A blow to Microsoft's system

Bill Gates has lost his anti-trust case, but the decision may be too late to matter, write Hilary Clarke and Andrew Gumbel
The critics of Bill Gates' Microsoft - and there are a few - accuse it of being the biggest monopoly since John D Rockefeller's Standard Oil carved up 90 per cent of America's oil refining industry in the late 1800s. The night before last, US District Judge Thomas Penfield Jackson agreed. He found Microsoft did, as its competitors have claimed for years, abuse its position as the world's leading software firm, supplying the software for 95 per cent of the world's computers.

But can the Justice Department, the Federal anti-trust authority, move fast enough in the ever-changing internet economy, and has its court victory come too late to be relevant?

The financial markets expected a negative outcome, but not one as bad as it turned out. Microsoft's share price has almost doubled in six months, and it has just joined the prestigious Dow Jones index. But once Judge Jackson's comments were released, Microsoft shares fell over 5 per cent in after-hours trading.

The case highlights the dilemma faced by anti-trust authorities on both sides of the Atlantic as they try to regulate the new technology industries using laws passed, in the US case at least, almost 100 years ago. IT markets move so fast they're likely to change completely by the time the final decisions are made.

"I assume the decision will be appealed endlessly, by which time it won't matter. In fact it already doesn't matter," says Roger McNamee, a venture capitalist with Silicon Valley investment firm Integral Capital. No one expects the final decision and Judge Jackson's remedies - which could be fines or even an order to break up Microsoft - to come for many months, even years. "Microsoft's anti-trust case is a sideshow that distracts from the more fundamental issue of who can own what in a world where intellectual property has become the new worldwide gold standard," argues Robert Spiegel, a columnist with E-Commerce Times.

"The frontier is now the internet," says Mr McNamee. "Microsoft has attempted to leverage its success in personal computers to gain advantage in the internet, but it's had only mixed success. So I increasingly be-lieve Microsoft's ability to control the web through the PC market doesn't seem quite as likely as before."

Another Wall Street analyst , who didn't want to be named, agrees: "There are other competing software systems that are coming up in terms of usage for computing hand-held devices that would give Intel and Microsoft challenges. [But] both can reinvent themselves quite readily".

And, says Mr McNamee, whatever remedies the court imposes, "companies aren't going to take Windows off their machines."

For Robert Levy, an analyst with the Cato Institute, the technology research body, Microsoft has found itself the victim of over-enthusiastic regulators who go by the premise "if it's big, it's bad". "Microsoft has zero leverage in a world where applications are written so that any browser can run them and any operating system can access them." he says. "Whether a user has MacOS, Unix, Linux or any other system, as long as he is running a web browser he has much the same capabilities as a Windows user." Indeed, there are now only a few rivals clamouring to compete against Microsoft in the PC OS market, as it is no longer growing.

Even so, say some observers, the anti-trust suit filed against Microsoft two years ago has had an impact on the Washington-based company. "[It is] more reluctant to attempt to dominate the new internet market," says Berge Ayvazian, chief executive of the Yankee Group strategy consultancy. With the trial looming, Microsoft dropped a proposal to sign up buyers of Windows 98 automatically to its Hotmail e-mail, and ditched contracts with internet service providers dissuading them from promoting Netscape's web browser.

When the European Commission threatened its own inquiry into Microsoft in 1997, the company moved quickly to amend offending agreements. But the Justice Department's victory could encourage other disgruntled rivals to take out cases. Caldera, a Utah-based software firm, is taking Microsoft before a jury on 17 January for alleged anti-competitive practices in the late 1980s.

And Microsoft staff are leaving in droves. Among the latest are Eric Engstrom, general manager of MSN internet access; Brad Silverberg, who led development of Windows 95 and Internet Explorer; and Rob Bennet, MSN's marketing director. Around a dozen senior managers have left or taken sabbaticals this year.

But, says Marc Andreesen, co-founder of Netscape: "Nothing's changed. Microsoft is just as powerful as it ever was. If not more so."


May 1990: Federal Trade Commission opens investigation into Microsoft's pricing policies. Probe dropped by FTC in August 1993 only to be taken up by the Justice Department.

July 1994: Microsoft and Justice Department reach an agreement by which Microsoft changes key aspects of its licensing arrangements.

May 1995: Microsoft is forced to abandon a $1.5bn acquisition of personal finance software maker Inuit because of Justice Department concerns.

August 1995: Microsoft launches Windows 95.

September 1996: Microsoft says the Justice Department is probing its internet browser and PC operating system.

19 August 1997: Justice Department sues Microsoft, charging it with forcing computer companies to install Microsoft's Internet Explorer browser, instead of rival products from the likes of Netscape, if they want to be licensed by the software giant.

7 November 1997: Texas becomes the first state to sue Microsoft for impeding its investigation into its non- disclosure agreements with business partners. Eighteen other states do the same.

11 December 1997: Judge Jackson issues an injunction against Microsoft, banning it from forcing companies to install Internet Explorer.

15 December 1997: Microsoft says it will comply with Judge Jackson's order, but two days later the Justice Department asks Judge Jackson to hold Microsoft for contempt of court because it doesn't think the company's solution complies with the preliminary injunction.

22 January 1998: Microsoft and the Justice Department reach agreement on contempt charge.

18 May 1998: US and 19 states sue Microsoft.

5 November 1998: Judge Jackson issues his statement of facts, describing Microsoft as a monopolist.