Judge rules Microsoft violated antitrust laws

WASHINGTON - Humbling a proud giant of the computer age, a federal judge ruled Monday that Microsoft Corp. violated U.S. antitrust laws by keeping ''an oppressive thumb'' on competitors during the race to link Americans to the Internet.

In a sweeping verdict against the empire that Bill Gates built, U.S. District Judge Thomas Penfield Jackson said Microsoft violated the Sherman Act, the same law used to crush monopolies from Standard Oil to AT&T.

He concluded that the company was guilty - as the federal government, 19 states and the District of Columbia had alleged in a case that began in May 1998 - of ''unlawfully tying its Web browser'' to its Windows operating system that dominates the computer market worldwide.

''Microsoft placed an oppressive thumb on the scale of competitive fortune, thereby effectively guaranteeing its continued dominance,'' Jackson wrote.

The verdict affirms Jackson's previous ruling in November that the software giant is a monopoly, one that illegally used its power to bully competitors and stifle innovation, hurting consumers in the process.

The judge's ruling can be appealed, delaying its impact for years, and Gates said the company would pursue that avenue.

While Microsoft ''did everything we could to settle this case, we believe we have a strong case on appeal,'' Gates said. ''... This ruling turns on its head the reality that consumers know: that our software has helped make PCs accessible and more affordable to millions of Americans.''

Microsoft didn't lose all of the case: Jackson ruled that the government failed to prove that Microsoft's exclusive marketing arrangements with other companies ''constituted unlawful, exclusive dealing'' under federal antitrust law.

Jackson's verdict opens the door for the federal government to seek drastic penalties against Microsoft.

The options range from breaking up the company that made Gates a billionaire to forcing it to share its proprietary software code with competitors. Jackson also paved the way for states to seek penalties under their own anticompetition laws.

''Microsoft maintained its monopoly power by anticompetitive means and attempted to monopolize the Web browser market,'' Jackson said in a ruling that caused a record-plunge in the Nasdaq market even before its release. Microsoft stock dropped by more than $15 a share to close at $90.87, costing Gates about $12.1 billion in paper losses.

The Justice Department vowed to press the case until consumers are rewarded.

''Microsoft has been held accountable for its illegal conduct by a court of law,'' Attorney General Janet Reno said. ''Thanks to this ruling, consumers who have been harmed can now look forward to benefits.''

Attorneys general for the states that joined the case called for strict sanctions. Connecticut Attorney General Richard Blumenthal urged Jackson to ''adopt remedies that are as far-reaching and fundamental as Microsoft's abuses of its monopoly.''

Reno's antitrust chief, Joel Klein, said he was still open to a settlement but that it would have to redress the violations cited in Monday's ruling.

Microsoft Chief Executive Steve Ballmer also said the company would be open to more negotiations but it ''would need to see an approporaite openness'' from the government.

''We've spent the past 25 years thinking of ourselves as a small aggressive company playing catch up to industry giants even though at some point along the way we became a large company,'' Ballmer said. ''... Our intense focus on moving forward has at times been seen as threatening and our passion for being the best has been misinterpreted. We can do better. But that doesn't mean innovating any less or delivering any less value to consumers.''

In his ruling, Jackson wrote that ''Microsoft's anticompetitive actions trammeled the competitive process through which the computer software industry generally stimulates innovation and conduces to the optimum benefit of consumers.''

He said Microsoft adopted ''aggressive measures'' with computer manufacturers and Internet providers that ''successfully ostracized'' Navigator, a browser made by Microsoft rival Netscape Communications, in favor of the company's Internet Explorer.

Substantial business was lost to competitors ''as a result of Microsoft's decision to bundle Internet Explorer with Windows,'' Jackson wrote. The bundling ''caused Navigator's usage share to drop substantially from 1995 to 1998, and that as a direct result Netscape suffered a severe drop in revenues from lost advertisers, Web traffic and purchases of server products.''

All the parties to the suit, including the states, tried to postpone a ruling by working the last four months through a court-appointed mediator, Judge Richard Posner. The talks collapsed over the weekend, prompting Jackson to release his verdict.

Both sides in the case had reasons to settle. For Microsoft, the verdict is expected to spur more consumer lawsuits. Microsoft already faces dozens of class-action lawsuits seeking potentially billions of dollars in damages. Private lawyers plan to use the ruling to bolster their contentions that Microsoft abused its software monopoly to illegally drive up prices of its Windows operating system.

''This is a manna from heaven for the private plaintiffs because it basically should eliminate a lot of their need for proof,'' said Robert Litan, a former Justice Department attorney who negotiated with Microsoft in a related 1994 case.

For the government, an out-of-court settlement could have meant immediate sanctions against Microsoft for its alleged anticompetitive acts. Such relief, however, would be delayed with a lengthy legal battle now expected to find its way through the U.S. Court of Appeals, where the case is likely to be tied up for several years.

In addition, the U.S. attorney general's office will be under a new administration by the time the case reaches the appellate court level.

The federal government has spent more than $7 million in its lawsuit and used tens of thousands of pages of e-mail and other documents to portray Microsoft as an industry bully. Justice Department lawyers said the company illegally used its heft to undermine competing technologies and to discourage support for its rivals.