Where will Microsoft go now?
Legal opinions usually make for tedious reading. Judge Thomas Penfield Jackson’s decision in the Microsoft antitrust case is anything but. Judge Jackson concluded last week that Microsoft had put an “oppressive thumb on the scale of competitive fortune.” The company used its overwhelming position in the market — 90 percent of personal computers worldwide use its operating system — to quash competition in the Internet Web browser market. Now the legal fight turns to remedies, which include the breakup of the company, and appeals.
The tone of the ruling was foreshadowed by Judge Jackson’s findings of fact, which were released in November. But the sweep of the government victory — Judge Jackson agreed with 23 of its 26 allegations — and the language of the decision surpassed most expectations. In the ruling, Microsoft was branded “predacious” and accused of using “incentives and threats,” “technological shackles” and “subterfuge” to “mount a deliberate assault” on efforts to bring competition to the market.
The question is where the case goes from here. Settlement talks between the Justice Department and Microsoft broke off the weekend before the decision was released. By most accounts, they failed for two reasons. The first is the reluctance of Microsoft Chairman Bill Gates to concede any wrongdoing on the part of the company. The second is the obstinacy of 19 state attorneys general who have also filed suit against the company. Those talks could resume as the trial heads into the penalty phase: Judge Jackson will hold a hearing on remedies May 24; a final ruling is expected during the summer.
As soon as that happens, the appeals process begins. All the parties have promised to move as quickly as possible. The judge has encouraged the government to appeal directly to the U.S. Supreme Court, which would bring closure on the case in the most speedy manner.
That assumes that a quick conclusion is in everyone’s interest. That may not be the case. Microsoft has two reasons to hold out. The first is political: A November win by the presumptive Republican candidate, Texas Gov. George Bush, could change the government’s attitude toward the dispute. Mr. Bush has said that he opposes the litigation. A Republican Justice Dept. could settle for considerably less than the current one. (This is a long-shot: There is rarely a political payoff for such intervention. Heeding his advisers, Mr. Bush has since backed away from that statement.)
Second, Microsoft sees that time works in its favor. If alternative operating systems, such as Linux or the rejuvenated Apple system, become more popular, then the argument that Windows is a monopoly becomes less credible. And in the time before the government acts, more users will have a chance to buy the Windows product, which then extends Microsoft’s influence over the newly emerging network economy. Either way, Microsoft benefits. The flip side of that argument is that drawn-out periods of uncertainty damage a company in subtle ways, undermining confidence among employees and in the market.
It is fairly clear, however, that the Justice Department will press for the toughest remedy possible: the breakup of the company. Restraining orders and other restrictions on Microsoft behavior that require active intervention on the part of the government are difficult to oversee. Moreover, the Justice Department considers Microsoft to have reneged on a 1994 agreement regarding its business practices. That low level of trust, combined with Mr. Gates’ celebrated combativeness, does not augur well for a moderate solution.
Microsoft’s defenders argue that breaking up the company will result in a proliferation of operating systems. Without a single standard, it will be impossible for systems to integrate. The dynamism of the entire digital economy will be threatened as a result.
That argument is plausible, but the creation of a standard does not give its owner the right to abuse that power — and that is what this case has been about. Microsoft is not being punished for its success. Rather, it is being punished for behavior that was judged to have been “predacious” and was designed to eliminate potential competition.
Microsoft’s defenders also say that the suit has mellowed the company. Mr. Gates may be as combative as ever, but President Steve Ballmer sounds chastened, acknowledging that his company sometimes acts like an upstart, not the colossus that it is. If true, that is a belated recognition of the obvious. It is also worth noting that the newest Microsoft browser, the Millennium Edition, has integrated media players. That is a fine idea — if product quality, and not Microsoft’s overwhelming influence, determines its success in the marketplace.
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