After verdict stings Microsoft, Gates works Capitol Hill

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NEW YORK (CNNfn) -- Within days of his company being slammed by a federal judge for violating the Sherman Antitrust Act, Microsoft founder Bill Gates was roaming Capitol Hill and schmoozing with congressmen.

The whole scene left Microsoft's critics fuming. "It just makes you wonder what for," Senator Orrin Hatch groused. "I certainly hope it's not to discuss the case."

The case, of course, is the government's landmark antitrust lawsuit against Microsoft. And it's a fair bet the case was at least one of the reasons for Gates' congressional group hug.

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Two days earlier, Judge Thomas Penfield Jackson found that software developer Microsoft violated the Sherman Antitrust Act and the company's stocks continued to plummet as investors dumped their shares.

Jackson, used harsh terms to describe Microsoft's actions. He said in his findings that the company had used an "oppressive thumb" and "technological shackles" to stifle competition.

Gates said the ruling was expected but "we believe we have a strong case on appeal." He added that the innovations Microsoft created encouraged competition and innovation.

However, Jackson used stinging phrases explaining how the company ran afoul of the Sherman Antitrust Act in 1890. That act forbids every contract, scheme, deal or conspiracy to restrain trade. It also prohibits conspiring to secure monopoly of a given industry.

U.S. Attorney Janet Reno said that the ruling will benefit consumers because they will now have more choices and better prices.

Microsoft shares plummeted nearly 15 percent on the day of the ruling. Microsoft shares fell 15-3/4 to 90-1/2, dragging down the technology-heavy Nasdaq composite index, which fell about 243 points, or 5 percent, as other computer and high-tech stocks slid amid jitters about the lawsuit. However, the Dow industrial average - which Microsoft joined last year - rose about 200 points, as strength in other blue-chip stocks made up for the software maker's losses.

The ruling came 48 hours after the government and Microsoft failed to reach an agreement during weekend mediation.

In a preliminary ruling in November, Jackson found Redmond, Wash.-based Microsoft had abused its monopoly in personal computer software, harming consumers and competitors. (A monopoly exists when someone or a company has sole ownership of a product through exclusive legal privilege or supply.)

A few weeks after Jackson issued that ruling, he appointed Richard Posner, a chief judge for the U.S. Court of Appeals in Chicago to serve as a mediator.

America has always been the land of capitalism, where the distribution of goods, prices and production are determined by competition in a free market. Monopolies run counter to a capitalist economy when one entity can control the delivery of a service or product and its price.

The Justice Department's case against Microsoft surrounds allegations that the company attempted to use its market monopoly through its Windows software - used in more than 80 percent of all personal computers - to try to dominate the Internet browser market.

Microsoft has maintained it did not break antitrust laws, and promised to fight the case on appeal.

Jackson now decides what remedies should be applied -- something that could take weeks or even months, according to antitrust experts who have followed the case.

Some remedies include breaking up the company or mandating change in company policy.

The judge last week put off a final ruling in the case as both sides made a last-ditch effort to settle the case.

"It's unfortunate that a settlement wasn't possible," Gates said in a conference call Saturday, the Associated Press reported. "Microsoft certainly went the extra mile."

Gates said the Microsoft mediation team had offered "significant concessions" and reiterated that he believes the company has a strong legal case. He dismissed suggestions that the breakdown of talks represented a "corporate death penalty" for Microsoft.

A lawyer close to the government's case told CNNfn Saturday "it became clear this morning that Microsoft wouldn't move off its last position" and that the government had "raised concerns about loopholes they created" in their latest settlement offer, made late last month.

In an October 1997 lawsuit, government officials said Microsoft integrated its Web browser, Internet Explorer, with the Windows 95 software program in an attempt to grab market share from rival Netscape Communications Corp. Netscape later was sold to American Online, which in a separate deal is merging with Time Warner Inc., the parent of CNN and CNNfn.

After months of negotiations between Microsoft and the government broke down, regulators from the Justice Department and 20 states launched the antitrust suit in May 1998, accusing the company of trying to drive competitors out of business.

The case went to trial in October 1998. It included testimony by Netscape's CEO that Microsoft threatened to "destroy Netscape's business" unless the company agreed to concede the Windows browser market. Also included were documents introduced by Justice Department attorneys to contradict Microsoft chairman Bill Gates' statements in a videotaped deposition that he was not aware of a controversial 1995 meeting with Netscape executives.

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Microsoft and Justice are likely to be fighting over remedies for years

--REMEDY PROPOSALS By May 10 both Justice and Microsoft will submit proposed solutions to Judge Jackson
--REMEDY HEARING On May 24 the two sides will square off in court over how Microsoft should be punished
--THE RULING Judge Jackson is expected to decide quickly, possibly by early July
--COURT OF APPEALS The appeals court could take a year to decide the case, though this step could be bypassed entirely
--SUPREME COURT The case is likely to conclude with a ruling from the high court, perhaps in early 2001 or 2002

Microsoft shares plummeted nearly 15 percent Monday afternoon - a plunge that, if it holds, would be the stock's worst one day percentage drop since the 1987 stock market crash - as investors braced for the verdict.

Microsoft shares fell 15-3/4 to 90-1/2, dragging down the technology-heavy Nasdaq composite index, which fell about 243 points, or 5 percent, as other computer and high-tech stocks slid amid jitters about the lawsuit. However, the Dow industrial average - which Microsoft joined last year - rose about 200 points, as strength in other blue-chip stocks made up for the software maker's losses.

CNNfyi's Christy Oglesby and TIME contributed to this report.