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Analysts See Risk for Microsoft, but Gates Hopes to Win Appeal
By STEVE LOHR with JOHN MARKOFF
ith the weekend collapse of settlement talks in its federal antitrust case, Microsoft finds itself facing a harsh legal road ahead that threatens to embolden private litigants, depress the company's stock price and erode its dominant influence in computing, according to industry analysts.
"Microsoft is now back in the legal quagmire, and nothing good is going to happen to the company anytime soon," said David Readerman, a managing director at Thomas Weisel Partners, a technology investment firm in San Francisco.
Yet at Microsoft's corporate campus in Redmond, Wash., there is no evidence of panic. Its executive team, led by Bill Gates, the chairman, is taking the long view, planning to battle the antitrust case in the courts through appeals for years, if necessary.
"We absolutely believe that the judicial system will ultimately rule in our favor," Gates said in an interview Sunday. And for Microsoft, the risks of that course clearly seemed preferable to offering further concessions in the mediation efforts abandoned Saturday.
Microsoft's plight could also possibly be altered by this year's presidential election. A Republican administration and a new set of political appointees heading the Justice Department could take a different view of the case, and George W. Bush has said he believes antitrust enforcement should be confined mainly to combat price-fixing.
Microsoft has had its corporate reputation tarnished repeatedly during the long-running antitrust suit, filed in May 1998, which alleges that the big software maker is a bullying monopolist that has stifled competition. In his findings of fact last November, Judge Thomas Penfield Jackson largely agreed with the case presented by the Justice Department and 19 states.
Yet the more indelible legal blow will come within days, as Jackson makes his finding of legal liability. The judge's conclusions of law will surely find that Microsoft violated the nation's antitrust laws, though it remains uncertain how sweeping his ruling will be.
If the sides had reached an out-of-court settlement, Jackson's strongly worded findings of fact could have been pulled off the table. But a legal verdict cannot -- and both it and the findings of fact become a permanent part of the legal record of the case.
And that legal record -- a finding of monopoly power and abuse of that power -- will make it easier for companies and class-action lawyers to bring cases against Microsoft. Already, dozens of class-action suits have been filed against the company.
"Microsoft is in for a bumpy ride over the next several months, as it will face an energized group of private litigants," observed William Kovacic, a professor at the George Washington University law school.
After Jackson rules, he will then move to consider what sanctions, or remedial steps, should be ordered. The suggested remedies range from forcing Microsoft to alter its business practices to breaking up the company.
The judge can ask for papers from experts and call witnesses. The court-ordered remedies and Jackson's final order may not be filed until the end of the summer. Until then, in theory, the two sides can still settle, a possibility that seems remote. Microsoft will almost certainly appeal the ruling to the federal appeals court, and possibly to the Supreme Court. Those appeals could take a year or two.
The uncertainty surrounding the outcome of the case, industry experts say, could well slow down Microsoft, as the center of gravity in computing is increasingly moving beyond the personal computer, Microsoft's stronghold, and toward the Internet, where the company faces far more competition.
In the Internet arena, they note, Microsoft is forging partnerships with companies in many industries, from cable television to telecommunications, to ensure that its software is used on a widening array of Internet-connected devices. But those efforts could be hampered if potential partners have questions about Microsoft's future.
"As long as this case hangs over Microsoft, it will affect its influence in the marketplace," said David Yoffie, a professor at the Harvard business school. "It just reduces Microsoft's credibility, its ability to set technology standards as it has in the past."
Microsoft has no illusions about its near-term prospects in the courts. In an e-mail message Saturday to Microsoft employees informing them of the breakdown in the settlement talks, which he blamed on "divisions and extreme views on the other side," Gates wrote that Jackson would announce his legal judgment as soon as Monday and "we don't expect the ruling to be favorable to Microsoft."
In an interview Sunday, William Neukom, Microsoft's general counsel, said: "We're not giving up in this court, but we think this is toward the high-water mark for the government. We'd rather be in the appeals court and we're confident about our prospects."
On appeal, legal experts do not think there is any chance that Jackson's judgment, which they believe will find Microsoft repeatedly violated the law, can be reversed entirely. "Microsoft's bet seems to be that through a process of attrition on appeal Judge Jackson's decision is narrowed in scope considerably," noted Kovacic, the law school professor. "The result would still be a government victory but one that supports a remedy that is not very drastic."
Microsoft also faces a wave of private litigation, including dozens of class-action suits. A strong ruling by Jackson will simplify the task of winning such cases, according to Terry Gross, an attorney in San Francisco involved in a class-action suit against Microsoft. Most of the class-action suits are on behalf of individuals and companies who claim Microsoft charged too much for its industry-standard Windows operating system.
In the legal opinion, Gross said attorneys involved in the class-action litigation would be looking most closely at what Jackson says, if anything, on Microsoft as a monopolist overcharging consumers for Windows.
Microsoft recognizes that the class-action suits could be costly and time-consuming, but it is confident it can win them. As it has throughout the federal suit, Microsoft says the price it charges for Windows is a small percentage of the price of a PC and is far below what a garden-variety monopolist could charge.
"These class-action cases are just piling on," Gates said. "There is no economic theory to show that ours was not the most aggressive price for Windows. We've taken the high-volume, low-cost approach."
Because the government antitrust case focuses mainly on allegations that Microsoft bullied industry partners and rivals to favor its software, some legal experts said that Jackson's legal verdict might be most useful to rival software companies in private antitrust suits.
In Silicon Valley, home to many Microsoft rivals, the ruling will likely be read closely in many corporate legal departments. "Any private company that thinks it has a beef ought to test it in court," said Scott McNealy, the chairman of Sun Microsystems, a Microsoft rival. "Now, you will just need to prove that they did something to you and then figure out what the cost was."
In the Valley, there was some relief that the settlement talks had collapsed. On Friday evening, some senior computer executives who were read a summary of a government proposal became alarmed that it was too limited and would prove difficult to enforce. McNealy and Steven Jobs, the chairman of Apple Computer, were read elements in the proposed settlement and expressed their dissatisfaction to some government officials.
"What I heard was worse than weak," McNealy said.
Another executive said the result "would have been a landslide for Microsoft."
In recent months, the Justice Department and the states have talked to industry executives, including several Microsoft rivals, about a range of possible remedies in the Microsoft case. But the government officials say this is mainly information-gathering process rather than seeking their approval. Some companies including Sun, Apple, America Online and IBM had executives serve as witnesses for the government, but the companies are not parties in the case.
Yet within Microsoft, there has long been the hardened view that the antitrust suit was largely the work of its enemies, who convinced the Justice Department and the states to pursue the company. "Leaking settlement proposals to companies raises the question of who this lawsuit is for," Gates said.
Government officials scoff at the notion that they are doing anything but enforcing the law. "The facts of this case speak for themselves," one government lawyer said, "and the facts show that Microsoft has clearly and repeatedly violated the nation's antitrust laws."
Copyright 2000 The New York Times Company |
