Judge Goes Easy on Microsoft

In a decision claimed as a victory by Microsoft Corp., U.S. District Court Judge Colleen Kollar-Kotelly issued a remedy ruling in the landmark anti-trust case, relying heavily on a federal settlement proposal signed last year. Although Kollar-Kotelly rejected as overly broad much of the tougher penalties proposed by nine states that dissented to settlement, she did incorporate some elements of the alternative proposal into her ruling.

In an executive summary accompany the 300+ page opinion, the judge took the states to task for over-reaching in the remedy stage of the case. She admonished them for seeking "to gather all existing complaints regarding Microsofts business practices and bring them before the Court at this late stage in the case."

"This suit, however remarkable, is not the vehicle through which Plaintiffs can resolve all existing allegations of anticompetitive conduct which have not been proven or for which liability has not been ascribed," she wrote in the summary. "Plaintiffs have shown little respect for the parameters of liability that were so precisely delineated by the appellate court."

Calling the judges ruling a conditional approval of the settlement signed with the Department of Justice and nine states last November, Microsoft chairman and chief software architect Bill Gates said it represents a fair resolution of the case.

In a small victory for the states, the judge did incorporate two emerging technologies into her remedy order even though they were not addressed in the liability phase. She included server/network computing and interactive TV software (conditionally), but rejected the requested inclusion of handheld devices and web services.

In a related matter, Kollar-Kotelly ordered Microsoft to disclose and license communications protocols used by clients running on Windows to interoperate with Microsoft servers. The company is also required to disclose APIs and technical information that Microsoft middleware uses to interoperate with the operating system, but the disclosure provisions fall far short of the states requests.

Kollar-Kotelly rejected outright the states weightiest proposal, which would require the availability of a modular version of Windows, in which the operating system would be completely separate from Microsoft middleware. She found that the proposal did not offer a reasonable way for Microsoft to separate the code and comply with other requirements. Instead, she accepted the alternative proposal in the settlement, which permits OEMs and users can to disable access to Microsoft middleware.

The order provides protection for computer makers against retaliation -- and the threat of retaliation -- by Microsoft, giving OEMs more flexibility to configure PCs with non-Microsoft products. Contrary to Microsofts assertion, the judge decided that protecting OEMs against threats of retaliation – in addition to retaliation itself – would promote competition. Microsoft must establish uniform licensing terms, but it will still be allowed to offer market development allowances and discounts. The company cannot terminate an OEMs license without giving it two notices and an opportunity to comply.

As for enforcement provisions, the judge rejected the states request for a special master. Instead, the states will have to establish an enforcement committee, which will have access to Microsofts source code, books, ledgers, accounts and other materials to use to ensure compliance.

The order is effective for five years, but it can be extended another two years.

In a press conference three hours after the opinion was released to the public, Gates said Microsoft was still reviewing it, but he had not seen anything at that point that would be cause for appeal.

"We thank the mediator, the federal government and the nine states that helped forge the settlement, and we appreciate the courts extensive work," Gates said.

The ruling puts new responsibilities on Microsoft, and the company recognizes that it will be closely scrutinized by the government and competitors, Gates said, adding that his employees are being trained to understand the settlement and comply with it.

Although the judges order will force "more flexibility in terms of information disclosure and software configuration," than the settlement proposal, "these are requirements that we will be able to adhere to," Gates said.

Microsoft CEO Steve Ballmer said that the company will listen more and communicate better as it moves to implement the rulings provisions.

"Microsoft has learned and grown through the experience of the last four years," Ballmer said. "We must be aware of how our actions affect others and are perceived by them."

Kollar-Kotelly presided simultaneously over two parallel cases stemming from the federal governments anti-trust lawsuit brought against Microsoft in 1998. In June 2000, Judge Thomas Penfield Jackson, having found that Microsoft illegally sustained a monopoly in the desktop operating system market, ordered the software giant to divest its OS business. One year later, a federal appeals court upheld anti-trust charges against the company but overturned Jacksons divestiture order, sending the case back to the district court to determine alternative penalties. When the federal government and nine states agreed to a settlement last November, and nine other states plus the District of Columbia chose to pursue tougher penalties, the judge decided to preside over both cases at the same time.