Microsoft Corp. on Monday won a round in its long-running battle with government watchdogs when a federal judge gave his approval to a controversial antitrust settlement between the software giant and the Justice Department.
The decision by U.S. District Judge Thomas Penfield Jackson in Washington, D.C., had been expected in the wake of a June decision by a federal appeals court upholding the settlement. The appellate court had rejected a decision by U.S. District Judge Stanley Sporkin, who shocked many in the legal world last February when he rejected the consent decree as too easy on Microsoft.
The consent agreement, originally signed in July, 1994, calls for Microsoft to alter the way in which it makes personal computer hardware manufacturers pay for its operating systems, which govern the basic workings of PCs. Microsoft has a near-monopoly on PC operating systems, and most of its competitors considered the consent decree a mere slap on the wrist.
But Microsoft’s troubles with the Justice Department are not necessarily over. Government lawyers are still investigating whether the company’s inclusion of the on-line software for Microsoft Network with the new Windows 95 operating system is a violation of antitrust laws. The department has said it will not bring any action on the matter before this Thursday’s launch of Windows 95, but it says the probe is continuing.
On Monday, Jackson signed the decree after a 17-minute hearing in which he allowed brief testimony from attorneys for the Justice Department and Microsoft but no one else. The judge declined to hear any testimony from “friends of the court,” including Gary Reback, an attorney for Silicon Valley law firm Wilson, Sonsini, Goodrich & Rosati, who has argued against the decree’s approval on behalf of several unnamed clients and appeared to have played a role in persuading Sporkin to reject the agreement.
Judicial approval of a consent decree is normally a formality, but Sporkin made it clear when he began hearings last fall that he intended to do more than rubber-stamp the settlement. He conducted a mini-investigation of his own, even reading a book often critical of Microsoft’s business tactics titled “Hard Drive: Bill Gates and the Making of the Microsoft Empire.”
In February, Sporkin rejected the pact, saying it wasn’t in the public interest. But the appeals court rejected his ruling, saying he had exceeded his authority.
One of the few notes of discord during Monday’s proceedings came when Microsoft argued, unsuccessfully, that the decree--which both sides had agreed would be in effect for 6 1/2 years--should be made retroactive to Dec. 15, 1994.
The court also declined a request made last week by the Computer and Communications Industry Assn., a trade group that includes AT&T;, Sun Microsystems Inc. and Oracle Corp., that the decree be expanded to include Windows NT, a Microsoft operating system for computer networks. Windows NT, which has sold in relatively small numbers, is not mentioned by name in the agreement.
Microsoft makes the operating systems that run about 80% of the PCs in the United States--about 100 million machines. Its licensing agreements for DOS and Windows had required PC manufacturers to pay according to how many computers they produced, whether or not the computers were ultimately shipped with Microsoft operating systems. Rival makers of operating system software were thus shut out of the market.
The agreement bars such agreements and contains some other minor provisions, including one protecting applications software creators from onerous non-disclosure contracts.
Microsoft spokesman Greg Shaw said the company is pleased with the judge’s approval of the consent decree.
“We’ve been in compliance with the decree since we signed it in December of 1994 and we will continue to be in compliance,” Shaw said.
A Justice Department spokeswoman declined to comment.
Although Sporkin ultimately failed in his attempt to force a toughening of the decree, he embarrassed Assistant Atty. Gen. Anne K. Bingaman and may have helped trigger subsequent efforts by the department to take a harder line on Microsoft.
In May, the Justice Department filed a lawsuit to block Microsoft’s proposed acquisition of Intuit, the leading maker of personal finance software. Rather than face a lengthy court battle, Microsoft pulled out of the deal.
And Bingaman’s staff is still looking at Microsoft Network, though it is not clear how aggressively that investigation is being pursued. On-line service providers such as America Online, CompuServe and Prodigy have complained that Microsoft, by including software for its new network with Windows 95, is unfairly using its dominance in operating systems to muscle into a new market.
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Key Dates in U.S. Probe of Microsoft
A chronology of key dates in the U.S. investigation of Microsoft Corp.'s business practices:
* June, 1990--The Federal Trade Commission begins a secret probe focusing on possible collusion between Microsoft and International Business Machines Corp.
* March, 1991--Microsoft acknowledges that it is cooperating with federal officials after news of the investigation is revealed by a Wall Street analyst.
* Feb. 5, 1993--The FTC takes no action against Microsoft after commissioners deadlock 2 to 2 in a closed-door vote.
* July 21, 1993--The FTC discusses the Microsoft matter at a second meeting, but commissioners deadlock again.
* Aug. 21, 1993--In a highly unusual move, the Justice Department announces it has taken over the Microsoft investigation.
* July 16, 1994--Microsoft and the Justice Department announce a settlement of federal antitrust charges, under which the computer software maker agrees to modify its licensing practices. Microsoft simultaneously settles similar charges with the European Commission.
* Jan. 20, 1995--At a hearing on the consent decree, U.S. District Judge Stanley Sporkin grills Justice Department and Microsoft lawyers and says he does not “want to look like a fool in blindly approving something.”
* Feb. 14--Sporkin rejects the proposed consent decree, saying it did not go far enough in addressing Microsoft’s “monopolistic practices.”
* April 24--Lawyers for Microsoft and the Justice Department argue in court that Sporkin’s decision should be overruled and the settlement upheld.
* June 9--A new front in the probe is opened as three major on-line services say they have been subpoenaed in a Justice Department investigation of the planned Microsoft Network.
* June 16--A three-judge panel of the U.S. Appeals Court rules unanimously that Sporkin overstepped his bounds and that the antitrust settlement should be sent to another lower-court judge for approval.
* Aug. 21--U.S. District Judge Thomas Jackson enters the consent decree settling the antitrust charges.