Proposed Antitrust Deal Accepted
Update: Judge orders more flexible bundling, greater choices in settlement agreed to by Microsoft.PCWorld.com and News Service Reports
U.S. District Court Judge Colleen Kollar-Kotelly on Friday approved most provisions of a settlement deal between Microsoft, the Justice Department, and nine of the states that sued the software maker in a landmark antitrust case. She denied the harsher penalties sought by nine other plaintiff states and the District of Columbia.
The remedy ruling is in effect for five years unless the court extends it. It is designed to curb Microsoft tactics that illicitly use its dominance in one market--operating systems--to gain advantage in others.
For customers, it could mean more choices--for example, they could buy a PC that bundles as defaults some utilities that are not made by Microsoft, such as the Netscape browser instead of Microsoft's Internet Explorer.
Representatives of Microsoft, the DOJ, and the nine states participating in the proposed settlement all declared satisfaction with the ruling. The holdout states that had sought stricter penalties say they will review the ruling before deciding whether to appeal.
However, even those who wanted tougher rules imposed on the software giant say they are pleased the judge retained some of their ideas. Notably, they wanted an on-site watchdog committee charged with ensuring Microsoft's compliance and provisions that order Microsoft to treat its PC vendor partners equitably. Both items are part of the settlement.
The full opinion runs more than 300 pages, but a 14-page final judgment lays out the remedies, and Kollar-Kotelly also released an executive summary that synthesizes the key points in the complex case.
"The Court will hold Microsoft's directors, particularly those who testified before this Court, responsible for implementing each provision of this remedial decree," she wrote. "Let it not be said of Microsoft that 'a prince never lacks legitimate reasons to break his promise,' for this Court will exercise its full panoply of powers to ensure that the letter and spirit of this remedial decree are carried out."
Early Adoption
Microsoft has already begun implementing some terms of the settlement. With the September release of Service Pack 1 for Windows XP, PC vendors and users can remove from the desktop installed programs--including Microsoft programs--dubbed "middleware," and let users set other programs as the defaults. These are utilities that Microsoft has increasingly built into the OS, quashing smaller competitors. They include programs like e-mail clients, media players, instant messaging software, and others.
Under the settlement deal, Microsoft will have to give developers of competing applications the same code interfaces and communication protocols it uses to build its own middleware into Windows, although that's one provision the company does not appear to have fully implemented yet.
"If the features are used to embellish an otherwise standard environment to make it work more easily and be easier to support, the changes will be seen as both beneficial and a competitive differentiator," IDC analyst Dan Kusnetzky said of these greater options. It should be noted that the Microsoft programs are not being removed entirely, just their menu references or icons, according to the user's or vendor's choice.
Subduing Heavy Hands
Judge Kollar-Kotelly's ruling also protects PC vendors, many of which have been reluctant to defy such a powerful partner.
The judgment orders Microsoft not to retaliate or threaten to retaliate against PC makers who want to do business with Microsoft competitors, and to license intellectual property rights to computer makers before the final versions of Windows are released. Specifically, Microsoft cannot penalize PC vendors for "developing, distributing, promoting, using, selling or licensing" any software that competes with Microsoft's platform products or "any product or service that distributes or promotes" any non-Microsoft middleware, the judge said in her 14-page order.
Nor can Microsoft retaliate against PC makers who ship PCs with both the Windows operating system and non-Microsoft OSs, or PCs that boot with more than one OS.
Microsoft must provide written notice to PC makers at least 30 days in advance when it seeks to terminate a licensing deal, and must explain why it wants to end the contract. Also, Microsoft can't play favorites among vendors--the order says it must apply uniform terms and conditions in license agreements, and charge a Windows royalty that is established in a schedule and available to interested parties.
General Agreement
Both parties professed to be pleased with the ruling, largely because both Microsoft and half the plaintiff states and the DOJ had originally hammered it out themselves.
"The settlement is a tough, but fair, compromise," Microsoft says in a statement. "It imposes significant requirements on Microsoft, but it enables us to continue to innovate and to create products that address the changing needs of our customers. We recognize that we will be closely scrutinized by the government and our competitors, and we will devote all the time, energy and resources needed to ensure that we meet our responsibilities."
In fact, one provision of the order is establishment of a three-member technical watchdog committee that will have offices at Microsoft's headquarters. Members will include three independent, full-time computer experts. One will be a DOJ appointee, one a Microsoft appointee, and the third a shared appointment; their charge will be to help enforce the terms of the deal. Also, Microsoft will appoint an internal compliance officer.
Microsoft does not, however, have to document, disclose or license protocols that would compromise the security of systems used for antipiracy, antivirus, software licensing, digital rights management, encryption, or authentication.
Kollar-Kotelly also rejected government arguments that the remedy should cover new technologies not previously considered by courts in the case. For example, the government had argued that interactive television software and set-top boxes, handheld devices, and Web services should be covered because of Microsoft's potential to dominate those markets in the future.
The "threat" from interactive TV software "is almost entirely hypothetical," the judge said. Under some circumstances, they will be automatically included in some of the court's remedy provisions, she noted. She dismissed claims that handheld devices pose a "platform threat" to Windows, calling the arguments flawed or unsupported. She also rejected arguments that Web services could decrease reliance on PCs and increase reliance on other devices, saying that the government did not explain how that would affect Microsoft's monopoly.
Dodged the Bullet
One analyst says the judge's order appears to bode well for Microsoft, which had faced the prospect of far tougher restrictions.
"It's clear, given the alternatives, that Microsoft did pretty well with this ruling," said Rob Enderle, a research director with Giga Information Group.
"Microsoft still has to contend with the compliance committee under the existing settlement, but it's nowhere near as painful--even at its worst--as what was proposed by states," he said.
An antitrust legal expert went further.
"I thought there was some chance that (the judge) might have entered a decree that actually tried to undo some of the harm that was done," says Donald Falk, a partner with the law firm Mayer, Brown, Rowe & Maw, in Palo Alto, California. "What the opinion said basically was, 'You robbed a bank, you can keep the money, and you can do it again, but don't use exactly the same method.'"
Nancy Weil, Paul Roberts, and Matt Berger of The IDG News Service and Michelle Madigan of the Medill News Service contributed to this report.