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Microsoft competitors hail ruling

As the trial turns to its remedy phase, competitors quickly focus on efforts to have Microsoft broken into independent companies.

With the ink barely dry on a ruling that Microsoft violated antitrust laws, competitors quickly turned their attention to efforts to have the giant broken into independent companies.

 What happens next?
• The judge will hold a hearing, perhaps within a month, to begin determining what type of punishment should be levied against Microsoft. Options range from a complete breakup to changes to Microsoft's business practices. A final verdict, including remedy conditions, is expected this summer.

• Microsoft has asked for an expedited appeal in an effort to have the issue addressed before the end of the year. An appeal will allow the software giant to conduct business as usual until a possible Supreme Court decision or settlement. Microsoft or the government could ask to have the case sent to the Supreme Court directly.

Sun Microsystems, Linux firms and others that compete directly against Microsoft recommended after today's ruling that the company be broken up. Although many analysts said such a drastic measure is unlikely, competitors maintained that it is the only appropriate remedy because it requires little long-term government scrutiny.

As was expected, U.S. District Judge Thomas Penfield Jackson today ruled that Microsoft violated antitrust regulations to win a dominant position for its Web browser. The next stage in the long-running case against the company will be to determine what remedies the government will seek.

"Breakup is still on the table, but I still think it's unlikely," said University of Baltimore School of Law professor Bob Lande. "No judge really wants to break up a company."

Nevertheless, Sun Microsystems, perhaps Microsoft's fiercest competitor, topped its list of remedies with a breakup.

"We think it's the right thing to do. They're not a monopoly if you've broken them up," said Sun general counsel Michael Morris.

He acknowledged, however, that many involved in the landmark case don't see breakup as a viable solution. "It's the most drastic remedy, and there's a natural reluctance to contemplate it," Morris said. If Microsoft isn't broken up, "you have to impose a lot more supervision than you otherwise would...You need a set of conduct remedies, but they have to be very toughly worded and every loophole closed."

In a statement, Sun chief executive Scott McNealy recommended that Microsoft publish the ways programs can tap into Windows so that other companies can create software that works well with the operating system. He also wants Microsoft to be prevented from investing in new companies to expand into new markets, required to publish its product pricing, and prohibited from entering into exclusive contracts that prevent partners from doing business with Microsoft competitors.

Jim Barksdale, former chief executive of Netscape, the maker of the Web browser at the heart of the antitrust case, expressed glee that Jackson "concluded Microsoft violated the nation's antitrust laws by using monopolist power to preserve its Windows franchise and in the process stifled competition to the detriment of consumers."

Barksdale recommended that Microsoft be broken up, an action that would release the company's "stranglehold" and restore competition.

Oracle, though often critical of Microsoft, was more circumspect.

"We hope that the remedies ultimately imposed or agreed upon will be commensurate with the seriousness of the violation of antitrust law which have now been determined by the court," Dan Cooperman, senior vice president and general counsel for Oracle, said in a statement. Company representatives declined to state specifically which remedies Oracle hoped to see or whether today's ruling affected the remedies it would propose to the government.

Linux companies, perhaps those with the most to gain from Microsoft's loss, rejoiced in the verdict against the company and eagerly awaited the discussion of remedies.

Ransom Love, chief executive of Linux seller and Windows competitor Caldera Systems, believes in antitrust law but doesn't like more direct involvement by the government. "I'm grateful to have the antitrust laws on the book," he said, but "I am not a fan of government intervention."

A remedy that would monitor Microsoft's behavior would create "pseudo-market pressures" to regulate the company, Love said. "That's much weaker, less favorable for Microsoft as well as the consumer."

Red Hat chief executive Matthew Szulik see special coverage: The verdict is insaid the verdict will sow seeds of doubt among software companies and Internet service providers that believed Windows was the only operating system they needed to or could support.

But TurboLinux chief executive Cliff Miller was disappointed that Jackson didn't rule against all Microsoft business practices.

"Where they got off the hook here is in their hardware-bundling deals. I feel they have been quite heavy-handed," he said. He added that companies TurboLinux has approached have said they'd like to do business but declined to do so "because of pressure from Microsoft."

The Linux CEOs are fans of open-source programming, in which the original software instructions are openly available to anyone. Though widely discussed as a remedy for Microsoft, none of the three Linux CEOs advocated that approach.

"I don't see that as being the kind of remedy that would stimulate innovation or provide the kind of resources the technology community would see as a good one," Szulik said.

Those more intimately involved with Microsoft reacted with studied ambivalence.

"We've been following this with interest the same way everybody else has," said a Dell Computer spokesman. "We've always considered it a Microsoft matter, not a Dell matter."

IBM was more terse in its response, with a representative saying that the company would not comment on the case beyond what it had already said in the proceedings. Gateway did not immediately return calls seeking comment.

In some ways, Judge Jackson's findings of fact in November, cited in today's ruling, already explained the reticence of PC makers to comment.

"Among the five largest (original equipment manufacturers), 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," Jackson said in his findings of fact.

In other words, companies less inclined to do what Microsoft wanted--in this case, to bundle the Internet Explorer browser instead of Netscape Navigator with PCs--tended to pay a higher price for their actions.

Even Apple Computer has been disinclined to publicly state its views on the case, although the company has, in testimony and in other legal proceedings against Microsoft, often been at loggerheads with the software giant. Apple CEO Steve Jobs declined to comment on today's ruling.

Apple testified that it experienced firsthand what Microsoft was willing to do to stem Netscape's ability to become an alternative vehicle for software development. Microsoft was willing to forgo significant revenues from its Macintosh line of Office software by threatening to cancel a product that Apple sorely needed in return for becoming the exclusive Web browser on the Mac system in an agreement reached in 1997.

see message board: Discuss the Ruling "The willingness to make the sacrifices involved in canceling Mac Office, and the concessions relating to browsing software that it demanded from Apple, can only be explained by Microsoft's desire to protect the applications barrier to entry from the threat posed by Navigator," Judge Jackson wrote in his ruling.

PC makers aren't the only parties affected by the ruling. Lawyers in numerous lawsuits on behalf of those who have purchased Microsoft's operating system were encouraged by today's ruling.

"The opinion today is a big step for civil plaintiffs," said Daniel Small, a partner at Cohen, Milstein, Hausfeld & Toll, one of the firms leading efforts against Microsoft in a civil case.

In general, plaintiffs in the cases have claimed they paid too much for Windows software because Microsoft allegedly used its monopoly in operating systems to maintain artificially high prices. Those plaintiffs would have an easier case to prove if the appellate courts uphold Jackson's ruling, because they could take the facts from the government's case instead of proving them independently, an expensive and time-consuming proposition.

"It's just a question of how much we will rely on what the government's already done," Small said. These cases won't be affected much by the remedies being sought by the government--they are seeking damages, not restrictions on behavior, according to Small.

"What we essentially have left to show is what impact (Microsoft's actions) had on purchasers dollar-wise," Small said. Lawyers in the civil cases will proceed aggressively with discovery and seek class-action certification, he added.