PMS:Nice story from SMART MONEY: 4/3/2000:" MSFT:What Comes Next?"
I see good news for investors:
" But at least one element of the decision, according to legal experts we spoke with this afternoon, may give Microsoft a fighting chance for an appeal.
The judge ruled that bundling the browser with Windows was itself illegal, not just part of an anticompetitive strategy. That's likely to be one of the more controversial elements of the decision, says NYU law professor Eleanor Fox. By meeting it head on, the judge may have weakened the odds of having his ruling survive the appeals process intact. "
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. " A breakup, while infuriating to Chairman Bill Gates and lucrative for corporate lawyers, could also be helpful to shareholders.
"Historically, companies the government has broken up, like AT&T (T), have always done very well and companies they didn't break up ? US Steel (X), United Shoe ? have failed," says Barry Nalebuff, a competition expert at the Yale School of Management. By breaking up into smaller companies, Microsoft could attract more enterprising engineers and promise higher returns on invested capital, says Nalebuff. "Having lots of Baby Bills would create a certain excitement and challenge that in the end could be wonderful."
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TA
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smartmoney.com
April 3, 2000
Microsoft: Guilty as Charged ? But What Comes Next?
By Alec Appelbaum
AS INVESTORS REJECTED the uncertainty of life during a lengthy appeals process, analysts lined up to support Microsoft's (MSFT) wavering stock. Now that we know how Judge Thomas Penfield Jackson ruled, some uncertainty has lifted ? and there may be a buying opportunity in there after all.
As we explained earlier today, Microsoft is betting that the Justice Department won't be able to get together with the 19 states to persuasively argue for a single punishment for the company's past monopolistic behavior. At 5 p.m. ET, Judge Jackson's decision (impressively called "Conclusions of Law and Order") set Microsoft's bet in motion.
On the surface, to be sure, the ruling was a slam-dunk for the trust-busters in the Justice Department. The judge affirmed 23 of 26 complaints by the government, including that the company violated the federal Sherman Antitrust Act as well as state antitrust laws "by unlawfully tying its Web browser to its operating system." Judge Jackson said that Microsoft monopolized the market for Web browsers and that it unfairly sought to warp that market. "Microsoft itself engendered, or at least countenanced, instability and inconsistency" in the way it structured and marketed Explorer, the Judge wrote. It tried, for example, to make its software harder to run with Sun Microsystems' (SUNW) Java. "There are no valid reasons to justify the full extent of Microsoft's exclusionary behavior," he said. The ruling that Microsoft violated state antitrust laws could be particularly threatening to the company since it may open the door to monetary damages from the states or private plaintiffs.
But at least one element of the decision, according to legal experts we spoke with this afternoon, may give Microsoft a fighting chance for an appeal.
The judge ruled that bundling the browser with Windows was itself illegal, not just part of an anticompetitive strategy. That's likely to be one of the more controversial elements of the decision, says NYU law professor Eleanor Fox. By meeting it head on, the judge may have weakened the odds of having his ruling survive the appeals process intact.
In an earlier ruling in the Microsoft litigation, the Court of Appeals for the District of Columbia ruled that judges are ill-equipped to second-guess business decisions. Richard Steuer, an antitrust partner at the New York law firm Kaye Scholer Fierman Hays & Handler, says that ruling could spell trouble for Judge Jackson if he ultimately orders the software giant to "unbundle" its Explorer Web browser from the Windows software program. "If the judge orders an unbundling that could be the subject of an appeal," said Steuer.
On the other hand, he also ruled that Microsoft acted the way it did for no reason other than to stifle innovation from potential competitors. According to Fox, "Judge Jackson will be totally upheld in [that] conclusion." Another lawyer we spoke to mentioned rumors that Microsoft had offered to sell a version of Windows without Explorer ? something it had previously deemed impossible. Future referees, whether in hearings on Judge Jackson's decision or trials in higher courts, may look less sympathetically on Microsoft arguments having to do with technology.
Next up: punishment...or not. As Professor Fox explains, either side can ask the judge to expedite the appeal directly to a higher court, including the Supreme Court. The judge is likely to reject any request to send the matter directly to a higher court. He is expected to hold hearings in which both sides will present evidence and propose a form of relief.
That relief could involve a breakup of the company into smaller outfits that would, in effect, compete with each other. A breakup, while infuriating to Chairman Bill Gates and lucrative for corporate lawyers, could also be helpful to shareholders.
"Historically, companies the government has broken up, like AT&T (T), have always done very well and companies they didn't break up ? US Steel (X), United Shoe ? have failed," says Barry Nalebuff, a competition expert at the Yale School of Management. By breaking up into smaller companies, Microsoft could attract more enterprising engineers and promise higher returns on invested capital, says Nalebuff. "Having lots of Baby Bills would create a certain excitement and challenge that in the end could be wonderful."
A remedy could also come through behavioral punishment ? the government forcing Microsoft to conduct business a certain way. But Nalebuff doubts the government can do this credibly. "It's very hard to write contracts that span several generations of technology," he says, "because you're trying to write a contract about a world that hasn't happened yet."
Similarly, it will be hard for investors to know what all this means for several weeks. Antitrust lawyer Steuer says the judge won't begin a serious discussion of possible remedies until after he's heard testimony on the matter. After that, Steuer says the judge will likely encourage the government and Microsoft to resume settlement discussions.
Microsoft may be motivated to settle ? Gates and CEO Steve Ballmer left the window open to settlement in a press conference tonight. The contining role of the state attorneys general in the litigation may be the worst thing for Microsoft, according to Alan Weinschel, a partner with Weil Gotshal & Manges. "The states have stood in the way of settlement," says Weinschel. "I think they are holding out for much more draconian remedies."
Of course, Microsoft has indicated it will fight the government all the way to the Supreme Court rather than change the way it does business. "There's no sense in which Microsoft would give an inch," says Nalebuff, "but if there's a breakup, that's the time I choose to buy."
The decision from Judge Jackson will make that fight a nail-biter for investors.
? Matthew Goldstein contributed to this story. |
