Judge: Microsoft's monopoly power hurt many

Think of any major high-technology company. Chances are they're mentioned as a victim of Microsoft's market power in the findings of fact issued in the landmark antitrust trial.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
4 min read
Think of any major high-technology company. Chances are it was mentioned as a Microsoft victim in the findings of fact issued today in the landmark antitrust trial.

Netscape, Sun Microsystems, Apple Computer, IBM, Be Incorporated, various Linux companies, and even stalwart Microsoft ally Intel were all mentioned as firms that have seen their businesses affected by Microsoft's "prodigious market power and immense profits," according to U.S. District Judge Thomas Penfield Jackson.

The 207-page findings of fact issued by the court today are a milestone in the Justice Department's antitrust case against Microsoft.

Jackson found that Microsoft commands an almost unbridled monopoly power because of its extensive customer and developer base in the market for operating systems and other software. Yet Microsoft today disputed Jackson's findings, insisting that there are plenty of would-be competitors.

"Microsoft does not lead the quiet life of so-called monopoly," Microsoft Microsoft's day in court general counsel Bill Neukom said today in a conference call. "We face smart, dedicated, well-resourced competitors, and we have responded accordingly by making large investments in research and development."

Although there are alternatives to the Windows operating system, such as the open-source Linux operating system, Internet appliances, or Web portals that host applications, none currently can compete effectively with Windows.

Even the software giant has indirectly acknowledged its position in the market. In 1996, a Microsoft executive told hardware manufacturers that piracy was Microsoft's No. 1 competitor--not Apple's Macintosh operating system, nor any number of variants of the Unix operating system.

Apple's subordinate role
For instance, Apple appears in Jackson's findings not as an alternative operating system provider, but as a bit player confined to a role as an agent that Microsoft tried to pressure as part of its overall plan to reduce Netscape's market share.

Jackson wrote that Microsoft didn't risk losing PC makers to Apple because Full text of Judge Jackson's findings of
fact it doesn't license its operating system software and doesn't offer as many applications as does Microsoft.

"The inability of Apple to compete effectively with Windows provides another example of the applications barrier to entry in operation. Although Apple's Mac OS supports more than 12,000 applications, even an inventory of that magnitude is not sufficient to enable Apple to present a significant percentage of users with a viable substitute for Windows," Jackson wrote.

The lack of applications prevents the Mac operating system from "hindering Microsoft's ability to control price," he wrote.

Yet in the document, Apple is portrayed as a company that Microsoft hoped to influence as part of its overall battle against Netscape.

The majority of Jackson's discussion of Apple revolves around Microsoft's threats in 1997 to cancel a critical program for Macintosh users--the Mac version of Microsoft Office productivity software. By threatening to withdraw support, Microsoft was able to make Internet Explorer the default browser on Mac systems, instead of Netscape's browser.

That Microsoft considered quitting a profitable product it had invested significant resources in was a telling sign, according to Jackson.

"Apple increased its distribution and promotion of Internet Explorer not because of a conviction that the quality of Microsoft's product was superior to Navigator's, or that consumer demand for it was greater, but rather because of the in terrorem effect of the prospect of the loss of Mac Office," Jackson wrote.

Some other examples of Microsoft's tactics included in today's findings:

  In 1994, Microsoft offered IBM an $8 discount on each Windows 95 license if IBM would exclude mention of other operating systems in its marketing campaigns. The deal would have required IBM to abandon its own OS/2 operating system. IBM declined and began promoting its own application suite over Microsoft's. Microsoft then terminated negotiations. IBM received its license for Windows 95 only 15 minutes before the product launched, causing IBM to fall behind in back-to-school sales.

  In 1995, Netscape didn't receive needed information about the underlying technology for Windows 95 until months after the operating system was released, excluding Netscape from most of the holiday selling season, Jackson wrote.

  In 1995 and early 1996, Compaq removed the MSN icon from the desktop of its consumer PC and replaced it with an icon for America Online's Internet service. The company also removed the icon for Internet Explorer in favor of Netscape Navigator. Microsoft sent a letter on May 31, 1996, to the company threatening to terminate Compaq's Windows 95 license. Compaq returned to its original desktop setting the next month.

  In 1997, Internet service providers such as Concentric Network and EarthLink Networks signed contracts to limit the number of versions of Netscape Navigator they shipped. A Microsoft executive stated at the time that "ISPs are agnostic on the browser. It is against their nature to favor a browser or even a platform. This has been damn hard for us to influence."

  In 1998, Microsoft got computer makers to agree that if they did not preinstall Windows 98 on their PCs, they would have to pay a higher price for the operating system. Jackson held that although this strategy helps combat piracy, it "makes it less likely that consumers will detect an increase in the price of Windows," and it helps make operating systems not installed by PC manufacturers less attractive.

News.com's Tom Dunlap contributed to this report.