Microsoft: Guilty! Now what?

It could have been an April Fool’s joke, but it wasn’t. On Saturday, April 1st, the news hit the news wires and Internet sites: the Microsoft settlement talks had ended in failure. Despite nearly four months of efforts by a specially appointed negotiator, Judge Richard Posner, a well respected expert on law and economics, the two sides just could not come to terms. Microsoft insisted it be allowed to “innovate”, while the Department of Justice (DOJ), the 19 states and the District of Columbia insisted that any deal’s terms be sure to restore competition to the marketplace. After the close of the regular-day markets on Monday, Judge Jackson handed down his blistering Findings of Law (FOL) for the Microsoft Antitrust trial. As expected, the company was found guilty of maintaining its monopoly position by anticompetitive means and attempted to monopolize the Web browser market, in violation of the second part of the Sherman Act. Jackson also found Microsoft guilty of unlawfully tying its Web browser to its operating system, in violation of the first of the Sherman laws.

So, that’s it? It’s all over? Not by a long shot. There still needs to be a hearing on remedies and penalties, where Jackson will get two (or possibly three) points of view as to how to deal with Microsoft. This is going to be held on an accelerated schedule, with the hearing already set for May 24. The actual remedies decision will likely be seen in July.

Possibilities continue to range from a full break-up of the company and publishing of the Windows source code to less drastic behavioral measures like normalized pricing for software for all purchasers. The states also have the option of asking for monetary damages which could total in the tens of billions.

Of course, the moment the remedies are handed down, Microsoft will appeal. Jackson has already stated he will pass the case straight to the supreme court, although they could decide to pass it back to the regular appeals court. So, depending on how things go, we’re likely to see another one to three years of legal fireworks directly attributed to this case.

And that’s just the main event. There’s also over a hundred class action and antitrust lawsuits pending against Microsoft, with several more expected over the next few months and years. Such action has been made much easier by Jackson’s FOL, as the burden of proof of Microsoft being a monopoly has been established in the decision.

On the street, many people are questing why Microsoft couldn’t settle, and wonder if the company’s apparent bet on a reversal on appeal is really so smart. The consensus seems to be that Jackson’s findings are very strong, and that Microsoft appears to have navigated themselves into a very bad situation; the company will be under intense scrutiny for years to come.

All of this is reflected in Microsoft’s stock price, which is now down from a year previously. When compared to the triple digit percentage gains of most of the big-cap technology companies over the same period, some MSFT investors are wondering when they might again see the big gains they’re used to. The stock valuation even affects the company’s workers, as a large percentage of the compensation package involves options which are only attractive when they appreciate quickly. It looks like that may not happen for some time.

Mean while, back in the marketplace, signs of competition and consumer choice are seen more frequently now, a direct result of the on-going investigation and trial. Linux continues to gain market share in every computing segment, AOL has released a beta for the new Netscape 6.0, and the Palm platform is finding itself in many different devices.

For investors, partners and, to a lesser degree, consumers of Microsoft, the next few months and years have the potential to be somewhat volatile. But for those who don’t want to have to use Microsoft’s technology, life is getting easier every month. In the end, it’s not going to matter what technology you choose to use to get the job done, which is, really, the whole point of this trial anyway.

Published in the Victoria Business Examiner.

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