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Judge finds against Microsoft on virtually all fronts

Little comfort for company in verdict

Analysis The Conclusions of Law Judge Jackson has issued in the Microsoft trial are generally as expected: Microsoft has been found guilty of breaching both section one and section two of the Sherman Antitrust Act.

"The Court concludes that Microsoft maintained its monopoly power by anticompetitive means and attempted to monopolise the Web browser market", the judge wrote, "by unlawfully tying its Web browser to its operating system".

The nineteen states and the District of Columbia - the plaintiff states - also won their case, with the judge finding  Microsoft liable under state antitrust law as well.

Because the hearing schedule severely limited the number of witnesses, the judge found that the evidence presented did not support the conclusion that "Microsoft's marketing arrangements with other companies constituted unlawful exclusive dealing".

This does not mean that Microsoft did not indulge in such practices - merely that it wasn't proved to the necessary standard. The 43-page document issued last night links the findings of fact to legal precedents on which the legal conclusions are based.

The judge put considerable weight on the fact that Microsoft protected its market share with "a substantial barrier to entry". He also concluded that there were no constraints that deprived Microsoft of "the ability to price substantially above the competitive level" (quoting the antitrust  treatise by Areeda), but in the effective absence of any directly competitive products it was hard to understand how a competitive level could be established.

Contractual and technological shackles The Conclusions of Law summarise the findings of fact to devastating effect, for example when considering the OEM channel: "First, Microsoft bound Internet Explorer to Windows with contractual and, later, technological shackles in order to ensure the prominent (and ultimately permanent) presence of Internet Explorer on every Windows user's PC system, and to increase the costs attendant to installing and using Navigator on any PCs running Windows.

Second, Microsoft imposed stringent limits on the freedom of OEMs to reconfigure or modify Windows 95 and Windows 98 in ways that might enable OEMs to generate usage for Navigator in spite of the contractual and technological devices that Microsoft had employed to bind Internet Explorer to Windows. Finally, Microsoft used incentives and threats to induce especially important OEMs to design their distributional, promotional and technical efforts to favor Internet Explorer to the exclusion of Navigator."

Microsoft's only substantive attempt at a defence by using copyright is dismissed, since it "neither explains nor operates to immunise Microsoft's conduct under the Sherman Act", with the judge observing that "the validity of Microsoft's copyrights has never been in doubt; the issue is what, precisely, they protect". The judge was evidently impressed with arguments advanced by Sun, since he wrote: "Microsoft's tactics induced many Java developers to write their applications using Microsoft's developer tools and to refrain from distributing Sun-compliant JVMs to Windows users.

This stratagem has effectively resulted in fewer applications that are easily portable. What is more, Microsoft's actions interfered with the development of new cross-platform Java interfaces... "The evidence thus compels the conclusion that Microsoft's actions with respect to Java have restricted significantly the ability of other firms to compete on the merits in the market for Intel-compatible PC operating systems.

Microsoft's actions to counter the Java threat went far beyond the development of an attractive alternative to Sun's implementation of the technology. Specifically, Microsoft successfully pressured Intel, which was dependent in many ways on Microsoft's good graces, to abstain from aiding in Sun's and Netscape's Java development work. Microsoft also deliberately designed its Java development tools so that developers who were opting for portability over performance would nevertheless unwittingly write Java applications that would run only on Windows.

Moreover, Microsoft's means of luring developers to its Java implementation included maximising Internet Explorer's share of browser usage at Navigator's expense in ways the Court has already held to be anticompetitive.

Finally, Microsoft impelled ISVs, which are dependent upon Microsoft for technical information and certifications relating to Windows, to use and distribute Microsoft's version of the Windows JVM rather than any Sun-compliant version.

Willing to slow Windows to hurt Java "These actions cannot be described as competition on the merits, and they did not benefit consumers. In fact, Microsoft's actions did not even benefit Microsoft in the short run, for the firm's efforts to create incompatibility between its JVM for Windows and others' JVMs for Windows resulted in fewer total applications being able to run on Windows than otherwise would have been written.

Microsoft was willing nevertheless to obstruct the development of Windows-compatible applications if they would be easy to port to other platforms and would thus diminish the applications barrier to entry."

The law requires the judge to consider Microsoft's conduct taken as a whole: his finding was that the company is "predacious" because "Microsoft paid vast sums of money, and renounced many millions more in lost revenue every year, in order to induce firms to take actions that would help enhance Internet Explorer's share of browser usage at Navigator's expense."

As for attempting to obtain monopoly power in a second market by anticompetitive means (better known in European competition law as the abuse of a dominant position through monopoly leverage), the Court found that "the predatory course of conduct Microsoft has pursued since June of 1995 has revived the dangerous probability that Microsoft will attain monopoly power in a second market. Internet Explorer's share of browser usage has already risen above fifty percent, will exceed sixty percent by January 2001, and the trend continues unabated."

Guilty of tying The anti-tying provisions of the Sherman Act were also found to have been breached by Microsoft. Judge Jackson confronted the appellate court finding in Microsoft's favour over whether Windows and IE were separate products, and noted: "Given the virtually infinite malleability of software code, software upgrades and new application features, such as Web browsers, could virtually always be configured so as to be capable of separate and subsequent installation by an immediate licensee or end user.

A court mechanically applying a strict 'separate demand' test could improvidently wind up condemning .integrations' that represent genuine improvements to software that are benign from the standpoint of consumer welfare and a competitive market. Clearly, this is not a desirable outcome. Similar concerns have motivated other courts, as well as the D.C. Circuit, to resist a strict application of the 'separate products' tests to similar questions of 'technological tying'."

The judge rubbed in his dependence on higher opinion: "To the extent that the Supreme Court has spoken authoritatively on these issues, however, this Court is bound to follow its guidance and is not at liberty to extrapolate a new rule governing the tying of software products. Nevertheless, the Court is confident that its conclusion, limited by the unique circumstances of this case, is consistent with the Supreme Court's teaching to date", making it seem that he was being very cautious and respectful of Supreme Court decisions, and so less likely to be overturned in the appellate court.

Part of Judge Jackson's reasoning for letting Microsoft off for exclusive dealing was that "courts... have declined to find liability where alternative channels of distribution are available to the competitor, even if those channels are not as efficient or reliable as the channels foreclosed by the defendant." He decided not to set a precedent in the case, and gave Microsoft its only little victory.

The states' claims Microsoft contended that a plaintiff cannot succeed in an antitrust claim under the laws of California, Louisiana, Maryland, New York, Ohio, or Wisconsin without proving an element that is not required under the Sherman Act, namely, intrastate impact.

However, the judge found that "in each of the plaintiff states, Microsoft's anticompetitive conduct has significantly hampered competition". Microsoft's counterclaim against the attorneys general of the plaintiff states was rejected on the fundamental grounds that "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 it complains of is the pursuit of relief in federal court, Microsoft fails to state a claim... Consequently, Microsoft's request for a declaratory judgment against the states... is denied, and the counterclaim is dismissed."

The Order accompanying the Conclusions contained one considerable surprise: Microsoft will have to pay "costs and fees", which is unusual in US cases. There will be a further Order, almost certainly after a scheduling conference, about "following proceedings to be established by further Order of the Court" - which translates to a hearing on remedies. ® Complete Register Trial coverage

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