IT'S MONOPOLYSOFT; JUDGE RULES MICROSOFT IS HURTING CONSUMERS.

Byline: Joel Brinkley The New York Times

The presiding judge in the government's antitrust trial against Microsoft Corp. issued a broad denunciation of the software giant Friday evening as the first part of his verdict in the landmark case.

Judge Thomas Penfield Jackson of U.S. District Court said that Microsoft had used its monopoly power to stifle innovation, reduce competition and hurt consumers.

``Most harmful of all is the message that Microsoft's actions have conveyed to every enterprise with the potential to innovate in the computer industry,'' Jackson wrote in his 207-page findings of fact.

``Through its conduct,'' he added, ``Microsoft has demonstrated that it will use its prodigious market power and immense profits to harm any firm'' that gets in its way.

Jackson's findings of fact are not a final statement of liability or innocence. But they show that he has accepted almost every element of the government's case against Microsoft and has rejected as specious virtually all the arguments Microsoft put up in its defense.

The findings are the judge's conclusions about who presented the most compelling and believable case during the yearlong trial that opened in his courtroom on Oct. 19, 1998. As such, they serve as a clear, almost certain, indication of how he will rule in the months ahead.

Quick reactions

Microsoft and the government both reacted quickly after receiving the much-anticipated findings Friday evening. The judge, who in years past wrote his decisions longhand, transmitted the document to both sides by e-mail Friday afternoon. It was made public at 6:30 p.m., after the stock markets had closed.

The Justice Department was jubilant. ``This is a great day for American consumers,'' Attorney General Janet Reno said. ``This case is about the protection of innovation, competition and the consumers' right to choose the products they want.''

Microsoft, on the other hand, quickly issued a terse statement indicating that the company was already formulating its appeal.

``While we disagree with many of the findings,'' the statement said, ``we are still confident that the law supports us on these points and that the American legal system will ultimately rule that Microsoft's actions were fair, legal and good for consumers.''

Appeal will be difficult

While Microsoft's leaders are almost certain to appeal, should Jackson eventually rule against them, the judge's findings of fact are likely to stand, because they are virtually impervious to appeal. Under federal court rules, appeals courts must give great weight to the conclusions the trial judge draws from hearing the testimony and studying the witnesses as they offer their accounts.

As a result, appeals courts are allowed to challenge findings of fact only if they are ``clearly erroneous.'' And if the judge's verdict is largely based on the questions of witness credibility he raised in his findings, the verdict stands a better chance of withstanding appeal.

At the outset of his findings, Jackson declared that Microsoft ``enjoys monopoly power in the relevant market'' - a threshold assertion that potentially makes other actions illegal. He noted that Microsoft can charge whatever it wants for its Windows operating system without fear that price increases would reduce demand, a key test for monopoly power.

Microsoft expended considerable energy in court arguing that it was not a monopoly, asserting that a host of small competitors - from the Be operating system to Palm Pilot personal organizers - were long-term threats. But Jackson dismissed every one of those arguments, saying that competition from these competitors was at least a long way off.

``That day has not arrived, nor does it seem imminent,'' he wrote in one case.

``Microsoft's monopoly power,'' he concluded, ``is also evidenced by the fact that, over the course of several years, Microsoft took actions that only could have been advantageous if they operated to reinforce monopoly power.''

Individual charges

From there, Jackson ran through each of the charges raised by the Justice Department and the 19 state attorneys general that joined the federal government in the suit. In each case, he endorsed the government's charge while rejecting Microsoft's rebuttals.

He found that Microsoft attempted to divide the market for Internet browsing software with Netscape Communications Corp. in 1995 - a key charge in the government's case and a clearly illegal activity under antitrust law.

He wrote that other companies had similar encounters with Microsoft, and ``these interactions demonstrate that it is Microsoft's corporate practice to pressure other firms to halt software development'' that threatens Microsoft's dominance ``or competes directly with Microsoft's most cherished software products.''

Jackson found that Microsoft's decision to bundle its Web browser with Windows and give it away was not, as Microsoft asserted in court, simply an effort to add a desirable feature to Windows.

``Senior executives at Microsoft decided Microsoft needed to give its browser away in furtherance of the larger strategic goal of gaining market share,'' he wrote. Microsoft, he added, ``viewed browser market share as the key to preserving its dominance.''

Key antitrust finding

And in one of his most damning findings, Jackson concluded that ``Web browsers and operating systems are separate products.'' Microsoft's key argument was that its browser was simply a feature of Windows, not a separate product.

He turned that argument around on Microsoft by finding that the company had actually harmed consumers by bundling the two products. Consumer harm is a key test in antitrust cases. Bundling the browser with Windows ``unjustifiably jeopardized the stability and security of the operating system,'' he wrote. ``There is no technical justification for Microsoft's refusal to meet consumer demand for a browserless version of Windows 98.''

He wrote that Microsoft had threatened and bullied Apple Computer, Intel, America Online and other companies that Microsoft perceived as competitors. In the case of IBM, he wrote, ``when IBM refused to abate the promotion of those of its own products that competed with Windows and Office,'' Microsoft's suite of business productivity software, ``Microsoft punished the IBM PC Company with higher prices, a late license for Windows 95 and the withholding of technical and marketing support.''

``Microsoft's past success in hurting such companies and stifling innovation deters investment in technologies and businesses that exhibit the potential to threaten Microsoft,'' the judge concluded. ``The ultimate result is that some innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft's self-interest.''

KEY INVESTIGATION DATES

Key dates in the antitrust investigation of Microsoft Corp., the largest maker of personal computer software:

1975: Microsoft is founded by Paul Allen and Bill Gates, friends from Seattle's Lakeside prep school who co-wrote a programming language for the Altair hobby-kit personal computer a year before. By 1991, Microsoft's operating systems are used by 93 percent of the world's personal computers.

July 1994: Microsoft in a consent decree agrees to change contracts with computer makers and eliminate some restrictions on other software makers, ending a Justice Department investigation begun in 1993.

August 1995: Microsoft launches Windows 95. Retail versions don't include an Internet browser, which is initially sold separately but later distributed for free.

December 1995: Gates details a shift in Microsoft strategy to focus on the Internet.

September 1997: Microsoft launches Internet Explorer 4.0 in a stepped-up challenge to Netscape Communications Corp., whose share of browser market slips to less than two-thirds of Internet users.

October 1997: Justice Department sues Microsoft, alleging it violated the 1994 consent decree by forcing computer makers to sell its Internet browser as a condition of selling Windows.

December 1997: U.S. District Judge Thomas Penfield Jackson issues preliminary injunction forcing Microsoft to stop, at least temporarily, requiring manufacturers who sell Windows 95 ``or any successor'' to install its Internet Explorer. Microsoft appeals.

May 1998: Justice Department and 20 state attorneys general sue Microsoft, charging it illegally thwarted competition to protect and extend its monopoly on software. One state later drops from the suit.

June 23, 1998: A three-judge federal appeals panel removes restrictions that Jackson imposed on Windows 95, saying there was adequate justification to bundle the Internet browser in Windows.

Aug. 27, 1998: Two government lawyers begin questioning Gates for 30 hours over three days in a videotaped deposition. Excerpts are shown in the courtroom during the trial, and Gates appears so evasive and forgetful that even the judge is surprised. Separately, America Online begins secret talks to buy Netscape.

Oct. 19, 1998: The antitrust trial begins, expected to last six weeks.

Nov. 24, 1998: America Online confirms it will buy Netscape in a deal ultimately worth $10 billion, weeks after testimony in the trial from senior executives at both companies.

Jan. 13: Government rests its case after calling 12 witnesses.

Feb. 26: Microsoft rests its case, also after 12 witnesses.

June 1: The final, rebuttal phase of the trial begins, with each side allowed to call three more witnesses each.

June 24: All testimony ends.

Sept. 21: Final oral arguments from each side prior to the judge issuing his factual findings.

Nov. 5: Judge issues findings of fact.

CAPTION(S):

Photo, Box, Chart

Photo: (Color) A federal judge has ruled that Microsoft - founded by Bill Gates - has used its monopoly power to stifle innovation, reduce competition.

Box: KEY INVESTIGATION DATES (See text)

Chart: BROWSER BATTLE