November 5, 1999 Web posted at: 3:47 p.m. EST (2047 GMT) by Bob Trott

From...

(IDG) -- As the first phase of a lengthy litigation comes to a close, the question of whether Microsoft is an illegal monopoly looms over the company's ongoing business practices and its overall role in the emerging e-business economy.

U.S. District Judge Thomas Penfield Jackson is expected to make a ruling that seeks to rein in the software giant, but a lengthy appeals process probably means it will be years before the antitrust dispute between Microsoft and the U.S. Department of Justice is resolved.

Jackson's findings of fact in the federal government's antitrust case obviously will impact the future of the software giant and the way it does business.

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But rapid changes in the marketplace -- a key factor in Microsoft's defense -- also has affected the company, which, for example, is dabbling in application hosting. Since the suit was filed, non-PC devices and Internet services have proliferated, PC vendors now are shipping Linux systems, and America Online has bought Netscape.

In the meantime, Microsoft continues to pursue business as usual, buying smaller companies, and has made scant alterations to its software, licenses and strategies.

"Microsoft has consistently followed its typically aggressive business behavior," said Hillard Sterling, an antitrust lawyer with Gordon & Glicksen in Chicago. "Microsoft firmly believes there aren't anti-competitive effects [to their business practices], notwithstanding its hardball tactics."

What has changed since the initial launch of the DOJ suit is the relationship between enabling technologies such as Windows and its emerging e-business model has become highly intertwined. That means a broad swath of companies outside the computer industry are anxiously watching developments in this case.

However, many observers said the ever-shifting high-tech marketplace -- not Jackson or the DOJ -- is bringing Microsoft around to realize that Windows won't always dominate every arena.

"Microsoft wants to make Windows the best platform for those things [e-commerce], but it is getting harder and harder to argue that it can leverage a mo-nopoly in that new territory," said Warren Wilson, a Summit Strategies analyst in Bellevue, Wash.

Microsoft has stuck to its strategy of building around its Windows operating system -- the focal point of the DOJ's case, which accused the company of illegally "tying" its Internet Explorer browser to the OS. Using Windows in conjunction with technologies such as Extensible Markup Language (XML), Microsoft is making a major foray into the e-commerce world.

"BizTalk is XML-based, and while it is aimed at boosting the Microsoft platform and BackOffice, at its core XML is platform-independent and Microsoft certainly realizes that," Wilson said. A case in point is Microsoft's Passport online wallet, which lets shoppers browse to online retailers who support it. Passport began as a service tied to the Microsoft Network (MSN). But whereas in the past Microsoft officials might have been tempted to tie Passport partners' hands with exclusivity agreements, the government's lawsuit has sapped the company of that kind of intimidating clout, one analyst said.

"In the near term this is not going to have much impact on Microsoft's behavior. The biggest change is what other companies do with Microsoft," said Rob Enderle, a vice president at the Giga Information Group analyst house, in Santa Clara, Calif.

"There's always been a belief that Microsoft would respond punitively if you did something they didn't like. You were afraid of Microsoft's reaction," Enderle said. "That belief has been pretty much destroyed. Vendors, clients and customers feel pretty much free do whatever they have to do in their Microsoft relationship."

When the two sides squared off for closing arguments on Sept. 21, government lawyers reiterated their position that Microsoft is a monopoly with an "unshakable stranglehold" on the market for PC operating system software.

Microsoft lawyers argued that the suit was meritless and said Microsoft was struggling to survive in a highly competitive industry. All through the trial Microsoft challenged assertions that it engaged in heavy-handed tactics intended to stifle innovation and defended its business tactics as aggressive, but not anticompetitive.