US District Court Judge Thomas Penfield Jackson has ruled Microsoft violated the Sherman Antitrust Act and that the company attempted to "monopolise the Web browser market" by tying its browser to its operating system.
In his decision, the judge wrote that "Microsoft paid vast sums of money and renounced many millions more in lost revenue every year in order to induce firms to take actions that would help enhance Internet Explorer's share of browser usage at Netscape's expense."
In his 43-page ruling, Jackson said Microsoft's bundling practices caused browser-maker Netscape Communications to suffer a severe drop in revenue from lost advertisers, Web traffic and purchases of server products from 1995-98. In his findings of fact issued last November, the judge had already found that Microsoft's practices hurt other companies as well as consumers and computer makers.
Jackson also said that Microsoft's decision to bundle its Windows operating system with Internet Explorer was a deliberate attempt to stifle competition.
In his decision, Jackson ruled in favour of the 19 states that also filed lawsuits claiming Microsoft violated federal antitrust laws. "Microsoft's anticompetitive conduct has significantly hampered competition" in each of the 19 states, Jackson wrote.
Microsoft said it plans to appeal the harshly worded federal ruling against it, arguing that it has not violated antitrust law. "We did everything we could to settle the case," Chairman Bill Gates said in a statement.
Mediation talks broke down over the weekend, after several weeks.
"It is a mistake for government regulators or the courts to try to design high-technology products," added Bill Neukom, Microsoft's general counsel. "Government regulation of software product design would surely slow innovation and harm consumers."
Gates said that competition in the technology industry has thrived in the two years since the government filed its suit.
Speculation now turns to what potential action Jackson will mandate for Microsoft. But Joel Klein, assistant attorney general for the Justice Department, said, "It's premature to comment on any specific remedies."
Saying it was a victory for consumers, Iowa Attorney General Tom Miller praised the landmark ruling that Microsoft violated federal antitrust laws.
Extended-hours trading on Microsoft stock was reinstated about 40 minutes after the verdict was issued. In early evening trading, Microsoft was trading at $86 a share on the Nasdaq market. The stock closed Friday at $106.25 per share, but dropped today as nervous investors awaited the judge's ruling following the collapse of settlement talks.
At a press conference which started at 10am New Zealand time, Steve Ballmer, Microsoft CEO and president, said that the company tried its best to settle the case but is looking forward to an appeal. "We have the right to appeal and until the appeal is over, nothing is settled," Ballmer said. "I couldn't be more proud of this great company."
Ballmer said that Microsoft, like other companies in the industry, has competed hard. "Our passion for being the best has been misinterpreted," he said.
Ballmer said that consumers know they haven't been harmed by Microsoft, that they need Microsoft products. The products "deliver value" and can't be had at a lower price anywhere in the world, he argued. "That doesn't jibe with today's ruling."
Ballmer said he was disturbed by what he called the "veiled references to our values" in Jackson's verdict.
"We are a company with incredible integrity," he said. As a Microsoft veteran, he said, "I know the people. . . . I know how we run the business and the intellectual honesty and personal honesty we demand from our people internally and in dealing with third parties."
Jerry Lynch, director of operations at Online Computer Library Center in Dublin, Ohio, disagreed with the ruling, saying that the DOJ shouldn't interfere.
"It's hard enough to coordinate an IT infrastructure, and that's all we need -- lawyers and judges to coordinate it," Lynch said. The center currently has 1,200 desktops running Windows NT. Lynch allows users to choose between Netscape Navigator and Internet Explorer.
Analysts weren't surprised by Jackson's ruling, but opinions differed on how the ruling will impact Microsoft on Wall Street.
Frederic Dickson at Richmond, Va.-based Branch Cabell & Co. Inc., said today's ruling busted "the euphoric bubble" that the case could be wrapped up quickly.The market was anticipating a settlement, but that was dispelled over the weekend when talks were broken off, he said.
Now that this case will be prolonged, it will hang over Microsoft stock for a while, he predicted.
But G. Patrick Dunkerley of Securities Corp. of Iowa said Microsoft's future stock value is promising. "Wall Street views Microsoft as a tennis ball -- once it drops to the floor it bounces back," said Dunkerley, an analyst at the Cedar Rapids-based financial firm.
In a statement released by the Association for Competitive Technology, a grassroots information technology industry trade group, President Jonathan Zuck slammed Jackson's conclusions of law for revealing "a fundamental lack of understanding of the IT industry."
At a time when technology companies are experiencing unprecedented growth, said Zuck, Jackson "describes a world of limited competition and hampered innovation."
"The stakes here are indeed high for the high-tech industry and consumers," Zuck added. "The Nasdaq is off $350 billion today. That's what's in store for us as this case spins out of control."