Nailing Microsoft

A U.S. COURT'S ruling that Microsoft, the world's largest and most powerful software firm, has engaged in anti-competitive practices sets the stage for the next round of an anti-trust action that promises to be as momentous as the break up of Standard Oil at the turn of the century and AT&T in the early 1980s. A ruling on these lines was expected since the U.S. Government and Microsoft were unable after four months of negotiations to reach a settlement. But the tone and findings of the ruling indicate that the Court may well suggest the strongest of remedies - a break-up of the firm into smaller constituents.

If the ``findings of fact'' of last November gave a clear indication of the Court's thinking, the judge has now ruled that Microsoft was guilty of using anti-competitive practices to maintain its monopoly power in the market for personal computer operating systems and of ``assaulting'' entrepreneurial efforts in the software industry. The Court will now hear proposals to ensure that Microsoft cannot repeat such anti-competitive behaviour in the future. With the U.S. Government evidently unwilling to accept proposals for conduct remedies - promises by Microsoft that it will not engage in identified monopoly practices - the alternative is to split up the giant into a number of smaller firms. The ruling also opens the door for class action suits from customers who will claim that they have been over-charged by Microsoft and from software competitors who will allege that they have been victims of the firm's anti-competitive behaviour. Such widespread litigation will be not only costly for Microsoft, it could also result in penal financial damages. But it is not surprising that in spite of such threats the software company has chosen not to settle the case. For one thing, the case which has already run for almost two years will take just as long before all the appeals are exhausted. Microsoft hopes that the power of the ruling will be narrowed, if not overturned altogether, en route to the culmination of the judicial proceedings. An appeals court had in fact overturned a somewhat similar though narrower ruling against Microsoft in 1998. (To prevent such a possibility the new ruling has addressed some of the concerns raised two years ago.) Second, while the present U.S. Government has been insistent on pursuing the case against Microsoft, the firm may be looking to a change in government early next year in which a possible Republican President, Mr. George Bush, will act on his past views that a break-up is not advisable. However, more than any other reason, what may be preventing Microsoft from accepting curbs on its business practices is that it is looking to carry out in the Internet what it has managed to do on the desk top. The long- term goal of the company is to replace the current open and shared standards on the Internet (which have also been responsible for an astronomical growth) by proprietary standards that Microsoft would develop, own and monopolise on the Internet. This is also why the anti-trust action against Microsoft is not about a battle in the past for a market in operating systems and browsers (both of which the firm has already captured) but about healthy business practices in the future.

The immediate impact of the Court's ruling has been that Microsoft's share price has fallen sharply and that has been accompanied by a great deal of volatility in the NASDAQ index of U.S. technology shares. This has had a ripple effect in other stock markets, including in India. Since the ruling was expected it is improbable that it will cause a structural shift in the prices of high technology shares. But what is certain is that the fall-out of the ruling will not help stabilise the U.S. market which has seen a great deal of volatility over the past couple of months.

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