What Can Bill Gates XPect Next?

By Mike France Bill is back. After being lambasted by the Justice Dept., threatened with the destruction of his empire, and accused of everything from arrogance to immaturity and mismanagement, Microsoft Chairman William H. Gates III is suddenly looking -- of all things -- stronger than ever. He has $30 billion in the bank, lots of struggling competitors, and a new master plan for dominating the Internet as he now does the world of desktop PCs.

Is the company's bold new strategy going to lead to more trouble with trustbusters? There's good reason to wonder. With the upcoming launch of Windows XP, Microsoft (MSFT) is using many of the same aggressive tactics that landed it into trouble with the government in the first place. For example, it's bolting new features into the Windows operating system in a way that is clearly intended to expand Micrsoft's desktop monopoly into the Net.

Critics are mounting a furious behind-the-scenes campaign to convince trustbusters, Congress, and the media that the company's new strategy violates antitrust laws. Indeed, many of the company's opponents are hoping that Microsoft's current court case will provide them with an opportunity to stop the XP monster.

JACKSON'S ACTIONS. Could it happen? That depends first and foremost on the appeals court currently reviewing U.S. District Judge Thomas Penfield Jackson's initial ruling. If the higher court approves Jackson's break-up order, then it's obvious Microsoft's long-term plans would be crippled. If, on the other hand, the D.C. Circuit Court of Appeals tosses out the entire ruling against the software giant, critics will have to regroup and mount a new assault on the company's business practices.

Either outcome is possible. But most antitrust experts think the D.C. Circuit will come out somewhere in the middle. The conventional wisdom is that the court will find the company is guilty of at least one of the three grounds for liability found by Jackson and then remand the case to a lower court for remedy hearings. If that happens, Microsoft's critics would almost certainly ask that the judge take the company's current plans into account when devising a remedy.

Could the judge do so? Microsoft will argue that the answer is no, because the evidence presented at trial was limited to events that took place more than two years ago. But that argument may not fly. Under longstanding antitrust principles, a court can devise remedies that go beyond the evidence presented at trial, according to George Mason University antitrust scholar Ernest Gellhorn. "In remedial hearings," says Gellhorn, a judge "can go to current facts."

NEW EVIDENCE? Nonetheless, many judges may be quite uncomfortable doing that. So, if that proves to be the case, it's likely that any judge who is considering applying remedies to Windows XP would schedule a new series of hearings about that product, says William Kovacic, an antitrust professor at George Washington University law school. "A court would probably want new evidence to feel comfortable" about devising a package of restrictions on products that were not discussed during the case, says Kovacic.

Look for Microsoft's opponents to try to provide this evidence if some part of Judge Jackson's ruling survives the D.C. Circuit. Getting the existing Microsoft case into court took years of lobbying. It would probably be years before the company's critics get a similar chance to rein in Microsoft's conduct. France is BusinessWeek's Legal Affairs editor

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