COURT NOTES: Following the collapse of settlement talks between the two sides, the judge overseeing Microsoft's government antitrust trial handed down his ruling on the conclusions of law in regards to the facts of the case. To the surprise of no one, Judge Thomas Penfield Jackson ruled against Microsoft on almost every charge aimed against it, including 23 of the 26 local violations brought by the 19 states. Jackson agreed that Microsoft used its operating system monopoly to dominate the browser market, agreed that the company used its power in the application market to preserve the preexisting operating system monopoly, and he conceded that Microsoft bundled Internet Explorer with Windows only to put Netscape out of business. The only major charge rejected by Jackson was the one claiming Microsoft broke antitrust laws by using exclusive agreements with ISPs to block Netscape from distributing its products, an area of the Sherman antitrust laws that will remain legally unclear. Jackson's next step will be concerning punishment, a decision he is expected to reach sometime this summer.
The Department of Justice applauded Jackson's decision, referring to the decision as "quite extraordinary" during a press conference. Although the media immediately began asking if they would be pushing for a breakup of the company, Assistant U.S. Attorney General Joel Klein refused to comment on his strategy for the trial's next stage.
Microsoft also refused to comment on strategy beyond vowing to appeal the decision and then blaming the settlement talk collapse on the 19 individual state attorneys general. Bill Gates issued a statement saying that the states and DoJ sabotaged those talks because they couldn't agree on what to settle for. Steve Ballmer added to that by suggesting that the company would still be interested in settling, if such an opportunity ever arises again. Microsoft then began trying to clean up its public image with a new ad campaign [see story below] and by issuing press releases that use the word 'innovate' far too many times.
The image campaign will be necessary to restore investor confidence in MSFT, since the stock dropped by more than fifteen percent during the days surrounding Jackson's decision and has continued to fall since then, finally going from the upper 90s to the mid-70s. Microsoft's stock has apparently dragged the rest of the market down with it, resulting in the worst point loss in history for both the Nasdaq and NYSE markets on April 14. That significant drop can be tied to bad news about inflation, the closeness of tax day, and rumors about new interest rate hikes, but Microsoft's stock performance certainly didn't help matters any. But on the good side, Bill Gates alone lost something in the range of $12 billion during the same week.

Judge Jackson's entire 'Conclusions of Law & Order' document is available in HTML or PDF format on the District Court Web site.

With its legal case in shambles after the ruling, Microsoft has decided to make an appeal to the court of public opinion with a new series of advertisements. The campaign began with statements from Bill Gates and Steve Ballmer in full-page newspaper ads, and has since spread to television. The television spot shows an uncomfortable looking Gates, dressed unusually well, talking about how Microsoft's goal is to is to "create the next generation of software" and "keep innovating and improving." None of the promotions mention the antitrust case, although they do bring up Microsoft's supposed role in the current boom economy. The image-builder television spots have, for the time being, replaced all of Microsoft's other TV promotions except for the MSN campaign.

Now that Microsoft is legally a convicted felon, suing the company has become all that much easier. Since all a lawyer has to do now is show that the proven illegal behavior did damage to a client, Microsoft is being deluged with lawsuits from consumer groups and small competitors. At our last count the number of cases filed against the company was at least 180, of which a quarter have been filed since the second verdict was handed down. There are even rumors going around about larger competitors like IBM or AOL-owned Netscape filing their own cases, and we've seen legitimate news reports about Sun considering a second case against the company. Microsoft is also still fighting antitrust investigations launched recently by the European Union, price inflation charges levied by the Swiss government, and an ongoing investigation by the US SEC into possible irregularities in its accounting methods.

24 hours after Judge Jackson's second ruling was issued, Bill Gates flew to Washington DC and attended meetings less than a mile from the courtroom where the decision was made. While he was in town Gates paid visits to some of DC's most influential lawmakers, but he reportedly only talked about "the future of technology" and not the trial. But since anything happening inside the beltway is common knowledge, most of the politicians he talked with were aware of the latest happenings inside the courtroom without them being directly mentioned. The next day, 'coincidentally', some of those very same lawmakers called for an investigation of whether the Department of Justice had gone too far in prosecuting Microsoft.
Gates also visited the Whitehouse to eat with vice president Gore, an old friend who helped him set up the Internet. A Whitehouse spokesman defended the visit by claiming Gates was invited for of his charity work, not because of the trial. And speaking of charity work, not long after the DC trip Microsoft's total political donations for the year hit $3 million.

Office 2000 ServicePack1 is so buggy that Microsoft is, according to sources, planning to recall the patch and issue another version, SP1a. The company is also going to advise its customers running NT 4 not to install SP1 at all, since installing the update onto that system may interfere with the normal operation of Internet Explorer - this on top of other problems we reported last week [see NewsSource, Apr 03]. Microsoft internal documents say the updated update will be available online by the end of next week.

In another futile attempt to get more customers for its struggling Internet access unit, Microsoft is offering six months of free access to new MSN customers signing up for a year long contract between now and June 30. The free access deal is being heavily promoted inside MSN's existing ad campaign, and will be accompanied by an AOL-esque deluge of free CD-ROMs.

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