Antitrust Judge Likens Microsoft to Standard Oil

District Judge Thomas Penfield Jackson dealt Microsoft Corp. a significant blow in its ongoing antitrust trial yesterday by comparing the software company to John D. Rockefeller’s 19th century Standard Oil monopoly that was broken up by the U.S. government some 90 years ago.

“Mr. Rockefeller had fee simple control over his oil,” Jackson said in the Washington, D.C. courtroom. “I don’t really see a difference.”

Standard Oil once controlled 90 percent of the U.S. oil market and was sued in 1906 by President Theodore Roosevelt’s administration. In 1911, the U.S. Supreme Court settled the case by splitting the company into 30 separate firms.

Words Back Up Justice Department and States

Jackson’s words underscore the argument of the U.S. Justice Department (DOJ) and 19 states, which have accused the software conglomerate of creating a monopoly with its Windows operating system and squashing any chance of fair competition in the Internet marketplace.

The Department of Justice, according to widespread speculation, is recommending that Microsoft be split into at least two separate companies. One would be limited to providing operating systems, while the other would be able to provide application software and Internet services.

Microsoft, according to those sources, has resolutely rejected the concept of a breakup. The two sides reportedly have not made progress in private settlement discussions that have been taking place in Chicago, Illinois under the auspices of mediator Judge Richard A. Posner of the U.S. 7th Court of Appeals.

Judge Rejects Copyright Defense

Jackson’s comments came during an exchange with Microsoft attorney John Warden, who argued yesterday that Microsoft has legal protection to create and market its software as it sees fit under existing copyright laws.

Jackson poked holes in that argument as well, saying, “Copyright does not protect the conduct with which your company is charged.” Jackson also commented that he does not understand the company’s “copyright defense.”

At issue is whether Microsoft violated the Sherman Antitrust Act of 1890, a law which owes its existence largely to Rockefeller’s activities with Standard Oil.

Warden argued that Microsoft, while a fierce competitor, has operated within the law. He also said that the government has failed to prove any violations of the law by Microsoft.

“The creation of commerce cannot violate antitrust laws,” he said. “Even if the court accepts the government’s case lock, stock and barrel, the government fails.”

Will Lawsuit Hurt Economy?

Warden also cautioned that the current lawsuit has broad implications that could stall “the engine that has driven the nation’s unprecedented economic expansion.”

Warden told the judge that his decision “will shape the rules of competition throughout the entire software industry.” How Jackson applies the law, Warden added, will be “important to the economy as we move into the 21st century.”

“The laws should not be rewritten so that Microsoft or any other company is reluctant to compete as hard as it can,” Warden said.

On November 5th, at the end of the first phase in the trial, Judge Jackson declared Microsoft a monopoly, but stopped short of recommending any legal remedies.

If Judge Jackson still finds that Microsoft broke the law at the end of this second phase, the trial will enter a third phase where the judge will decide what remedies should be applied. Such a decision would likely come in the fall of 2000.

Justice Department Stands Firm

Meanwhile, attorney David Boies reiterated the government’s position.

“Try to imagine the U.S. Supreme Court, under any of its precedents, ruling that these actions and activities do not violate antitrust laws,” Boies said. “It is simply impossible to imagine.”

For his part, Jackson is moving cautiously, examining every apparent angle of “tying” products together technologically. At issue is whether the act of tying Windows and the Internet Explorer browser together was illegal.

Also speaking for the government at yesterday’s closing arguments was Wisconsin antitrust chief Kevin O’Connor, who said that Microsoft violated Sections 1 and 2 of the Sherman Antitrust Act through the illegal tying of its products.

Focus On Appeals Court Ruling

Jackson kept yesterday’s focus squarely on the June 1998 U.S. Court of Appeals ruling that reversed his original decision stating that the products could not be legally tied together.

Although his consideration of the appellate court ruling was balanced, Jackson nonetheless concluded that if he found a “plus” to putting the Internet Explorer browser into the Windows operating system, he could not weigh that against any “minuses” of “anti-competitive effects.”

According to Boies, the 1998 appellate ruling may not hold up at this point. “The court of appeals itself recognized the fragile and incomplete record it was working with,” he maintained.

This final phase of the trial is crucial to the outcome of a case that has lasted almost two years. Jackson’s ruling of law is expected within weeks.

If Microsoft loses this case, it stands to incur penalties that could range from direct orders to change its business practices to a major breakup of the company.