Microsoft broke the law - Jackson rules

Jackson also said Microsoft illegally tied its browser to Windows. However, the ruling sided with Microsoft on one point, saying the software giant did not strike illegal exclusive contracts with other companies.

Microsoft played down the ruling.

"Today's ruling was not unexpected given the court's earlier findings," company spokesman Rick Miller said, adding that there are still many steps in the case. "We believe the legal system will ultimately rule in our favour and uphold our ability to develop innovative software products."

The ruling was the latest after a nearly 2-year-long court battle, and most trial observers expected the judge to find the company in violation of antitrust law. Jackson found in his initial findings of fact last fall that Microsoft had leveraged its monopoly position over the Windows operating system to harm competitors and consumers. The penalty phase of the trial will come later.

In early-morning trading, Microsoft's stock was down 14 percent, reflecting investor fears that the judge's ruling would have a negative impact on the company.

Jackson's ruling comes on the heels of an announcement over the weekend by Judge Richard Posner, mediator of the case, that the four-month settlement process had reached an impasse. Microsoft attributed the breakdown in talks to the hardline approach of the 19 state attorneys general, who, along with the Department of Justice, sued Microsoft for antitrust violations in 1998.

The Department of Justice did not return calls requesting comment. The state attorney general of Iowa's office did not return calls by press time, nor did the attorney general's office of Connecticut. A spokeswoman with the New York state attorney general's office said New York was "disappointed the federal case fell apart," but would not comment on Microsoft's charges that the states were to blame for a lack of settlement.

During a press conference Microsoft called late Saturday, Bill Neukom, Senior Vice President Law & Corporate Affairs, told press and financial analysts that Judge Posner's statement "speaks for itself," in terms of why talks collapsed. "He [Posner] mentioned the skill and flexibility of the Department of Justice and Microsoft. But it was a process involving more than those two parties," Neukom said.

When asked, point-blank, if he blamed the states for the failure of the settlement talks, Chairman and Chief Software Architect Bill Gates told reporters that such a claim would be "going a tiny bit too far." But Gates did nothing to dissuade conference call participants of the notion that conflicting DoJ-state settlement proposals -- with the states allegedly seeking harsher remedies than the government -- were part of the reason Posner was unable to mediate a successful settlement.

Neither the states nor the DoJ responded to calls requesting comment on Microsoft's charges. But in other news reports, some state representatives lashed out at Microsoft, claiming that Microsoft had no one to blame but itself for the breakdown of settlement talks.

In his statement released Saturday, Posner expressed frustration that the talks had failed. He also lashed out at those responsible for leaks regarding the content of the settlement talks, and rebuked the press for implying that "there were no serious negotiations over possible terms of settlement until two weeks ago." On the contrary, Posner said, there were nearly 20 successive drafts of a proposed consent decree.

Posner said his four months of efforts had "proved fruitless" because differences between the two sides "were too deep-seated to be bridged."

In a written statement, Gates said that Microsoft had gone "the extra mile" in an attempt to settle the case. He said that Microsoft's executive team and its lawyers had spent in excess of 3,000 hours on settlement. Justice Department antitrust chief Joel Klein thanked Posner for his efforts and said any remedy must address "competitive problems presented by Microsoft's abuse of its monopoly position."

Now that Jackson has issued his conclusions, the government is expected to detail the relief measures it believes are appropriate to the case. It is not clear if the states will submit additional or different relief proposals to Jackson.

The judge's final order was to include the relief proposals he deems acceptable. Microsoft has said it plans to appeal this order "some months downstream from now," if Jackson's conclusions are not to the company's liking.

Klein said that if Jackson finds the company violated the law, "we will seek a remedy that prevents Microsoft from using its monopoly in the future to stifle competition, hamper innovation and limit consumer choice.''

Penalties could range from a break up of Microsoft -- separating the company's operating system and applications businesses -- to restrictions on how the company deals with customers and competitors.

Reports abounded last week over the alleged content of Microsoft's most recent settlement concessions. According to a number of news reports, Microsoft had proposed it would be willing to publish its Windows programming interfaces, open access to its source code to PC makers, level the Windows license pricing field, among other terms.

Sunday's New York Times listed what it claimed were the major points in the proposed settlement agreement put forward by the DoJ.

These included: uniform Windows pricing; prohibitions against product tying (although no concessions on integration of Internet Explorer with Windows); prohibitions against all exclusive contracts; opening of the Windows application programming interfaces; more liberal OEM source code licensing terms; and prohibitions against Microsoft raising the price of older versions of Windows for at least three years, thus refraining from forcing automatic migrations to the latest versions of its products.

According to a number of published reports, the states wanted stronger concessions than these. Earlier in the negotiation process, some states were said to be unwilling to accept any concessions short of breaking up the company into a number of "Baby Bills."

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.

Reuters contributed to this report.

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