to resolve it without further litigation, we believe we have a strong case on appeal."

The judge found Microsoft to be a "market predator" with a monopoly over the command systems that run personal computers. He concluded that the company poses a danger of gaining a second monopoly, over Internet browsers.

`Trojan horse' threat

Jackson said that, faced with the arrival in the digital world of browsers, and seeing them as a "Trojan horse" that could muscle its way into Microsoft's monopoly over computer operating systems, Microsoft mounted a four-year campaign to make itself the dominant supplier of browsers.

Internet Explorer, the browser that the judge said Microsoft pushed onto the industry, sometimes against the wishes of corporate customers, did not fare well in the decision.

The judge called it a lower-quality browser not likely to become the "best of breed" soon. He also said that Microsoft did not envision Explorer as a money-maker, but rather as a wedge to force rival Netscape Communications' Navigator browser out of the market.

Exclusive sales upheld

Microsoft emerged with one victory in the ruling. Rejecting one of four antitrust complaints by the Justice Department and 19 states, including Maryland, Jackson found that the company did not act illegally in trying to lock personal computer manufacturers and Internet service providers into exclusive deals favoring Microsoft.

That conclusion fell far short of vindicating the company's style of aggressive competition. Although Jackson found that those tactics did not violate one section of the Sherman Antitrust Act, he ruled that they violated another as part of Microsoft's effort to maintain its operating system monopoly.

Moreover, the other violations the judge found set the stage for an even more devastating ruling, a decision to impose what the judge called "appropriate relief." That was a reference to potentially harsh remedies to counter the violations he found.

Unless the two sides unexpectedly resume negotiating a settlement, Jackson's decision is expected to set off this sequence of events: This spring or early summer: The Justice Department, the 19 states and the District of Columbia will suggest remedies for the antitrust violations. The judge wants those governments to agree on the remedies they propose. He will hold a hearing on the issue.

Late summer or fall: The judge will issue orders to break up Microsoft or force it to change its business practices as it deals with others in the computer industry.

This winter: Microsoft is expected to file with the U.S. Circuit Court of Appeals in Washington an appeal that could take a year or longer.

Next year or 2002: The case could reach the Supreme Court.

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