Microsoft abuses monopoly powers: judge

A U.S. district court judge’s finding last month that Microsoft Corp. is a monopoly that has abused its position in the PC operating system market was not unexpected, according to one industry watcher.

“You don’t do what Microsoft did in the (antitrust) trial and expect to have anything but a harsh judgement,” said Rob Enderle, senior industry analyst at Giga Information Group in Santa Clara, Calif.

“Throughout the course of the trial, Microsoft provided what appeared to be a series of instances that made it look like they were manufacturing evidence,” he said.

Enderle cited two key pieces of evidence presented during the year-long antitrust trial that cast Microsoft’s defence in a negative light: the infamous videotaped technical demonstration that appeared to have been sloppily edited to support Microsoft’s assertion that its Internet Explorer browser cannot be removed from Windows without damaging certain functions of the operating system; and the testimony of one of Microsoft’s defence witnesses, an economist who presented research data from a survey that was paid for by Microsoft, that was later discredited.

In his findings of fact released on Nov. 5, U.S. District Court Judge Thomas Penfield Jackson wrote: “Microsoft enjoys so much power in the market for Intel-compatible PC operating systems that if it wished to exercise this power solely in terms of price, it could charge a price for Windows substantially above that which could be charged in a competitive market.

“Moreover, it could do so for a significant period of time without losing an unacceptable amount of business to competitors. In other words, Microsoft enjoys monopoly power in the relevant market,” Jackson wrote.

The judge’s findings went on to suggest that Microsoft has abused its monopoly power, particularly in its relations with original equipment manufacturers (OEMs). Jackson recounted a pattern of behaviour in which Microsoft threatened to withdraw licences for its Windows operating system or charge higher prices for its use, if OEMs promoted software that competed with Microsoft’s own products.

In a teleconference held after the judge’s findings of fact were released, Microsoft chairman and CEO Bill Gates emphasized that the findings are “just one step in an ongoing legal process that has many steps remaining.”

Although its clear from his harshly worded 207-page findings of fact that Jackson seems to side with the U.S. Department of Justice on the matter of Microsoft’s abuse of its monopoly power, he still needs to rule on whether Microsoft used its monopoly status to violate antitrust law.

“We respectfully disagree with a number of the court’s findings,” Gates said during the teleconference, “and believe that the American legal system ultimately will affirm that Microsoft’s actions and innovations were fair and legal, and have brought tremendous benefits to millions of consumers.”

Giga’s Enderle said it is widely anticipated that the judge’s ruling will be “extraordinarily harsh,” and Microsoft is likely to seek settlement of the case before that judgement is made. The best possible outcome for Microsoft would be a monetary penalty, with little ongoing regulatory activity, Enderle said.

“On the other hand, the justice department would love the settlement to be very visible and hurtful to Microsoft, short of breaking up the company. I’m not yet convinced they really want to do that,” he said. There has been widespread speculation that a court-ordered AT&T-style break-up could be the ultimate result of the antitrust trial proceedings.

During a phone interview, Microsoft Canada Co. president Simon Witts, said Microsoft would like to bring the trial to a swift conclusion. “We’ve said all along that we would like to settle this if possible, but not at the expense or the cost of the core principle of leaving us alone to innovate within our products.”

The issue of product innovation has been central to Microsoft’s defence regarding its inclusion of Internet Explorer in its operating system.

Although Witts said it was far too early to speculate about possible outcomes to the trial, he did indicate that certain possible remedy scenarios would be unacceptable to Microsoft.

“If we were told to take a browser out of Windows, that is not giving us freedom to design our products and innovate. That is against that principle which we’re not going to give up on. That scenario is anti-freedom-to-innovate, as would be putting in other technology,” Witts said, referring to one proposed solution that Microsoft be required to offer competing products with Windows if it includes the same product, such as a Web browser.

He reiterated that the trial proceedings are far from over, saying it could be another two years before an ultimate decision is reached.

“Both sides have almost to the end of January to suggest points of law that may or may not be applicable to the facts. Then a decision will be made, but either side could appeal. So it’s possible that we’ll spend all of next year in appeal, and then all of the year after that in the Supreme Court,” Witts said.