Microsoft Dealt Serious Defeat in Antitrust Suit

WASHINGTON -- Microsoft suffered a serious defeat in its antitrust battle when a federal judge declared that Bill Gates' software empire holds a monopoly and had aggressively used that power by "stifling innovation" by rivals.

U.S. District Court Judge Thomas Penfield Jackson on Friday concluded: "Microsoft has demonstrated that it will use its prodigious market power and immense profits to harm any firm that insists on pursuing initiatives that could intensify competition against one of Microsoft's core products."

The 207-page findings of facts in the case are not a final ruling, but they side heavily with the government's position in the case and are the strongest sign yet that Microsoft could lose the case if it does not settle first.

But the antitrust case is far from over. The final decision in the case and any penalties are not likely until early next year. Appeals could also drag out the case for years and eventually put it before the U.S. Supreme Court.

On Friday, a confident Joel Klein, assistant attorney general for antitrust, said the government remained open to a settlement with Microsoft. But Connecticut Attorney General Richard Blumenthal indicated that the 19 states that joined the case, including his own, are likely to be more hard-nosed in the wake of Judge Jackson's decision.

These are "very compelling and powerful findings, picturing a predator [Microsoft] that has misused monopoly power," Blumenthal said. "It should lead to serious and far-reaching remedies."

The landmark trial strikes at the heart of technology that is fast transforming the information age. Nearly 40 million American households are now online, Forrester Research, in Cambridge, Massachusetts reports. And software such as Internet browsers and online chat applications are becoming as commonplace as microwave ovens and fax machines.

Justice lawyers sued Microsoft under the Sherman Act of 1890, which makes the possession of monopoly power and the maintenance of a monopoly through anti-competitive actions an antitrust violation.

Touted as the biggest business case since the breakup of AT&T Corp. in 1984, the antitrust trial of Microsoft Corp. began Oct. 19 last year and concluded in September after months of rancor. The Justice Department, 19 states and the District of Columbia alleged that Microsoft f whose Windows software runs more than 90 percent of personal computers f used its software to extend the company's dominance to other products and crush rivals such as Netscape Communications.

Microsoft was damaged in the trial by its own e-mails, memos and other business documents that Judge Jackson cited throughout his factual findings.

After Judge Jackson issued his findings, Microsoft's chairman and CEO Bill Gates, who had sometimes struck a confrontational tone against the Department of Justice, adopted a more conciliatory demeanor in his comments.

"Certainly there's got to be a way to resolve this that is fair to Microsoft and is fair to consumers," Gates said in a videotape interview shortly afterward.

At a later news conference, however, Gates said Microsoft has done nothing wrong.

"Microsoft competes fairly and vigorously," he said.

He added that he would not compromise his company's ability to innovate, though he supported any efforts to resolve the case.

"The only thing important is that we be allowed to innovate," he said. "We will continue to make our best effort to resolve the case. But we still have to stick up for that one principle."

Sounding at times like he was in a Microsoft advertisement, Gates said his company has had to struggle to stay competitive in a quickly changing business environment. The proof of the success of their effort is the consumers have not been hurt.

"We know we must continually move forward," Gates said. "No one in this industry has a guaranteed position."

The judge's opinion was issued after securities markets had closed, but in after-hours trading, Microsoft shares fell $4.81 to $86.75.

"Talking about a [Microsoft] settlement is really premature," Jim Lucier, an analyst with Prudential Securities in Rosslyn, Virginia, said. "We have at least one year, and maybe two more years, of legal proceedings to go."

Any final settlement will likely not center on money, Lucier said. "I would imagine they're [Microsoft] not really concerned with the financial penalty," he said. "Microsoft has indicated in the past it would be amenable to a settlement in the case as long as its freedom to innovate remains intact."

But the Justice Department is more interested in winning the right to regulate Microsoft's behavior than in ringing up a huge financial settlement, Lucier said.