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The cyberlaw informer #34 - part II
special microsoft antitrust report

Welcome to the second part of the Mishpat Update. This special mailing
is  devoted to the 'Findings of fact' in the landmark Microsoft 
antitrust trial.
Comments are welcome at:

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Microsoft's shares took a little dive this week and many analysts
speculated about the future of the software giant this week. However,
two facts are disputed - Microsoft is still the most powerful software
company in the world and Bill Gates is the richest man around.

In his 207-page findings of fact, Judge Thomas Penfield Jackson backed
the Department of Justice's (DOJ)  main charges against the software
maker. To those following the antitrust trial, the finding that
Microsoft has monopoly power and that it misused Its power was not
surprising. Mishpat Update has been reporting news from the trial
since the first issue, and personally I must say that it was obvious
for a long time, that Judge Jackson was going to rule against
Microsoft. The surprise lies in the scope of Microsoft's defeat.

The representatives of the DOJ and the state attorneys who joined the
government celebrated their victory. They already look forward and say
that the ruling justifies "far-reaching remedies" against the software

This week, many people around the world asked similar questions:  Even
if Microsoft in a monopoly, what is wrong with promoting its Internet
explorer browser and distributing it free of charge to Internet users
around the world? Don't consumers benefit from this practice? 
The following article tries to answer these questions. I'll try to
explain why the Judge in the famous antitrust case agreed with the
U.S. federal government that Microsoft misused its powers and
prevented competition in a way that was actually costly to consumers.
As you will see, there was a reason that Microsoft gives out a browser
for free but not a word processor. The reason isn't because it is
cheap to develop a browser - Microsoft spent hundreds of millions of
dollars developing the Internet Explorer. Microsoft's motive in giving
the Explorer away for free, thus cutting Netscape's Navigator's market
share, was actually protecting its monopoly power in the Operating
System (OS) market. As I will explain, Navigator posed a new threat to
Microsoft Windows' dominance is the OS Market.

* Background *

In 1981, Microsoft released the first version of its Microsoft Disk
Operating System, commonly known as "MS-DOS." When IBM selected MS-DOS
for pre-installation on its first generation of PCs, Microsoft's
product became the predominant OS sold for Intel-compatible PCs. In
1985, Microsoft began shipping a software package called Windows. The
product included a graphical user interface, which enabled users to
perform tasks by selecting icons and words on the screen using a
mouse.  In 1995, Microsoft introduced a software package called
Windows 95 that enjoyed unprecedented popularity with consumers, and
in June 1998, Microsoft released its successor, Windows 98.
Microsoft licenses copies of its software programs directly to
consumers. The largest part of its MS-DOS and Windows sales, however,
consists of licensing the products to manufacturers of PCs (OEM), such
as IBM and Compaq. An OEM typically installs a copy of Windows onto
one of its PCs before selling the package to a consumer under a single

* The Relevant Market *
The first stage was determining the existence of Monopoly power. Judge
Jackson started his analysis by pointing out what that the relevant
market, in which the existence of monopoly power should checked, is OS
for Intel-compatible PCs. 
"Currently there are no products... that a significant percentage of
consumers world-wide could substitute for Intel-compatible PC
operating systems without incurring substantial costs. ...  It follows
that, if one firm controlled the licensing of all Intel-compatible PC
operating systems world-wide, it could set the price of a license
substantially above that which would be charged in a competitive

Judge Jackson ruled out the possibility of alternatives to Intel-PC
operating systems (OS) such as Apple's Macintosh OS, Network computers
and Server OS. For example, regarding the possibility that hand held
devices (such as Palm Pilot) are an alternative to PCs, Judge Jackson
"No operating system designed for a hand-held computer, a "smart"
wireless telephone, a television set-top box, or a game console is
capable of performing as an adequate operating system for an
Intel-compatible PC. while some consumers may decide to make do with
one or more information appliances in place of an Intel-compatible PC
system, the number of these consumers will, for the foreseeable
future, remain small in comparison to the number of consumers deciding
that they still need an Intel-compatible PC system. One reason for
this is the fact that no single type of information appliance, nor
even all types in the aggregate, provides all of the features that
most consumers have come to rely on in their PC systems and in the
applications that run on them."

* Chicken and Egg problem *
The next question was why are there no products competing successfully
with Microsoft's operating systems in the relevant market (Intel
compatible PC OS)? Currently Microsoft controls 95% of the market.
Even most computers running alternative OS such as the niche BeOS
enhanced Multimedia OS, have these alternatives installed as a second
OS. Judge Jackson described the "chicken and egg" problem that
prevented new vendors from developing alternative Intel-compatible OS.
"The overwhelming majority of consumers will only use a PC operating
system for which there already exists a large and varied set of
high-quality, full-featured applications, and for which it seems
relatively certain that new types of applications and new versions of
existing applications will continue to be marketed at pace with those
written for other operating systems. Unfortunately for firms whose
products do not fit that bill, the porting of applications from one
operating system to another is a costly process. Consequently,
software developers generally write applications first, and often
exclusively, for the operating system that is already used by a
dominant share of all PC users. Users do not want to invest in an
operating system until it is clear that the system will support
generations of applications that will meet their needs, and developers
do not want to invest in writing or quickly porting applications for
an operating system until it is clear that there will be a sizeable
and stable market for it. …Still, while a niche operating system might
turn a profit, the chicken-and-egg problem (hereinafter referred to as
the "applications barrier to entry") would make it prohibitively
expensive for a new Intel-compatible operating system to attract
enough developers and consumers to become a viable alternative to a
dominant incumbent in less than a few years. "

* Microsoft Power *

Judge Jackson concludes that "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. "

The main indicators for that conclusion were:

1. Microsoft's market share  - Microsoft's share of the market for
Intel-compatible PC  operating systems has stood above ninety percent.
For the last couple of years the  figure has been at least ninety-five

2.The Applications Barrier to Entry  - The fixed costs of producing
software, including applications, is very high. By contrast, marginal
costs are very low. An application that is written for one PC
operating system will operate on another PC operating system only if
it is ported to that system, and porting applications is both
time-consuming and expensive. Therefore, application developers tend
to write first to the operating system with the most users - Windows.
The large body of applications reinforces demand for Windows, and
gives further incentives to write applications principally for
Windows. Windows currently supports over 70,000 applications. The
amount it would cost an operating system vendor to create that many
applications is prohibitively large.

This theoretical argument was strengthened by empirical evidence. One
example was IBM's OS/2 Warp operating system. IBM spent tens of
millions of dollars in an effort to attract software companies (ISVs)
to develop applications for OS/2. At its peak OS/2 ran approximately
only 2,500 applications and had 10% of the market for Intel-compatible
PC OS. Another example was the Mac OS. Although Apple's Mac OS
supports more than 12,000 applications, even an inventory of that
magnitude is not sufficient to enable Apple to present a significant
percentage of users with a viable substitute for Windows. 

Further evidence was found in several of Microsoft's pricing
practices, In this summary I describe only a few:
* Microsoft raised the price that it charged OEMs for Windows 95, with
trivial exceptions, to the same level as the price it charged for
Windows 98 just prior to releasing the newer product. In a competitive
market, one would expect the price of an older operating system to
stay the same or decrease upon the release of a newer, more attractive
version. Microsoft, however, was only concerned with inducing OEMs to
ship Windows 98 in favor of the older version. 
* Among the five largest OEMs, Gateway and IBM, which in various ways
have resisted Microsoft's efforts to enlist them in its efforts to
preserve the applications barrier to entry, pay higher prices than
Compaq, Dell, and Hewlett-Packard, which have pursued less contentious
relationships with Microsoft. Microsoft also attaches to a Windows
license conditions that restrict the ability of OEMs to promote
software that Microsoft believes could weaken the applications barrier
to entry.

* The Netscape Navigator - Sun Java threat *

Netscape Navigator possesses several attributes that endow it with the
potential to diminish the applications barrier to entry. First, a
browser can gain widespread use based on its value as a complement to
Windows. Second, because Navigator exposes a set of "application
programming interfaces," (APIs are components which the developer of
an application can connect to invoke pre-fabricated blocks of code in
the operating system. These blocks of code in turn perform crucial
tasks, such as displaying text on the computer screen or saving
documents), it can serve as a platform for other software used by
consumers. A browser product is particularly well positioned to serve
as a platform for network-centric applications that run in association
with Web pages. Finally, Navigator has been ported to more than
fifteen different operating systems. Thus, if a developer writes an
application that relies solely on the APIs exposed by Navigator, that
application will, without any porting, run on many different OS. 

The inventors of Java at Sun Microsystems intended the technology to
enable applications written in the Java language to run on a variety
of platforms with minimal porting. A program written in Java and
relying only on APIs exposed by the Java class libraries will run on
any PC system containing a JVM (Java Virtual Machine) that has itself
been ported to the resident OS. Therefore, Java developers need to
port their applications only to the extent that those applications
rely directly on the APIs exposed by a particular OS. The more an
application written in Java relies on APIs exposed by the Java class
libraries, the less work its developer will need to do to port the
application to different operating systems. The easier it is for
developers to port their applications to different OS, the more
applications will be written for OS other than Windows. The closer Sun
gets to this goal of "write once, run anywhere," the more the
applications barrier to entry will erode. 

Sun couldn't count on Microsoft to ship with Windows an implementation
of the Java runtime environment that threatened the applications
barrier to entry. Fortunately for Sun, Netscape agreed in May 1995 to
include a copy of Sun's Java runtime environment with every copy of
Navigator, and Navigator quickly became the principal vehicle by which
Sun placed copies of its Java runtime environment on the PC systems of
Windows users. 

* Anti competitive practices *

Netscape-Java wasn't the only threat Microsoft's OS monopoly was
facing. Starting in 1994, Microsoft was concerned over the software
product Notes, distributed first by Lotus and then by IBM. Microsoft
worried about Notes for several reasons: It presented a graphical
interface that was common across multiple OS; it also exposed a set of
APIs to developers; and, like Navigator, it served as a distribution
vehicle for Sun's Java runtime environment. Then in 1995, Microsoft
reacted with alarm to Intel's Native Signal Processing software, which
interacted with the microprocessor independently of the OS and exposed
APIs directly to developers of multimedia content. Finally, in 1997
Microsoft noted the dangers of Apple's and RealNetworks' multimedia
playback technologies, which ran on several platforms (including the
Mac OS and Windows) and similarly exposed APIs to content developers.
Microsoft feared all of these technologies because they facilitated
the development of user-oriented software that would be indifferent to
the identity of the underlying operating system. Judge Jackson wet
into great detail describing the tactics Microsoft used to fight these
threats. I will only bring a short summary of the methods used to
fight IBM.
IBM's software division markets the SmartSuite bundle of office
productivity applications as an alternative to Microsoft's Office
suite. The fact that IBM's software division markets products that
compete directly with Microsoft's most profitable products has
frustrated the efforts of the IBM PC Company to maintain a cooperative
relationship with the firm that controls the product (Windows) without
which the PC Company cannot survive. When IBM refused to abate the
promotion of those of its own products that competed with Windows and
Office, Microsoft punished the IBM PC Company with higher prices, a
late license for Windows 95, and the withholding of technical and
marketing support. 

* The Browser war *

Microsoft's first response to the threat posed by Navigator was an
effort to persuade Netscape to structure its business such that the
company would not distribute platform-level browsing software for
Windows. Microsoft knew that Netscape needed certain critical
technical information and assistance in order to complete its Windows
95 version of Navigator in time for the retail release of Windows 95.
Despite Netscape's persistence, Microsoft did not release the API to
Netscape until late October. The delay in turn forced Netscape to
postpone the release of its Windows 95 browser until substantially
after the release of Windows 95 (and Internet Explorer) in August
1995. As a result, Netscape was excluded from most of the holiday
selling season. 

Once it became clear to senior executives at Microsoft that Netscape
would not abandon its efforts to develop Navigator into a platform,
Microsoft focused its efforts on ensuring that few developers would
write their applications to rely on the APIs that Navigator exposed.
If Microsoft could demonstrate that Navigator would not become the
standard, because Microsoft's own browser would attract just as much
if not more usage, then developers would continue to focus their
efforts on the Windows API set. Microsoft thus set out to maximize
Internet Explorer's share of browser usage at Navigator's expense.
Microsoft did not believe that improved quality alone would depose
Navigator, for millions of users appeared to be satisfied with
Netscape's product. Once Microsoft ensured that the average consumer
would be just as comfortable browsing with Internet Explorer as with
Navigator, Microsoft could employ other devices to induce consumers to
use its browser instead of Netscape's. 

>From 1995 onward, Microsoft spent more than 100 million dollar each 
year  developing Internet Explorer. The firm's management gradually
increased the number of developers working on Internet Explorer from
five or six in early  1995 to more than one thousand in 1999. After
the arrival of  Internet Explorer 4.0 in late 1997, the number of
reviewers who regarded it as  the superior product was roughly equal
to those who preferred Navigator. 
In addition to improving the quality of Internet Explorer, Microsoft
sought to increase the product's share of browser usage by giving it
away for free. In many cases, Microsoft also gave other firms things
of value (at substantial cost to Microsoft) in exchange for their
commitment to distribute and promote Internet Explorer, sometimes
explicitly at Navigator's expense. 

Microsoft knew that Netscape charged customers to license Navigator,
and that Netscape derived a significant portion of its revenue from
selling browser licenses. Despite the opportunity to make a
substantial amount of revenue from the sale of Internet Explorer,
senior executives at Microsoft decided that Microsoft needed to give
its browser away in furtherance of the larger strategic goal of
accelerating Internet Explorer's acquisition of browser usage share.
Consequently, Microsoft decided not to charge an increment in price
when it included Internet Explorer in Windows for the first time, and
it has continued this policy ever since. In addition, Microsoft has
never charged for an Internet Explorer license when it is distributed
separately from Windows. 
Not only was Microsoft willing to forego an opportunity to attract
substantial revenue, but the company also paid huge sums of money, and
sacrificed many millions more in lost revenue every year, in order to
induce firms to take actions that would help increase Internet
Explorer's share of browser usage at Navigator's expense. For example,
Microsoft entered a contract with AOL, which was the principal
competitor to Microsoft's MSN service, whereby Microsoft actually paid
AOL a bounty for every subscriber that it converted to access software
that included Internet Explorer instead of Navigator. 
In pursuing its goal of maximizing Internet Explorer's usage share,
Microsoft actually has limited rather severely the number of profit
centers from which it could otherwise derive income via Internet
Explorer. For example, Microsoft permits its browser licensees to
change the browser's start page, thus limiting the fees that
advertisers are willing to pay for placement on that page by

Very soon after it recognized the need to gain browser usage share at
Navigator's expense, Microsoft identified pre-installation by OEMs and
bundling with the proprietary client software of Internet Access
Providers (IAPs) as the two distribution channels that lead most
efficiently to browser usage. Two main reasons explain why these
channels are so efficient. First, users must acquire a computer and
connect to the Internet before they can browse the Web. Second, both
OEMs and IAPs are able to place browsing software at the immediate
disposal of a user without any effort on the part of the user. If an
OEM pre-installs a browser onto its PCs and places an icon for that
browser on the default screen, or "desktop," purchasers of those PCs
will be confronted with the icon as soon as the OS finishes loading. 

Microsoft both refused to license its OS without a browser and imposed
restrictions - at first contractual and later technical - on OEMs' and
end users' ability to remove its browser from its OS. Microsoft
decided to bind Internet Explorer to Windows in order to prevent
Navigator from weakening the applications barrier to entry, rather
than for any pro-competitive purpose. Microsoft knew that the
inability to remove Internet Explorer made OEMs less disposed to
pre-install Navigator onto Windows OEMs bear essentially all of the
consumer support costs for the Windows PC systems they sell. These
include the cost of handling consumer complaints and questions
generated by Microsoft's software. Pre-installing more than one
product in a given category onto its PC systems can significantly
increase an OEM's support costs. In addition, pre-installing a second
product in a given software category can increase an OEM's product
testing costs. Finally, many OEMs see pre-installing a second
application in a given software category as a questionable use of the
scarce and valuable space on a PC's hard drive. 

Senior executives at Microsoft were not confident that those higher
costs for pre-installing Navigator would induce all of the major OEMs
to focus their promotional efforts on Internet Explorer to the
exclusion of Navigator. Therefore, Microsoft used incentives and
threats in an effort to secure the cooperation of individual OEMs.
Microsoft rewarded with valuable consideration those large-volume OEMs
that took steps to promote Internet Explorer. For example, Microsoft
gave reductions in the royalty price of Windows to certain OEMs,
including Gateway, that set Internet Explorer as the default browser
on their PC systems. In 1997, Microsoft gave still further reductions
to those OEMs that displayed Internet Explorer's logo and links to
Microsoft's Internet Explorer update page on their own home pages.
Microsoft has largely succeeded in exiling Navigator from the crucial
OEM distribution channel.

Another distribution channel Microsoft targeted was Internet Content
Providers (ICPs). ICPs create the content that fills the pages that
make up the Web. Because this content can include advertisements and
links to download sites, ICPs also provide a channel for the promotion
and distribution of Web browsing software. Executives at Microsoft
recognized that ICPs were not nearly as important a distribution
channel for browsing software as OEMs and IAPs. Nevertheless,
protecting the applications barrier to entry was of such high priority
at Microsoft that its senior executives were willing to invest
significant resources to enlist even ICPs in the effort. 
The Active Desktop was a Microsoft feature that allowed the Windows
user to position Web pages as open windows that appear on the
background, or "wallpaper" of the Windows desktop. Thus, a user could
position on his desktop wallpaper Web pages that displayed
periodically updated stock prices, sports scores, and news headlines.
The Channel Bar was a feature of the Active Desktop that was divided
into pre-configured links to the Web sites of certain ICPs that
implemented push technology. Considering how ICPs generate revenue, it
is not surprising that they attached great value to placement on the
Channel Bar. Most ICPs charge fees for placing advertisements on their
Web pages. In addition, some ICPs display certain of their content
only to users who pay a fee. The higher the volume of user traffic an
ICP's site attracts, the higher the rates it can charge for the
placement of advertising on its sites. Higher volume also brings
increased revenue to ICPs that charge users for content. Microsoft
pre-configured Internet Explorer 4.0 so that the Active desktop and
the Channel Bar would appear by default on a user's Windows 95 PC
system, and Microsoft forbade OEMs to disable either feature.
Microsoft and the ICPs consequently surmised that a very high volume
of user traffic would be driven to the Web sites for which channels
appeared on the Channel Bar.

Based on the interest ICPs expressed, as well as Microsoft's own
assessment of the value of placement on the Channel Bar, executives at
Microsoft considered charging ICPs for inclusion on the Channel Bar.
They estimated that ICPs appearing directly on the Channel Bar would
pay as much as 10 million dollars per year. The typical agreement 
obligated Microsoft to promote the ICP's by inclusion on the Channel
promotion of the ICP's content on Microsoft Web sites, and including
introductory content from the ICP with certain distributions of
Windows and Internet Explorer. The agreements did not obligate the
ICPs to pay money to Microsoft in exchange for any of the benefits.
Rather, the agreements obligated the ICPs to compensate Microsoft in
other ways. The first obligation that the ICPs undertook was to
distribute Internet Explorer and no "Other Browser" in connection with
any custom Web browsing software or CD-ROM content that they might
offer. The ICPs were also required to place Internet Explorer download
links on their Web sites and to remove any links to Navigator's
download site. Finally, the agreements required the ICPs, in designing
their Web sites, to employ certain Microsoft technologies such as
Dynamic HTML and ActiveX that were either available only to Internet
Explorer users or would be more attractive when viewed with Internet
Explorer than with any "Other Browser." 

According to Judge Jackson, the terms of Microsoft's agreements with
ICPs cannot be explained in customary economic parlance absent
Microsoft's obsession with obliterating the threat that Navigator
posed to the applications barrier to entry. By sacrificing
opportunities to cover its costs and even make a profit, Microsoft
advanced its strategic goal of maximizing Internet Explorer's usage
share at Navigator's expense.

* Fighting Java *

For Microsoft, a key to maintaining and reinforcing the applications
barrier to entry has been preserving the difficulty of porting
applications from Windows to other platforms, and vice versa.
Microsoft therefore became interested in maximizing the difficulty
with which applications written in Java could be ported from Windows
to other platforms, and vice versa. 

Although Sun intended Java technologies eventually to allow developers
to write applications that would run on multiple operating systems
without any porting, the Java class libraries have never exposed
enough APIs to support full-featured applications. Java developers
needed to rely on platform-specific APIs in order to write
applications with advanced functionality. Sun sponsored a process for
the creation of a software method that would allow developers writing
in Java to rely directly upon APIs exposed by a particular OS in a way
that would allow them to port their applications with relative ease to
JVMs (Java Virtual Machines) running on different OS. Microsoft
however, elected to implement only the Microsoft methods. The result
was that if a Java developer used the Sun method for making native
calls, his application would not run on Microsoft's version of the
Windows JVM, and if he used Microsoft's native methods, his
application would not run on any JVM other than Microsoft's version.
Incompatibility was the intended result of Microsoft's efforts. 

When Netscape announced in May 1995 that it would include with every
copy of Navigator a copy of a Windows JVM that complied with Sun's
standards, it appeared that Sun's Java implementation would achieve
the necessary ubiquity on Windows. To hinder Sun and Netscape from
improving the quality of the Windows JVM shipped with Navigator,
Microsoft pressured Intel, which was developing a high-performance
Windows-compatible JVM, to not share its work with either Sun or
Netscape, much less allow Netscape to bundle the Intel JVM with
By bundling its version of the Windows JVM with every copy of Internet
Explorer and expending some of its surplus monopoly power to maximize
the usage of Internet Explorer at Navigator's expense, Microsoft
endowed its Java runtime environment with the unique attribute of
guaranteed, enduring ubiquity across the enormous Windows installed

* The effect upon consumers *

Finally, Judge Jackson turned to check the net effect of Microsoft's
tactics on consumers. The judge agreed that the debut of Internet
Explorer and its rapid improvement gave Netscape an incentive to
improve Navigator's quality at a competitive rate. The inclusion of
Internet Explorer with Windows at no separate charge increased general
familiarity with the Internet and reduced the cost to the public of
gaining access to it, at least in part because it compelled Netscape
to stop charging for Navigator. These actions contributed to improving
the quality of Web browsing software, lowering its cost, and
increasing its availability, thereby benefiting consumers. 

But Judge Jackson ruled that Microsoft also engaged in a series of
actions designed to protect the applications barrier to entry, and
hence its monopoly power. 

By refusing to offer those OEMs who requested it a version of Windows
without Web browsing software, and by preventing OEMs from removing
Internet Explorer, Microsoft forced OEMs to ignore consumer demand for
a browserless version of Windows. The same actions forced OEMs either
to ignore consumer preferences for Navigator. By ensuring that
Internet Explorer would launch in certain circumstances in Windows 98
even if Navigator were set as the default, and even if the consumer
had removed all conspicuous means of invoking Internet Explorer,
Microsoft created confusion and frustration for consumers, and
increased technical support costs for business customers. 
By constraining the freedom of OEMs to implement certain software
programs in the Windows boot sequence, Microsoft foreclosed an
opportunity for OEMs to make Windows PC systems less confusing and
more user-friendly, as consumers desired. By taking these actions,
Microsoft forced those consumers who otherwise would have elected
Navigator as their browser to either pay a substantial price (in the
forms of downloading, installation, confusion, degraded system
performance, and diminished memory capacity) or content themselves
with Internet Explorer. 

Many of the tactics that Microsoft has employed have also harmed
consumers indirectly by unjustifiably distorting competition. The
actions that Microsoft took against Navigator hobbled a form of
innovation that had shown the potential to depress the applications
barrier to entry sufficiently to enable other firms to compete
effectively against Microsoft in the market for Intel-compatible PC
OS. That competition would have conduced to consumer choice and
nurtured innovation. 

Judge Jackson ended his findings of fact by noting that "Most harmful
of all is the message that Microsoft's actions have conveyed to every
enterprise with the potential to innovate in the computer 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. 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".

* Microsoft's Response *

Ever since the lawsuit was filed in May 1998, Microsoft has argued
that the company was being penalized for aggressive but not illegal
behavior. In direct testimony and depositions, they pointed to the
growing emergence of old and new rivals to Microsoft's power, such as
Linux and  America Online Inc. (AOL).
Following that line of argument, Microsoft officials said "the
District Court's findings of fact do not reflect the phenomenal
competition and innovation in the software industry and that consumers
make decisions  based on the best products in the marketplace."
Microsoft  said the company "will continue to defend the principle of 
innovation" and pointed out that the findings are just one step in an
ongoing legal process that has many steps remaining. Microsoft also
launched a campaign on it's Web site titled 'DOJ v. The
Freedom of innovation'.
Microsoft claims that its products are popular because the company
focused on customers and innovated to meet their needs. Bill Gates
said that "Microsoft has succeeded because we have been guided by the
most basic American values: innovation, integrity, serving customers,
partnership,  quality and giving to the community. We compete
vigorously, but fairly." 

* What's Next *

Microsoft and the DOJ will be back before Jackson within 30 days with
their own findings of law. The sides' finding of law are arguments as
to how the judge should rule based on the findings of fact. A final
decision by Judge Jackson is not expected before January 2000. 
The final ruling, including the remedies, is of much greater
importance than the findings of fact. The findings of fact tell the
story, the findings of law will shape the outcome. Many remedies, such
as forcing Microsoft to share the Windows source code; separating the
browser from the OS; and even breaking up the company to several, have
been suggested. We will have to wait a few months before we get Judge
Jackson's decision.

It should be noted that an appeals court has already sided with
Microsoft twice. Mist importantly, in 1998, the appeals court reversed
an anti-Microsoft ruling by Judge Jackson. In that ruling the appeals
court declared that Judge Jackson was wrong in ordering the company to
unbundle its Internet Explorer browser from Windows 95. 
There is also a chance that both sides will settle their differences,
and not take the risk of turning to an appeals court.

The full ruling of Judge Jackson can be found at:

Yedidya M. Melchior 

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