Judge Rules Against Microsoft

By JOHN SOLOMON, Associated Press Writer

WASHINGTON (AP) - A federal judge today found that Microsoft Corp. (NasdaqNM:MSFT - news) violated the Sherman Antitrust Act, legal sources said.

U.S. District Judge Thomas Penfield Jackson found that the company used its position to ``monopolize the web browser market'' to the detriment of competitors, the sources said.

The judge found that Microsoft could also be liable under state anticompetition laws, said the sources, who spoke only on condition of anonymity.

Throughout the trial, the judge had strongly urged both sides in the case to reach an out-of-court settlement. Those talks collapsed over the weekend, however, prompting Jackson to issue his ruling today. Both sides had reasons to settle the case. Among them: to avoid an appeals process that would likely keep the case in court for several years.

The judge's ruling had been expected to go against Microsoft based on harsh assessments he outlined last November in his ``findings of fact.'' In that document, Jackson found that Microsoft repeatedly engaged in anticompetitive behavior by taking advantage of its monopoly power.

Microsoft stock was battered during the day, losing about 15 percent of its value.

Sources familiar with the failed talks, speaking on condition of anonymity, said Sunday that negotiations in Chicago collapsed after the company insisted on its own proposal to settle the lawsuit and not because of disputes between state and federal plaintiffs.

Even before the states made new proposals Friday, ``It was clear Microsoft was rejecting the government's proposal and insisting on their own approach,'' one source said. ``That approach had a lot of loopholes and would not have been effective.''

Microsoft Chairman Bill Gates contended Saturday that ``it became impossible to settle because the Department of Justice and the states were not working together. Between them, they appeared to be demanding either a breakup of our company or other extreme concessions.''

He did not provide details of the company's offer to settle the case.

In an interview in today's Wall Street Journal, Gates said that regardless of what Jackson rules, his company will continue to integrate the Internet into its Windows software, even though that linkage is at the core of the Justice Department lawsuit.

``The ruling is just a step in the legal process. It doesn't change any situation relative to what we do,'' he said.

Connecticut Attorney General Richard Blumenthal rejected Gates' claim.

``The differences between the states and the Department of Justice are minimal when compared to the divergence between our side and Microsoft,'' he said.

Describing the negotiations as ``very complex,'' Iowa Attorney General Thomas Miller said many factors led to the breakdown, but ``the position of the states was not the cause of the failure.''

The talks were with a mediator, Chief Judge Richard A. Posner of the U.S. Court of Appeals in Chicago. ``Just because mediation didn't succeed doesn't mean that negotiations will cease. But that would be direct negotiations,'' Miller said.

Microsoft officials - including Gates - negotiated with government attorneys just days before the Justice Department filed its original complaint in 1998. An agreement appeared likely until government lawyers complained that Gates reconsidered details in an offer he made. The deal fell through, and the government filed suit.

Last November, Jackson ruled that Microsoft was a monopoly in the market for computer operating system software, and that the company used its power to put the squeeze on competitors' products.

A person familiar with the government's case said Microsoft submitted what became its final offer Friday, the same day the states made their own proposal. By that time, it was already clear the company was rejecting the government's offer, the source said.

The government's proposal included rules on what products could be bundled with Microsoft's Windows software. Other rules were designed to prevent Microsoft from retaliating against personal computer manufacturers that used something other than Windows on their products or supported competing technology.

The company proposal was described as having holes in provisions regarding the information that would be available to developers of competing software. Microsoft did not want to give competitors access to the same software code information that its developers have, the source said.

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Associated Press reporters Michael J. Martinez in Seattle and Michael J. Sniffen and Eun-Kyung Kim in Washington contributed to this story.

On the Net: http://www.usdoj.gov/atr

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