MS-DOJ Pact Disappoints

By nearly every account, except that of Microsoft and the Department of Justice, the proposed settlement of their antitrust case falls far short of what the company's competitors and critics were hoping for when the landmark action began in 1998.

By nearly every account, except that of Microsoft and the Department of Justice, the proposed settlement of their antitrust case falls far short of what the companys competitors and critics were hoping for when the landmark action began in 1998.

If approved, few expect the deal to dramatically alter the competitive landscape for computer software, or give business or home users any substantial new choices. The 18 state attorneys general who originally joined with the DOJ to bring the case were still digesting the complex agreement on Friday, Nov. 2, with plans to report back to the court Tuesday, Nov. 6, on whether they will sign on or continue the action on their own.

Legal experts, meanwhile, were astonished at the DOJs willingness to give up hard-won legal ground. Robert Lande, a law professor and antitrust expert at the University of Baltimore, described the deal as a "capitulation."

"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," Lande said.

An appeals court - upholding portions of a trial court ruling that found Microsoft guilty of monopolistic behavior - ruled in June that any actions taken against Microsoft must restore competition to the affected market, must deprive Microsoft of the "fruits of its illegal conduct" and must prevent Microsoft from engaging in similar tactics in the future, Lande said. On all counts, he said, the settlement fails.

Hillard Sterling, a generally pro-Microsoft attorney, said that under the terms of the proposed accord, the company would remain an "entrenched and dominant monopolist."

The end user probably wont see a slew of new products anytime soon, because "theres no incentive for [PC makers] to remove Microsoft products that are in demand," Sterling said.

Major PC makers - including Dell Computer, Gateway, Hewlett-Packard and IBM - declined to comment on the proposed settlement, as their executives digested the latest development. A Compaq Computer spokesman said the company didnt see that much would change as a result of the proposed settlement.

"Basically, we dont feel theres a big difference between where were standing today and where we were last week," said Roger Frizzell, a Compaq spokesman.

But Scott McNealy, chairman and CEO of Sun Microsystems, one of Microsofts biggest foes, said, "Todays agreement signals a retreat by the federal government and a defeat for consumers.

"The goal of fashioning antitrust remedies is simple: to ensure that the market is free from anticompetitive conduct," McNealy said. "Todays agreement - which is more narrow and less punitive than the settlement proposal rejected by the Department of Justice in March 2000 - simply reinforces the status quo, and will do nothing to restore competition and innovation in the marketplace."

Paul Cappuccio, general counsel of AOL Time Warner, gave the deal a thumbs down. "[The] proposed consent decree does too little to promote competition and protect consumers, and can too easily be evaded by a determined monopolist like Microsoft."

Microsoft and the DOJ obviously had a different take on the deal.

"We are completely satisfied with the result," said Charles James, assistant attorney general of the DOJs Antitrust Division. He said the proposed settlement has "significant benefits for consumers, and would "create significant change in the way Microsoft will deal with companies in a competitive industry."

"With the success of our products, there came a set of competition concerns," Microsofts CEO Steve Ballmer said. "The key was for us to work with the government on a settlement that would address those competition concerns and address them fully."

Thats a turnaround for Microsoft, which for nearly four years has vehemently denied the governments charges of monopolistic behavior.

However, it seemed clear from the proposed decree that the government finally acquiesced to Microsofts assertion that middleware code is inextricably bound into the OS - a claim that many critics have disputed.

Commingling Issue Fizzles

"We think the commingling issue is fully addressed," James said. "The fact that [Microsoft] code is there is not going to keep me awake at night."

During the trial, the government fought hard to prove that Microsoft could easily separate its Internet Explorer browser from the Windows OS and had tied them together to kill Netscape Communications Navigator browser. An appeals court largely ruled against this argument.

Under the five-year agreement, Microsoft would be allowed to keep the code of applications such as its streaming media player and instant messaging in its OS. But the company would have to share its closely held Application Programming Interfaces with developers of competing products. It would also have to share the APIs for its servers.

Brian Behlendorf, lead developer of the Apache Web Server and chief technology officer of CollabNet, a collaborative software development tools firm, said publicizing the server APIs "keeps them a little bit more honest, but I dont think it buys that much."

Microsoft already airs some APIs such as its Mail API, so a desktop can exchange information with a Microsoft Exchange server. But Behlendorf said Microsoft has a history of publishing some APIs and keeping others hidden to give its own software a performance advantage. A cottage industry grew up trying to air the hidden APIs for Microsofts Excel and Windows.

The proposed settlement would also forbid Microsoft from retaliating against computer makers that add competing middleware to their PCs, and would require the company to license its OS to the top 20 PC manufacturers under uniform terms.

The pact would be overseen by a panel of three full-time monitors. This "Technical Committee" would work directly for the DOJ but be paid by Microsoft. Each monitor would be an "expert in software design and programming." The panel would have full access to Microsofts source code and be the primary conduit for complaints from third parties.

One executive, who requested anonymity, scoffed at the role of the technical panel: "They are the canary in the coal mine. Their sole function is to chirp if something goes wrong." After that, the DOJ must investigate and build a case for enforcement.

Such provisions have legal experts and competitors doubting that Microsoft would ever follow such an agreement in good faith. "Microsoft is a truck with engines running - ready to blow through every loophole in the decree," Sterling said.