Microsoft hammered relentlessly by the judge

Although Judge Thomas Penfield Jackson had done little to disguise his irritability with Microsoft witnesses and defence strategy in the long-running Department of Justice versus Microsoft trial, few expected the devastating, stinging rebuke he handed down last Friday.

Judge Jackson's Findings of Fact - a report which relays the judge's factual understanding of the case, prior to a legal ruling due next year - hammers Microsoft relentlessly throughout its 207 pages. In contradiction to Microsoft's arguments throughout the trial that its actions were always legal and directly benefited consumers, the judge baldly states that through its actions the company "harmed consumers in ways that are immediate and discernible." Moreover, the company has also damaged the growth of the entire computer industry, he argues, even stunting the capabilities of computing giants such as IBM, Intel, and Compaq. The blunt and brutal findings signal the likely outcome of the trial - a legal finding against Microsoft and heavy-handed punishment - leaving the company with a harsh choice. Either Microsoft can drag the courtroom drama onwards through several years of costly appeals or it must negotiate a settlement that, because of the Department of Justice's strengthened hand, will surrender more ground than Mr Gates would ever have countenanced previously.

Still, Microsoft must accept much of the blame for finding itself in its current position. Many observers believe the company handled the 77-day trial disastrously, choosing an aggressive strategy that made the company and its management, including Mr Gates, appear arrogant, out of touch with ordinary people and at times, insolent. Some defence witnesses - including Mr Gates in his videotaped testimony - appeared confused, contradicted the contents of their own e-mails and had Fianna Fail-like lapses of memory about key occurrences. At one point, Microsoft even was revealed to have submitted as evidence a faked video. At such times, the trial seemed closer to farce than a serious legal exercise. The judge sometimes played to that image, pretending to doze off during testimony or slowly reclining backwards in his large chair until he was gazing, nearly horizontal, at the ceiling of the hearing room. Many wondered how the most powerful company in the world, with the richest man in the world at its helm, could appear so inept. Few commentators felt that Microsoft had made any truly compelling points as the weeks dragged by.

As the report details in its carefully argued, comprehensive way, Judge Jackson believes Microsoft is a monopoly that uses its powers to control and manipulate the computing market. He certainly wasn't convinced by any of Microsoft's arguments to the contrary except to acknowledge, briefly, that the company's Web browsing software had benefited consumers in some ways. He also, despite appearances, wasn't dozing - the findings reflect a detailed understanding of the computer industry and the role within it of the companies named in the trial, although Microsoft clearly feels that understanding is still inadequate.

But the trial doesn't end with the Findings of Fact. This simply prepares the ground for a separate ruling, to be made by Judge Jackson in the new year, as to the legality of Microsoft's actions. According to Dr Declan Walsh, lecturer in competition and antitrust law at University College Cork, simply holding a monopoly position in a market is not illegal in the United States - the court must determine that Microsoft also violated US antitrust law. However, says Dr Walsh, the report's "facts are very, very damning". The language and tone of the report leave little doubt that the judge will rule against Microsoft in his legal judgement, he says. If and when he does, the US Government must then decide how to punish the company. So-called "conduct solutions" are one option - they attempt to rein in a company's actions through new restrictions and guidelines and would require some type of supervision to be effective. But the Department of Justice has repeatedly maintained that it wishes to avoid taking a custodial role and US legislators and legal minds tend to dislike interfering with the operations of companies in this way. Microsoft is also involved in so many different areas of technology and increasingly, telecommunications and media, that a conduct solution would have to be labyrinthine in approach.

Most industry observers now believe that the US government is more likely to seek a more severe "structural solution", probably to break up Microsoft into several smaller companies. This approach presents two options. The first is to split the company into many "Baby Bills" (a pun on the term Baby Bells, used to describe the smaller companies created when the US government chopped up telecommunications monopoly AT&T, also known as "Ma Bell"), each of which would have rights to the Windows operating system, could evolve in different directions, and would compete with each other. The second is to divide the company into two or three parts and make each a separate company. Three companies are usually suggested: one would control Windows, another would take charge of software applications such as Word, Excel and Money and consumer products like the Encarta encyclopedia and games, and the third would take over Microsoft's business interests in the Internet, telecommunications and media worlds.

"The best option is to seek a splitting of the firm into three sections," says Dr Walsh. He feels the drawn-out appeals process could damage the company's image and sales, although he notes the company "could ride it out, divest quite a bit and still hold huge market share." Microsoft might hope that the case would eventually land in the Supreme Court, full of Republican-appointee justices who have traditionally taken a laissez faire approach to industry, he says. Microsoft should cut a deal now and divide the company according to its own tastes, says London-based International Data Corporation senior analyst Mr Stephen Minton. He thinks Microsoft should spare itself further courtroom trauma and make a virtue out of a necessity: "There's no reason why they shouldn't be able to compete even more effectively" as three companies, he says.

In addition, he says Europe is probably Microsoft's fastest growing market, and to leave the case on the boil for several years could push the company to one side as it battles on.

Without a clear settlement, the EU may decide to pursue the company on antitrust issues as well, he says, although current investigations have been put on hold pending the trial's outcome, and the EU is unlikely to want to rehash the lengthy trial in its own courts.

In addition, critics have suggested EU regulators may wish to examine more closely Microsoft's recent $4 billion worth of investments in European cable and telecommunications companies - including NTL, which bought Cablelink. Mr Minton says Microsoft could dangerously continue "to fight the principle" reiterated by Mr Gates during the week - that the company must be allowed to innovate without fetters.

That question is likely to become the most relevant for the technology industry as a whole. How does an industry that develops so swiftly, innovate? Does innovation mean the right to tie products together, as Microsoft did with Windows and Internet Explorer? At which point does a product cease to be a stand-alone product and become an "innovation" inside another? Should this be regulated, perhaps through an accelerated, special court? And who, finally, determines the answers and attempts to define a constantly-mutating, spectacularly multi-faceted industry?

Karlin Lillington is at klillington@irish-times.ie