Tech leaders cheer and jeer Microsoft ruling

The appellate court's ruling delivers a mixed message to industry executives, lobbyists and observers.

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Stephen Shankland
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High-tech industry lobbyists were quick to cheer or jeer an appellate court's decision to overturn the order to split Microsoft in two, but the companies those lobbyists represent were tight-lipped Thursday.

Microsoft's victory special coverage Apple Computer, IBM, Palm, Oracle, Hewlett-Packard, Gateway, Corel and Compaq Computer all declined to comment on a U.S. Court of Appeals ruling that overturned an order to break up Microsoft but upheld some findings that the company violated antitrust law. AOL Time Warner, which has sought to file briefs in the case, said it hadn't yet decided to comment.

Sun Microsystems, long a foe of Microsoft through legal tangles over Sun's Java software and other disputes, was one of the few companies that voiced an opinion, lauding the court's conclusion about Microsoft being a monopolist that abused its power.

"As the case is turned over to the District Court, we hope that the Court will act decisively to ensure that Microsoft's illegal activity--and the harm that it has done to the industry and to consumers--is brought to an end forcefully and permanently," Sun said in a statement. "Sun supports all measures that...protect Internet technologies from becoming the proprietary preserve of any one company."

Lobbyist groups were quicker on the draw, however.

The Computer & Communications Industry Association and the Software & Information Industry Association lauded the appellate court for upholding findings of illegal monopoly behavior by Microsoft, but remaining studiously silent on the overturned breakup order.

"We applaud the Court of Appeals decision today in finding that Microsoft possessed monopoly power and that Microsoft repeatedly and unlawfully used its monopoly power," said SIIA President Ken Wasch.

CCIA President Ed Black said the appellate ruling "confirms the correctness of the determinations by the U.S. Department of Justice, 19 state attorneys general and a federal district court that Microsoft was guilty of serious and massive violations of antitrust law."

CCIA members include Microsoft competitors Sun and Oracle as well as AT&T and Nokia. SIIA members include Oracle, Sun and AOL Time Warner.

Microsoft withdrew from SIIA, then called the Software Publisher's Association, when the organization filed a brief on behalf of the Department of Justice.

Citizens Against Government Waste, though, took a position much closer to Microsoft. "This decision marks a return to rational antitrust jurisprudence and is a victory for taxpayers, investors, and the entire information economy," CAGW President Tom Schatz said in a statement.

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 A victory for Microsoft?
Jonathan Zuck, president of the Association for Competitive Technology
Former White House prosecutor Kenneth Starr, now representing trade group ProComp, also emphasized the portions of the ruling supporting findings of anti-competitive behavior by Microsoft.

"This ruling is good for consumers, good for competition and good for innovation in this industry," Starr said in a statement for ProComp, an organization backed by Oracle, Sun, AOL and other Microsoft rivals.

"On the other hand, this ruling is a double dose of bad news for Microsoft," Starr continued. "Not only did the appellate court rule that Microsoft had violated antitrust laws, the decision to send the case back to the trial court to determine a remedy opens the door for hearings into the company's new initiatives, such as .Net and HailStorm. The new trial court will be able to review these initiatives and will see that Microsoft's actions have become even more anti-competitive than before."

Jamie Love, director of the Consumer Project on Technology, saw bad news all around. "Today is a bad day for both Microsoft and Judge Jackson," whom the court rebuked and tossed off the case for speaking out about the trial. "Microsoft was found guilty under the antitrust laws, and the decision was much more pro-antitrust enforcement than many had expected...The court flatly rejected Microsoft's contention that intellectual property rights trump antitrust claims, and it understood at a deep level the importance of interoperability as an antitrust concern."

James L. Gattuso, vice president for policy at the pro-business Competitive Enterprise Institute, hailed the ruling. "In rejecting Judge Jackson's quick-trigger-finger decision to break up Microsoft, the appeals court emphasized that the remedy of a break up should be a rare beast in antitrust, and that the usual response should be an injunction against illegal conduct, not vivisection without benefit of anesthetic," he said.

Open-source indifference
Linux companies, whose software is built using the cooperative "open source" method instead of the closed proprietary method Microsoft favors, put their faith in the market rather than in the government.

Breaking up Microsoft wouldn't have accomplished much, said Matthew Szulik, CEO of Linux leader Red Hat. "We didn't think the structural remedy would have make it easier for Red Hat to compete," he said. "We only saw that instead of competing with one monopolist, we'd be competing with two, three or four monopolists."

"They've got bigger challenges ahead of them, and it's not the Department of Justice," Szulik said. "Collaboration and sharing is a better model than locking in (customers) and predatory practices. Companies like Red Hat and open source will continue to erode their high-margin, loyalty-based business."

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Attorney General John Ashcroft, and Charles James, assistant attorney general, say the court ruling represents a "significant victory" for the government. (2:08) 
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For example, he said, the demise of talks between AOL Time Warner and Microsoft could boost the fortunes of the open-source Mozilla browser, whose development AOL and Red Hat support.

Red Hat, which recently expanded its product line to include database software, is gradually adding more and more software that runs at a higher level than the operating system. The move mirrors Microsoft's strategy, though Red Hat uses open-source software. "We want to make sure we can provide parity so customers, when evaluating a decision to build Internet infrastructure...can make a comparable choice," Szulik said.

Caldera International, which straddles the open-source and proprietary software world by selling Linux and Unix operating systems, said its business plan is unaffected by legal decisions in the Microsoft case. But the company does take issue with some of Microsoft's behavior that Caldera Chief Technology Officer Drew Spencer said makes it harder to bring new programs to Linux or Unix.

"There are some issues we have concerns about, particularly Microsoft's potential to lock in" its software companies, he said. "We would like to see an open environment for application developers to be able to move their applications across different platforms."

Eric Raymond, the libertarian author of open-source manifesto "The Cathedral and the Bazaar," said the government is simply too sluggish. "We think we're doing just fine against Microsoft, and we would rather beat them fair and square than have a third party step in and bash on them," Raymond said.

Microsoft has a tougher problem because falling hardware prices are making manufacturers less willing to pay for its operating system, and because the PC market is becoming saturated, Raymond said.

Others with libertarian tendencies also spoke out. Robert Levy, a senior fellow in constitutional studies at the Cato Institute, praised the ruling.

"Jackson's decision indicated that he had fallen hook, line and sinker for the government's flawed arguments," Levy said in a statement. "But the Court of Appeals has mercifully put a hold on rival businessmen trying to use government to bring down a competitor. The court apparently understands that consumers pick up the tab when high-tech companies devote more of their resources to politicking, and less to the kinds of integrated products that, until now, have characterized the software industry."

Political players weigh in
Conservative politicians were happy with the appellate court. "I applaud today's ruling because it's good for American competitiveness. It sends the message that innovation in America will be rewarded, not punished," said House Majority Leader Dick Armey, R-Texas.

Rep. Jay Inslee, D-Wash., whose district includes Microsoft's headquarters, told CNET News.com that the ruling was a "stunning victory for Microsoft and the American economy."

"Now that the Court of Appeals has taken off the table the death penalty...I really believe a settlement should be able to be reached that does three things: preserves Microsoft's ability to innovate, (gives) the ability for Microsoft to stay together, but respects some of the conduct-related issues that the Appeals Court has."

Inslee urged the government and Microsoft to use the ruling as a chance to work out a deal.

"I just think it is a window of opportunity," Inslee said.

Thursday's corporate silence contrasts with sharp past remarks by high-tech executives.

In a 1999 interview, Oracle Chief Executive Larry Ellison said Microsoft should be broken into not merely two, but four companies. "Microsoft should be broken up into four companies, all of which have access to all of the technology," he said. Breaking Microsoft into an operating system company and an applications company would mean "you've got two monsters instead of one, like those horrible sci-fi movies."

Compaq and Palm also were more verbose after Judge Thomas Penfield Jackson's order last year that Microsoft be broken into separate operating system and software application companies. Compaq condemned the breakup order and Palm supported it.

"Compaq opposes efforts to break up Microsoft," Compaq spokesman Alan Hodel said at the time. "Compaq saw several problems with the government's plan, and we continue to see those."

But Palm Chief Executive Carl Yankowski said: "It seems to us that the separation of the OS business from the applications business would create the incentive for each independent business to compete fiercely and fairly in a level playing field. Palm believes it is critically important to maintain a fair, competitive handheld market in which consumers determine standards based on their free choice of superior products in areas such as innovation, convenience, ease of use, design and price."

In April 2000, Judge Thomas Penfield Jackson ruled that Microsoft violated two sections of the 1890 Sherman Act. Jackson concluded that Microsoft was a monopoly that used anti-competitive means to maintain its dominance in Intel-based operating systems. The judge also determined that Microsoft illegally tied its Internet Explorer Web browser to Windows 95 and Windows 98 and that the company attempted to extend its operating system monopoly to the browser market.

News.com's Wylie Wong contributed to this report.