NEW YORK (CNNfn) - A federal judge declared Friday that Microsoft Corp. possesses monopoly power in the market for PC operating systems and harmed consumers through its anti-competitive behavior, giving the government a pivotal victory in the long-running antitrust trial.
The findings represent a major setback to Microsoft, largely because U.S. District Judge Thomas Penfield Jackson rejected the company's defense that its actions have not harmed consumers.
In his findings of fact, Jackson said Microsoft (MSFT), which holds more than 90 percent of the market share for PC operating systems, caused "consumer harm by distorting competition."
"Three main facts indicate that Microsoft enjoys monopoly power," Jackson wrote. "First, Microsoft's share of the market for 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.
"Microsoft has demonstrated that it will use its prodigious market power and immense profits to harm any firm that insists on pursuing initiatives that could intensify competition against one of Microsoft's core products," Jackson added.
"The ultimate result is that some innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft's self-interest."
Justice Department officials hailed Jackson's findings as a major victory.
"This fully supports the [Justice] Department's view that this case is about protecting consumers," U.S. Attorney General Janet Reno said.
Joel Klein, head of the Justice Department's antitrust bureau, said the evidence proved that "Microsoft is a monopolist and it engaged in massive anti-competitive practices that harmed innovation and limited consumer choice."
For their part, Microsoft officials attempted to downplay Jackson's findings, noting that Friday's statements marked just the latest step in an ongoing process.
"We continue to be confident about our legal position," said William Neukom, Microsoft senior vice president for legal affairs. "We think the law is very much on our side in all the major issues of this case."
Microsoft shares fell 3/16 to close at 91-9/16 in Friday trade. Its shares tumbled to 87-1/16 in after-hours trade on the Instinet system after the findings were issued.
The findings could have an effect on the broader market when trading resumes Monday, especially since Microsoft became a member of the Dow Jones industrial average earlier this week.
Microsoft harmed consumers
The Justice Department and 19 states sued Microsoft in May 1998 for a broad range of antitrust violations, particularly using its alleged monopoly in the PC operating system market to stifle competition in other segments of the computer industry.
Microsoft has countered that it is merely a vigorous but fair competitor, and that the government has failed to show any evidence of consumer harm, arguing that the government's case is intended merely to protect the company's rivals.
But Jackson noted that by engaging in illegal tactics to thwart its competitors, Microsoft also harmed consumers.
"Many of the tactics that Microsoft has employed have also harmed consumers indirectly by unjustifiably distorting competition," Jackson wrote.
Tom Pilla, a Microsoft spokesman, said despite Jackson's findings, the company still expects to emerge victorious.
"While we disagree with many of today's findings, we're still confident that the law supports us on these points, and that the American legal system will ultimately rule that Microsoft's actions were fair, legal and good for consumers," Pilla said.
Microsoft officials also noted that the company faces numerous competitive threats in an ever-changing technology landscape. Neukom cited companies such as Sun Microsystems Inc. (SUNW) and Oracle Corp. (ORCL), and technologies such as the Linux operating system and handheld computing devices as evidence that competition is healthy in the computer industry.
"Everyone can see that Microsoft does not live the quiet life of a so-called monopolist," Neukom said.
Settlement or sweeping remedies?
Jackson's findings, in which he determined which facts were proven during the 76-day courtroom proceedings, will serve as a road map for his final decision.
The government will present their proposed conclusions of law in early December; Microsoft will follow with its findings of law in mid-January. Jackson will then deliver his conclusions of law -- his final decision in the case -- which isn't expected until early 2000.
Should Jackson rule in favor of the government, which is likely in light of his findings of fact, the Justice Department and the 19 states involved in the case then will determine what legal remedies Jackson should enact.
Those remedies could be structural -- that is, breaking up Microsoft in a fashion similar to the famed AT&T (T) breakup -- or behavioral, which could include barring Microsoft from engaging in exclusionary deals.
Antitrust experts believe the findings will spark another round of settlement talks between Microsoft and the government, since the two sides are now aware of how the judge is inclined to make his final decision.
However, Richard Blumenthal, Connecticut attorney general, indicated that the government may pursue sweeping remedies after the final decision is handed down.
"These are serious and far-reaching violations that should lead to serious and far-reaching remedies," he said.
Nonetheless, Microsoft Chairman and Chief Executive Officer Bill Gates indicated a settlement could be on the horizon.
"We hope to find a way to resolve this and put it behind us," Gates said in a videotaped statement.
Antitrust experts expect the case ultimately will be decided in U.S. Supreme Court, barring a settlement.
Jackson's findings could have implications in private lawsuits pending against Microsoft, because the plaintiffs in those cases would not have to prove Microsoft is a monopoly.
Sun Microsystems and Caldera Systems have cases pending against Microsoft that bear some similarities to the federal antitrust suit.