Judge Rules Microsoft Is a Monopoly

WASHINGTON (AP) _ A federal judge declared Microsoft Corp. is a monopoly Friday, ruling that aggressive actions by Bill Gates’ software empire to protect its technology dominance are ``stifling innovation″ and hurting consumers.

The decision could lead to serious sanctions against Microsoft and a reshaping of the multibillion-dollar high-technology industry.

In a decision tilted heavily toward the government’s view of the antitrust case, U.S. District Judge Thomas Penfield Jackson said 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.″

The judge added that some innovations ``that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft’s self interest.″ He said harm to consumers was ``immediate and easily discernible.″

Gates said he and other company executives ``respectfully disagree with a number of the court’s findings.″

The decision to apply the monopoly label is a significant setback for Microsoft, as well as a clear recognition of the expansive influence of the software giant whose Windows products run most of the world’s personal computers.

Still, Friday’s action does not necessarily mean the company will lose the case. Federal law generally bans companies from maintaining monopoly power through illegal business practices, but not from achieving their success selling popular products or making shrewd business decisions.

``We’ll continue to make our best efforts to resolve the case,″ Gates said in an apparent reference to possible settlement talks. ``Getting it behind us would be a very good thing, but we’ll continue to stick up for our principles.″

Assistant U.S. Attorney General Joel I. Klein said the government was ``always prepared to discuss settlements.″ But he added that ``any talks would have to fully and properly address our competitive concerns.″

James Barksdale, former chief executive officer of Netscape Communications Corp., said Jackson’s strong language _ the judge called one of Microsoft’s claims ``specious″ _ suggests the possibility of severe punishments. The government had portrayed Netscape as an Internet pioneer that was among Microsoft’s victims.

``I would think it would make Microsoft feel compelled to find some settlement before a remedy comes from this judge, because he seems determined to stop this kind of behavior,″ Barksdale said.

Shares of Microsoft on the Nasdaq Stock Market closed Friday before the ruling at $91.56 1/4, down 18 3/4 cents. In after-hours trading, Microsoft shares dropped to $87.06 1/4.

A final ruling could come by the end of the year, with any penalties or remedies spelled out next year.

``These are serious and far-reaching violations that should lead to serious and far-reaching remedies,″ said Connecticut Attorney General Richard Blumenthal. His state was among 19 that sued Microsoft alongside the Justice Department.

Jackson could order that Microsoft be broken up into smaller companies that would compete against each other. Or he could choose from a range of lesser punishments, such as requiring Microsoft to allow rivals to sell and improve its dominant Windows operating system, or prohibiting the company from interfering with new technology that could threaten Windows.

Appeals are likely to keep the case in court _ and delay any punishments _ for several years.

The government, which spent $7 million on the lawsuit and used tens of thousands of pages of e-mail and other documents as evidence, sought to portray Microsoft as the industry bully. Justice Department lawyers said the company illegally used its heft to undermine competing technologies and to discourage support for its rivals.

The government previously accused Microsoft of breaking an important related agreement in 1995, and mutual distrust remains. Gates privately said a few months after that earlier deal, ``We haven’t changed our business practices at all,″ according to trial evidence.

The success of Microsoft, with $19.7 billion in sales this year alone, rarely wavered during the legal assault. Its stock price more than doubled since the lawsuit was filed and its Windows software runs more than 90 percent of computers. Its Web browser _ once considered second-rate _ is now favored by nearly three-fourths of the roughly 200 million people on the Internet.

When Forbes magazine last month listed the 400 richest Americans, three of the top four executives owed their fortunes to Microsoft, including Gates, who turned 44 last week and personally is worth $85 billion.

Famous for being personally involved in decisions at Microsoft, Gates avoided appearing as a trial witness. Stephen Houck of the New York attorney general’s office, one of two government lawyers who questioned him in a deposition, told the judge Gates was suffering ``a lack of intestinal fortitude.″

The government played nearly eight hours of video excerpts from that deposition, and the judge laughed and shook his head while watching portions. Gates sounded evasive _ at one point he asked a government lawyer to define the word ``definition″ _ and said he did not to remember key events and e-mails.

In court, Microsoft at times suffered the equivalent of a hard-drive crash. With help from two hired experts barely out of college, government lawyer David Boies forced James Allchin, a senior vice president and a top computer scientist, to admit that a video demonstration shown in court was false.

The government suffered its share of problems, too. Its top economics expert, Franklin Fisher, told a surprised Boies that Microsoft hasn’t hurt consumers ``up to this point.″