News

Antitrust Settlement Official, States Haven't Weighed In

• By Stephen Swoyer
• 11/02/2001

The agreement came in the day of a deadline set by federal judge Kathleen Kollar-Kotelly, who’s now set to review the terms of the settlement. The judge gave the states until Tuesday to decide if they want to accept the deal.

Among other provisions, the settlement imposes a number of behavioral restrictions upon Microsoft, which -- in a major concession -- agreed to the formation of an oversight committee that will monitor its conduct.

According to Rob Enderle, a senior analyst and long-time Microsoft watcher with consultancy Giga Information Group, it’s the establishment of an oversight committee that really gives the settlement agreement its “teeth.”

“It’s got teeth, and the teeth are in the oversight committee, which can rapidly respond to any breach that Microsoft undertakes,” Enderle says. “Remember, [the committee] has broad investigatory powers, it has access to Microsoft’s books to do whatever it needs to do. It has the one thing that the initial Consent Decree didn’t have, and that’s the ability to kind of alter itself and directly address new and emerging problems as they occur.”

As part of the agreement, Microsoft also agreed not to retaliate against PC OEMs and other companies that develop products which compete with its own solutions. Previously, Judge Thomas Penfield Jackson ruled that the software giant had attempted to stifle competition of this kind by imposing unfavorable licensing restrictions and other sanctions against PC vendors that attempted to market solutions that competed against its own products. If the settlement agreement is accepted, Microsoft must offer PC OEMs a uniform set of licensing terms for a period of five years. OEMs, for their part, will be able to sell other operating system platforms on their hardware without fear of reprisal from the software giant.

The software giant also agreed to open up some of its server protocols so that competitors can engineer products that are better able to compete with the performance of Microsoft’s own software when hosted on its operating system platforms. On several occasions, the software giant has arbitrarily changed protocol implementations -- like its Server Message Block (SMB) protocol -- to break functionality in third party applications -- such as the open source Samba project’s Samba SMB implementation -- or to prevent software vendors from engineering products that compete fairly against Microsoft applications.

Analysts say that the settlement agreement also has implications for Microsoft’s flagship Windows XP client operating system. Because the settlement agreement’s broad definition of so-called “middleware” includes Web browsers, e-mail clients, media players and instant messaging clients, Microsoft must now give OEMs and customers alike the ability to remove many of the applications that are bundled with Windows XP.

“In the first service pack, [XP] has to be altered so that people have the option of removing the things that were in question -- they’re calling them middleware, but they’re everything from Microsoft’s browser to the [Windows] Media Player,” notes Giga’s Enderle.

The agreement as currently constituted would have an effective period of five years, and could be extended for up to two years if Microsoft failed to follow its terms. The Los Angeles Times today reported that if the settlement is accepted by the court, the deal would become effective in several months, following a three-month review and a 60-day window for public comment.

A potential obstacle to any settlement between Microsoft and the federal government is the coalition of attorneys general from 17 states and the District of Columbia who’ve also joined the case. According to a report published Friday in the Washington Post, Assistant U.S. Attorney General Charles James yesterday failed to convince the coalition to endorse the settlement. Instead, the attorneys general asked Judge Kollar-Kotelly to hold off for several days before officially accepting the agreement. For her part, Kollar-Kotelly accepted the settlement but pushed the final deadline back until Tuesday, Nov. 6 in order to give the states more time to review the terms of the agreement.

The 17 state attorneys general -- and the solicitor for the District of Columbia -- will figure prominently in the mix of things if the settlement agreement is to be accepted. Under the guidelines of the so-called Tunney Act, which was originally drafted to ensure that legal settlements are arrived at in the public interest, any settlement that the Justice Department and Microsoft propose must first be reviewed during a hearing involving all of the plaintiffs, at which time the states and the District of Columbia could ask the presiding federal judge to reject a deal that’s not to their liking.

Some observers -- including Microsoft President and Chief Software Architect Bill Gates -- blamed the state attorneys general for the breakdown in settlement talks last year. Others placed the blame on Microsoft itself, which they claimed resisted any all attempts at meaningful settlement. “The real question is whether Microsoft will be willing to agree to a meaningful settlement, and nothing they’ve ever done shows us that they will,” said Steven Newborn, a former antitrust prosecutor and co-head of the anti-trust group for law firm Clifford, Chance, Rogers & Wells LLP, in June 2001.

The fact that the DOJ reached a settlement with Microsoft independently of the attorneys general serves to highlight the distinct -- and perhaps irreconcilable -- interests of the two camps.

“Instead of looking at it from the point of view of how it impacts the United States and the legal efforts under way, [the state attorneys general are] looking at it from a much more narrow scope -- that of their own interests,” says Dan Kusnetzky, another long-time Microsoft watcher and the director of worldwide operating environments for market research firm and consultancy IDC.

At the same time however, several of Microsoft’s most vocal detractors -- Iowa Attorney General Tom Miller and Connecticut Attorney General Richard Blumenthal -- were measured in their respective responses to the settlement agreement. Miller told the LA Times today that the deal “represents some progress,” while Blumenthal acknowledged that things were different in the post-September 11th U.S.: “[The events of September 11th gave] powerful dynamic to resolving the issues in this case," Blumenthal told the LA Times.

In a prepared statement, Gates positioned the settlement as “the right thing to do.”

"While the settlement goes further than we might have wanted, we believe that settling this case now is the right thing to do to help the industry, and the economy, to move forward," he commented.

For its part, the DOJ said in a prepared release that the restrictions imposed by the settlement agreement will “stop Microsoft's unlawful conduct, prevent recurrence of similar conduct in the future, and restore competition in the software market, achieving prompt, effective and certain relief for consumers and businesses.”