By Rachel Chalmers
The so-called applications barrier to entry gave Microsoft Corp monopoly power in the PC operating systems market – power which it has abused to the detriment of consumers, according to Judge Thomas Penfield Jackson. In his findings of fact in the antitrust trial against the Redmond software company, Jackson acknowledged that the browser wars spurred Netscape to improve Navigator at a competitive rate and lowered the overall cost of browsing software. To the detriment of consumers, however, Microsoft has done much more than develop innovative browsing software… the judge continued. Microsoft also engaged in a series of actions designed to protect the applications barrier to entry, and hence its monopoly power, from a variety of middleware threats, including Netscape’s web browser and Sun’s implementation of Java. Many of these actions have harmed consumers in ways that are immediate and easily discernable. They have also caused less direct, but nevertheless serious and far-reaching, consumer harm by distorting competition.
As examples of behavior that directly harmed consumers, Judge Jackson points to Microsoft’s refusal to offer OEMs a version of Windows without Internet Explorer, and its imposition of contracts that prevented OEMs from removing IE before they shipped their PCs. The same actions forced OEMs either to ignore consumer preferences for Navigator or to give them a Hobson’s choice of both browser products at the cost of increased confusion, degraded system performance and restricted memory, the judge wrote. Microsoft created confusion and frustration for customers, and increased technical support costs for business customers. Nor was there any excuse: None of these actions had pro-competitive justifications. As for indirect harm to consumers, Judge Jackson found that Microsoft’s actions against Navigator hobbled a form of innovation that had shown the potential to depress the applications barrier to entry.
Most harmful of all in the judge’s eyes, though, is the message he believes Microsoft’s actions have conveyed to the rest of its industry. Through its conduct toward Netscape, IBM, Compaq, Intel and others, Microsoft has demonstrated that it will use its prodigious market power and immense profits to harm any firm that insists on pursuing initiatives that could intensify competition against one of Microsoft’s core products, he concluded. Microsoft’s past success in hurting such companies and stifling innovation deters investment in technologies and businesses that exhibit the potential to threaten Microsoft. The ultimate result is that some innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft’s self-interest.
With US attorney-general Janet Reno declaring a great day for consumers while assistant attorney general Joel Klein cheered that no company is above the law, a press conference in Redmond, Washington, saw Microsoft executives in damage limitation mode. It’s important to recognize that today’s finding is just one step in an ongoing legal process, said chairman Bill Gates. Judge Jackson has yet to release his findings of law, which are expected next year. If he rules against Microsoft, as seems likely, he will then consider remedies. Microsoft seems certain to appeal. As Gates put it: We respectfully disagree with a number of the court’s findings… We believe Microsoft’s actions and innovations were fair and legal and have brought tremendous benefit to consumers.
Yet Microsoft’s respectful disagreement reads more like flat contradiction. What Judge Jackson has described as unjustified tying, Gates continues to insist was innovation. Where the judge sees a monopolist abusing its market position, Gates says he sees the most dynamic and competitive industry in America. We understand that Microsoft is held to high standards, and we accept that responsibility, he said. Nevertheless, the company will continue to fight. As for Reno’s comment about
a great day for consumers: If you want to look at what’s great for consumers, you have to look at our work and the work of our competitors over the last 20 years, Gates argued.
It’s interesting to speculate what this will mean for the other lawsuits now being prosecuted against Microsoft. Sun Microsystems Inc, whose fight with Microsoft over the Java programming language is mentioned frequently in the finding, swept out a jubilant note suggesting four potential remedies. Sun wants to see Microsoft prohibited from buying into cable and wireless, the distribution channels of the future. It also wants the government to force Microsoft to open the technical interfaces on its monopoly products. It says Microsoft should be forbidden to enter exclusive or preclusive agreements, and that its pricing policies should be made non-discriminatory and public. Bryan Sparks, the CEO of Lineo Inc, which is also embroiled in an antitrust suit against Microsoft, was also sounding tickled. The fact that the government finds them a monopolist certainly won’t hurt our case, he told ComputerWire.
With the world divided into Microsoft’s supporters and its antagonists, leave it to open source advocate Eric Raymond to voice an alternative view. I think the lawsuit is irrelevant, he says. In Raymond’s view, Microsoft is in immediate and serious trouble, whatever the outcome of this trial. He points out that as hardware prices plummet: Most people don’t realize what a bind this puts Microsoft in. Its fixed license fees represent larger and larger piece of its customers’ profit margins. Raymond argues that this starts to become a critical issue for Microsoft’s OEM customers when PC prices drop to $350 or so. Add to that the marketing disaster that is Windows CE; add Windows 2000, which is rumored to be in danger of slipping its ship date yet again; add the threat of Linux, and the Caldera lawsuit going to jury trial on January 17; and finish off with the observation that for Microsoft’s business model to work, its revenues and profits have to keep rising. As soon as its stock stops rising, the option machine stops working, Raymond explains. All the employees resign and head for the valley. He calls these six threats to the company bullets. They all have different velocities coming out of the gun muzzle, he argues. It’s just a question of which one will kill the company first. The antitrust trial won’t be it. By the time Judge Jackson delivers his findings of law, Raymond believes the remarkable saga of Microsoft Corp could already have reached its conclusion.
