Microsoft Wins Major Points in Antitrust Settlement Ruling
A federal judge handed Microsoft Corp. a definitive legal victory Friday by approving most provisions of a controversial antitrust settlement with the Justice Department, all but certainly freeing the world’s biggest software company from the threat of crippling sanctions.
In a comprehensive ruling full of blunt language, U.S. District Judge Colleen Kollar-Kotelly made clear that the agreement crafted by outgoing federal antitrust chief Charles James struck an acceptable balance: It reasonably restrained Microsoft from continuing to abuse the monopoly power of its Windows operating system without hampering the company’s legitimate business practices.
The judge’s ruling gives legal force to the detailed settlement plan, requiring Microsoft to release more technical information to competitors about how its products tie together and to refrain from punishing com- puter makers that install non-Microsoft programs for tasks such as surfing the Internet or watching videos.
California and eight other states had sought harsher remedies to counter past and present Microsoft tactics. But many of the tactics weren’t relevant under guidelines set out by a federal appeals court, the judge ruled.
“This suit, however remarkable, is not the vehicle through which plaintiffs can resolve all existing allegations of anti- competitive conduct,” Kollar-Kotelly wrote.
The Justice Department and Microsoft embraced the long-awaited ruling, and Microsoft Chairman Bill Gates called it a “major milestone” that his company plans to accept.
“It represents a fair resolution of this case,” Gates said. “I am personally committed to full compliance.”
Wall Street saw a Microsoft victory, and investors bid up company shares as much as 6% when the ruling was officially released after the U.S. stock markets closed. In regular Nasdaq trading, shares fell 47 cents to close at $53.
The biggest change in the year-old settlement plan comes in how it will be enforced. Kollar-Kotelly adopted the renegade states’ request that compliance efforts be directed by independent Microsoft board members, saying she would hold them accountable for any failures. Microsoft previously had agreed to pay for a technical committee that would investigate compliance complaints and report to the Justice Department, which would in turn decide whether to complain to the court.
Kollar-Kotelly also gave the states wide latitude to inspect Microsoft documents and interview employees to ensure the sanctions are enforced. And the judge asked to keep jurisdiction of the case in order to act quickly if she determines that Microsoft violates her decree.
“We look forward to our important, continuing involvement in enforcement,” said Iowa Atty. Gen. Tom Miller, leader of the states that pushed for tougher provisions. “We believe that the efforts of the nine states and the District of Columbia have resulted in an improvement.”
The judge also took the advice of the nine holdout states and ordered that:
* The court would keep the authority to extend the five-year term of the decree by two more years if Microsoft flouts the terms of the deal.
* Microsoft would be barred not only from retaliating against computer makers that install non-Microsoft programs on their PCs but also from threatening to retaliate.
* The computer makers would be permitted to install applications of their choosing that would launch when consumers start up Windows-based machines.
“These are requirements we will be able to adhere to,” Gates said.
Kollar-Kotelly wholly rejected more than a dozen other proposals from the states to restrict Microsoft’s leverage in such important emerging areas as hand-held computers, Web-based services and software for interactive television.
U.S. Atty. Gen. John Ashcroft praised the ruling, which he said created a healthy environment for the computer industry to develop “technologies with full confidence that their efforts will not be impeded by anti-competitive practices.”
But Microsoft foes blasted the decision for embracing inconsequential measures that would do nothing to free the technology landscape from Microsoft’s domination.
“The weak steps that Microsoft has taken to comply with the requirements already show that the settlement will be ineffective in curbing Microsoft’s monopolistic and anti-competitive practices and how difficult it will be to enforce,” said Mike Morris, Sun Microsystems Inc.’s special counsel. Santa Clara, Calif.-based Sun is pursuing a private suit against Microsoft over the company’s steps to stem the spread of Sun’s Java technology, once viewed as a serious threat to the Windows monopoly.
Even as the states’ attorneys general highlighted the modest changes in the settlement, they were clearly disappointed.
“This court focused on looking back on past behavior and trying to make sure it doesn’t reoccur, rather than applying the law to try to prevent similar misdeeds in other business areas,” California Atty. Gen. Bill Lockyer said.
The states had wanted Microsoft to disclose more of Windows’ internal mechanisms and to do so earlier in the manufacturing process, making it easier for outside programmers to design software that works as well with Windows as Microsoft software.
They also wanted to force Microsoft to offer a less expensive, stripped-down version of Windows so that computer makers could modify it and pass the savings on to consumers. And they wanted Microsoft to give away the code for its Internet Explorer browser and license a version of its Office suite of business productivity software -- which is more profitable than Windows -- for use on other operating systems such as Linux.
Lockyer said the states would discuss whether to appeal or file a new suit based on allegations the judge said weren’t relevant in the remedy proceedings.
Others predicted that an appeal would fall short.
“I don’t think there’s a very substantial chance of succeeding on appeal,” said Albert Foer, president of the American Antitrust Institute, a think tank favoring strong antitrust measures that had urged Kollar-Kotelly to craft a more sweeping resolution. “The appeals court already gave it a full shot, and my guess is the states are tired out.”
Under the settlement, Microsoft is required to change some of its practices. But many antitrust and technology experts said what the large print gives, the small print takes away.
The deal makes it easier -- though not painless -- for PC makers and consumers to swap out Microsoft’s Internet Explorer browser, media player and other functions for competing programs.
In practice, few home users have gone through the cumbersome process of downloading voluminous Microsoft updates that allow them to customize their desktops.
And there are limits to computer makers’ rights to use their choice of “middleware,” such as PC-based video players, that sit on top of the operating system and are in turn used to run smaller pieces of software, such as videos. To qualify for protection, some middleware firms must be shipping at least 1 million units annually in the U.S.
Over the states’ objection, Kollar-Kotelly found that provision acceptable, ruling that Microsoft improperly used its power against potential threats to the dominance of Windows. She said less popular types of middleware would not clearly constitute threats.
Microsoft already has been taking steps to comply with the settlement, disclosing 272 internal interfaces governing how Windows works with other Microsoft programs for e-mail, Web browsing and the like.
It also has promised to disclose, via licensing agreements, 113 protocols controlling how the operating system connects with server computers running more powerful versions of Windows. Because the licensing agreements call for royalty payments, some open-source developers -- including those working on the free Linux operating system -- say they can’t incorporate the protocols in their programs.
In addition, the company changed its pricing policy, setting uniform fees for the biggest 20 computer firms.
The most tangible result of the Justice Department deal has come from computer makers adding competing software. In October, Gateway Inc. said it would include the WordPerfect word-processing program made by Corel Corp. on some lower-priced desktop machines, after similar moves by Hewlett-Packard Co., Dell Computer Corp. and Sony Corp.
But the effect on Microsoft has been so slight that many say the company is more powerful now than it was when the Justice Department and accompanying states filed suit in 1998.
Microsoft’s stock price is higher than it was at the start of the trial in October 1998. And the company’s profit is nearly double what it was when the case began.
Rob Enderle, a technology analyst for the Giga Information Group in Santa Clara, said Microsoft archenemies Sun Microsystems and Oracle “are clearly disappointed” in the decision.
Still, he added, “there’s a collective sigh of relief in Silicon Valley because there is now some legal certainty, and companies can get back to work.”
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Shiver reported from Washington and Menn from San Francisco.
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Ruling at a glance
Highlights of U.S. District Judge Colleen Kollar-Kotelly’s decision in the Microsoft antitrust case.
Overview: Approved almost all aspects of the federal settlement. The deal prohibits Microsoft from retaliating against computer manufacturers, allows customers to remove desktop icons for some Microsoft features and requires that Microsoft disclose some technical data to software developers.
Petitioners: Denied all stricter remedies requested by the nine non-settling states. Those states wanted Microsoft to allow users to remove some features from Windows, to divulge the blueprints to its Web browser and to let its Office productivity software be translated to other operating systems.
Scope: Criticized the strategy of the non-settling states, saying they opted for a kitchen-sink approach to the case. She said their proposals would not prevent new illegal conduct.
Judge’s role: Created stronger oversight capabilities for herself. She said that Microsoft frequently minimizes the effects of its illegal conduct and that she needs the ability to make further changes to ensure compliance.
Warning: Told Microsoft executives, who are responsible for the firm’s compliance with the deal, that she would be closely watching their efforts.
Source: Associated Press
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Voices on the settlement
“The settlement is a tough, but fair, compromise. 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.”
Microsoft official statement
“The court will hold Microsoft’s directors, particularly those who testified before this court, responsible for implementing each provision of this remedial decree.”
U.S. District Judge Colleen Kollar-Kotelly
“The court’s decision is a major victory for consumers and businesses who can immediately take advantage of the final judgment’s provisions.”
Atty. Gen. John Ashcroft
“It might not be resolved for another two years. No one should count their winnings yet.”
University of Baltimore law professor Robert Lande
“This ruling allows Microsoft to be a capitalist company and compete in new markets, where they have a right to be competitive.”
Heather O’Loughlin, analyst at State Street Global Advisors, one of Microsoft’s largest shareholders
“Microsoft lost every battle and they won the war. The lesson everyone learned here is just stay out of Microsoft’s way.”
Shane Greenstein, technology business professor at the Kellogg Graduate School of Management at Northwestern University
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Antitrust battles
Here is a chronology of the antitrust actions involving Microsoft:
June 1990: Federal Trade Commission secretly investigates possible collusion between Microsoft and IBM.
Feb. 1993: FTC takes no action, closes investigation after commissioners deadlock.
Aug. 1993: Justice Dept. takes over Microsoft investigation.
July 1994: Company signs consent decree agreeing to change contracts with PC makers and eliminate some restrictions on other software makers.
Aug. 1995: A judge throws out the decree. It is later reinstated by an appeals court, and U.S. District Judge Thomas Penfield Jackson approves it.
Oct. 1997: Justice Dept. sues Microsoft, alleging it violated the 1994 consent decree.
May 1998: Justice Dept. and state regulators file landmark antitrust suit against Microsoft.
Oct. 1998: Antitrust trial begins before Judge Jackson.
Nov. 1999: Jackson releases preliminary findings, labeling Microsoft a monopoly that has used its position to harm competition and consumers.
Jan. 2000: Steve Ballmer named CEO, succeeding Bill Gates, who becomes chairman and chief software architect.
April 2000: Settlement efforts collapse. Jackson finds Microsoft in violation of antitrust laws.
Justice Dept. urges court to split Microsoft into two companies.
June 2000: Jackson orders the company be split into two companies.
June 2001: Federal appeals panel reverses Jackson’s breakup order but rules that Microsoft violated antitrust laws.
Aug. 2001: Microsoft appeals to U.S. Supreme Court, asking it to vacate federal appeals court’s ruling.
Dec. 7, 2001: States suing Microsoft recommend that the company be closely monitored for anti-competitive behavior and that the company produce a version of Windows without a Web browser.
