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Decoding the Trial
FEB. 26, 1999
By Mike France

Even If Microsoft Crashes, It May Not Get Burned
Here's why a courtroom loss might not result in strong remedies

Something weird is happening in the Microsoft trial. Even as the company's fortunes are sinking in the courtroom, the odds of it suffering a harsh penalty if it loses may actually be declining.

How can that be? Primarily, because in spite of how dominant Microsoft looked when the Justice Dept. was preparing its case against the company last year, the software market is changing so rapidly that Bill Gates's position already appears weaker than it did just a few months ago. If the trend continues, that means any justification for strong remedies would lose force in the face of the company's market vulnerability.

Two key trends are weakening Microsoft in the marketplace. First, a new generation of digital devices is catching on that could lessen consumer dependence on Microsoft's stronghold: the personal computer (see Business Week, 3/8/99 Cover Story, "Beyond the PC"). Second, the company is having a much harder time than expected gaining share in the corporate computing business, where much of the software industry's growth is expected to take place (see BW, 2/22/99, "Microsoft: How Vulnerable?").

FUTURE FOCUS. Because of these trends, the likelihood that the judiciary would impose a serious remedy on Microsoft -- such as breaking it up -- is declining. In crafting an antitrust remedy, says Washington (D.C.) antitrust attorney James Loftis, judges are supposed to focus on what steps will make the market competitive in the future. They are less focused on punishing companies for past misdeeds. That's why Microsoft may not really pay as much as you might expect for all those embarrassing internal E-mails and memorandums. "The remedy is probably going to be the same no matter how ingloriously Microsoft goes down in defeat," says Loftis.

Like many antitrust experts, Loftis expects Justice to win restrictions on Microsoft's ability to make exclusionary deals with its business partners. He does not believe, however, that the government will attempt to break up the company. Nor does he think it will be forced to give away its source code -- a key piece of intellectual property that many judges would be reluctant to confiscate.

Timing, too, could play to Microsoft's favor. If the company loses in its current trial -- and that loss is upheld in higher courts -- it could be well over a year before final remedies are devised. By that time, Microsoft's position in the corporate computing and handheld devices markets may look even weaker. But, of course, this is at best a mixed blessing. While its lawyers may be cheered by the company's failure to dominate these new markets -- and thus less vulnerable to the consequences of losing -- you can bet CEO Bill Gates considers it a Pyrrhic victory at best.

France is Business Week's Legal Affairs editor


Previous BW coverage of the trial

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