Microsoft's dominance daunting, judge finds

Judge Jackson's use of the phrase 'monopoly power' in his findings of fact in the federal case against the software giant, hints how the case is likely to conclude.

US District Judge Thomas Penfield Jackson's use of the phrase "monopoly power" in relation to Microsoft, in his findings of fact in the federal case against the software giant, hints how the case is likely to conclude.

"Viewed together, three main factors indicate that Microsoft enjoys monopoly power," says the judge in his much-anticipated finding of facts, posted Friday on a government Web site.

"First, Microsoft's share of the market for Intel-compatible PC operating systems is extremely large and stable. Second, Microsoft's dominant market share is protected by a high barrier to entry. Third, and largely as a result of this barrier, Microsoft's customers lack a commercially viable alternative to Windows," according to Jackson.

Gates: Focus on Business

In a press conference held shortly after Jackson's findings were posted, Microsoft Chief Executive Officer Bill Gates focused not on the case but on his company's continuing mission to "focus on the customer."

"We get excited about building great software," Gates said. "We will continue to make the best effort to resolve the case." His resounding response to the ruling was Microsoft's continued desire to innovate.

"Microsoft is dedicated to innovation, integrity, quality, and giving back to the community," Gates said.

When pressed, he said that Microsoft operates within the law. He said he disagreed with the decision and that Microsoft is committed to resolving the lawsuit "in a fair and responsible manner."

Gates called the industry one of the most competitive. "In this industry, no one has an advantage. Americans should wish every business is as competitive."

Justice Department officials were predictably pleased with the first report from the judge.

"Microsoft is a monopolist and engaged in massive anticompetitive practices that harmed innovation and limited freedom of choice," Justice Department attorney Joel Klein said at a press conference immediately following the release of the findings of fact. "This is truly a victory for American consumers and the American economy."

The U.S. Department of Justice and the 19 states that have joined the lawsuit accuse Microsoft of using a monopoly position in the market for PC operating systems to strangle competition and gain a foothold in other markets. Microsoft vehemently denies the accusation and says that competition in the industry is thriving. Therefore, any mention by the judge of Microsoft's monopoly or dominant market position is highly significant.

Key Issue: Is Microsoft Anticompetitive?

Now, both sides will submit written proposals of how they think the judge should present his final ruling of law. Jackson is expected to ask for verbal proposals from both attorneys.

His next ruling is not expected until early next year. The trial began October 19, 1998, after the government filed suit that May.

The next key ruling, which is expected next year, is whether Jackson finds Microsoft guilty of anticompetitive practices, as a monopoly.

The crux of that question is whether Microsoft used its monopoly status in one market--operating systems--to illegally gain advantage in another--browsers and the Internet.

"Having monopoly power is not the same thing as having a monopoly," says Dr. Anthony Lima, professor of Economics at California State University. "Many, many companies have monopoly power; as far as I know it's not illegal." Both Microsoft and the Justice Department relied heavily on competing expert testimony by economists in their presentations of evidence.

Another key issue is whether consumers suffered harm because of Microsoft's practices, especially in regard to its bundling of Internet Explorer with Windows.

Bundling Rationale "Specious"

It's hard to declare that Microsoft has harmed consumers, since most economists agree consumers pay lower prices for software today than they did 10 years ago, mainly due to Microsoft's economies of scale, Lima notes.

It's also unclear whether Jackson believes users have been harmed by Microsoft's efforts in the browser market, but he apparently questions Microsoft's assertions that bundling Internet Explorer with Windows was necessary. He declares "specious" Microsoft's argument that the bundling was "reasonably necessary to preserve the 'integrity' of the Windows platform." Nor does it justify Microsoft's refusal to let PC manufacturers uninstall Internet Explorer from Windows 95 or 98, Jackson writes.

However, Jackson writes that Microsoft harmed consumers who didn't want any browser, and even those who wanted to use only Internet Explorer.

Nonbrowsing customers "must content themselves with an operating system that runs more slowly than if Microsoft had not interspersed browsing-specific routines throughout ... the operating system," Jackson writes.

He also rejects Microsoft's contention that the company had technical justification to license Windows 95 only with Internet Explorer active.

When the two sides squared off for closing arguments on September 21, government lawyers reiterated their position that Microsoft is a monopoly with an "unshakable stranglehold" on the market for PC operating system software. They say the company has enjoyed a more than 90 percent market share for its Windows operating system since 1991.

(Margret Johnston of the IDG News Service contributed to this report).

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