Keeping An Eye on Microsoft

Case may provide plaintiffs with road map for filing further lawsuits.

The antitrust remedies imposed on Microsoft Corp. early this month are widely seen as insufficient to bring about substantive change in the software market, but some industry observers say that the ruling out of the U.S. District Court for the District of Columbia could indirectly affect other cases pending against the software company in the United States and in Europe.

The ruling, issued Nov. 1 by U.S. District Court Judge Colleen Kollar-Kotelly, draws predominantly from a settlement proposal crafted one year ago by Microsoft, the U.S. Department of Justice and nine states. The judge rejected as overly broad much of the tougher penalties proposed by nine other states and the District of Columbia, which refused to sign the settlement.

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 software. It also requires the Redmond, Wash., company to offer uniform licensing terms to the 20 largest OEMs, create a compliance committee of board members, and disclose communications protocols for interoperability between Windows and server software. It does not impose the kinds of penalties sought by Microsoft rivals who testified on behalf of the nonsettling states last spring.

Private antitrust lawsuits filed in the U.S. District Court in Baltimore by industry rivals seeking monetary damages are unlikely to garner support from Kollar-Kotellys decision, legal scholars said. "Either the plaintiffs will be able to prove they suffered monetary harm, or they wont," said Norman Hawker, associate professor at Haworth College of Business at Western Michigan University, in Kalamazoo. Hawker said rivals seeking injunctive relief are likely to be hurt by this months decision in Washington.

"I think a judge in a private lawsuit is going to be very reluctant to do something at the request of a private party when a federal judge hasnt done anything," said Hawker, who is also a research fellow at the American Antitrust Institute, in Washington. "A judge would be reluctant to give Sun [Microsystems Inc.] something that another judge would not give the attorney general of California."

Proponents of tougher penalties than those imposed by Kollar-Kotelly, including AAI, are pinning their hopes on the European Union, where competition regulators are examining Microsofts behavior in the enterprise, server and media player markets. "Ironically, the last best hope for the American consumer is the EU," Hawker said. "They were waiting to see if the United States fixed the problem with respect to the desktop market."

Analysts question what penalties Europe could impose that would aid users in the short run, given the rapid pace of technology and the slow pace of bureaucracy. "My view is that they would like to do something more strenuous, but its very unclear what they can do other than fine Microsoft," said Philip Carnelley, an analyst at Ovum Ltd., in London. "One of the problems is that although the behavior of Microsoft has not been good for its competitors, it hasnt actually hurt the consumer all that much."

In her lengthy opinion, Kollar-Kotelly admonished the states for raising new charges of wrongdoing because she saw her job as crafting remedies solely for acts already proved illegal. She did not suggest that the new charges have no merit, however, and she did not suggest that they shouldnt be raised in another venue. "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," the judge wrote.

To some legal scholars, Kollar-Kotellys opinion opens a door for new lawsuits in which the allegations not raised earlier in the liability phase of the case could be considered, although it will be difficult for states or companies to gather the political or financial resources to pursue it. "I think she is inviting them to file a new lawsuit," Hawker said. "I think she believes that Microsoft needs to be reined in. I think the judge believes that she was holding out a carrot to these attorneys general and private parties to file new lawsuits, but, in reality, theyre just not likely to do so."

Kollar-Kotelly reserved the authority to act on her own to enforce the settlement even if the Justice Department doesnt enforce compliance. "The fact that the judge specifically retained or clarified her right to issue orders from the bench could signal that shes saying to Microsoft, Look, if I hear complaints, Im going to do something about them," said Mark Ostrau, chair of the antitrust practice at the law firm Fenwick & West, in Palo Alto, Calif. "Because Microsoft is so central to the computer industry and the nature of the computer industry is one that requires interoperability, Microsoft over time is going to have one potential choke hold or another. Its just a question of whether they squeeze too hard."

Although industry observers largely agree that it will be hard for private parties or states to pursue new complaints against Microsoft given its victory in the landmark federal case, they agree the companys days in court are far from over. "Make no mistake, this isnt the last case that Microsoft is involved in," said Ostrau, whose firm has represented Microsoft rivals, including Sun.