Microsoft Still a Monopoly, 7 State Attorneys Say

Seven state attorneys say key provisions of the final antitrust judgment have had little impact on competition with Microsoft.

Seven states are pushing back against the Department of Justices assessment that the landmark antitrust settlement between the United States and Microsoft has removed the anticompetitive obstacles created by the software maker and resulted in more competition in the middleware market.

In fact, according to attorneys for California, Connecticut, Iowa, Kansas, Minnesota, the commonwealth of Massachusetts and the District of Columbia, known as the "California Group" of plaintiffs, "Microsofts market power remains undiminished and … key provisions of the final judgment—those relating to middleware— have had little or no competitively significant impact."

The full California Group report, in PDF form, can be found here.

The disagreement and upcoming courtroom battle about whether or not the final judgment has resulted in more competition in the middleware market comes in a series of filings made to U.S. District Court Judge Colleen Kollar-Kotelly ahead of the next joint status conference between all the parties to be held on Sept. 11.

The matter is all the more critical given that most of the terms and conditions of Microsofts antitrust settlement with the government are due to expire this November.

Read details here about the changes the court was asked to make to the final judgment against Microsoft.

California Attorney General Edmund Brown on behalf of the California Group on Aug. 30 filed the report, which questions the effectiveness of the consent decree. "The decree has not lived up to its goal of increasing market competition," he said in a statement released along with the report on the final judgments remedial effectiveness.

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The report maintains that Microsofts comingling violation has not been effectively addressed, that Microsoft remains in possession of the fruits of its violation and that the competitive conditions prior to Microsofts anticompetitive conduct have not been restored.

At the heart of the antitrust case is the market for Intel-compatible PC operating systems, where Microsofts share has "remained persistently high at supra-monopoly levels," losing just one percentage point from 93 percent in 1991 to 92 percent in 2006, that filing said.

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With regard to Web browsers, the other product of principal focus at the liability trial, the California Group argued that while Microsoft has lost 10 percentage points of share in this market, from 95 percent 2002 to 85 percent in 2006, "this is still well above monopoly levels."

The server market has also not proven to be as strong a source of competition to Microsoft as the court had anticipated, based on the information provided to it, the filing noted, arguin, "On the contrary, IDC data shows that Windows share of server operating system shipments has increased from 55 percent in 2002 to 72 percent in 2006."

But that view is 180 degrees different from that of the Department of Justice and the states of New York, Louisiana, Maryland, Ohio and Wisconsin, known as the "New York Group."

"There have been a number of developments in the competitive landscape relating to middleware and to PC operating systems generally that suggest that the Final Judgments are accomplishing their stated goal of fostering competitive conditions among middleware products, unimpeded by anticompetitive exclusionary obstacles erected by Microsoft," that group stated in its filing.

Examples of this include the increased competition Microsofts Internet Explorer faces from Web browsers like Mozillas Firefox, Opera Softwares Opera and Apples Safari; the popularity of Apples iTunes and Adobe Systems Flash for handling multimedia content; the increasing use of Web-based services for e-mail and other applications that historically would have been handled by local applications; and the decisions by Dell and Lenovo to offer computers preloaded with a Linux operating system rather than Windows, the filing said.

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As Microsoft was never found to have acquired or increased its monopoly market share unlawfully, the final judgments were not designed to eliminate Microsofts Windows monopoly or reduce Windows market share by any particular amount, the filing goes on to argue.

"Rather, the final judgments were designed to reinvigorate competitive conditions that Microsoft had suppressed so that the market could determine the success of these software products. The final judgments are succeeding in that goal," the Department of Justice and the New York Group said in their filing.

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In its own filing, Microsoft maintained that those anticompetitive practices the court had found have now been eliminated by the final judgments, citing as proof declining market shares in Web browsing, e-mail and IM, audio and video players, and Java virtual machines.

The full Microsoft filing, in PDF form, can be found here.

But the California Group noted, "When the remedial regime imposed by the Court expires in large part in November 2007, the principal constraint on Microsofts ability to abuse its market power will be gone."

It then suggested that the standard 10-year consent decree would be more appropriate than the current five-year decree the court had imposed on Microsoft.

"The justification given for the departure from the standard 10-year term was the pace of technological change in the computer industry. But whatever merit this observation might have generally to the computer industry, it is singularly inapplicable to the market for PC operating systems, which is the focus of this case," it argued.

Not only had Microsoft recently introduced Vista as the successor to Windows XP, but its market power has remained "undiluted as evidenced by a market share in excess of 90 percent for at least the past 15 years … Termination of the Final Judgment means, inter alia, that plaintiffs will not be able fully to assess the impact in the marketplace of Microsofts recent introduction of Vista," it said.

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As a result of all this, the California Group is "prepared to discuss at the next Joint Status Conference what, if any, changes the Court might consider with respect to the remedy in this case," it said.

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