The jury's out on impact of landmark Microsoft monopoly ruling

By Bob Trott and Jennifer Jones
InfoWorld, 04/10/00

So how do you feel about doing business with an illegal monopoly?

That is the question Microsoft's partners and customers are mulling over in the wake of U.S. District Judge Thomas Penfield Jackson's historic ruling that found the software giant unlawfully used the dominance of its Windows operating system to take over the Web browser market.

Microsoft must convince the rest of the world that it is still a sunny day, despite the big black cloud hanging over it. That may be tough to do because the company's strategy has its risks. The case will likely distract Microsoft's top strategic executives, and customers and partners could look elsewhere for technology-or at least feel more assertive in dealing with the notoriously hard-as-nails company-as the case wends its way through the legal process.

"Many of Microsoft's principal business customers have testified against them in this case, and so have many of their partners. One thing that is apparent is that [customers and partners] are going to be more comfortable in the future dealing with Microsoft's rivals," said Bill Kovacic, an antitrust expert at George Washington University Law School, in Washington.

Although many other companies and customers are, in the words of one user, "looking at [Microsoft] with a real hate in the eyeball," in many ways it will be business as usual. Conventional wisdom has dictated for years that the case would not go in Microsoft's favor, at least initially, so Jackson didn't surprise many people.

"[Customers'] decisions about whether to do business with Microsoft will always come down to dollars and sense," said Warren Wilson, a Bellevue, Wash.-based analyst at Summit Strategies. "Microsoft may lose a few [customers] who can't handle the legal uncertainty, but the company's got a strong base and a strong product lineup."

Once Jackson makes a decision on punishment-proposed remedies range from regulating business practices to forcing Microsoft to share Windows code to breaking up the company-Microsoft will appeal the case. Even if the case goes directly to the U.S. Supreme Court, it still could take at least a year.

Meanwhile, U.S. Assistant General Joel Klein is expected to testify next week before the House Judiciary Committee about his antitrust division's prosecution of Microsoft.

Arriving at remedies that appease the plaintiffs-the Department of Justice, 19 state attorneys general, and the District of Columbia-has already proved problematic. Many states were pushing for a breakup of the company, which the Justice Department reportedly has shied away from. But with Jackson's harsh ruling, the government likely will revisit that punishment, which still enjoys widespread support.

"If [the government] wants to have an impact on Microsoft and its increasing propensity to become a monopoly, they are going to have to break off part of the company," said Barry Wheeler, senior network systems engineer at Wells Fargo Auto Finance Group in San Francisco.

Recently, Microsoft reorganized itself into three distinct groups, which could make a potential breakup relatively easy-the platforms and developers group, consisting of the Windows platforms and the SQL Server database; the business productivity group, which includes the Office and Back Office packages; and a consumer group, including all Internet-related businesses.

"If Microsoft will be forced to break up the company, it will do it in these three groups, and this won't hurt them at all," said Tom Bittman, an analyst at Gartner Group, in Stamford, Conn. But a cloning-building up three new Microsofts, each competing with similar intellectual property-would take a long time and hurt companies dependent on Microsoft's products, Bittman said.

Consumer advocate Ralph Nader urged the Justice Department and states to break up the company and force it to "divest itself of the browser, the software product that led to the antitrust case." Other remedies Nader suggested include ensuring that Microsoft's Office desktop applications suite is compatible with at least two non-Windows platforms, requiring that Windows source code be opened up to competitors, and preventing Microsoft from "penalizing" OEMs who carry non-Microsoft software.

Jackson put the case on a fast track, and legal sources said Microsoft would rather not see its case catapulted directly to the Supreme Court. Microsoft has had prior luck in the District Court of Appeals, which disagreed with Jackson's 1998 decree that Microsoft had illegally bundled its operating systems products.

Other legal experts said that Microsoft may want to take the slower appeals route because any remedies imposed by the government now may make little sense in two years given the changes in the market.

"It is a very difficult business decision. They must weigh the business disadvantages of having this tied up for two years with the possible advantages of waiting to see how much the market changes," said Emmett Stanton, an antitrust attorney at Fenwick & West, a law firm in Palo Alto, Calif.

Jackson issued his verdict last Monday, after last-ditch settlement negotiations broke down that weekend. Jackson ruled in his 25-page conclusions of law that Microsoft violated two sections of the Sherman Antitrust Act: It unlawfully tied Internet Explorer to Windows, and it "maintained its monopoly power by anti-competitive means and attempted to monopolize the Web browser market." However, Jackson found that the government did not prove that Microsoft broke antitrust laws via its marketing arrangements with other companies.