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Judge Finds Microsoft Has Monopoly

While an official ruling in the U.S. Justice Department's case against Microsoft Corp. may be months away, already things are looking bleak for the software giant.

In his findings of fact issued late Friday, U.S. District Judge Thomas Penfield Jackson, who has presided over the government's case, wrote Microsoft is in effect a monopoly despite the fact the Internet and other technological advances could threaten that position in the future.

"While consumers might one day turn to network computers, or Linux, or a combination of middleware and some other operating system as an alternative to Windows, the fact remains they are not doing so today. Nor are consumers likely to do so in applicable numbers any time in the next few years," he wrote.

"Unless and until that day arrives, no significant percentage of consumers will be able to abandon Windows without incurring substantial costs."

That power, Jackson asserted, will allow Microsoft to charge excessive prices for the foreseeable future while having the flexibility to adjust them in time to avoid substantial financial damage.

Jackson said the fact that Microsoft spends large amounts on research and development doesn't change the fact that it enjoys monopoly power. Microsoft also displayed its monopoly power, Jackson said, when it effectively disregarded the prices of alternative PC operating systems when it set the cost of current Windows versions.

"Another indication of monopoly power is the fact that Microsoft raised the prices that it charged OEMs for Windows 95, with trivial exceptions, to the same level as the price it charged for Windows 98 just prior to releasing the new product."

Writing about the browser wars, Jackson said Microsoft (MSFT) was threatened by the emergence of Netscape Communications Corp.'s Navigator because it weakens the barrier to entry in the application market since it Internet-enabled applications can more easily be ported to a wide variety of operating systems.

Microsoft showed its worry about the impact Netscape's browser might have on its market, Jackson said, by bundling it with Windows and promoting it in advertisements. He said Microsoft has gone so far as to limit the profit centers from Internet Explorer solely to compete with Netscape on market share. Jackson said no technical reasons could be established for Microsoft's refusal to market a version of Windows that did not contain Internet Explorer.

He also said Sun Microsystems Inc.'s (SUNW) Java language has had a similar effect since the combination of Java and Web browsers could bring a day when network computers are viable alternatives to Windows-enabled PCs.

Microsoft said it disagreed with many of Jackson's findings and would continue to battle its case in court.

"We will continue to vigorously contest the issues of this case in court, but at the same time we will continue to look for ways to resolve these issues in a fair and responsible manner," Microsoft spokesman Jim Cullinan told Reuters.

Meanwhile, the Justice Department hailed Jackson's findings as a victory for consumers. Speaking at a news conference after the ruling, Assistant Attorney General Joel Klein, who heads the department's antitrust division, said Microsoft's abuse of monopoly power had caused "substantial harm to consumers and innovation" and should result in "serious remedial redress."

He said it was too early to tell whether Friday's actions could result in a break up of the company and reiterated that Justice officials would be willing to discuss a settlement "so long as the important competition issues are fully addressed."

(Editor's Note: Audio from a press conference with Microsoft officials may be found here.)