Microsoft's Next Step - Company Business and Marketing

All sides claimed victory in the long-awaited federal appeals court ruling on the Microsoft antitrust case. The company took great satisfaction in the court's rejection of a breakup. The Justice Department and the state attorneys general lauded the finding that Microsoft had indeed acted illegally in maintaining a Windows monopoly. Only trial judge Thomas Penfield Jackson -- who inexplicably jeopardized both the case and his own reputation by venting his opinions about Microsoft to journalists -- was a clear loser. Though the appeals court sent the case back to trial on some key points, Jackson has been disqualified and won't be a part of any further proceedings.

Settlement now seems likely. The arrival of the Bush administration removed the key players directing the prosecution; the Bush Justice Department isn't likely to pursue the case with the same zeal. Microsoft, for its part, has an opening to finally put the whole mess behind it.

Yet even now, a settlement isn't going to be easy. The appeals court upheld the lower court's finding that Microsoft routinely acted illegally in its effort to sustain the Windows monopoly, strong-arming PC makers, software developers and Internet service providers at every opportunity. [See story, page 40.] The company dismisses these as old issues that have been addressed by changes in licensing agreements, but that isn't really the point. Microsoft still has the power to crush competition in operating systems, and it shows every sign of continuing to use it. That's not a very good starting point for a settlement.

On the critical issue of whether Microsoft illegally tied Internet Explorer to Windows, moreover, the appeals court remanded the decision back to the trial court because it found that Judge Jackson had not used the correct legal standard. While Microsoft has cast this part of the ruling as vindication of its right to integrate whatever it wants into Windows, the actual decision falls short of that. This disconnect could interfere with settlement talks: If Microsoft really thinks it has already won, what incentive will it have to strike a deal?

Changes in the competitive landscape over the past few years make a fair resolution of the case all the more important for everyone in the information economy. Eighteen months ago, it looked like the new wave of Internet-based software companies were going to pose a threat to Microsoft no matter what the outcome of the court case. It doesn't look that way anymore.

Indeed, Microsoft has never seemed more dominant than it does today. At a time when most tech companies are reeling from dot-com fallout and a precipitous drop in capital spending, Microsoft sails along, raking in monopoly profits from Windows and letting others worry about messy problems like hardware inventories and monetizing Web traffic. With Windows XP, HailStorm and other new initiatives, Microsoft is well-positioned to put in place exactly what its rivals fear most: an information infrastructure controlled by Microsoft software at every critical juncture.

It's true that AOL Time Warner stands firmly in the way of any attempt by Microsoft to monopolize the Internet. In cable and wireless, videogames and high-powered corporate computing, Microsoft's offerings are anything but dominant. New competitors continue to emerge in many corners of the technology business.

But Microsoft retains its monopoly on the single most important piece of computing software, and two courts have now found that it has used a range of illegal tactics to maintain its position. That isn't good for the industry or the economy as a whole. The Microsoft case shouldn't end until that wrong is righted.

COPYRIGHT 2001 Standard Media International
COPYRIGHT 2001 Gale Group