Microsoft wielded monopoly power to stifle competition and innovation, the judge in the company's antitrust case ruled Friday. The finding of fact by the judge, Thomas Penfield Jackson, was greeted by the Justice Department, which called the ruling a "tremendous victory."
In a 207-page critique of the software company's business practices, Jackson said Microsoft had used its position to harm consumers and rivals.
The judge, who determined that Microsoft continued to enjoy an "extremely large and stable" portion of the market for software operating systems, handed the government a smashing victory.
"This is a tremendous victory for America's consumers," said antitrust chief Joel Klein.
Shares of Microsoft were down sharply in after-hours trading as investors reacted to the news.
In the run-up to this day, there was speculation that a one-sided ruling might provide a spur to the two sides to reach an out-of-court settlement.
Microsoft, which plans a press conference later this evening, declined to discuss that possibility. But a spokesman seemed to leave the door open to further discussions with the government.
"We will continue to look for ways to resolve these issues in a fair and responsible manner," said the spokesman, Rick Miller.
"While we disagree with many of these findings, we're still confident that the law supports these points and that the American legal system will ultimately rule that Microsoft's actions were fair, legal and good for consumers," he added.
In a statement, Microsoft CEO Bill Gates also left open the possibility of settlement, saying the company hoped to find a way to resolve the case in a way that was "fair to Microsoft, fair to the government and most of all fair to consumers."
However, Klein, flanked by Attorney General Janet Reno and Connecticut Attorney General Richard Blumenthal, declined to speculate about future remedies or the chances of reaching an out-of-court compromise.
During the course of the 76 days of testimony, the judge reacted skeptically to Microsoft's claim that it was not a monopoly. Indeed, in his ruling Friday, Jackson said the company was so dominant in the market for Intel-based operating systems "that if it wished to exercise this power solely in terms of price, it could charge a price for Windows substantially above that which could be charged in a competitive market."
Microsoft's lawyers and expert witnesses had challenged that description during the trial. In direct testimony and depositions, they pointed to the growing emergence of old and new rivals to Microsoft's power, such as Linux and a newly powerful AOL.
But in his decision, Jackson determined that Microsoft was so dominant that it could sell its OS for below market prices.
"Moreover, it could do so for a significant period of time without losing an unacceptable amount of business to competitors," the judge wrote. "In other words, Microsoft enjoys monopoly power in the relevant market."
"Three main facts indicate that Microsoft enjoys monopoly power," the judge wrote. "First, Microsoft's share of Intel-compatible PC operating systems is extremely large and stable. Second, Microsoft's dominant market share is protected by a high barrier to entry. Third, and largely as a result of that barrier, Microsoft's customers lack a commercially viable alternative to Windows.''
That finding of fact could be especially troublesome for Microsoft because Jackson also concluded that many of the company's actions had harmed consumers in ways that he said are immediate and easily discernible.
"They have also caused less direct but nevertheless serious and far-reaching consumer harm by distorting competition," according to Jackson.
Reached by telephone, one of the two lead prosecutors in the case, Stephen Houck, said the judge's decision was a slam-dunk for the government.
"It's everything I possibly could have hoped for," he said. "It's a closely reasoned decision that on no uncertain terms portrays Microsoft as an abusive monopoly."
Houck, who returned to private practice after participating in the final round of verbal presentations by the two sides earlier this fall, said he detected a change of tone in reading Microsoft's initial statements following the ruling.
"Gates sounds more conciliatory than in the past," he said.
However, Houck was uncertain whether the weight of the ruling would provide an extra incentive to Microsoft to settle.
"In the past, what Microsoft has proposed has not been sufficient to allay the concerns we had," he said.