Microsoft's Legal Road Ahead

Despite the finding in federal court that Microsoft Corp. used its monopoly power illegally, the battle between the software giant and the U.S. Department of Justice may be far from over.

In a long-awaited "Findings of Fact" in the Department of Justice’s antitrust case against Microsoft, District Judge Thomas Penfield Jackson flatly called Microsoft a monopoly and asserted that the company stifled innovation in the computer industry.

But the findings of fact are not a final ruling, and there are many more steps in the battle.

The Monday following the document’s release, IT market analysis firm Zona Research Inc. ( released a final report on the browser market. Zona found the market shrunk from nine browser products in January 1996 to two products today: Internet Explorer and Netscape Navigator. The report also states that Microsoft's Internet Explorer is the primary browser choice for 64 percent of the respondents; 36 percent of the respondents indicated Navigator. Also, 69 percent of the companies polled dictate the use of IE; 31 percent require the use of Navigator.

Although the judge’s findings of fact are not a final ruling, they do offer some insight into how the judge is thinking about this case.

Both sides will have the chance to respond to the findings of fact, and as Judge Jackson has suggested all along, there is still time to settle the case out of court.

Microsoft, in a press conference after the ruling, showed no signs of softening their stance.

"One area that we respectfully disagree is the issue of a monopoly," said Bill Neukom, Microsoft senior vice president and general counsel. "No segment of the U.S. economy is more intensely competitive than computer software."

In the document, Jackson pointed to distinct evidence that Microsoft has a monopoly.

"Viewed together, three main facts indicate that Microsoft enjoys monopoly power," Jackson wrote. "First, Microsoft's share of the market for Intel-compatible PC operating systems is extremely large and stable. Second, Microsoft's dominant market share is protected by a high barrier to entry. Third, and largely as a result of that barrier, Microsoft's customers lack a commercially viable alternative to Windows."

The browser battle between Netscape Navigator and Microsoft's Internet Explorer was a centerpiece of the trial, and Jackson reserved some of his strongest conclusions for that debate at the end of his lengthy document. He acknowledges that Internet Explorer benefitted consumers by compelling Netscape to stop charging for Navigator. "These actions thus contributed to improving the quality of Web browsing software, lowering its cost, and increasing its availability, thereby benefitting consumers," he wrote.

But Jackson's findings followed that brief praise with a conclusion that Microsoft's tactics to prevent OEMs from decoupling Internet Explorer from the base operating system had strong reverberations throughout the industry.

"Most harmful of all is the message the Microsoft actions have conveyed to every enterprise with the potential to innovate in the computer industry," Jackson wrote. "The ultimate result is that some innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft's self-interest."

While Microsoft officials refused to speculate about possible remedies, company chairman and CEO Bill Gates left the door open for settlement.

"We will continue to make our best efforts to resolve the case," Gates said.

He stressed that reserving the right to innovate and add new features to products would be a key condition of any settlement talks.

If the two sides do not settle, a final ruling is expected next year. In the meantime, the government has to issue a Memorandum of Law by Dec. 6, 1999. Microsoft then has until Jan. 17 to respond. After that, the government has one week to reply, which will be due Jan. 24. One week later, Microsoft is required to issue its final reply. Judge Jackson will make a final ruling sometime after that.

The judge’s ruling may involve a remedy. Speculation as to possible remedies includes restrictive agreements, Microsoft opening pieces of the Windows source code, and Microsoft being broken up into smaller companies. Years of appeals could follow the ruling.

A lawyer with a major hardware company requesting anonymity speculates that even though the findings seem to be against Microsoft, he thinks it is unlikely Jackson will try to break up Microsoft.

"Breaking a company up is very, very extreme," he says. "This is probably the biggest anti-trust case of the century, so Judge Jackson is more likely to be conservative."

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