WASHINGTON, D.C. -- Acknowledging that Microsoft needed to modify its behavior, company leaders Bill Gates and Steve Ballmer agreed to settle their long-running antitrust battle with the Department of Justice in hopes of becoming a better industry leader.
"With the success of our products, there came a set of competition concerns," Microsoft CEO Ballmer said in a press conference this morning. "The key here was for us to work with the government on a settlement that would address those competition concerns and address them fully ... Theres certainly a lot not only in the way of rules and regulations, but also in the way of ongoing oversight in our business in this settlement."
Added Chairman Gates: "Were accepting quite a broad set of new requirements on the company and that was done because the government felt there were some concerns. We accept these responsibilities and we resolve ourselves to becoming an even better industry leader."
It was quite a turnaround for Ballmer and Gates, who for nearly four years have vehemently denied the governments charges of monopolistic behavior.
But in a settlement presented this morning to U.S. District Judge Colleen Kollar-Kotelly, Microsoft agreed to a number of restrictions and strict oversight by a panel of full-time monitors will full access to its books and software code.
Although Microsoft and the Department of Justice signed off on the deal, the 18 state attorneys general who had joined the suit against the software giant asked for more time to review the deal. Another hearing is scheduled for Tuesday.
Among the key requirements, Microsoft agreed to provide other software developers with the interfaces to its middleware so that competitors can develop products that will work smoothly with the Windows operating system.
That requirement will extend to all technologies that have the potential to be middleware threats to Microsofts operating system monopoly -- including browsers, e-mail clients, media players, instant messaging software and future middleware developments.
"This settlement will promote innovation, give consumers more choices and provide the computer industry as a whole with more certainty in the marketplace," said Charles A. James, assistant attorney general for the Department of Justices antitrust division, in a statement announcing the settlement. "The goals of the government were to obtain relief that stops Microsoft from engaging in unlawful conduct, prevent any recurrence of that conduct in the future and restore competition in the software market. We have achieved those goals."
A three-member panel of computer experts would monitor Microsofts compliance.
"Its not discretionary," Gates said. "The oversight committee is there to take any issues that comes to them and make sure [if] there are any concerns about information disclosure that all the information thats required is out there."
The proposed settlement also prohibits Microsoft from mandating which products computer makers place on their desktops, requires the company to provide uniform licensing terms to PC makers and prohibits it from retaliating against computer and software makers for supporting or developing competing software.
"The biggest thing in terms of the PC industry is moving forward with new products," Gates said. "In [the settlement], OEMs [original equipment manufacturers] get clear flexibility in some of the ways they configure the system. Im sure that theyll be creative in looking at consumer demand."
But the major PC manufacturers -- including Compaq Computer, Dell Computer, Gateway, IBM and Hewlett-Packard -- declined to comment on the proposed settlement, as their executives digested the latest development. "Its too early to comment," said an IBM spokesman. "We might have more to say later."
Good or Bad?
The settlement would resolve the landmark antitrust case filed against Microsoft in 1998. Kollar-Kotellys predecessor, Judge Thomas Penfield Jackson, had found the company guilty and ordered it broken up.
An appeals court, however, removed Jackson from the case and ordered parts of the case remanded to trial. Still, the appeals panel found that Microsoft had broken antitrust law and should be punished for illegally maintaining its operating system monopoly.
And many questioned whether the settlement would go far enough to address the wrongdoings cited by the appeals court.
"I believe in market economies, where marketplaces are dynamic and vibrant and people care about the freedom of choice," said Scott McNealy, Chairman and CEO, Sun Microsystems, Inc. "Throughout the last century, the U.S. economy has profited greatly from sound antitrust enforcement. Todays agreement signals a retreat by the federal government, and a defeat for consumers."
The settlement is an "embarrassment" and a "misjudgment of epic proportions," said Jeff Eisenach, president of the Progress and Freedom Foundation, a conservative Washington, D.C., think tank. "Four months after a federal appeals court affirms all of the substantive findings against Microsoft, the Department of Justice proposes a settlement that addresses none of them in any meaningful way," Eisenach said. "Looking back, the company gets to keep its ill-gotten gains. At the present, you have no meaningful restrictions on how the company conducts itself, and looking forward it allows them to apply the same kind of practices in areas like Passport and Media Player and other new technologies where the new battlefields are taking shape."
Eisenach added: "What it means for the technology community, if it is allowed to stand, is everybody had better get used to living in a Microsoft world."
Eisenachs criticisms were echoed by Robert Lande, a law professor and antitrust expert at the University of Baltimore, who described the settlement as a "capitulation" on the part of the Department of Justice.
"It looks like the government is giving them a slap on the wrist. I find that sad. It wont achieve any of the goals of the proceeding," he said.
The June 28 appeals court decision, citing Supreme Court precedents, said any actions taken against Microsoft must restore competition to the effected marketplace, must deprive Microsoft of the "fruits of their illegal conduct," and must prevent Microsoft from engaging in similar tactics in the future, Lande said.
On all counts, he said, the current settlement fails.
Given the conservative slant of the Bush administrations Department of Justice, however, Lande said he was not surprised by the settlement.
Given the states more aggressive pursuit of Microsoft than the federal governments, Lande expects many of the states to reject the settlement and pursue the case independently before the judge.
But the foundering economy may imperil the states attempts to forge ahead.
"Were now in a recession. Of the 18 states, you have to expect some of them to peel off. Will the remaining 12 states, for example, have the resources to make a go of it without the Department of Justice? You cant do this half-heartedly," Lande said.
Eisenach predicted that the judge would reject the settlement out of hand, because it does not address any of the stipulations of the June ruling.
Long Time Coming
Todays settlement has been nearly four years in the making. And both during and after the hearing, most everyone involved in the case cited the terrorist attacks of Sept. 11 as providing the impetus to get this off the Justice Departments docket. Connecticut Attorney General Richard Blumenthal called the attacks a "powerful dynamic" that changed the negotiations.
Microsofts Ballmer discounted those claims: "I think the tragedy of Sept. 11 really stands on its own. Certainly, the District Court judge that was assigned to this case did indicate that she wanted rapid action and a vigorous pace for these settlement discussions. And we appreciate her work and the work of the mediator, but as I said, I think the events of Sept. 11 stand on their own."
Microsofts lead attorney, John Warden, said the "The greatest beneficiary of this settlement is the national interests. The settlement is good for parties and for consumers."
Connie Guglielmo, Randy Barrett, Jeri Clausing, Doug Brown and Todd Spangler contributed to this story.