The Effect on the Macintosh

It’s very easy to react with gloating to the recent decision by Judge Thomas Penfield Jackson that Microsoft is a monopoly and that it has abused the power that comes with that position. After all, it confirms what most of us have believed all along–the company’s evil–and now the law agrees with us. Unfortunately, the actual writings of the judge make for a rather depressing read for Mac fans. But how they affect those that compete with Microsoft on the OS front may depend more on the legal wranglings between now and the penalty phase of the trial, than what the eventual penalties are.

Reading the tome

The actual decision, called a “Finding of Fact,” clocks in at over 250 pages. Most of it is a rather dry read, not due to excessively legal language, but rather to excessive technical language. It contains a long analysis of why “middleware” solutions, such as web browsers and Java, pose a threat to Microsoft’s OS dominance, and how MS responded to the threat by crushing Netscape and pressuring computer manufacturers and software developers to adopts its software and standards. It is this analysis that led many technophiles to compliment the judge and his staff of clerks for “getting it,” at least until they noticed his dismissal of their favorite alternative OS. Although very insightful, this section mostly contains the expected, and is interesting largely for the occasional tidbits it contains. For example, an H-P exec is quoted as stating that if his company had any other option for a supplier of Windows, Microsoft would be dropped like a rock. In another section, it refers to software Intel was developing (and got pressured into dropping by MS) as “finding useful ways to consume more microprocessor cycles, thereby stimulating demand for advanced Intel microprocessors.” Such enjoyable asides are spread rather thin, though.

The portions of the decision that directly refer to Apple aren’t that informative, either. They mostly delve into the now widely known stories about how Microsoft pressured Apple to abandon QuickTime for Windows and to accept IE as the Mac’s default web browser. The interesting aspects here are mostly in the details: how MS was willing to incorporate QuickTime code into its ActiveX package, how blatantly it threatened to cancel Office 98, and how Apple isn’t currently allowed to use Navigator in any display or demo. Overall, Apple comes out well–its prowess in multimedia is acknowledged, and it’s recognized as producing the only significant non-server OS other than Windows.

Still, the only analysis of Apple’s place in the OS competition isn’t a pretty read. It comes early in the document, when the judge is describing how MS truly is a monopoly, and why that monopoly is expected to remain stable despite the dynamism of the computing industry. Judge Jackson exhibits an impressive grasp of the technical and market realities here, but they mostly lead him to show why Apple’s unlikely to gain significant ground against MS anytime soon. He points out that most people choose Intel compatible PCs because of their lower average cost, because they use them at work and/or most of their friends use them, and because more software is available for them. He views this last point as creating a self-reinforcing cycle: developers focus efforts on the platform with more consumers, creating more software for the platform, which draws more consumers, and so on. It’s enough to make somebody wonder how Apple’s stayed in business for as long as it has.

But does this change anything?

Perhaps the most depressing realization is that, despite the powerful conclusions here, the document in itself changes nothing. Although they may not compete as viciously, Microsoft will still have the resources to throw hundreds of developers into any area of software they do decide to compete in. Once they announce their next quarter’s profits, their stock will probably regain any losses it incurs now, giving them the leverage to buy out anyone they decide not to compete against. The reasons people were buying Windows PCs won’t change anytime soon, and not a lot of people are likely to change their buying habits just because a corporation has been shown to be not very nice.

In fact, there may be some dangers here. In the United States, there’s a substantial population that views any government intervention as wrong, and thus will support MS. Added to them will be those that view MS as a success story, those who view Bill Gates as a visionary, and those who view Windows’ wide adoption as proof of its quality. Combined, they may cause a more substantial swelling of support for MS. In addition, Microsoft may just get surly, and decide to back out of some of its agreements, such as producing Office for the Mac. So, although the findings are dramatic, I don’t think they will significantly alter consumer’s decisions; rather, the ramifications of this finding will be played out in the legal field.

So, what good is it?

I have no experience in the legal field; in fact, the aspects of the case I’m about to discuss come to me about 4th hand: lawyers interpret the law and talk to columnists, who then write their own interpretations of the case, only to have those views filtered through several editors before it gets to me. I’m then distilling these multiple sources into one document, so take what follows with healthy skepticism.

This document is a finding of fact; after seeing the evidence and testimony, and hearing each side’s interpretations of it, Judge Jackson has determined which witnesses were credible and which interpretations were reasonable. This document simply describes these determinations (it’s purely coincidental that it reads like a summary of the Justice Department’s case). Although other aspects of this case will be subject to review during appeals, this probably won’t be, since the judge is basing it on viewing the witnesses and determining their credibility, something an appeals court won’t be able to do. This finding will be accepted as fact unless Microsoft produces hard evidence that directly contradicts its conclusions.

Normally, findings of fact are released only as part of the final decision; it’s widely believed that the judge separated them in order to make this finding less subject to appeals than the penalty will be. An amusing result is that, as a result of this change, Microsoft will have to submit its suggestions for a penalty with the findings in mind, even though it would like to believe they’re not true. More significantly, unless Microsoft settles between now and the verdict, the findings will become a permanent part of the legal record.

What’s likely to happen next

As mentioned above, both sides have to submit recommendations for the penalties in this case–expect Microsoft’s to be largely removed from reality, and the DOJ’s to go for blood, since they won so completely with the finding of fact. As such, expect the judge to follow the DOJ’s recommendations. This portion of things should move quickly and keep the case in the headlines; the case is expected to be finished by the end of January. But don’t expect it to really end there, for Microsoft is almost certain to appeal any sanctions.

What might those sanctions be? Judge Jackson will be torn between the strong findings of fact and the judicial history of treading lightly in the area of antitrust. The American legal system has developed in such a way that the courts do their best to stay out of commerce unless there is obvious evidence of harm to consumers. This is especially true of antitrust law, where courts have rarely intervened. Still, Microsoft has been judged guilty, and something has to be done. The mildest option would be a consent degree, where MS would sign a document promising to refrain from this sort of behavior in the future. Unfortunately, this has already been tried, and MS engaged in all of this behavior while under the supposed restraint of a consent decree, so that option’s certainly out.

A more severe option would be for the court to appoint an expert(s) to oversee Microsoft’s business dealings and software decisions, leaving coercive contracts and decisions on what to include with Windows subject to review. But, just as the courts have been hesitant to intervene in the marketplace, they’ve been hesitant to impose long term regulation, preferring instead to administer a one-time solution. The solution most frequently suggested of late is based on the breakup of AT&T, where Microsoft would be split up into several smaller companies, to prevent the application-making arms from taking advantage of the OS monopoly. Due to the severity of this solution, appeals to it would be long and would likely limit its impact. In the meantime, MS would continue to rake in the money. Even if MS gets split up, most of the resulting companies would probably do well. People would keep buying Windows PCs for all the same reasons, Office would still enjoy dominance in its market, and Netscape’s already been slowed down and swallowed up. The only division I can see failing is the one that gets saddled with MSN and some of the other weak E-commerce efforts. Neither Apple nor any other software maker is likely to benefit from this in a significant way.

It’s possible that a settlement could be reached in the meantime, but the DOJ knows it’s likely to do well in the courts, and MS knows it’s likely to do well in the market while the appeals drag on. As such, I wouldn’t expect any settlements in the near future. And, in my view, that’s probably going to be the most significant result of all.

Just wait for the next cases, though…

If Microsoft doesn’t settle before this case ends, then the findings of fact will be permanently etched into legal precedent: Microsoft has been found to be a monopoly, and its actions have harmed both other companies and consumers. Some of the reaction to the decision has used the image of this decision being a hammer taken to Microsoft. I tend to view it more as a blueprint for an easily made hammer, published on the web without restrictions on its use. Others will almost certainly take these findings and use them to bludgeon MS.

A lot of people and companies have probably wanted to sue Microsoft, but have been afraid to try because MS’s pockets are deep and its lawyers are good. Any entity suing MS would certainly find their case expensively bogged down in the long process of trying to determine the very things the DOJ has now proven. In any case, the hard part’s been done, and the law now officially views MS as an abusive monopoly. Think of it as trying to get to the top of the Empire State Building; before, each individual case might have to take the stairs. Now, Judge Jackson’s given everybody an elevator ride to the 90th floor.

A lot of companies that have been harmed in the past may try to seek recompense now. Others may just go on a fishing trip for evidence in the courts, knowing what sort of language MS’s internal emails are likely to contain. These facts will be looming over anyone who negotiates on behalf of MS’s behalf, making them a less ferocious competitor. In addition, there’re the consumers that have been harmed. Don’t expect enterprising lawyers to wait before starting to look for such consumers to represent. In the end, I think that even if the DOJ loses on appeal, they’re likely to have opened the floodgates for other suits that will either win or severely hamper Microsoft. Eventually, the mounting legal fees may actually have an impact on its profits, which will in turn weaken its stock and correspondingly weaken its competitive position, setting up a similar cycle to the one that made it a monopoly in the first place. In the end, Microsoft may die the uniquely American death of a corporation pricked by a thousand lawsuits, some valid, others not. It’s not exactly fair, but then again, they haven’t been exactly fair, either.

Jay Timmer

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