Gates' gamble: One bluff too many?

Bill Gates has a reputation for being a sharp card player. But it may take months, if not years, to determine whether his decision to wage a two-year legal campaign against the government was a brilliant piece of gamesmanship -- or a singular act of folly.

On The Day After, the conventional wisdom was that Microsoft's chairman had bluffed one too many times. With the collapse of settlement talks with the government, US District Judge Thomas Penfield Jackson ruled Monday that the software giant had "placed an oppressive thumb on the scale of competitive fortune," as it violated the Sherman Act.

The breadth of Monday's decision suggests that Jackson may be planning to throw the book at Microsoft. By so completely embracing the government's accusations, the decision portrays the giant software maker in the worst possible light, justifying the harshest possible sanctions, including a corporate breakup and fines to cover the government's litigation costs.

In effect, Jackson has given himself room to impose any remedy he sees fit.

The one limiting factor that may restrain the judge is the possibility of being reversed on appeal; if he is perceived as having gone too far, a higher court may be less likely to defer to his rulings. Indeed, Microsoft officials seem to have given up hope of a low-impact remedy, focusing their efforts on the appeal that is sure to come.

Jackson doesn't seem particularly concerned about US Court of Appeals for the District of Columbia, however. His ruling specifically challenges the appellate court's legal analysis in an earlier decision on this case, asserting that the higher court's logic "falters." While he took care to provide ample legal justification for ignoring the earlier appellate ruling, Jackson also went out of his way to criticise it, outlining conflicting Supreme Court precedents and claiming that "it ignores reality." Such confidence suggests that Jackson may use his authority under the Antitrust Expediting Act to "leapfrog" over the D.C. Court of Appeals, and send the case directly to the Supreme Court.

Immediate fallout

Putting on the best face possible under the circumstances, Microsoft promptly maintained it would still win the case on appeal. But beyond the sound-byte battle with the government, a more immediate concern for senior management will be the potential fallout of the legal case on customers.

After hearing about the court ruling, some IT directors have decided to stop deploying Windows operating systems. It's unclear how much of a harbinger this is. But any slowdown in corporate use of Microsoft's products would clearly take a toll on the bottom line. (Over the last couple of days, shares of Microsoft have gotten walloped as investors bailed for the exits.)

Although Gates and his lieutenants have steadfastly maintained Microsoft has been in the right, this is the kind of distraction they don't need -- especially at a juncture in the computer industry where alternative operating systems and Internet devices are wending their way into the market. Yet the decision was made to roll the dice, even as Microsoft braced for the worst since Jackson issued a stinging rebuke last November, ruling in the findings-of-fact stage of the trial.

Gates' gambit may be vindicated if Microsoft can drag the case out to the point where the issues raised in the verdict are rendered irrelevant by subsequent changes in technology and the computer industry. The risk is that the concomitant investment in executive time and energy required to wage that effort might divert Microsoft's attention from more pressing matters -- just as the next Netscape appears on the horizon.

Microsoft -- thrive, strive or dive? Microsoft, will be with us for a long time. Perhaps not for ever, but for the foreseeable future -- go with Guy Kewney for his news comment on the 'guilty' verdict at AnchorDesk UK.

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