6th > November > 1999 Archive

DoJ 1, Redmond 0 – jubilant critics' want MS broken up

MS on TrialFollowing seventy-seven grueling days of testimony, Judge Thomas Jackson rendered a finding of fact in the other Trial of the Century, ruling that Microsoft has exploited its unnatural market share and grotesque wealth to crush competitors, to strangle innovation in software development, and to bore consumers with lackluster products for which there are no alternatives and from which there is no escape. Connecticut Attorney General Richard Blumenthal gloated at a Washington press conference last night that Microsoft "has a monopoly, has used monopoly, and has harmed consumers," just as the US Department of Justice, and about 200 million other people, have suspected all along. "Serious and far-reaching remedies" will be needed to "liberate the information technology industry from Microsoft," he predicted. We understand that to mean a breakup. Ironically, it was Microsoft's "own memos and e-mails" that offered the most damning evidence, he noted. Assistant US Attorney General Joel Klein cited "massive evidence" that Microsoft caused "substantial harm to innovation" and so denied reasonable choices of products to consumers. He characterised the company as a "bottleneck in the market" and prayed aloud that the court decision would "deter other companies from abusing their market power." Yeah, right; like human nature is about to be re-configured by Judge Jackson and the DoJ... Further amusement followed as a gaggle of commentators assembled on the US Courthouse steps to contribute their two cents. Ken Wasch, President of the Software and Information Industry Association -- upon whose board Microsoft sits -- called for a "self-executing remedy" not requiring regulatory oversight. "A conduct-oriented remedy cannot be enforced," he insisted. He meant that Microsoft has to be broken up. Computer and Communication Industry Association President Ed Black agreed. It would be difficult for Microsoft to comply with the spirit of the court findings, he said. The company has demonstrated monopolistic tendencies in its "fundamental approach to business strategy." The Bell breakup led to a "tremendous burst of innovation," he recalled. If Microsoft were to be broken up, we would soon see dynamic growth in the IT industry. It would release "market forces" and chasten Microsoft far more effectively than any regulatory approach could hope to do. There is "no evidence that Microsoft would change its behaviour" under any other circumstances, he concluded. Computing Technology Industry Association Counsel and apparent Microsoft lapdog Lars Liebeler took exception to the tough talk. The court decision is "putting a chill on innovation and competition," he claimed. "Large market share does not necessarily indicate a monopoly. To be a monopoly, you have to abuse that market share." Microsoft Legal Advisor Rick Rule agreed, and puzzled for some minutes over the question of why an ungrateful DoJ "hasn't recognised the dynamism in the IT industry, or how Microsoft has kept its prices low." It is only Microsoft's competitors, not its customers, who are dissatisfied, he insisted. Georgetown law Professor Paul Rothstein, a wannabe Alan Dershowitz and Father Christmas lookalike well-known to American TV viewers for his love of the camera and unique ability to render complex legal arguments as simplistic platitudes, also weighed in on behalf of the Redmond Beast. Microsoft is "ushering in the dawning of a new and wonderful age of computers and the Internet," he gushed. And get this: "Microsoft's customers "have 'voted' by making it such a large and successful company." For penance, he sagaciously recommended that Microsoft be subject to "very minor 'adjustments', and some promises not to do certain things in the future." How terribly cute. But the finest piece of theatre came at the very end, from Microsoft booster and US Senator from Washington State (where else?) Slade Gorton (R), who dared predict not only that the Beast case would reach the US Supreme Court, but that it would achieve vindication there. (The Register has for many years been impressed with the Supreme Court's palpable lack of stupidity, but what do we know?) He hit all the buttons: "When it gets to a higher court, the decision will be different," Gorton vowed. "And a different decision will be better for American consumers, and for American competitiveness overseas." He nearly wore the buttons out, but not quite: "Our worldwide economic success, and the fact that we continue to grow while other nations are suffering recession, is due to the dynamics of a highly competitive software and computer economy." We were ready to cry. Almost. ® Complete Register Trial coverage
Thomas C Greene, 06 Nov 1999

Guilty: judge finds MS has monopoly power, and abuses it

MS on TrialIn a document issued last night Judge Thomas Penfield Jackson found Microsoft guilty of antitrust law violations, and held that the company unfairly and illegally wielded monopoly power. In unusually strong language, Judge Jackson's 200-plus page finding of facts came down in favour of the Department of Justice's case in virtually all areas. Redmond is still whistling optimistically, but it looks bad. Microsoft legal spinmeister Bill Neukom last night insisted the company still expected to be vindicated in the end, and the current line appears to be that it regards the ruling as merely one stage in a legal process in which it will ultimately triumph. The ruling looks like a massive defeat for Redmond from practically anybody else's viewpoint, of course, but Microsoft almost certainly wrote off its chances of winning this stage of the game a long time ago. But for the trial, Judge Jackson produced an innovation of his own - the split judgement approach he's using will make it very difficult for Microsoft to appeal successfully. His findings of fact, i.e., his take on what has and has not been established during the trial, can only be challenged at appeal if it can be shown that he was clearly in error, and this will be extremely difficult for Microsoft to establish. As it does so, all of the horrible incriminating emails he based his judgement on will come rolling out again. Death by a thousand "snippets," as Microsoft calls them. After yesterday's findings of fact ruling Jackson will next move towards a final verdict which includes remedies. He intends the period between these two mileposts to be used to concentrate the minds of the two parties and to maximise the chances of a negotiated settlement. Undoubtedly a remedies-fest will now break out, as commentators and lobbyists everywhere demand fines, break-up, licensing Windows source code and public flogging of MS execs outside branches of Circuit City, and that will no doubt help bring the still - apparently - intransigent Microsoft to the table. But the process has also helped bullet-proof his verdict; Microsoft is guilty, guilty as hell, and it'll have big trouble in getting that reversed. Specifically, Judge Jackson found that Microsoft is a monopoly; that it did try to carve-up the browser market with Netscape; that it harmed consumers by tying together the operating system and the browser; and that it bullied and threatened numerous companies, and cut special deals with others in order to stifle rival products, Netscape being them most obvious of these. In the view of the judge, "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." The part of his verdict covering browser integration is particularly ominous, considering what's been happening in Caldera antitrust case against Microsoft (Click here for Caldera trail special report). The case included a long drawn out argument over whether IE had been integrated into Windows in order to benefit the consumer, whether it was actually an integral part of Windows or whether it was actually just arbitrarily tied into the product in order to eliminate rival browser manufacturers, and Jackson seems to have come down in favour of the latter. It's also important that he has concluded that this action harmed consumers, as this will be influential when it comes to remedies. Caldera meanwhile is trying to establish (with a great deal of inadvertent help from former MS exec Brad Silverberg, it appears) that Microsoft did precisely the same thing when it "integrated" Dos and Windows into a single "operating system," Windows 95 (Win95 - is it just Dos 7 plus Windows 4?). This would be what you'd call a 'pattern of anticompetitive behaviour. ® Complete Register Trial coverage
John Lettice, 06 Nov 1999

Stunned MS vows to fight on for freedom

MS on TrialIt's defenestration day in Redmond today. A clearly stunned Microsoft did what it could to pretend that Judge Jackson's findings of fact were "just one step", as Gates put said in the prepared statement that he read at a press conference last night, but it was hopeless. There were 412 paragraphs of dense argument in Judge Jackson's findings of fact, and it would be generous to say that two-and-a-half of them had even a crumb of comfort for Microsoft. Gates was able to get the Microsoft interpretation of the crumbs of comfort into one sentence: "The court's findings do acknowledge that Microsoft's actions accelerated the development of the Internet [Judge Jackson did not use this phrase], reduced the cost to consumers [actually it was 'at no additional cost to consumers'] and improved the quality of Web-browsing software." Gates's statement was just a crafted PR piece: "we respectfully disagree with a number of the court's findings and believe the American legal system will affirm that Microsoft's actions and innovations were fair and legal... tremendous benefits to millions... guided by the most basic values - innovation, integrity, partnership, quality and giving back to the community [the charity card is played]." Gates was asked about the effect on the stock. He claimed that Microsoft was not a prognosticator, but the share price fell sharply after hours, having risen around $1.50 earlier. When asked how he was feeling, Gates didn't reply but said he had just come back from one of his think weeks. He probably did have quite a bit to think about. Bill Neukom, Microsoft's general counsel, claimed that "the law is on Microsoft's side". He would not be drawn on what might happen, since the case "was not at the end of the legal process". "Microsoft does not live the quiet life of a monopolist" he claimed, but the relevance of the remark was lost. It was most unwise for him to claim that Microsoft was "constantly lowering pricing" in view of the steady increase in Windows prices (Click here for the latest). Neukom made it clear that if Judge Jackson's final word was against Microsoft (and this can hardly be in doubt), then Microsoft would seek an expedited appeal. It was unlikely that the appellate court would take less than a year to review the record and the correctness of the law, he said. A further appeal to the supreme court was also an option. Judge Jackson issued a scheduling order, and clearly wants the case to move to its conclusion as quickly as possible. The DoJ has until 6 December to produce a memorandum on the law, and Microsoft must respond by 17 January. The DoJ may then reply to this by 24 January, and Microsoft may make a sur-reply by 31 January. The judge specifically ordered that the parties shall not address the subject of relief, if warranted. It is not yet known whether there will be an oral hearing on the findings of law, but Neukom indicated that Microsoft would like this. This is likely to be discussed in a conference with the judge. Perhaps around April, Judge Jackson would issue his findings of law. The final stage would then be about possible remedies, but it is not yet clear what form this would take, so timing questions are very difficult. A reasonable guess would be that the case could be concluded by October 2000 in the District Court. ® Complete Register Trial coverage
Graham Lea, 06 Nov 1999

Intel postpones Celeron cuts as Slot 1 shortage bites

Chip giant Intel was scheduled to make one of its now very frequent cuts on its low-end Celeron processors this weekend. But PC manufacturers tell us that the company has now postponed such action, and will make the cuts at a later date. That comes as Intel's customers find themselves faced with a shortage on all Slot 1 parts, as revealed here at the end of October. According to one manufacturer, who declined to be named, supply of Intel processors is pretty poor at present. He said that Intel had made some Celeron cuts at the end of last month, but the expected cuts have been postponed because of the supply problem. Intel's introduction of its Coppermine parts has generated huge demand from the market at every level, including PC vendors, distributors and consumers, the manufacturer said. But there is a dearth not only of the new Coppermine parts but also of Slot 1 parts too. That means that Intel is quite happy to generate additional margin while demand for its parts is high. On the other hand, the manufacturer reports that there is a healthy supply of AMD's would-be Pentium III killer, the Athlon K7. ®
Mike Magee, 06 Nov 1999

What will happen if Microsoft finally loses?

MS on TrialYesterday's court victory for the DoJ may just have been the first battle in a war that could rage for several more years, but already the question of what's to be done about Microsoft is being raised with more vigour. If Microsoft ultimately loses it will inevitably find itself on the wrong end of a queue of private antitrust cases, which means it would do well to keep its near $20 billion of cash handy - but there are the remedies from the main event for the company to worry about too. Judge Jackson has already concluded that Microsoft competes unfairly, is a monopoly, and that the way it conducts its business is unacceptable. So if this verdict stands, these areas will need to be addressed. This is the territory the DoJ itself wants dealt with; it will not be seeking a fine or a damages award - that will be up to the companies and groups who count themselves as victims. Breakup into a collection of "Baby Bills" is popular with many of Microsoft's critics, but it probably wouldn't be the most effective solution. There is understandably a desire to hurt Microsoft because of its previous behaviour, but splitting the company into multiple competing units or into several different business units would be extremely difficult. Part of the problem is of course that Microsoft's various lines of business are far too deeply embedded in one another, but the likelihood is that taking an axe to this would smash the company, rather than just fixing the problems. There are of course plenty of people out there who'd view smashing Microsoft as the perfect solution, but aside from that being a greater punishment than is warranted, any measure that looked likely to cause the destruction of MS would be a political hot potato, and would play into the hands of the company's defenders. If the remedies can be portrayed as too brutal and unjust, a backlash could still save the company. Other, less dramatic remedies would be more sustainable, and more effective. Microsoft could be forced to operate a publicly-disclosed OEM and reseller price list for its software, with a simple discount for volume purchases. No more deals in smoke-filled rooms. No more market development agreements, no more leverage by Microsoft to get its customers to conform to draconian requirements in its contracts. Any other onerous licence restrictions could also be declared void, so that Microsoft has a standard contract approved by the court (perhaps supervised by a special master). Judge Jackson seems to have entirely backed the DoJ and its expert witness Professor Felten when it comes to the tying together of IE and Windows, so we can perhaps expect a remedy that undoes the welding of IE to Windows 98. Microsoft would be required to provide a removal program to get rid of IE from Windows, and to demote it from its status of preferred browser. Where Microsoft has added additional code to IE to get it to function closely with Windows, it should be obliged to provide any missing software - free of course. One remedy favoured by Sun's Scott McNealy has some possible merit. Microsoft's growth is fuelled by its ability to hire bodies and buy into markets, so an appropriate punitive measure would be to stop all mergers or acquisitions for,say, 15 years, or whatever is deemed the period of time during which Microsoft has acted anticompetitively. This could be accompanied by some compulsory divestment, which would go some way towards the Baby Bills concept, but could be more easily applied to units which could be conceivably free-standing. Source code is another issue that could be addressed. As Microsoft owns, according to Jackson, in excess of 90 per cent of the market, Windows code could be declared to be an essential facility, a concept well-known in antitrust law. Microsoft would retain its intellectual property rights, but a new industry would be created for specialist programmers who could produce drivers and locate bugs. This would inevitably require independent oversight, but if properly implemented it would make it impossible for Microsoft to use it own knowledge of the code to disadvantage competition, and it would make it impossible to break rival products via code changes. That wouldn't be quite as drastic as making Windows open source, of course, but it would strike at the heart of so many of Microsoft's business practices that it would quite possibly be the most drastic measure of the lot. ® Complete Register Trial coverage
Graham Lea, 06 Nov 1999