After eight months of technical testimony and hundreds of electronic-mail exhibits, the government and Microsoft Corp. rested their antitrust fight yesterday, putting the fate of the world's largest software company in the hands of a federal judge.
Although a ruling isn't likely until late this fall -- and any sanctions the judge orders could be delayed for two or three years by appeals -- many in the computer business believe the courtroom battle itself has already helped to fundamentally reshape the technology industry.
Embarrassed by some of the harsh talk and tactics detailed in the reams of its internal e-mail messages that the government subpoenaed for display in the courtroom, Microsoft has toned down its behavior, say industry executives and analysts.
At the same time, firms that once feared retribution if they crossed Microsoft now feel emboldened to stand up to the software behemoth. That grows from their belief that U.S. District Judge Thomas Penfield Jackson will rule against the company.
"The mere fact that the lawsuit is taking place" has brought change, said William E. Kovacic, a former Federal Trade Commission lawyer who now teaches at George Washington University's law school. "People see this as a window of opportunity where Microsoft cannot react as forcefully as they have before."
Compaq Computer Corp. and Dell Computer Corp., which have long sold only personal computers equipped with Microsoft's Windows operating system, recently have decided to offer machines running the rival Linux system.
Compaq, which Microsoft allegedly threatened in 1996 with loss of its all-important license to sell Windows if it didn't agree to promote Microsoft's Internet browser, now offers the competitive Netscape browser on all of its consumer PCs. And IBM Corp., whose PC division's profit is influenced by the price that Microsoft charges it for Windows, nevertheless decided to confront the software giant by sending an executive to testify against the company at the trial this month.
"One of the standing rules of the computer industry -- that you don't do anything to upset Microsoft -- is being removed," said Rob Enderle, a vice president at Giga Information Group, a market research firm. "For now, it is allowing people who would have avoided taking certain chances to take those chances."
The notion among some industry players that Microsoft has become something of a tethered giant -- and could remain so for the next several years -- has contributed to a frenetic effort to develop new classes of small computing devices, such as television set-top boxes and "screen" phones, that do not rely on Windows.
Industry watchers also say the trial is encouraging firms, including America Online Inc., to marry traditional software and the Internet in a way that Microsoft could not do without further roiling antitrust regulators.
Microsoft, too, is doing business a little differently. It is giving computer manufacturer Gateway 2000 Inc. flexibility to modify the Windows start-up process so that Gateway can promote its own Internet access service, a freedom Microsoft has previously denied PC makers.
Earlier this year, it secretly let Dell delete the symbol for Microsoft's Internet browser from the electronic "desktop" of Windows 98 in computers that Dell sells to businesses, another modification that long has been prohibited. And more recently, it has shown a greater willingness to let large corporate customers haggle over software prices.
"Microsoft has been much more willing to go to the table and negotiate instead of going to the table and dictating," Enderle said.
At the trial, the Justice Department and 19 state attorneys general have alleged that Microsoft has violated antitrust laws by bullying rivals in the computer industry in an effort to protect its Windows monopoly and dominate the market for Internet browsing software.
Microsoft contends that its behavior, while aggressive, hasn't broken the law. The company maintains that it doesn't have a lasting monopoly with Windows, and that none of the firms it is alleged to have bullied actually was harmed.
For the company, the stakes are immense. If Jackson rules against Microsoft -- as most legal analysts expect him to do -- the government could ask the judge to impose aggressive sanctions, including even a corporate breakup of the firm or a requirement that it be forced to share Windows' secret code with competitors.
But the government's efforts to seek such an aggressive "remedy" could be complicated by the very market changes that the trial is helping to bring about, say legal specialists.
For the government, the chastening of Microsoft and the emboldening of its rivals create a paradox of sorts: It is precisely the sort of outcome that antitrust enforcers say they want to see in the market, but they carry a courtroom price by casting doubt on the depiction of Microsoft as an all-powerful despot that needs to be reined in with stiff sanctions.
Yesterday, the government reiterated that view. Addressing reporters outside the courthouse, the Justice Department's antitrust chief, Joel I. Klein, accused Microsoft of using "every trick in the monopolist's book." He said Microsoft's behavior presents "a serious competitive problem that merits serious solutions."
Still, the paradox hasn't gone unnoticed by Microsoft. The firm never passes up an opportunity in court to mention how the technology industry has shifted since the trial began in October, pointing to the growing popularity of free Linux software and the expanding base of users of the Netscape browser.
The government and Microsoft's rivals dismiss as unimportant many of the changes that have occurred in the industry, saying they do not alter the fact that Microsoft has a monopoly over the market for PC operating systems and that, if left unchecked, the firm will continue to use it to squash competitors.
"It cuts in both directions," said George S. Cary, an antitrust specialist with the Washington law firm Cleary, Gottlieb, Steen & Hamilton. "The trial has helped spur new competition in the market, but it also shows how a tiny ember like Linux can begin to glow if Microsoft is in a position where they cannot flagrantly go out and crush it."
For their part, Microsoft officials maintain that much of the new competition that's springing up, such as PC makers embracing Linux, would have occurred even without the trial. "There's a rapacious market for new technology," said William H. Neukom, Microsoft's general counsel. "If you say to a [computer manufacturer], `Guess what: There's a free operating system called Linux and there's a demand for it,' they're going to offer it. It has nothing to do with the trial."
Some industry experts, however, speculate that the lawsuit could eventually do to Microsoft what years-long antitrust fights did to IBM. While defending itself against federal and private lawsuits in the 1970s, IBM was effectively run by its legal department, and it adopted a more cautious policy of responding to competitors -- one of which was a then-tiny firm called Microsoft.
For instance, AOL, which recently acquired Netscape Communications Corp. for $10 billion, is planning to closely integrate material from its Internet site into new versions of the Netscape browser.
Such a close combination of browsing software and online content is something that Microsoft has thus far stayed away from, partially out of fear that it could be made an issue at the trial, say industry analysts.
AOL, which had previously been fearful of antagonizing Microsoft by actively promoting the Netscape browser, now feels the climate has shifted. In an e-mail message that was introduced as evidence at the trial, AOL chief executive Steve Case wrote to his second-in-command, Robert Pittman, in September that Microsoft may not find it "palatable given current antitrust attention" to retaliate if AOL tried to "push [market] share" to the Netscape browser from Microsoft's Internet Explorer.
Neukom acknowledges that the litigation "could cause some people to be distracted from their mission" at Microsoft -- at the very time that the company must nimbly move into the new market for non-PC electronic devices. But he emphasizes that "the overpowering theme is to continue to reinvent ourselves."
To that end, Microsoft recently has been making large investments in other firms in return for promises to adopt Microsoft technologies on non-PC devices. In May, for instance, it invested $5 billion in AT&T in exchange for a commitment to use Microsoft's Windows CE software in as many as 10 million cable television set-top boxes. But some analysts say Microsoft's recent deals illustrate a new way of doing business: The new arrangements do not require virtually exclusive distribution of its products. The company's critics, however, contend that the firm is using the profits of an ill-gotten Windows monopoly to buy a leading position in important new markets.
Microsoft maintains that its investments are fully legal. And it points to them as a sign that it has no plans to back down. "Some say IBM turned its business over to its lawyers," Neukom said. "That's never going to happen at Microsoft."
CAPTION: Microsoft's fate is now in the hands of Judge Thomas Penfield Jackson.