NEW YORK (CNNfn) - A federal judge's crushing blow to Microsoft Corp.'s defense puts renewed pressure on the software firm to settle its antitrust case with the U.S. government, according to legal experts.
Late Friday, U.S. District Judge Thomas Penfield Jackson ruled in his findings of fact that Microsoft (MSFT) holds monopoly power in the market for PC operating systems. More damaging to the company, Jackson said Microsoft's actions have harmed consumers, rejecting the company's defense that the government failed to show consumer harm.
Antitrust scholars had anticipated a somewhat less harsh ruling from Jackson, expecting him to give both sides something to bargain for in another round of settlement talks.
Jackson, however, overwhelmingly sided with the government's case, leaving little doubt about how he will render his final verdict.
Assuming Jackson finds in favor of the government when he issues his conclusions of law early next year, the Justice Department and 19 states then will seek the appropriate remedies to punish Microsoft for its antitrust violations.
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.
Government officials already have indicated they may seek more severe remedies.
"The court's strong findings keep open a full range of possible means to remedy the harm to consumers and competition," said Tom Miller, Iowa's attorney general.
"These are serious and far-reaching violations that should lead to serious and far-reaching remedies," said Richard Blumenthal, Connecticut's attorney general.
Although the findings weigh heavily in favor of the government, antitrust scholars maintain an outright breakup of the company remains unlikely.
"This is pretty much everything that the plaintiff had been looking for," said Carl Shapiro, an economist at the University of California, Berkeley, and a Justice Department consultant. "This points to a strong remedy and not a slap on the wrist, though there are other strong remedies besides breakup."
While Jackson's preliminary ruling leaves the government in good stead, it puts Microsoft under pressure to settle the case before a final decision.
"The judge is telling Microsoft, 'I believe you do have monopoly powers and my rulings are going to reflect that fact,' " said Carl Howe, an industry analyst at Forrester Research in Massachusetts. "There wouldn't have been any pressure to settle this if that had not been the case."
Private lawsuits pending against Microsoft also may increase the firm's willingness to settle the federal antitrust case. Sun Microsystems Inc. (SUNW) and Caldera Systems both have suits pending against Microsoft that bear some similarities to the federal case.
If Jackson rules against Microsoft in his final verdict, firms could cite his finding that Microsoft is a monopoly and would need only to prove their company was injured by abuse of that monopoly power.
If Microsoft and the government reach a settlement, however, Jackson's finding of monopoly power would never become final, and firms seeking to sue the company would have to go through the difficult task of proving its monopoly position.
Bill Gates, Microsoft's chairman and chief executive officer, indicated the company would be open to reaching a resolution before Jackson renders a final verdict.
"We hope to find a way to resolve this and put it behind us," Gates said late Friday after the findings were released. "From the very beginning, we've said we would like nothing better than to settle this case."
The judge instructed the government to file a brief on Dec. 6 outlining how to apply antitrust laws to Friday's finding, with Microsoft due to file its responding brief on Jan. 17.
The government would then get a chance to file a response by Jan. 24, with Microsoft's final response due Jan. 31.
Sometime thereafter, Jackson will issue his conclusions of law, his final decision on the case. In the event of a government victory -- which is likely in light of Jackson's findings of fact -- the Justice Department and 19 states then would recommend what legal remedies Jackson should impose.
-- from staff and wire reports