Judge Thomas Penfield Jackson issued his Conclusions of Law on the Microsoft antitrust lawsuit brought by the Department of Justice (DOJ), 19 states' attorneys general, and the District of Columbia 48 hours after mediation talks broke down. As expected, the ruling found for the plaintiffs; it was released at 5 p.m. Monday after the stock markets had closed in New York City.
In a summary preamble to the conclusions, Judge Jackson defined the plaintiff's case: "The plaintiffs charge, in essence, that Microsoft has waged an unlawful campaign in defense of its monopoly position in the market for operating systems designed to run on Intel-compatible personal computers ("PCs"). Specifically, the plaintiffs contend that Microsoft violated § 2 [Section 2] of the Sherman Antitrust Act by engaging in a series of exclusionary, anticompetitive, and predatory acts to maintain its monopoly power. They also assert that Microsoft attempted, albeit unsuccessfully to date, to monopolize the Web browser market, likewise in violation of § 2. Finally, they contend that certain steps taken by Microsoft as part of its campaign to protect its monopoly power, namely tying its browser to its operating system and entering into exclusive dealing arrangements, violated § 1 of the Act."
The judge's conclusions to these charges are as follows: "Upon consideration of the Court's Findings of Fact ("Findings"), the Court concludes that Microsoft maintained its monopoly power by anticompetitive means and attempted to monopolize the Web browser market, both in violation of § 2. Microsoft also violated § 1 of the Sherman Act by unlawfully tying its Web browser to its operating system. The facts found do not support the conclusion, however, that the effect of Microsoft's marketing arrangements with other companies constituted unlawful exclusive dealing under criteria established by leading decisions under § 1." Judge Jackson ruled that Microsoft had violated the Sherman Antitrust Act and that the Court will hold Microsoft liable both under Federal and applicable state laws. Interestingly, the conclusion narrows the case to Microsoft's behavior in denying Netscape fair access to the marketplace, and denies the plaintiff's charge that Microsoft violated antitrust law in the licensing and selling of its Windows OS.
The Conclusions define the relevant statutes of the Sherman Antitrust Act and argues that Microsoft has a monopoly of desktop OS software for Intel-based computers under that act. The Conclusions state that Microsoft maintained its monopoly power through anticompetitive means, with practices designed to drive its competitors out of business, not to maximize profits. Among the practices cited were Microsoft's attempts to block OS improvements by Intel, Apple, RealNetworks, and IBM to enhance Netscape's browser; Microsoft's efforts to thwart Netscape in the OEM and Internet Access Provider channels; and its effort to induce developers to write to Microsoft Internet Explorer (IE) APIs. Also cited were Microsoft's efforts to undermine Java's portability so that applications written on other platforms for browsers can be ported to Windows.
The Conclusions continue: "But only when the separate categories of conduct are viewed, as they should be, as a single, well-coordinated course of action does the full extent of the violence that Microsoft has done to the competitive process reveal itself." The Conclusions cite a raft of case law and end by considering Microsoft's counterclaim that the lawsuit seeks to infringe on the company's rights to innovate, granted by US copyright law. Judge Jackson concludes with the following statement: "Microsoft argues that the attorneys general are seeking relief on the basis of state laws, repeats its assertion that the imposition of this relief would deprive it of rights granted to it by the Copyright Act, and concludes with the contention that the attorneys general are, "under color of" state law, seeking to deprive Microsoft of rights secured by federal law—a classic violation of 42 U.S.C. § 1983.
"Having already addressed the issue of whether granting the relief sought by the attorneys general would entail conflict with the Copyright Act, the Court rejects Microsoft's counterclaim on yet more fundamental grounds: It is inconceivable that their resort to this Court could represent an effort on the part of the attorneys general to deprive Microsoft of rights guaranteed it under federal law, because this Court does not possess the power to act in contravention of federal law. Therefore, since the conduct Microsoft complains of is the pursuit of relief in federal court, Microsoft fails to state a claim under 42 U.S.C. § 1983. Consequently, Microsoft's request for a declaratory judgment against the states under 28 U.S.C. §§ 2201 and 2202 is denied, and the counterclaim is dismissed."
Thus ends phase 2 of this trial, and the case moves into the remedy phase. These Conclusions cover little ground not covered previously in the Findings of Fact, and the judge has almost entirely substantiated the plaintiff's case. Upon reading these conclusions, I can't tell whether Judge Jackson has decided the penalties he will assess against Microsoft in the months to come.
As expected, Microsoft's stock took a pounding Monday on the NASDAQ, losing 15 points or about 12 percent of its value. Microsoft's misfortunes led the NASDAQ indicator into its largest 1-day drop ever—340 points. On paper, Microsoft's Bill Gates lost nearly $12 billion of his personal wealth. Gates said that the company expects to win this case on appeal. The appeals process will take at least 1 year to move through the courts—perhaps longer—depending upon the number of venues the case must appear in. In the meantime, Microsoft's executive team must continue to innovate its products and move them into the Internet age while juggling the demands of this lawsuit. As the marketplace moves at Internet speed to new models of delivery and service, achieving that balance will be a considerable challenge for, arguably, the most successful American company of the last decade.