Verdict Ends Rough Day for Microsoft

As widely expected, Microsoft Corp. was dealt a severe legal setback Monday in its ongoing antitrust battle with the federal government and 19 states.

In his ruling issued late Monday, U.S. District Judge Thomas Penfield Jackson wrote Microsoft (MSFT) used its monopoly power to block rivals from marketing their own operating systems or emerging technologies, such as Java, that threatened Microsoft’s market dominance.

He also said Microsoft violated the Sherman Antitrust Act by unlawfully linking Internet Explorer to Windows.

In a statement, Microsoft Chairman Bill Gates vowed the company will appeal. Microsoft cannot actually file an appeal until Jackson decides the legal remedies.

“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,” Gates wrote.

Microsoft General Counsel Bill Neukom reiterated he believes the company has a strong case and will prevail on appeal.

While Microsoft officials continued to sound confident, investors were clearly shaken by the news, sending the software giant’s shares tumbling 14.5 percent, down 15-3/8 to 90-7/8 in a session that saw the Nasdaq post its biggest one-day decline.

Jackson once again said Microsoft enjoyed a monopoly through its substantial market share and the high barrier to entry that is keeping competitors from the market.

Microsoft, Jackson wrote, was able to strong arm computer makers by first contractually, and later technologically, binding Windows and Internet Explorer. Once the two products were tied together, it became more expensive for computer makers to also bundle Netscape Communications Corp.’s Navigator.

Since the case began, Netscape was purchased by America Online Inc.. (AOL). However, Netscape’s percentage of the browser market has continued to shrink as it missed goals for shipping the next version of Navigator. The company Wednesday is finally scheduled to unveil the first beta of Netscape 6.0 at Spring Internet World 2000 in Los Angeles.

Not surprisingly, Microsoft rivals immediately began calling for a break-up of the company. Java inventor Sun Microsystems Inc. (SUNW) again said Microsoft has used its monopoly to illegally compete.

“The only way to curtail Microsoft’s power is to see that applications and Internet content businesses are
divested as separate companies, and the remaining operating systems business is divided into three”
businesses, Sun said in a statement.

Sun called for a court ruling that forces Microsoft to publish software program interfaces and make
product pricing available to the public and nondiscriminatory.

Sun said Microsoft must be barred from signing deals that require companies to do business only with
Microsoft or agreements that bar companies from doing business with a Microsoft competitor.

Jackson’s next step will be to detail legal remedies aimed at ending Microsoft’s monopolistic power.