Already, Microsoft's future altered

The software colossus may yet prevail, but this week's ruling will nonetheless reshape how the company works.

The titanic antitrust struggle of the US government versus Microsoft has now likely changed the face of one the world's most successful corporations forever.

The Redmond, Wash., software giant may yet avoid being split into two companies, as federal Judge Thomas Penfield Jackson ordered on Wednesday. The company has some grounds on which to appeal this ruling as overly harsh, say legal experts.

But there is little likelihood that the company can get the whole decision overturned. That means the courts will inevitably impose some kind of restrictions on Microsoft's ability to maneuver in a high-tech marketplace that changes with the speed of light flashing through a fiber-optic cable.

"They're not going to walk away from this with a ... decision that they haven't violated the antitrust laws," says Lawrence Sullivan, an antitrust expert at Southwestern University School of Law in Los Angeles.

If nothing else, Judge Jackson's ruling was an assertion that the nation's laws against illegal behavior by monopolies remain viable in the Internet Age.

The focus on antitrust rulings may have changed, from simply preventing price-fixing in the days of John D. Rockefeller, to the more complicated task of encouraging innovation today. But the point, according to Jackson, is essentially the same: protecting the consumer.

And Microsoft, to the judge, just doesn't get it. His order of Wednesday is laced with references to his belief that the company has continued to behave as if it is exempt from the law just because of who it is, what it does, and what it has accomplished.

Arrogance of power?

"Microsoft, convinced of its innocence, continues to do business as it has in the past and may yet do to other markets what it has already done in the PC operating system and [Internet] browser markets," Jackson wrote.

The only way to stop this behavior, he believes, is for the company as it is now constituted to cease to exist.

The courts may uphold Jackson's decision to cleave the firm - and they may not, say legal experts. The speed with which Jackson adopted this government-proposed remedy - he abruptly ended proceedings this spring and went forward without holding a round of hearings devoted exclusively to the breakup's implications - may be arguable grounds for appeal.

"The judge has certainly danced on the edge of procedural harshness," says Thomas Hazlett, an antitrust and technology expert at the American Enterprise Institute.

Also open to debate on appeal, experts say, is the judge's contention that by integrating its Web browser into the Windows operating system, Microsoft illegally sought to leverage a monopoly in one market into dominance in another.

But on broader questions of the company's conduct, Jackson may be on firmer ground. The company's use of exclusionary contracts and other monopolistic bludgeons is well documented in the court record.

"This judge has done a scrupulously careful job of marshaling his evidence on that issue," says Mr. Sullivan.

Even if the breakup is overturned by an appeals court or the Supreme Court, restrictions on Microsoft's business conduct may be upheld - and could last 10 years.

These would force Microsoft to offer Windows to everyone at one price, ban exclusive deals with, say, vendors who offer to sell only Microsoft products, and prevent tying the sale of Windows to any other product.

Breakup as the smaller of two threats

Some analysts, in fact, see these restrictions as more damaging to the firm's prospects, in the long run, than splitting the company in two.

"These conduct restrictions basically turn Microsoft into a government-regulated utility selling software," says Frank Catalano, an industry consultant in Seattle. In fact, he says Microsoft is already naturally splitting into different firms as its units act more and more independently. He points out that Expedia, its travel subsidiary, has already been spun off into a separate entity.

"So whether it's from the inside or from the courts, I think we'll see Microsoft evolving off into smaller companies," Mr. Catalano says.

Other experts differ, seeing efficiencies in being a single entity.

In any case, friction generated by legal problems may slow the ability of Microsoft (whole or split) from exploiting the trend towards Internet delivery of software, says Dwight Davis of Summit Services, a market-research firm in Boston.

If the Supreme Court agrees to take the Microsoft case directly, as the government wants, it could be decided by Christmastime. If not, and the case wends its way through the court of appeals on its inevitable route towards the nation's highest court, it could be years before it is concluded.

"During the appeal, we'll continue to do what we do best, which is building new software," Microsoft chairman Bill Gates said. "We have many reasons to be confident in our appeal."

*Dean Paton contributed to this story from Seattle.

(c) Copyright 2000. The Christian Science Publishing Society