The Active Network


Microsoft Faces Hard Road Ahead

By MICHAEL J. MARTINEZ, AP Business Writer

REDMOND, Wash. (AP) - Microsoft faces a long and difficult legal fight as it appeals a federal judge's ruling that it broke antitrust laws. But technology and antitrust experts are divided on whether the company will be hindered by uncertainty over its future, or helped by the fact that its final fate will be delayed.

Some say Microsoft will be distracted by its appeals and besieged with consumer lawsuits, all claiming that Microsoft's stifled innovation, reducing their software choices in the marketplace.

``All of these pending lawsuits have the potential to go forward while Jackson's ruling is on appeal,'' said Rich Gray, an antitrust attorney with Outside General Counsel of Silicon Valley.

Still many experts predict Microsoft will get much more sympathetic hearing from appeals courts, and in the meantime will be able to introduce new products without restrictions that would have been imposed had it agreed to settle the suit.

In a decision widely anticipated on Wall Street, U.S. District Judge Thomas Penfield Jackson ruled that Microsoft violated the Sherman Antitrust Act and maintained its monopoly power over the market for computer operating system software by anticompetitive means.

The ruling was released after the stock market closed Monday, but investors pummeled Microsoft's stock anyway, sending it down 15 percent. Nonetheless, several Wall Street analysts predicted the company will survive just fine in the long run.

``I think Microsoft is a big company with a lot of talent and a lot of cash,'' said J.P. Morgan analyst William Epifanio. ``They're going to be tied up with this for at least a year, maybe more. But in the end, I'm not expecting any solutions that will severely hamstring this company.''

Goldman Sachs kept Microsoft on its recommended list of stocks, but analyst Rick Sherlund urged caution in the short term, writing hours before the ruling that ``Investors will likely need to have a thick skin given the negative events likely in the case in the near term, and should anticipate more negative sentiment.''

But Melissa Eisenstat at CIBC World Markets withdrew her recommendation that investors buy Microsoft, saying she was concerned the ruling will leave the question of penalties against Microsoft undetermined for months.

While Microsoft waits for an appeals court ruling, it will have to face an increasing number of private lawsuits. There are already over 100 such suits pending by individual consumers and groups.

Jackson's findings are admissible in these suits, and Microsoft cannot contest those findings unless they are overturned on appeal.

The suits generally allege that innovative software by other companies was quashed because of Microsoft's heavy handedness in trying to suppress competition

One example is Netscape Communications Corp. which once made the dominant software for browsing the World Wide Web. Netscape was taken over by America Online after it was unable to compete with Microsoft, which bundled an Internet browser with its Windows operating system, effectively giving away the browser for nothing.

Thus, if the appeals process drags on through the courts for more than a year or two, Microsoft may be forced to pay damages to consumers - and antitrust damage awards are automatically tripled under federal law.

Despite that cloud, Microsoft is expected to remain an aggressive competitor.

Already, it is planning a huge new software push, called ``Next Generation Windows Services,'' which will provide Windows software for a wide variety of devices, from cell phones and automobiles to video game boxes and massive computer servers, all linked together through the Internet.

While other companies will have similar services, Microsoft will probably be able to compete with few restrictions until its appeals are decided.

``We continue to believe that the probability of a break-up is less than 1 percent,'' wrote Salomon Smith Barney's Neil J. Herman on Monday. ``We encourage investors not to panic, but to look at the Windows 2000 product cycle that Microsoft has in front of it.''

There are other factors to consider as well. The change in presidential administration in 2001 will bring about changes at the U.S. Justice Department as well, and the new leadership might not fight as hard against Microsoft's appeals.


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