Moneyline News Hour

Dow Jumps 300.01; Nasdaq Plummets 349.15 to 4,223.68; Judge Finds Microsoft Guilty of Antitrust Violations

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

STUART VARNEY, CNN ANCHOR: Judgment day for Microsoft and for the world's richest man as Microsoft's stock suffers its single worst sell-off since the crash of 1987.

ANNOUNCER: This is a CNN special report: "The Microsoft Decision."

WILLOW BAY, CNN ANCHOR: I'm Willow Bay.

VARNEY: And I'm Stuart Varney. We have a unique situation, with viewers from CNN Domestic, International and the Financial Network joining us for breaking news: "The Microsoft Decision."

BAY: The federal judge has issued a ruling, according to the AP, that Microsoft has violated the Sherman Antitrust Act. According to sources, the judge has said -- found that the company used its position to monopolize the Web browser market to the detriment of competitors.

We go now to Steve Young who is at the Government Printing Office in Washington, where he's been standing by waiting for this news -- Steve.

STEVE YOUNG, CNN CORRESPONDENT: Willow, this is the document we've all been waiting for. And indeed we can confirm that Justice Thomas Penfield Jackson has -- the company Microsoft violated 19th century antitrust law, the Sherman Antitrust Act.

The document says that: "The court concludes that Microsoft maintained its monopoly power by anti-competitive means and attempted to monopolize the Web browser market, both in violation of Section Two of the Sherman Antitrust Act."

I'm just going through the document now, but the judge elsewhere says that the government postulated that the relevant market is the worldwide licensing for Intel-compatible, PC operating systems.

At trial, the Microsoft said that the government had ill-defined the market, and that in fact Microsoft was competing, virtually in every technology market, for example, the Internet, and hand-held devices and wireless. But the judge has held that the court, based on the record finds, that there currently are no products, not now, not in the near future that pose a significant percentage of computer users worldwide, could substitute for Intel-compatible, PC operating systems. So that is a clear victory for the government.

If you'll bear with me just one second. Elsewhere he says: "Even if Microsoft's rebuttal had tenuated the presumption created on the prima facie evidence showing a monopoly power, corroborative evidence of monopoly power abounds in this record."

We should remind our viewers that under U.S. law, it is not illegal to have a monopoly, but it is illegal to violate that monopoly, to use it to try to create a monopoly in an adjacent market.

The judge cites a number of other earlier cases, some of them in technology, some of them not in technology, U.S. versus Gruntal, Eastman Kodak, for example. But the top of the news clearly is that for the big issue: Did Microsoft violate the Sherman Antitrust Act? Judge Thomas Penfield Jackson says yes. And as we get to go through this document further, we'll have more on it.

Back to you, Willow.

BAY: Steve Young at the Government Printing Office in Washington.

We'll touch base with you in just a few minutes, thank you -- Stuart.

VARNEY: Yes. We will indeed be reading through this document and find out exactly what the judge has said.

Meanwhile, let's now go live for the first reaction at Microsoft headquarters.

Standing by we have Katharine Barrett. She joins us from Redmond, Washington.

Katharine , what do you have for us?

KATHARINE BARRETT, CNN CORRESPONDENT: Well, Stuart and Willow, Microsoft executives and their lawyers have been poring over this document, actually, for sometime now. The judge released his conclusions of law to the parties in this dispute, a little bit before he released it publicly to the press.

So Microsoft I'm sure, is right now formulating their response. They will hold a press conference at 3:00 p.m. this afternoon, local time. That's 6:00 on the East Coast, at which they will make their public response.

Now, certainly, a finding that they did violate antitrust law was not unexpected here. Everyone expected this verdict to go against Microsoft. The question is: How badly did it go against Microsoft? And that may come only in the details and some of the subtle language of the documents, how strongly worded Judge Jackson's opinion or verdict was.

That could determine whether Microsoft is able or willing to make any new attempt to settle its case with the government between now and the time that any penalties or damages are assessed, perhaps in a matter of months, or whether the company chooses to simply take its lumps now and take its case to a higher court of appeals. It has said it will appeal this verdict all the way to the U.S. Supreme Court if necessary.

Still, despite the fact that the company was closed-mouthed about this all day today, it was not quite business as usual. Employees here after all, are big stockholders. Many of them have their money tied up -- their pension money tied up in Microsoft stock. So they watched their fortunes fall along with those of other investors who are big stakeholders. Many of them have large options' grants in Microsoft stock. So that alone is causing them some pain in their wallets as the stock suffers the consequences of this case.

One professor at the University of Washington said that if that stock drop accelerates, or is prolonged, it could certainly have a broader affect on the regional economy here, and indeed on funding of other businesses in the area. A lot of Microsoft millionaires have taken that money and plowed it into new .com start-ups that are so popular on Wall Street.

Once again, we'll know a little more about the tone and degree of this verdict in a moment. But for now, Microsoft is also studying the document.

Back to you, Stuart and Willow.

VARNEY: All right. That is Katharine Barrett standing by in Redmond, Washington.

Let's indeed get more on the tone and content of this document that was released all of five minutes ago.

Steve Young has it in his hand. He's been reading it.

Steve, what's the latest there?

YOUNG: Stuart, I'm about a third of the way through the document, and every page I look at contains stinging rhetoric with respect to Microsoft. On page 10, Judge Thomas Penfield Jackson talks about how Microsoft, instead of fostering innovation -- and Microsoft's argument at trial was that it was trying to promote innovation -- stifled it.

He says:

"The same ambition that inspired Microsoft's efforts to induce Intel, Apple, Real Networks, and IBM to desist from certain technological innovations, namely the desire to preserve the applications barrier that is its lock on Desktop Operating Systems, motivated the firm's 1995 proposal that Netscape abstain from releasing certain software."

This was the famous meeting, which in contemporaneous notes, Marc Andreessen later said that Microsoft wanted to carve up the market, a clear violation of the law. And Judge Jackson in this conclusions of law, is siding fully with the Andreessen reckoning of that, and saying that that 1995 proposal, he believes, occurred, and he believes was illegal.

He also says elsewhere here that Microsoft bound the Internet Explorer browser to Windows with contractual and later -- and here he uses very sharp words "technological shackles" in order to ensure the prominent and ultimately permanent presence of Internet Explorer on every Windows PC system.

He says:

"Microsoft fails to advance any legitimate business objectives that actually explain the full extent of exclusionary contracts forced on PC companies, Internet Service Providers, and contact companies."

He says:

"The same lack of justification applies to Microsoft's decision not to offer a browse less version of windows '98 to consumers."

Indeed, in the 11th hour of these settlement talks, Microsoft offered -- certainly by the 20th and final draft -- to offer a version without the browser. It would have been interesting how Microsoft might have rationalized that because at trial, Microsoft said the browser was put into Windows as a convenience for consumers. And, indeed, even said that it was technologically impossible to remove it.

And finally, for the moment, he also says that:

"The court has found the true impetus behind Microsoft's restrictions on computer makers was not the desire to maintain a somewhat amorphous quality it refers to as the 'integrity of the Windows system,' nor even to ensure that Windows afforded a uniform and platform for application development."

He seems to be rejecting Microsoft's assertions at every front. But we'll tell you more when we get further along in this document.

VARNEY: Briefly, Steve, let me ask you this. The tone and the actual language used is very, very important in a legal document, and you're telling us that the judge is using expressions like "technological shackles" to rein in the competition for Microsoft, that sounds like a harsh tone in your reading so far, would you agree with that?

YOUNG: Absolutely. The judge, as you know, has been skeptical of many of Microsoft's arguments in court. He seemed upset, even stunned when some of the demonstrations on videotape earlier in the trial failed, and he seems here to be almost angry with the company.

VARNEY: All right. Steve Young, still reading that report. We'll get back to you very shortly. Steve Young, thanks very much, in Washington.

Now, Willow. BAY: Well, in advance of the ruling, investors pounded Microsoft stock, which suffered one of its worst days ever and led a massive sell-off on the Nasdaq. The stock is now halted in after-hours trading. That after a staggering $15-plus drop in regular trading, the worst one-day tumble since crash of 1987, a drop that lopped off about $80 billion off Microsoft's market value.

That precipitous slide contributed heavily to the worst point- dive ever for the Nasdaq: down 349 to 4,223. Now, down more than 16 percent from its high. But the Dow rose above the devastation. Investors fleeing to old-fashioned blue chips. It surged 300. The Dow would have been up 375 points had it not been for Microsoft.

VARNEY: Well, these conclusions of law that we're now going through and finding out about in the last 10 minutes are really a landmark in antitrust legal theory. Let's be joined now legal analyst from CNN, Roger Cossack, who has more on what's been going on here.

Roger, thank you very much for joining us here on this special of MONEYLINE. What's your take on what you've heard thus far?

ROGER COSSACK, CNN LEGAL ANALYST: Well, you know, in one sense, this is about as bad as it can get for Microsoft. I mean, this is -- and I'm sure that they were anticipating this. But I am sure that when their lawyers decided not to settle this case, they took this as a given. They took that Judge Thomas Penfield Jackson was going to come out with a ruling just like this that said that they are as bad as it can get, and they said OK, we're willing to take this and we're willing to go on with the next step, which is we'll wait for the remedies and then we'll go ahead with the appeals.

VARNEY: Is there anything else that's really key here that you'll be watching for that comes out in this report, anything we've not covered thus far?

COSSACK: Well, you see, one of the things -- and of course, none of us have had the full opportunity to read this that I was questioning early on was whether or not there was going to be finding -- whether or not Judge Thomas Penfield Jackson, the judge, would say these are technical violations or these are actual, you know, strong violations. And what he has done is come, as I said -- has come down and said, look, this is about as bad as it can get.

I mean, one of the things we know for sure was that Bill Gates was not a very good witness and certainly not very impressive to Judge Jackson. And he has concluded -- he said, look, this is an absolute intentional way of violating the antitrust laws. You can only imagine what the remedies are going to be. And the question is will he try and break up Microsoft.

BAY: Well, Roger, that's exactly where we were headed with this. What do these conclusions of law indicate about the remedies? Is a breakup -- a recommended breakup virtually certain at this point?

COSSACK: No, not at all. And I just want to show you what this document looks like. It is in booklet form, and it is probably as stinging as you can possibly get as an opinion by the judge.

But this doesn't mean that the breakup is inevitable. In fact, you know, I personally feel -- and of course, you know, whatever that's worth -- that that would be the last remedy.

It's difficult to have a breakup, and possibly you would end up with two huge companies. You'd end up with the biggest operating system and the biggest browser system. So perhaps that isn't the way.

There are remedies such as, you know, damages that could be or there could be order -- an order put in effect saying, listen, stop doing what you're doing, which seems to me to make much more sense.

BAY: Roger, we haven't read this through to the end, so we don't have a sense yet as to whether the judge hinted or foreshadowed the remedies in any way in this document. If he did not, what happens next?

COSSACK: Well, there will be another hearing somewhere down the road, probably two to three months from now, at which there will be testimony as to what the proper remedies should be, and then the judge will issue what his remedies are. That is what we've been talking about: Should it be breakup, should it be damages, should it be an order for Microsoft to desist? We know it's going to be at least that, to desist doing what the judge finds to be in violation of the antitrust act to do.

And then Microsoft will have some decisions, and I'm sure that the first thing they will do will be to appeal this, and then the word of delay, delay, delay comes on, because this thing could be delayed a long period of time. And what is relevant today in terms of Microsoft's ability to control the market, as the judge puts out, may not be the same two, three years from now.

BAY: Is it legally possible to settle at this point?

COSSACK: Yes. Microsoft and the government could come back and say, OK, now we know exactly how bad it is. Now what do you want to do?

In some ways, I think Microsoft is no worse off today than they were yesterday. I mean, I am sure that their lawyers planned for the very, very worst that it could be. I think it would be pie in the sky for them to be dreaming that somehow this judge was going to come out and say, oh, listen, this really isn't so terrible awful after all of this. I'm sure they planned on getting nailed like they did.

So in some ways, they're back. They know they've hit it. And now, they can come back and say, look, do you want to settle with us? Perhaps we can discuss it. Perhaps we can move a little bit. Or the bottom line is we'll take our remedies and we'll take our appeal and we'll see what happens two, three years from now.

BAY: Roger Cossack, we'll let that be the last word from you now. Thank you. VARNEY: Now in about -- let's see now -- 17 minutes from now. Attorney General Janet Reno will be holding a news conference at which she will put forth her point of view on these conclusions of law. And at 6 o'clock we will hear the reaction from Microsoft, another press conference coming up at 6:00 Eastern from MSFT.

BAY: Stay with us. We'll be back right after this.

(COMMERCIAL BREAK)

VARNEY: Welcome back to our special report on the Microsoft decision, which was released, essentially the conclusions of law in this case released about 16 minute ago in Washington.

We're going to go back to Washington now, where Steve Young has been reading through this conclusions of law.

All right, Steve, what's the latest there?

YOUNG: Stuart, I think it's fair to say the more you read, the worse it gets for Microsoft, at least as far as I've read. Judge Jackson says that Microsoft employed an army of tactics designed to maximize the difficulty with which applications written in Java could be ported to Windows. Java was a software from Sun Microsystems, which was a threat to Windows. It refers to Microsoft successfully pressuring Intel to aid in this campaign against Java. Elsewhere it says these actions cannot be described as competition on the merits, did not benefit consumers. In fact, Microsoft's actions did not benefit Microsoft in the short run, and the rhetoric just keeps ratcheting up.

He says, "Microsoft placed" -- quote -- "an oppressive thumb on the scale of competitive fortune, thereby effectively guaranteeing its continued dominance in the relevant markets. More broadly, Microsoft's anti-competitive actions trammeled the competitive process through which the computer software industry stimulates innovation."

With me now is Rick Rule, who in the Reagan and part of the Bush administration had the job Joel Klein, the assistant attorney general has. He is a consultant to Microsoft now, and obviously has a different view of all this.

This is not a strong indictment of Microsoft?

RICK RULE, PARTNER, COVINGTON BURLING: Well, again, I think this is -- we're sort of halfway in this game. We still have the remedies phase. We still have the court of appeals phase. I think basically everything you've read was pretty much foreshadowed in the findings of fact.

The interesting thing is that the judge found that Microsoft did not engage in exclusive dealing. How you can reconcile that with his findings under section 2 in monopolization remains to be seen.

Moreover, he explicitly rejects the Court of Appeals analysis of tie-in claims. Even though he had seemed to adopt that in the summary judgment phase, he's now rejected that and said that he thinks the Court of Appeals was wrong, as I read it.

So I think there are a lot of -- a lot of issues there that the Court of Appeals is undoubtedly going to have to address. But again, we have one more phase before we get to that. And that's the remedies phase.

YOUNG: Tell me the best thing that's in this for Microsoft.

RULE: Well, I think the fact is the heart of the government's case was the exclusive dealing claim. That was -- exclusive dealing and the tie-in claim. I think the tie-in claim had pretty much been resolved by the Court of Appeals. I don't think the judge found any way to get around the Court of Appeals' decision. He simply said it was irrelevant. And exclusive dealing, he basically found that Microsoft hadn't engaged in illegal exclusive dealing. And instead what he's gone to is a doctrine of antitrust law that's somewhat questionable, the so-called "monopolist broth": Let's put everything as a whole together and see if it amounts to an antitrust violation.

And I think there's a real question as to whether or not a Court of Appeals will rely on that. If you remember the Intel case, Intel lost badly in the lower court. It went up to the Court of Appeals, and the Court of Appeals completely reversed it. That's a real prospect here.

YOUNG: Microsoft, of course, is relying on history. It's twice appealed to the appellate court and been successful. But isn't there a significant difference now? One, the very adverse findings of fact, which cannot be questioned by the reviewing authority, as well as this now. I mean, is it a slam dunk, in your opinion, in Microsoft's opinion a slam dunk that it wins at the appeals level?

RULE: I think Microsoft has a very strong case. It's not entirely accurate that the Court of Appeals can't review the findings of fact. In fact, they can. They have to use a clearly erroneous standard, but a number of the findings of fact, I think, there's questions as to whether or not there's support in the record.

But the real issue or the legal issues -- and I think there are some very profound, important legal issues -- and my reading of the other Court of Appeals' decisions and the Supreme Court is that the law really is on those very important issues on Microsoft's side.

YOUNG: Rick, thanks very much for joining us.

RULE: Thank you.

YOUNG: Stuart, back to you in New York.

VARNEY: All right, that's Steve Young in Washington still reading these conclusions of law. Thanks very much, Steve.

Now, Willow.

BAY: While legal analysts assess the impact of the judge's decision, investors are assessing the damage of a brutal sell-off in Microsoft shares. Uncertainty for the world's biggest software maker sent a chill throughout the entire high-tech industry. The result? One of the worst days ever on the Nasdaq.

Charles Molineaux joins us from the Nasdaq market site with more -- Charles.

CHARLES MOLINEAUX, CNN CORRESPONDENT: Yes, Willow, in point terms this was the worst one day sell-off the Nasdaq has ever seen. We lost 349 points, fell down to 4,223 on the day, a loss of 7 percent for the Nasdaq, a very severe loss, and Microsoft was a big part of that, $15 lost, 14 1/2 percent. That's actually 17 percent of the total loss inflicted upon the Nasdaq. Taking a quick look at what Microsoft did after-hours, it actually bounced around, added to its losses and then picked up somewhat, it gained fractionally before trading was halted in Microsoft stock after the decision was announced in Washington.

Now, let's take a look at some of the big caps, because virtually all of them had a horrific day. The selling was very steep in most of these stocks, and of course Microsoft was one of the major losers one the day as it slid down, this despite the fact that a whole spate of analysts looked at these stocks and said Microsoft is going to recover from this.

We had upgrades on Microsoft from Prudential, SG Cowan. Prudential reiterated a strong buy. SG Cowan reiterated a strong buy. CIBC World Markets did cut it from a hold to a -- from buy rather to a hold. Bank of America says it would buy this week, saying that this is the last of the bad news, it give a buy rating on the stock. Brown Brothers Harriman also reiterated a buy rating on Microsoft stock.

SoundView has a strong buy rating. The rest of the big caps, however, also had a horrific day. Cisco Systems, which by the way is now the biggest of the big caps with the ground that Microsoft has lost, it was down by $4. We saw Intel off by $1. Oracle lost $1, 1.5 percent. Sun Microsystems also fell off by $3, or 4 percent on the day. Strategists look at this market and say it's not just Microsoft. That may have been a trigger that this is for real. The upper momentum has been broken. We're seeing loss of price momentum.

Some strategists are looking and saying technology stocks could slide all the way down to perhaps 3,500 to 4,000 on the Nasdaq composite. They say the selling may have looked like something to do with Microsoft, but a real reallocation of money from the new-economy stocks to the old is underway and we're looking at a lot more losses could be coming up on the Nasdaq -- Willow.

BAY: Charles Molineaux at the Nasdaq market site, thank you.

Well, as the Nasdaq went into a nosedive today, investors plowed money into many old-line blue chips, as Charles just mentioned. The Dow roared higher even with Microsoft exerting a huge drag on the index. And the oldest stock on the Dow, G.E., reclaimed its position as the world's most valuable company.

Rhonda Schaffler joins us now from the New York Stock Exchange, she's got more -- Rhonda.

RHONDA SCHAFFLER, CNN CORRESPONDENT: Willow, this was definitely a case here of a rotation into some of these more safe names, a flight to safety as investors were taking money out of Nasdaq stocks and buying the old-economy stocks. Although there were even some tech stocks here that performed well, like Dow component IBM, up about 2 5/8. There was strength in many Dow issues, financial stocks especially. J.P. Morgan up about $10. Pharmaceutical stocks as well as old-line industrials.

And all of this was because the Microsoft story kicked off a selling spree on the Nasdaq and investors decided to put money in stocks that had underperformed, and there are some upbeat earnings expectations for some stocks within the Dow, and because of that, the Dow was able to maintain a tremendous advance, it's best one-day point advance since mid-March and that is despite Microsoft's big loss -- Willow.

BAY: Rhonda Schaffler at the big board, thank you.

VARNEY: And joining us now in our studios here in New York, we have with us Ken Auletta. Now, Ken has covered the Microsoft case for the past two years, he has been dissecting the personalities on both sides for the "New Yorker" magazine.

Ken, welcome to MONEYLINE, good to have you with us.

KEN AULETTA, "NEW YORKER" MAGAZINE: Thank you.

VARNEY: Do you think Bill Gates took this personally way back when the case first surfaced?

AULETTA: Sure. He -- despite the fact that he's the world's richest man and one of the most powerful men, he feels demonized, he feels picked on, he doesn't understand the logic of the government's case.

BAY: And after today?

AULETTA: More so. I mean, I think he's a very upset man, though he expected -- this is not a surprise to Microsoft. But this ruling...

BAY: After that findings of fact...

AULETTA: Right.

BAY: ... they were I would guess fairly ready for this blistering?

AULETTA: They were ready for this. They didn't know when it would come. They had hoped -- both sides had hoped in many ways to settle this. They obviously were far apart and couldn't settle it. And now the big question is what does the judge do in the remedy phase? He's silent, apparently. I've quickly looked at this decision, I don't see any comment about what he's going to do in terms of remedy phase. Presumably he will do what he did with the findings of fact, he will call the parties into his chamber in the next few days and tell them what he plans to do, whether he has -- whether to hold a hearing or wait until the Court of Appeals rules, or whatever.

VARNEY: Now, this is a legal finding and legalisms are very precise, they don't take into consideration personalities or behavioral characteristics. But in your articles in the "New Yorker," you make a big point of Bill Gates' behavioral characteristics and how they could have been a negative in presenting his case.

At one point -- I'm reading from one of your articles here: "Gates sat huddled over, his arms folded across his chest, his brown hair was unparted, unwashed, combed straight down into bangs like a little boy's." You then describe his, what you called adolescent behavior. Did that really count against him in the legal process here?

AULETTA: I think it did. If you read the findings of fact, which really is a foundation for this findings of law, at least in this judge's mind, he basically didn't believe a word that Microsoft witnesses said in court, particularly not a word of Bill Gates' 20 hours of taped deposition.

And so, if Microsoft is claiming something is a fact but the judge doesn't believe it's a fact because he doesn't believe the witness, then obviously the whole house of cards collapses. So a fact is not a pristine thing, it is very much linked to a human being and if you don't believe the human being who is citing that fact, you don't believe the fact.

VARNEY: Has he learned his lesson?

AULETTA: I -- you need a psychologist for that.

VARNEY: But he's been polished up. I mean, you know, the man has been trained and polished and all the rest of it.

AULETTA: He -- I think he would -- you know, I've seen him in other depositions. In a Connecticut case, the Bristol (ph) case, Bill Gates was a very different witness in that case than he was in this case.

BAY: And certainly when he talks to us, as he does from time to time. You spoke to him not long ago. He shows no signs of vulnerability at all.

AULETTA: I -- listen, people are complicated. They're not -- a person is not one person, they are multiple personalities. I think there is a part of -- there is one part of Bill Gates that is enraged at this action on the federal government and feels wronged, and like a volcano, his emotion is very near the surface and sometimes it boils over. VARNEY: You know, I was talking -- I was at the launch of Windows 2000, and I was in the audience watching Steve Ballmer, chief executive of Microsoft, with Bill Gates -- the two of them were standing right there -- Steve Ballmer stood up and when they talked about the break-up, the potential break-up of Microsoft, he was adamant. He was angry. He said, that would be irresponsible in the extreme. These guys really have taken it personally. They don't want their company touched.

AULETTA: By the way, they don't. But, you know, the judge is taking this personally. The judge feels that he was lied to and feels that a company, a major powerful company in this world traduced its power and violated the law. The Justice Department has that same anger. So you're dealing with parties that feel very angry and take very different positions.

VARNEY: Ken, would you hold on with us for one moment please?

AULETTA: Yes.

VARNEY: We're going to go to our reporter Bruce Francis now who has some information on what it says about consumers in this conclusions of law. So, Bruce, what do you have on that issue?

BRUCE FRANCIS, CNN CORRESPONDENT: Stuart, that's always a very significant issue is what is the cost to consumers, and in this finding the judge does say that despite the fact that Microsoft says the browser was free, the consumers actually did have to pay for it because it was bundled in with Windows '98. It said consumers were forced to take and pay for the entire package of that software, and that any value to be ascribed to Internet Explorer is built in the single price for the software, that means Windows '98.

So if we're looking for sort of shreds of what consumer harm was, it says consumers in fact did have to pay. That would seem to have to add weight to the fact that Microsoft, as the judge has concluded, did foreclose the market for browsers and made consumers pay. So if we were -- and, of course, the sales of Windows '98 and forward are very considerable. That adds up to a lot of money.

Now, there is no dollar value put here on what Microsoft did force consumers to pay. But as we're looking for dollar values, that is a -- that is one of the major clues that we get here when we look at that. And you could also smell certainly points at which we would see -- now we're -- I understand we're going to toss -- go to the hearing -- news conference now.

VARNEY: That is correct, Bruce. As you see, Attorney General Janet Reno just beginning the press conference concerning this conclusions of law. Let's listen in now.

(JOINED IN PROGRESS)

JANET RENO, U.S. ATTORNEY GENERAL: ... the benefit that produces competition. We are pleased that the court agreed with the department that Microsoft abused its monopoly power; that it violated the antitrust laws; and that it harmed consumers. Microsoft has been held accountable for its illegal conduct by a court of law.

Throughout the process, our goal has been to give consumers the benefits of competition. With competition comes more innovation, better products, lower prices and more choices. Thanks to this ruling, consumers who have been harmed can now look forward to benefits.

I want to thank Joel Klein and the antitrust division for a perfectly wonderful job. Joel, I know you and the division have worked tirelessly to look out for America's consumers, and on behalf of them, I say thank you, and thank you to the state attorneys general -- Tom Miller from Iowa -- who have been with us and for all your hard work.

Now, I'd like to ask Joel, the man who deserves so much of the credit, to say a few words.

JOEL KLEIN, ASSISTANT ATTORNEY GENERAL: Thank you, Madam Attorney General, and thank you for your tireless leadership and constant support throughout this important effort.

We are, of course, very pleased with the court's opinion today. It will benefit America's consumers by opening the door to competition, increased innovation, and increased consumer choice in the software industry.

This landmark opinion -- and in the history of antitrust, this is indeed a landmark opinion -- this opinion will also set the ground rules for enforcement in the information age. It demonstrates once again that no company, no matter how powerful or how successful, can refuse to play by the rules and thwart competition for America's consumers.

Competition has been at the heart of America's economy and protecting competition at the heart of antitrust enforcement for a long time, and those critical concerns are every bit as important today as they were more than a hundred years ago when the antitrust laws were first enacted.

We now turn to the remedy phase of these proceedings, and while no final decision has been made, the department is committed to finding a remedy that will protect consumers, innovation and competition by putting an end to Microsoft's widespread and persistent abuse of its monopoly power, and to rectifying its unlawful attempt to monopolize the Internet browser market.

While there are far too many people for me to mention personally who have contributed to this effort, I would like to take a second to thank my principal deputy, Douglas Melamed, for his extraordinary efforts; Jeffrey Blattner, our special counsel who has shepherded this matter' and our trial team, headed by two great lawyers, David Boies and Phil Malone.

And now let me turn the podium over to my colleague and friend and partner in this endeavor, the attorney general of Iowa, Tom Miller. TOM MILLER, IOWA ATTORNEY GENERAL: I first want to end where -- start where Joel ended, thanking Joel and acknowledging the great effort the Department of Justice has put forward in this case. We have Joel and David Boies and Phil Malone and Doug Melamed and Jeff Blattner: They were terrific.

And the states were terrific, too. I want to acknowledge some of my colleagues that put so much into this especially as well, including and especially attorney general Dick Blumenthal of Connecticut, who is with us here today, Steve Hough (ph), Kevin O'Connor (ph) and many others.

The attorneys general of the nation are first and foremost law enforcement. This case to us has always been about equal and just enforcement of the law.

Judge Jackson's decision is broad-based and compelling in that regard, holding violations of the antitrust law concerning maintenance of monopoly, attempt to monopolize, and tying, and finding violations in the 19 states and the District of Columbia as well. A broad-based finding of liability of law breaking.

Attorneys general of the nation also are consumer protectors. We are in the business to protect the consumers. Judge Jackson's decision, too, speaks to that as well, that customers have been harmed by the Microsoft activities: consumers have been harm in a lack of choice, the inability to have the innovations that otherwise might have occurred.

And those two points, law enforcement, and consumer harm and benefit are summarized I think best on pages 20 and 21, 20 spilling over onto 21, when Judge Jackson wrote, "Microsoft's anti-competitive activities trammeled the competitive process through which the software industry generally stimulates innovation and conduces to the optimum benefit of consumers."

The law has been broken, consumers have been harmed Judge Jackson has clearly held.

KLEIN: Be happy to take any of your questions, here.

QUESTION: Joel, is the department still open to settlement talks before Judge Jackson can (UNINTELLIGIBLE) remedy in this case?

KLEIN: I think as we've said all along, the department is always prepared to settle so long as the remedy will deal with now the legal violations that have been fully established by the court. On those terms, we are glad to engage in settlement.

Yes.

QUESTION: Speaking of settlement, I know you can't say what exactly, you know, what sort of remedy you'll seek, but are you going to use the -- some of the proposals that came up as a framework or a basis to start out your discussions with or your proposals for Judge Jackson? KLEIN: I think that we are going to look at our options in light of the court's opinion. We're carefully analyzing those.

I think it's important to point out that the settlement process is different, both in terms of its timing and its consequences, than litigation. We are, of course, going to seek a remedy that we think will have an enduring impact going forward and one that cures the competitive harms that occur.

I want to add in that regard that these violations occurred shortly after Microsoft entered a consent decree with the department some five years ago. And I believe it is appropriate to have a remedy that ensures that we not have this continued pattern of antitrust violation.

QUESTION: (OFF-MIKE) before a remedy (OFF-MIKE) enjoin the kind of activity that the judge has found illegal?

KLEIN: I think it's appropriate for us to carefully consider our options, and obviously any actions that we determine are appropriate will be taken in due course.

QUESTION: Are you satisfied...

QUESTION: (OFF-MIKE)? Do you feel that the judgment as it stands is going to be adequate to stand the test of time?

KLEIN: I believe so. I think it is a very strong opinion. In the critical areas of monopolization and attempt to monopolize, I think there are very powerful analysis. I think the portions of the opinion that the attorney general from Iowa read are a small portion of what I think is a very powerful legal analysis.

And one thing I want to urge people, because this is law enforcement -- we now have a judicial ruling -- it is a 43-page opinion. It is very important for the American people to read the court's opinion, to understand what this is about.

Sure, there will be spin, and sure, there will be reports, but this opinion will be on the Web, and we would urge all Americans to give it their careful attention.

QUESTION: With regard to the remedy, there have been reports of less than unanimity among the state attorneys general and your division about what the proper remedy should be. Do you have a consensus, or are there still different views within the government agencies as to what the proper remedy ought to be?

KLEIN: I think over the course of this litigation we've worked closely with the states' attorneys general in what I think has been a constructive and very professional effort. I think, by and large, we have seen eye-to-eye on matters, but at a given time there may be some disagreements. Honorable people, people of good faith on occasion will find.

But of course, it's our obligation to continue to go forward in the litigation with a consistent view. I'm sure the states as well as the United States are committed to that proposition.

MILLER: If I could just amplify on that. As Joel said, at each crucial stage we have been on the same page: when we filed the lawsuit, the timing of it, the general thrust of the lawsuit, the whole litigation strategy, which had certainly some time for us and opportunities for us to disagree. We were always on the same page. Every brief that we filed has been joint.

So the past is always prologue to the future. We continue to work. We have discussions where we don't agree on every discussion at every point. But as Joel alluded to, that's healthy: To have the best ideas and have them challenged in our camp and their camp and come out with the best product is very, very healthy, and that's what we're committed to. And the reason that we end up on the same page is that we have the same goals. We have the same principles. We're both in this to have competition put back in the technology industry, to have Microsoft have to compete like just about everybody else does in America. Those central goals and values are shared by the attorney general, by Joel and 19 attorneys general.

I might ask, General Blumenthal, is there anything you want to add to that?

RICHARD BLUMENTHAL, CONNECTICUT ATTORNEY GENERAL: I think you pretty much said it all, except that just by way of the past, whatever differences we've seen really have been dwarfed by the commonality of purpose, by all we've done together. And I would fully expect, particularly at this high point, having seen virtually a clean sweep at this point on our legal contentions, and the powerful, compelling evidence that led to Judge Jackson's ruling, that we will be very much on the same page going forward so far as remedies are concerned. And that is a tribute, really, to the leadership of the Department of Justice.

I might say personally we would not be here today but for the courage and vision of the attorney general of the United States and Assistant Attorney General Joel Klein and my colleagues around the country, who bring together, remember, different parties, different geographic interests, different economic priorities and have joined in this historic lawsuit.

VARNEY: You have been watching the news conference held by the Justice Department in Washington to announce the conclusions of law, 43 pages of legal judgment, issued today by Judge Penfield Jackson.

Janet Reno started the proceedings and said that Microsoft had indeed harmed consumers, had violated antitrust law. Joel Klein, who's in charge of the prosecution of this case against Microsoft, he said that he was trying to restore competition; that this ruling sets the ground rules for enforcement in the information age, and that he was going to find a remedy that would protect consumers and rectify Microsoft's unlawful attempt to monopolize the browser market. All of that just moments ago.

We might add something here. Literally seconds ago Microsoft's stock was supposed to have reopened for trading in after-hours trading. We should be getting you some kind of quote on Microsoft in the next few seconds -- Willow.

BAY: Thanks, Stuart, we go now to CNN's legal analyst Roger Cossack to see if he can sort some of this out for us.

Roger, we just heard -- Stuart just mentioned Joel Klein say that this sets the ground rules for enforcement in the information age. What does he mean, and does it?

COSSACK: Well, it certainly sets -- it certainly tells Microsoft what the rules are for -- the way they've been doing things. I would say this: This is obviously the first major case that has come down in the dot.com age that we live in. And certainly Microsoft has been the major player, and I guess you can say that if you can bring Microsoft down, you can take any of them down.

I think that in this particular case, though, we have a long ways to go. As I was just -- talking to you, I've been looking through the decision. And the judge on page 34 even says for a moment that he understands, or that he alludes to the fact, that there may be other thoughts on what the correct law is. But he is convinced that his decision complies and is in accordance with the Supreme Court.

Well, that's what Microsoft is saying. You know, there may be two ways to look at this, and they're certainly not afraid to go up on appeal.

Certainly they've taken a tremendous hit today and certainly the ground rules have been laid out. But you know, this case is far from over.

BAY: Roger Cossack, thank you.

VARNEY: As you can tell, we have breaking news on Microsoft, but there was breaking news in another area at this moment: Elian Gonzalez to be precise. With more on that, let's go to Judy Woodruff in Washington bureau -- Judy.

JUDY WOODRUFF, CNN ANCHOR: That's right, Stuart. The Justice Department, a very busy place today. While one arm dealing with Microsoft, another arm of the Justice Department dealing with the very sensitive negotiations in the case of Elian Gonzalez, a 6-year-old Cuban boy who came to the United States on Thanksgiving Day on a raft, his mother killed in that journey.

Right now, CNN has been told that since word has come down that Elian's father may be coming to the United States as early as tomorrow, that Elian's relatives in Miami have been informed by the Justice Department that when the father arrives in the U.S., he, the father, Juan Miguel Gonzalez, will be given -- quote -- "temporary care of his son." Temporary care is the word the Justice Department's using. The family has not yet reacted to this information.

Three other quick points to keep in mind: Plans are for the father to stay in the United States during any appeals process by the family. If the family agrees voluntarily to turn over the boy, instructions will be given to the U.S. relatives on a date, time and place of transfer. And finally, if the family balks at any transfer, the Department of Justice would likely go to family -- to federal court to compel a turnover of the boy.

That is the state of negotiations at this hour. CNN keeping a close eye on all this. Now back to you in New York -- Stuart.

VARNEY: Judy Woodruff, thank you very much.

BAY: We'll have more on the Microsoft decision and the market's reactions, coming up after the break.

(COMMERCIAL BREAK)

BAY: Welcome back to our MONEYLINE special on the Microsoft decision.

The judge has announced that Microsoft violated antitrust laws and harmed consumers.

VARNEY: And Microsoft stock has just reopened in after-hours trading and it has opened on the upside. Microsoft now quoted at $92 a share; that is up 1 1/8 from its 4 o'clock close, despite the harsh and negative tone of Judge Penfield Jackson's conclusions of law.

BAY: For more on that harsh and negative tone, we go to Steve Young. He's in Washington -- Steve.

YOUNG: Willow, it is unsurprising that Judge Jackson was harsh in his words about Microsoft, but it is a bit of a surprise that he's harsh with the appellate court itself, which has twice ruled that Microsoft's behavior -- behalf, rather. He says quite literally the D.C. Circuit Court's opinion appears to immunize any product design from antitrust scrutiny.

He says Microsoft is wrong. The Web browser is a separate product. He does find, however, with Microsoft that the government failed to show that their was exclusion of distribution for Netscape. And finally, showing the breadth of the case, he says it's clear that a string of companies have been hurt by Microsoft's anti-competitive campaign. He names: IBM, Hewlett-Packard, Intel, Netscape, Sun. He says they each employ citizens in many states. The facts compel the conclusion that in each of the plaintiffs' states, Microsoft's anti- competitive conduct has significantly hampered competition.

Back to you.

BAY: Steve Young, thank you.

VARNEY: Now despite the fact that Microsoft stock has reopened in after-hours trading and reopened to the upside, today is still going to go down in market history as one of the worst days for a specific stock and a leadership stock at that. Microsoft meltdown today that was a downright frightening development for the average investor and certainly for anybody who owns that stock.

Joining us with more on the day's events and what happened to Microsoft stock, here is Terry Keenan.

What's the latest, Terry?

TERRY KEENAN, CNN CORRESPONDENT: Well, Stuart, what happened was it went down and it went down sharply. For about a year and a half now, investors have been rather content to look at the Justice Department case against Microsoft as a side show that really didn't obscure the stellar fundamentals at the company.

Today was a very different story. The stock had it's worst day percentage decline since the October 1987 stock market crash. And the stock is now down 22 percent from its highs. Eighty billion dollars in market value erased today alone.

And that is significant because Microsoft has been the poster child of this bull market. I's up 6,000 percent since 1990, clearly, one of the standout companies of the last decade. But it has been a terrible performer, of late. It's extremely, widely held. It's in one out of four mutual funds. It's owned by three million individual shareholders.

And interestingly enough, today Wall Street analysts did not come to the company's defense. Three analysts out of 27 did reiterate their buy recommendations on the company. Only one cut the recommendation to a hold. But the endorsements were lukewarm, at best.

Mary Meeker at Morgan Stanley saying that, we remain a holder, but certainly not an aggressive buyer of Microsoft shares. So, no one willing to go out on a limb for Microsoft.

And we also have some news just in regarding some insider sales at the company. In an SEC filing made public just after the close today, it showed that insiders at Microsoft sold three million shares in the month of February.

Bill Gates unloading 1.6 million shares of his holdings at prices north of 95 dollars a share. Now, we should note that Mr. Gates is a periodic seller of Microsoft shares, and this of course, accounts for only a fraction of his holdings. And by the way, Bill Gates net worth down by about a $11 billion. So he certainly is sharing in the pain -- Stuart.

VARNEY: Yes, indeed. All right, Terry Keenan.

Stay there please, because Microsoft's response to these conclusions of law is coming in about eight minutes from now. That may affect that stock's trading in after-hours trading. All right, Willow.

BAY: And joining us now from San Francisco, Harvey Saferstein, antitrust attorney for Fried, Frank, Shriver, Harris and Jacobson.

Harvey, thank you for joining us.

HARVEY SAFERSTEIN, FRIED FRANK: Good morning. BAY: This was a pretty horrendous verdict, but can you prioritize for us, was there any element of this that you would rank as most damaging to Microsoft?

SAFERSTEIN: Well, the most damaging was the finding that clearly and unequivocally, they violated the Sherman Act Section Two by maintaining a monopoly in their market for PC windows. And that's probably the heart of the decision. They managed to pull one out by getting the judge to find their way on the Sherman Act Section One, exclusive dealing, and fudging a little bit on the tie-in case. So, actually, Microsoft got pounded, but not actually quite as badly as they could have been by the judge.

BAY: Because of the fudging on the tie-in issue?

SAFERSTEIN: No, he admits that his tie-in case is somewhat weak and then on exclusive dealing on Section One, the judge finds for Microsoft and upholds their defense. So that, maybe back at Microsoft they're reading this not so badly as we think. And certainly, they ought to be pleased at Microsoft that there is no remedy. The judge could have said something about remedy.

BAY: And that's something that you were really, really eagerly awaiting, a signal from the judge and perhaps use of what you call "B" word?

SAFERSTEIN: Yes, I thought he would said something about the remedy, but he's totally silent except to say in his ending order that judgment entered and that the remedy will be imposed later. So that's a signal that we've got a time lag that could be significant before we see a actual remedy. And it looks like there may be some jocking in the court before that.

For example, the Justice Department was hinted at in the press conference, might go in for some injunctive relief before remedy. And it looks like Microsoft is thinking about an expedited appeal. So Microsoft may try to cut off the pass by going for an appeal before the judge can impose a remedy, so that the Court of Appeals gets this sooner than we have a remedy.

VARNEY: Microsoft is going to hold a news conference about five and a half minutes from now. They are likely to say, indeed we believe they will say, that they expect to win, ultimately, in court. What do you think their chances are if they goes to the appeals process?

SAFERSTEIN: Well, I think it's clear to everybody that their chances on appeal are certainly greater than before Judge Jackson. They've always have a friendly court in the Court of Appeals in the District of Columbia, which is where they will go.

But the real wild card is that no one knows how the Supreme Court will treat them. And that -- neither the Justice Department or Microsoft has taken the case up to the Supreme Court. And there, it's a little bit hard to figure. We've got some justices who haven't said much about this area of the law or about high-tech and antitrust. So it's a crap shoot up there.

VARNEY: Can I ask a real fast, last question. There's an election coming up in November of this year. Does politics make any difference to the Microsoft case?

SAFERSTEIN: Yes, it does, Stuart. The Republican administration is typically softer on antitrust. And if there's a change in administration, Microsoft intends to benefit from that.

VARNEY: Harvey Saferstein, thank you so much for joining us. Thank you.

SAFERSTEIN: My pleasure.

BAY: And we'll be back right after this.

VARNEY: We will.

(COMMERCIAL BREAK)

VARNEY: Those of you just joining us, we are, of course, covering the Microsoft decision and we'll be going to Microsoft for their response to the judge's conclusions of law about a minute and a half from now.

BAY: But for a sense of what this means to Microsoft and the markets we're joined now by Andrew Roskill of Warburg Dillon Read from their offices, New York.

Andrew, welcome.

ANDREW ROSKILL, WARBURG DILLON READ: Thank you.

BAY: We're, of course, waiting to hear from Microsoft. How important is what they have to say at this upcoming press conference?

ROSKILL: I think it's very important. I think that they're going to outline their strategy for appeal and I think they have to outline a time frame for when they're going to get this all resolved and wrapped up for shareholders.

VARNEY: Andrew, we've just heard that Bill Gates, chairman of Microsoft will indeed say that Microsoft will appeal these conclusions of law, will appeal this ruling...

ROSKILL: Yes.

VARNEY: What do you say to that?

ROSKILL: I think it's an obvious poor-gotten conclusion at this point. The real question isn't so much, are they going to appeal? The question is: Are they going to be successful in getting rapid stay of any injunctive remedies that are proposed.

VARNEY: That's the key thing to look for when we're trying to assess the proper value of Microsoft stock, I take it. ROSKILL: Yes, absolutely. I mean, we don't want to see them having to actually comply with any court rulings that are going to impact their ongoing business practices. And in the event that they get a stay of any injunctive release and they get the appeals process going over the next year or two, this whole case is going to become hopelessly moot anyway.

VARNEY: What do you make to the plunge in Microsoft stock today during market hours and then in post-trading, in after-hours trading a slight blip, back up again to $92 a share. Any significance to that at all?

ROSKILL: Well, if you look back over the last couple of weeks, the stocks actually run about 10 or 15 points on rumor or speculation about a potential settlement coming. So I don't think it was totally surprising that the stock would give back some of that when the settlement was abandoned.

As far as the after-markets trading, I think it's simply a reaction that the news really wasn't as bad as anyone had suspected. I mean, there's really not anything in this announcement that is different than what was announced in the previous finding of fact.

VARNEY: Knowing what you know now one hour after the release of these findings, these conclusions of law, what do you say about Microsoft's stock price? It's at 92. Where should it be?

ROSKILL: Well, I mean, the stock has hugely underperformed the large-cap high gorillas of the last six months, and it's now trading at about half the multiple of many of its peers, such as Oracle. So I think if you have a long-term perspective, it's still got a lot of room to the upside.

I think in the interim, though, it's going to be a little bit squishy. It's going to be trading in a range between now and when we get the appeals process in and the stay put in place.

BAY: But Andrew, don't you worry that this ruling today emboldens private litigants and may lead to a surge of lawsuits, which will hang like a cloud over the company?

ROSKILL: Yes, I mean, there is that potential, but I mean, there's already been a surge of lawsuits. I mean, we're very a litigious society to begin with, and Microsoft certainly has the -- the forces and the money in order to defend themselves.

VARNEY: Yes, but Andrew, there is a point here to be made, and that's harking back to the IBM case of the late '60 and all the way through the 1970s. IBM essentially was shackled by government lawyers. I mean, it was not able to pursue an independent strategy. Lawyers looked over everything they ever did.

Now surely the market's afraid of something similar happening to Microsoft.

ROSKILL: I mean, that's the irony of this whole case, is that with the Internet would changing everything Microsoft really is in a serious competitive disadvantage right now. It needs to reshape its whole strategy. And the irony of this whole case is that they're brining it, the case to market effectively three years too late.

BAY: So Andrew, but does that worry you that they have this distraction hanging over them at a very critical juncture in their business as they try to forge a path onto the Internet?

ROSKILL: Yes, you bet. I mean, that's been my biggest concern, is are they going to be successful in moving from a PC-based business model to an Internet-based business model. That's the bet that we're making right now.

BAY: Does this hinder them, the very process of this case and the process of appeals hinder them?

ROSKILL: I don't think so. I don't think it's been a big distraction. I mean, for example, look at the business-to-business e- commerce marketplace: a very hot, rapidly moving market right now. Microsoft has been playing catch-up in that regard, but yet they've been able to make some announcements so far, and I think there's a lot more announcements that are going to be coming.

Yes, it has probably distracted them somewhat. I think once we get the appeals process going, they can put this whole thing behind them and move on with their business.

VARNEY: So if you're a Microsoft stockholder at this point and you want that stock price to go back up again, what would be the best piece of news we could get out of this ongoing legal situation?

ROSKILL: I think just get an appeal going and get a stay of any injunctive remedies.

VARNEY: So movement, in other words. You want Microsoft to just get on with its business, what it does best, and get the lawyers out of the way. That will be good news for the stock.

ROSKILL: Get all this political band-standing from all the -- the attorneys general and everybody done with, and get Judge Jackson out of the picture and move it on to the appeals process.

VARNEY: And the worst thing, then, would be some kind of imposition of authority on Microsoft to stop it moving ahead in its current movement to the Net, correct?

ROSKILL: Right, yes. I mean, the worst thing would be their inability to get the stay of injunctive relief or their ability to get the appellate process moving quickly.

VARNEY: And at this point, what do you have on the stock? Have you got a strong buy or a hold or a buy? What's your rating on it?

ROSKILL: We just have a buy.

VARNEY: And at this point, do you expect... (LAUGHTER)

... putting you on the spot, I understand that. I do apologize.

BAY: Will there by a buy tomorrow?

VARNEY: ... think there's going to be a buy tomorrow morning? What -- are you going to change this or what?

ROSKILL: No, I'm not going to change any of my ratings. I mean, I have the long-term perspective on all of my stocks, and I think Microsoft is exceptionally well-positioned. I think it's a core technology holding. And I do think they're going to come through on this in the long run.

Yes, I mean, the stock is going to be shaky in the next month or two as we, you know, get through this whole appeal process. But I think if you own the stock long-term, you'll be well-served.

VARNEY: Andrew Roskill, you've got a tough job, but we thank you very much indeed for being with us tonight.

Andrew Roskill, thank you indeed. Thank you, sir.

BAY: We're going to head now to Katherine Barrett, who's standing by in Redmond, Washington -- Katherine.

BARRETT: Well, Willow and Stuart, we are waiting. In mere moments, we expect the formal reaction from Microsoft. They are holding a press conference in their Microsoft studios here, about four blocks away from where I'm standing. We will hear then what they think of Judge Jackson's conclusions.

While a negative ruling was certainly expected by everyone, including the company -- the top brass here surely were not surprised -- nevertheless they're unlikely to be pleased.

I believe you asked one of your analysts earlier if Bill Gates takes this personally. I think perhaps it's inevitable he takes this personally. This company is after all his baby. He started this when he was a very young man, and he's seen through it longer than many entrepreneurs stay atop their ships.

Certainly in the past, Gates has put a brave, even a defiant face on this matter, he has said and CEO Steve Ballmer has also said that this is a long-term process, that they are confident of their prospects on appeal. It sounds like analysts agree they have a better prospect in the appeals court than they do in this current court.

They may also at this press conference coming up attempt to reassure Microsoft investors and its customers that they will continue to create and sell new products.

Microsoft's mantra throughout this has been that issue of new products and what they call the freedom to innovate. In fact on their Web site this morning, they referred to this case as the Department of Justice versus the freedom to innovate: not versus Microsoft but versus that grand concept of freedom. And it's something that they will no doubt repeat throughout. They feel it's important enough again to take on appeal all the way to the U.S. Supreme Court.

That's the very latest from here, where we are waiting once again for a Microsoft press conference to respond to Judge Jackson's verdict.

BAY: Katherine Barrett, thank you. Clearly, Microsoft running a bit late. We are all waiting for that press conference, and as soon as it happens, we'll bring it to you.

VARNEY: And we do apologize for interrupting WORLDVIEW, but we are indeed waiting for that Microsoft press conference.

We'll be back with more for you in just a moment.

(COMMERCIAL BREAK)

VARNEY: We are awaiting momentarily Microsoft's news conference on the findings, the conclusions of law issued about an hour and 10 minutes ago in Washington.

BAY: But right now, we're going to go to "WORLDVIEW," and we'll be back with MONEYLINE at 6:30.

(COMMERCIAL BREAK)

(JOINED IN PROGRESS)

ROBERT HERBOLD, COO, MICROSOFT: ... Web cast. We're here to hear about Microsoft responding.

VARNEY: You are watching the Microsoft news conference which has just begun. Mr. Herbold is the -- is leading this news conference. It is essentially Microsoft's response to the Justice Department's conclusions of law. Here we go.

HERBOLD: Joining me are Bill Gates, our chairman, Steve Ballmer, our chief executive officer, and Bill Neukom, our senior vice president for law and corporate affairs. The procedure today is both Steve and Bill will make comments and then we will have a brief Q & A. That will be followed by Bill Newkom, who will make some comments, followed by Q & A. Then we will have Steve and Bill Newkom move to a session where -- to a teleconference call, the people who are on the call right now can simply remain on the call and ask additional questions.

So, with that, let's go ahead and begin, and we'll start with Bill Gates. Thank you.

BILL GATES, CHAIRMAN, MICROSOFT: Well, good afternoon.

I want to say a few words about today's ruling and how we look at these issues going forward. Today's ruling was not unexpected given the court's earlier findings, but there are several steps ahead in this case. While we did everything we could to settle this case and will continue to look for new opportunities to resolve it, we believe we have a strong case on appeal.

The appeals court has already affirmed Microsoft's right to build Internet capabilities into the Windows operating system to benefit consumers. This ruling turns on its head the reality that consumers know, that our software has helped make PCs more accessible and affordable to millions. We started with just a few simple ideas, and the results have helped bring lower prices, improved productivity and enormous benefits to consumers. As we look ahead to the appeals process, innovation will continue to be the number one priority at Microsoft.

Microsoft's past success has been built on innovation and creativity and our future success depends on that ability to keep innovating in the fastest changing marketplace on Earth. We recognize we have a responsibility to provide positive leadership on behalf of consumers and our industry. We take this responsibility very seriously. The high-technology industry that Microsoft has helped to create has unleashed a wave of competition and innovation. We've constantly seen more powerful products for consumers at lower prices than ever before. This high-tech explosion has dramatically increased business productivity. And our industry is an engine of the American economy and the global economy.

It's important to note how much the high-technology industry has changed in just the two years since this case was filed. We are seeing amazing new technologies that build on the power of the PC to offer consumers everything from Web phones to smart kitchen appliances. There are record-breaking mergers reshaping the competitive landscape. When you look at the incredible pace of technological change, it's clear that Microsoft and every other company must compete and innovate in order to survive and prosper.

Above all, as this process moves forward, we will continue to innovate and deliver the best solutions for our customers. We are committed to continue to hire great people, to listen to our customers, to invest in future R & D, and to create the next great generation of software. While our legal team works to resolve the case, we will put our energy and our focus on these new ideas, new innovations and new software that will improve people's lives.

Thank you.

HERBOLD: Steve.

STEVE BALLMER, CEO, MICROSOFT: Hello.

When people ask me about this case, I tell them three things. I tell them that the right of appeal is -- and the right to a cell phone -- is a fundamental tenant of the American legal system, and that until the appeal is over, nothing is settled. We have learned that from experience. I tell them I couldn't be more proud of this great company, its incredible employees and its breakthrough products, and I tell them that I believe in this company more today than I ever have. I believe in our people, our technology and our vision. We need to stay very focused in on that. It's important for us to all think about what today's ruling means and about what it does not mean. The ruling does not change the challenges and opportunities before us.

Windows 2000 is the foundation for a whole new generation of products and services that will make the dream of next generation Windows services on the Internet a powerful realty. The combined power of amazing software, the Internet, wireless technologies will free our products from the desktop and server and take them into literally every corner and walk of life.

If you take a look at devices like pocket PCs, smart kitchen appliances, the My Pad that Bill had a chance to unveil last month, it's really quite amazing and the boundaries of innovation are really being expanded as never before, and it's those incredible opportunities and challenges that will shape the destiny of Microsoft and our industry.

At the same time, we do recognize that we have a special responsibility to set a positive example in our industry. We have spent the past 25 years thinking of ourselves as a small aggressive company playing catch-up to industry giants, even though at some point along the way we became a large company.

Our success has really come from the opportunities that Microsoft and Windows have created for consumers and for thousands and thousands of companies even while we competed with a few of those companies. We have failed to adequately demonstrate all of that opportunity for consumers and business alike. Our intense focus on moving forward has at times been seen as threatening and our passion for being the best has been misinterpreted. We can do better, but that doesn't mean innovating any less or delivering any less value to consumers. It does mean that the values we hold dear, opportunity for everyone, integrity, innovation, customer focus and partnership, have been called into question today. We continue to cherish those values as we always have.

In the coming weeks I intend to speak directly with many of our key customers and partners to assure them that today's ruling will not cause us to slow our efforts to provide them with the product and services they need to run their businesses. I had an opportunity this morning to talk to a wonderful software developer building on our platform and the list and range of new things that they want to see in the basic platform was daunting, but we're dedicated to delivering on the kinds of things that folks like that want.

As Bill said, the reality that consumers know is different than one -- what one might think today. They see the wonders of what technology and competition has done for their lives. Microsoft has been focused in on that and will continue to be so. I thank you very much for this opportunity.

HERBOLD: OK, let's open it for question. If you two can stay at the podium and we'll have about five to 10 minutes for questions. Yes? QUESTION: Mr. Gates, (OFF MIKE) reporter from Cairo TV. And this failure of the settlement and the continuation does risk perhaps ultimately a break-up of the company. Why was what -- why is it so important to continue as you have and take that risk?

GATES: Well, Microsoft certainly went the extra mile in the settlement process to see if there was something that's fair and reasonable.

At the end of the day, what we do in terms of creating consumer empowerment, being able to come up with new versions of Windows and have those new products support the interface, support a breakthrough interface that we're working on now that we call next-generation Windows services -- we don't -- that's not only important to Microsoft and its shareholders. That's important to all consumers and even to the economy that we're all experiencing.

And so, with those principles in mind we have put a lot of energy into the settlement process. We're very pleased that the appeals court standard for our being able to innovate is black and white and so that -- we do now have many steps in this legal process.

HERBOLD: Yes?

QUESTION: Mr. Gates and Mr. Ballmer, Mark Mullan (ph) from King TV. I was wondering if I could get both of your opinions on the -- your belief of the opportunity still to settle. You all have mentioned that you would look for new opportunities to resolve this. What about a settlement still?

BALLMER: Well, I would say that during the settlement process we really -- we really put our heart, our soul, our time into trying to offer up everything that addressed the concerns the government had raised at trial, and perhaps even more. It was very important to us to really try to get this case settled. And while we remain very open -- we'd love to continue discussion in the appropriate way -- we would need to see an appropriate openness and we'd be glad to engage more in that conversation.

QUESTION: I'm Lowell Dayo (ph), KCBQ, and this question is for Mr. Gates and Mr. Ballmer. In settlement talks, what was the one thing that happened to make you decide you couldn't continue?

BALLMER: Well just to be clear, we didn't decide we couldn't continue. That was ultimately the decision of Judge Posner, our mediator. We were committed to putting more time, more energy, more effort into the settlement process.

The specifics of the settlement process, of course, do remain confidential.

GATES: Yes, we've said that during that process, at least, that some of the parties were pushing for extreme things that we didn't think were in anyone's best interests. And you know, so it wasn't any ending on our part. Now the law here in this country is very clear that the kind of improvements we've made, the kind of products we've made since creating this company 25 years ago, that's what's encouraged. And so, you know, as we move forward in this, you know, we feel very strongly about everything we've done and how we've behaved.

QUESTION: I know that you can't comment on the stock price, but you can comment perhaps on employee retention. Folks have been hired at Microsoft over the past year are finding right now their options aren't worth anything. So if that continues for a couple of years through the appeals process, that would be a difficult circumstances for you to retain employees. Can you address your employees right now and say what should they do and what about their concerns for their own personal finances?

BALLMER: We're 100 percent committed to making sure there's great opportunities for people who come here and who are here to do incredibly exciting and wonderful products and services and help change the world. And I think that's the No. 1 reason most folks, in fact, join us.

But we're also committed to making sure that there's good financial opportunity to the best of our ability for our employees, and to the degree that that becomes an issue, of course we will be addressing it.

So far I don't think that there's any Microsoft employee who has been sad to have had our stock options, and we'll make sure we keep doing the products and services that make that true.

VARNEY: You have been watching the Microsoft response to the government, or rather to the Justice Department's legal situation today. Mr. Gates, chairman of Microsoft, started this press conference with a very strong statement that he believes Microsoft has a strong case on appeal. That's something he's said more than once in this new conference.

He said it's a fast-changing marketplace that's been reshaping the competitive landscape. Therefore, Microsoft must innovate to prosper, and that's exactly what Microsoft will do in the future.

Mr. Gates made a very strong point. He said, look, we're going to let our legal team, let the lawyers handle our defense. We're going to keep doing what we do best: That is innovate in the software industry. That's what Mr. Gates had to day.

BAY: Now, I'm not sure if you were struck by this, but clearly they were, it seemed to me, that they were very prepared to come and make this announcement. They seemed polished and poised and quite upbeat. Mr. Ballmer, CEO Steve Ballmer: First thing he said was we affirm the right to an appeal. It's a fundamental part of our legal process. But then he noted how proud he was of Microsoft, of the company, of its products, of its employees, really rallying -- it seemed to me as if he were really rallying the troops to go forward.

And again, it did acknowledge their responsibility to set an example.

VARNEY: But Microsoft did not appear contrite at the same time they were not aggressive.

BAY: Not at all.

VARNEY: So this was a polished, poised performance at this news conference, which you just saw this afternoon.

BAY: Now we just have received word that there's some late- breaking news on the Elian Gonzales case. We're going to go now, I believe, to Judy Woodruff in Washington -- Judy.

WOODRUFF: Thank you, Willow. There are some new developments in the custody battle being waged over the young Cuban boy, Elian Gonzalez. We understand that six visas have been issued to Elian's father, Juan Miguel Gonzalez, to the father's second wife, their infant son, to a cousin of Elian Gonzalez, plus Elian Gonzalez's kindergarten teacher and his pediatrician, a physician. All six of those individuals presumably could be coming to the United States as early as tomorrow.

All this taking place, as CNN has learned, CNN's Pierre Thomas has learned from the Justice Department officials, that Miami relatives of Elian Gonzalez have been informed that when the father arrives in the United States, he, the father, will be given -- quote -- "temporary care" of the boy. The family, the relatives in Miami have not reacted to this information, but they have been told this.

They've also been told that while the father is in the United States this will be -- the father has also been -- they've been told that the father will stay in the U.S. during the appeals process, assuming the family agrees to turn over the boy.

Again, all of this in the negotiation stage. The visas have been approved, though, for the father to come to the U.S. with five other individuals.

And that is the latest on the Elian Gonzales case. Now back to New York to Willow Bay and Stuart Varney.

VARNEY: And that is Judy Woodruff. A big day in the news business indeed. All right, what's next?

BAY: And of course a big day on the market. Now let's check in with Terry Keenan for her reaction to what we've just seen over the past hour or so, and how she thinks investors are likely to react.

KEENAN: Well, Willow, it is interesting to hear Steve Ballmer's comments and the question posed to him about the impact of the sell- off of Microsoft shares on Microsoft employees. Fully one-third of all Microsoft shares are owned by Microsoft employees, and as you heard, that makes some of their options a lot less valuable then they were on Friday at this time.

And of course, Microsoft has been a pioneer in using options as compensation. So you heard that ringing endorsement of Microsoft's way of doing business from Steve Ballmer.

Now analysts were heartened to see -- though it is small consolation -- the stock didn't trade below the $90 share level today. We'll have to see what happens tomorrow.

Back to you, Willow and Stuart.

BAY: Terry Keenan, thank you very much.

VARNEY: All right. We're going to be covering MONEYLINE in just one moment. With all the news from the stock market today, it was a big day indeed, with the Dow Industrials up 300 points. The Nasdaq took the exact opposite direction, a 348-point plunge, the biggest plunge in point terms ever on the Nasdaq.

We have, however, had Microsoft stock reopen for trading in after-hours business, and it reopened slightly higher, at $92 a share. Full details on what's happening on MONEYLINE, coming up next.

BAY: Stay with us.

(COMMERCIAL BREAK)

BAY: Tonight on MONEYLINE, a landmark ruling in the most explosive antitrust battle of the digital age. A judge finds that Microsoft broke the law in a bid to decimate the competition.

VARNEY: We'll go live to Redmond, Washington, and Wall Street, where panic ahead of the decision led to a furious sell-off in Microsoft's stock.

BAY: That panic spread across the Nasdaq leading to one of the worst days ever for the index. While the Dow roars, investors rushing into old line blue chips.

A special MONEYLINE report on the Microsoft decision.

ANNOUNCER: This is THE MONEYLINE NEWS HOUR. Reporting tonight from New York, Willow Bay and Stuart Varney.

VARNEY: Good evening, everyone.

A defining moment in the most important antitrust case of the high-tech era.

BAY: Judge Thomas Penfield Jackson has ruled that Microsoft broke the law acting as monopolists in its ascent to the top of the software business. Less than 90 minutes ago, the judge issued his harshly worded decision finding that Microsoft stifled innovation in monopolizing the market for Web browsers. Microsoft quickly responded to the judge's findings, Bill Gates saying the company will appeal and will look for "new opportunities to resolve" the dispute.

The ruling comes after last ditch settlement talks between the government and the software maker were declared dead this weekend, news that sent shockwaves across Wall Street. Microsoft's stock suffered one of its worst days ever, with about $80 billion in market value obliterated. The Nasdaq in turn plummeted a staggering 349 points in the fifth worst session ever. The key question now: what will happen on appeal?

VARNEY: Well, investors really didn't wait that long before passing judgment -- indeed, bailing out of this stock -- we're talking Microsoft, for course. The stock today suffered one of its worst drops ever. Microsoft shares are up a little in after-hours trading, but that's after plunging more than 15 points in the regular trading, that its worst session since the crash of 1987. Hit hard in that nosedive: Bill Gates himself, who lost $11.5 billion -- on paper, that is -- and CEO Steve Ballmer, down more than $3.5 billion on the day.

Now let's go to Steve Young in Washington, he had the first word of this development. What have you got for us now, Steve?

YOUNG: Stuart, since we last spoke, I have moved from the government printing office where the opinion was printed to court, where it was written by Thomas Penfield Jackson and delivered to the world -- to the parties at about 3:00 Eastern Time, to the rest of the world about two hours later. As you've noted, it finds that Microsoft, a high-tech company, is guilty of violating a 19th-century notion of antitrust, Sherman Antitrust.

The judge's rhetoric is sharp, maybe even some would say inflammatory. He says Microsoft "placed an oppressive thumb on the scale of competitive fortune. He says "Microsoft was predacious." He even takes on the appellate court which has twice ruled on Microsoft's behalf. He says D.C. Circuit Court's opinion appears to immunize any product designed from antitrust scrutiny. He says it was flawed, it views -- that is the appellate decision views the market from the defendants' perspective, or more precisely as the defendant would like to have the market defined.

Microsoft said at trial that the browser, the Web browser was a integrated part of Windows, not a separate product. Are they separate? The judge says "the court findings mandate such a finding that they are a separate product." He also lists a number of companies he says have been harmed by Microsoft's, in his view, predacious behavior, including IBM, H-P, Intel, Netscape, Sun, and the people of those states who have been hurt according to the judge by anti- competitive behavior. However, there is one saving grace for Microsoft in this. He writes "the court concludes multiple agreements did not preclude Netscape."

Back to you in New York.

VARNEY: All right, Steve Young reporting there from Washington having got the first look at this ruling of law that we just received about 94 minutes ago, to be absolutely precise.

Now let's check in with Katherine Barrett, she's been at Redmond headquarters of Microsoft all this day. We'll be checking in with her shortly on MONEYLINE, OK.

Now, we have with us on the phone, joining us on our news line we have with us -- I'm sorry, will you repeat that please, producer?

BAY: I believe we have Jim Barksdale on the telephone line...

VARNEY: We do indeed.

BAY: ... who was a witness, in fact, in this case. Mr. Barksdale, thank you. Can you hear us, Willow Bay and Stuart Varney in New York?

JIM BARKSDALE, FMR. CEO, NETSCAPE: Yes. How are you? I can hear you fine.

BAY: Good. Thank you very much for joining us by telephone.

BARKSDALE: Thank you.

BAY: Now, when you and I last spoke, when you made your donation to the schools of Mississippi you said that a break-up is an appropriate remedy. It's in fact the recommendation you made when you were the lead witness in the case.

BARKSDALE: Right.

VARNEY: Do you see this ruling today as a step in that direction?

BARKSDALE: Absolutely. I think the judge has ruled very firmly that he feels that as he says harm has been done to the competitive process, and I believe, as I testified as the lead-off witness in the case, the most effective way to do that is structural or break-up of Microsoft.

BAY: But do -- and you really believe that a structural remedy, a break-up, is in the best interest of the high-tech community?

BARKSDALE: Absolutely. Just like a break-up of AT&T was in the best interest of the telecommunications industry. That's why the Internet exists today because they broke AT&T up. You'll have the same affect on consumers, products, creators, technicians, and I think, by the way, it will be a boon for Microsoft shareholders.

BAY: A boon for shareholders, why?

BARKSDALE: Same reason it was for AT&T and Standard Oil. Multiple companies competing will create more market value than a single monolithic company.

VARNEY: Now supposing that Microsoft were to be tied down in the legal process and that almost every action it took would be monitored by the legal process, that would surely stifle its innovative ability. Is that a good thing for the American high-tech industry?

BARKSDALE: Well, first of all, I don't think it would stifle it all that much. But number two, that's why structural is more important here, because in a structural remedy you don't have that kind of tied-down oversight like you speak of, Stuart. That's why I'm for structural. It's the most effective because it's simple, it works on its own without a lot of oversight and it's best for Microsoft shareholders.

VARNEY: In what way do you think Microsoft should be broken up? I mean, into two companies? Three companies? How should the split be made here?

BARKSDALE: As I testified in my -- as a witness in the case, I -- and I said then and I still believe first you have an operating system company, then an applications company, and lastly a services company. But there are many different opinions on this and I am not putting myself forward as an expert. I just happen to have been the guy that competed against them and saw how they used their monopoly in illegal ways to stifle competition.

BAY: Jim, we heard that the government has been talking to people in the high-tech world about possible remedies. Obviously, we know you're a witness in the case, but were you one of the folks they talked to?

BARKSDALE: I spoke to some of their representatives, yes, I -- in -- over the course of the last two or three years it's been an item of discussion as to what's the best type of remedy.

BAY: Jim Barksdale, former CEO of Netscape, thank you very much for joining us tonight by telephone.

BARKSDALE: Thank you both very much and I enjoy your show.

BAY: Thank you.

VARNEY: Now, standing by in Redmond, Washington, with the latest from Microsoft headquarters, Katharine Barrett joins us. Katharine, what do you have for us?

BARRETT: Well, Stuart and Willow, Microsoft is still holding a press conference at this hour, but its two principal executives have made their statements. There was no boyish rumpled billionaire, Bill Gates has been sometimes referred to that way in his court appearances and public appearances. Today, though, the Microsoft founder was well coifed, dark suited, every bit the sober businessman in this serious matter. His statement was brief and to the point.

(BEGIN VIDEO CLIP)

BILL GATES, CHMN., MICROSOFT: Well, we did everything we could to settle this case, and will continue to look for new opportunities to resolve it. We believe we have a strong case on appeal.

(END VIDEO CLIP)

BARRETT: Now, perhaps that may seem like they've thrown in the towel already on this particular court, that they're already looking to the appeals process even before any remedy or damages have been assessed. Gates also tried to somewhat counter the judge's conclusions saying that rather than harming consumers, Microsoft in fact had made the world of personal computing both accessible and affordable to millions around the world.

He also made an attempt to reassure customers that the company would continue its path of creativity and innovation, innovation that has been a recurring refrain for Microsoft and also a point of complaint by the Justice Department, which says that Microsoft in fact stifled innovation.

As for Microsoft chief executive Steve Ballmer, who spoke after Mr. Gates, he expressed his continued pride in the company.

Apparently, we are having some trouble with that Ballmer bite. I'll send it back to you, Stuart and Willow.

VARNEY: All right, that's Katharine Barrett deep in the heart of Microsoft country there in Redmond, Washington. We'll be back to you shortly.

Joining us now to help break down the key legal issues in the Microsoft decision, we have with us Richard Steuer, he is an antitrust attorney for Kaye, Scholer. Richard, welcome back to MONEYLINE.

RICHARD STEUER, ANTITRUST ATTORNEY: Thank you, Stuart.

VARNEY: On the basis of what you've heard so far and you've heard what we've heard, where are we going from here?

STEUER: Well, we're going to the remedy stage and I think that it's going to be rather more dramatic than what we've seen so far. Everybody knew what the outcome was going to be here. Having read the findings of fact, it was clear that the judge was going to find in favor of the government. There are some surprises in here, not everybody expected what there would be and there is some very strident language.

But the parties up until now have been speaking through a mediator, through Judge Posner, in terms of their respective positions on what should be done next.

The next stage is the remedy stage, which means that each side is going to get to see the other side's witnesses, get to see the other side's case face-to-face, and make their own assessment as to how strong their case is and the other side's case is.

What will happen then is that before the judge comes down with his decision on what the remedies should be, he may well open another window the way he did here and give the parties an opportunity with what they know from hearing each other to sit down again, either with a mediator or without.

BAY: Given what we know so far about where the two parties are, where the two sides are, is that likely?

STEUER: Well, the judge didn't make it any easier, because although we had been talking about the possibility of some kind of behavioral remedy, these conclusions of law really go to the heart of the whole structure, and there's very strident language in here. What the judge says is looking at the evidence as a whole, you have to look at all of it to get the full extent of the violence that Microsoft has done to the competitive process. He talks about Microsoft's deliberate assault upon the entrepreneurial efforts of others and Microsoft putting an oppressive thumb on the scales of competition.

BAY: How important is it for all the plaintiffs, the 19 states attorneys general and the Justice Department, to get together and to reach a consensus?

STEUER: Well, it's very important if they're going to reach a settlement. And that was manifested in what's happened up until now. At the next stage, it's possible that not all of the plaintiffs are going to see eye to eye and that not everybody is going to be asking for precisely the same relief. That could present a problem, because the judge is likely to go with the lesser relief rather than the greater relief that the plaintiffs might ask for.

So I think it's in their own interests to try to get together at this point.

VARNEY: Antitrust lawyer Richard Steuer, we thank you very much for joining us again.

Thank you, sir.

STEUER: Thank you.

BAY: Coming up, we'll have Bill Gates joining us tonight, chairman of Microsoft. We'll also have Joel Klein from the Justice Department.

Also coming up: the events leading up to today's blockbuster decision.

VARNEY: Indeed, the two antagonists go at it in just one moment.

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BAY: The Microsoft story cast a wide shadow over Wall Street today, but the effect was not entirely negative. Blue chip shares got a big boost, furthering last week's rotation back to the mainline old- economy companies. The Dow surged 300 points, driven by strong showings in JP Morgan, American Express and Wal-Mart.

Rhonda Schaffler followed all the action at the New York Stock Exchange.

(BEGIN VIDEOTAPE)

SCHAFFLER (voice-over): Investors flocked to classic blue chip stocks, more than making up for the steep sell-off that punished Microsoft. Shares of the software maker plunged nearly 15 percent as investors anticipated a less-than-favorable ruling from Judge Jackson on the government's antitrust suit against the company. But the single-biggest factor for the Dow industrials renewed strength also helps to explain the Nasdaq's worst one-day point loss.

CHARLES LEMONIDES, M&R CAPITAL: Over the last couple of months, really, we've seen a seesaw action and battle between new economy, old economy, Dow stock, Nasdaq stocks. It's one or the other, you know, one day or another day. And for the past week or so, it's surely been all old economy, all Dow stocks.

SCHAFFLER: Old economy stocks that benefited from the continued rotation out of new technology: Wal-Mart, Home Depot, Merck, all closing higher, as did IBM, proving that today's major tech losses were confined to the Nasdaq.

Financial stocks also had a strong session: Dow components American Express, JP Morgan and Citigroup all rallied on the day, while Chase Manhattan rose on reports it's considering a bid for Dredsner Kleinwort Benson. And shares of brokerage Charles Schwab rose sharply on hints of strong profits to come.

Also helping the blue chips, new money flowing into the market seeking safe havens.

GAIL DUDACK, WARBURG DILLON READ: The positive things that I see that are still going on is that we've very good tax refund check flow, and we do have the -- and those people who haven't quite funded theirs IRAs, we should have all of that going on, and the market's very oversold. So I look at this as a time where the market should really do well.

(END VIDEOTAPE)

SCHAFFLER: Some analysts shrugged off the day's dramatic numbers noting the lower-than-average trading volume on the big board. But there does seem to be a growing consensus that the Nasdaq has even further to fall before it can begin to recover -- Willow.

BAY: Rhonda Schaffler at the big board. Thank you.

VARNEY: All right, now the Microsoft story had a truly bruising effect on the tech sector, with the Nasdaq plummeting to its worst one-day point loss ever.

Charles Molineaux has been following the action, and he joins us now live from the Nasdaq marketsite -- Charles.

MOLINEAUX: Well, yes, Stuart, market strategists say Microsoft had a hand in today's sell-off. In fact, it accounts for 17 percent of what was, yes, the Nasdaq's worst one-day point loss. But the selling went beyond Microsoft into a growing sentiment that the reallocation of money from technology stocks to old economy blue chips is for real, and just look at the Dow.

The Nasdaq was down sharply all day. But the sell-off in technology intensified in the last hour of trading. The composite bottomed out below the 4.200 mark before finally ending up down by 349 points at 4,223.

Microsoft closed down by $15. Now trading in Microsoft was briefly stopped after hours. Now it is trading again. And now as you can see, it's actually up by $2 in after-hours activity. Microsoft was only one of a raft of key technology big caps that slid. Cisco Systems, Oracle and Sun Microsystems all fell.

Microsoft dragged down computers as a group. Computers groups like Apple and Legato Systems were cut in half after announcing it's going to have to restate its earnings.

Chip stocks saw a heavy selling. They were down by 7 1/2 percent. Big cap Intel fell, but Novellus and Rambus were worse.

And Internet stocks tanked. The sector lost 12 percent. eBay and VeriSign both sank. Inktomi actually fell despite reports it could soon break even.

And Microsoft's troubles were good news for those companies who work in the competing operating system, Linux. VA Linux and Corel both rose on the day today. Telecom equipment maker TII rallied after getting a major contract.

Now some market watchers say technology stocks sank through some crucial support levels today, including the 50-day moving average for the Nasdaq 100 index. From here, they predict still more tech selling, which could be interrupted by good earnings news, but could take the index all the way into a full-fledged bear market: a decline of more than 20 percent, below the 4,000 level, maybe as far as 3,500 -- Willow, Stuart.

VARNEY: All right, Charles Molineaux live there at the Nasdaq marketsite. Thanks, Charles.

BAY: And coming up next, we'll have Joel Klein from the Justice Department. He'll join us shortly.

VARNEY: You're watching MONEYLINE.

(COMMERCIAL BREAK)

ANNOUNCER: From CNN's Atlanta headquarters, this is the MONEYLINE NEWS HOUR.

(COMMERCIAL BREAK)

BAY: We go now to Joel Klein, assistant attorney general in charge of the antitrust division.

Mr. Klein, welcome.

JOEL KLEIN, U.S. ASSISTANT ATTORNEY GENERAL: Thank you. Nice to be with you.

BAY: We just heard you say that this verdict sets ground rules for enforcement in the information age. What do you mean? KLEIN: What I mean by that is that this is such an important antitrust precedent. It's obviously critical in terms of Microsoft, in terms of the Windows operating system, and innovation and consumer choice in the software market. But beyond that, we believe that these principles are so critical to the competitive nature of the American economy that in other cases where we see a dominant firm that abuses its market power, attempts to monopolize markets, that this opinion will set the guideposts for how we assess those very cases as well.

VARNEY: Sir, in your news conference just a short time ago, you said that you wanted to find a remedy to the Microsoft situation which would protect consumers. Now, what do you have in mind for that? Can you give us some rough outline of what kind of remedy you're thinking of?

Well, I think it has to be a remedy that accomplishes a couple of things, Stuart. I think, first of all, as the court found today, Microsoft has really done harm, the court's word, actually, the violence to the competitive process. And under the antitrust laws, we have to remedy that harm.

Second, we've got make sure, and I've heard you and others talk about this, the significance of this case