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TechnologyDaily Mobile
The Next Chapter Of The Microsoft Saga
by Drew Clark
The world's largest software company was about to release a major upgrade to its operating system, used on more than 90 percent of the world's personal computers. The Justice Department and 20 state attorneys general, meanwhile, were finalizing an antitrust lawsuit that included an injunction against shipping the new software to computer makers. The two sides tried but failed to negotiate a last-minute settlement, so the government launched its most significant antitrust case in decades -- but the company already had shipped its software.
That was the scenario in May 1998, when Microsoft and its legal adversaries last played this game of chicken. Microsoft won that time: In the end, the government lost its injunction against Windows 98. But the coming months may bring forth a repeat performance.
Advisers to state attorneys general have been pondering the prospect of suing to stop the release of Windows XP, Microsoft's next major upgrade of its operating system. Last week, furthermore, Sen. Charles Schumer, D-N.Y., urged the Justice Department to include demands for changes to XP as a condition for settling the department's existing antitrust case against the company and promised Senate Judiciary Committee hearings on the new system.
But they will have to act fast and still could be outmaneuvered. The final test version of XP was released over the weekend, and Microsoft is scheduled to ship the finished product to manufacturers in late August. The public should be able to purchase it beginning Oct. 25.
Of course, much has changed since May 1998. George W. Bush is president. Steve Ballmer, not Bill Gates, leads Microsoft. Microsoft rival Netscape is now a part of the entertainment colossus AOL Time Warner. And a devastating court record exposing questionable business practices, deals and exclusive contracts by Microsoft has been issued and partially sustained by a federal appeals court.
Fit To Be Tied?
Many expected that the careful work of the D.C. Circuit Court of Appeals finally would provide some closure to the Microsoft case. Indeed, both sides appeared to welcome the decision. Microsoft saw it as a victory for what it calls its "freedom to innovate," or its ability to bundle new software products, like Web browsers, into its Windows operating system. The Justice Department and the 18 state attorneys general still on the case declared victory because the court also held that Microsoft had abused its operating-system monopoly.
But the ruling has done little to clarify a central question: What software can Microsoft bundle with Windows, and can it require computer makers not to change the package?
The last time, that debate was over Microsoft's Internet Explorer Web browser and Netscape's competing Navigator. Although Microsoft did not bar computer makers from installing Netscape on Windows, licensing agreements barred them from removing Internet Explorer from computer desktops. Microsoft lost decisively on that point. "Although Microsoft did not bar its rivals from all means of distribution, it did bar them from the cost-efficient ones," the appeals-court judges wrote in their June 28 decision.
Acknowledging this defeat, on July 11, Ballmer announced that Microsoft was changing its plan for XP. Rather than relegating all competing desktop icons to the background, Microsoft will allow computer makers to both remove Internet browser and also place competing software icons on the computer desktops.
"We recognize that some provisions of our existing Windows licenses have been ruled improper by the court, so we are providing computer manufacturers with greater flexibility, and we are doing this immediately so that computer manufacturers can take advantage of them in planning for the upcoming release of Windows XP," Ballmer said in a statement.
The XP Battle
But Microsoft's enemies are hardly thrilled with the change, saying that the browser war is over and that the important question now is whether Microsoft will extend computer makers the same freedom for software that plays audio and video files, and for digital photography products.
Rochester, N.Y.-based Kodak claims that new elements in Windows XP defeat Kodak's system for allowing consumers to plug their Kodak digital cameras into their computers and see their photographs with Kodak software. Instead, Microsoft's "camera and scanner wizard" invites users to select either Kodak's or Microsoft's digital software.
"When a customer goes out, buys a Kodak camera and installs the software on their computer, that customer has made a choice," said Kodak spokesman Anthony Sanzio. "That software should automatically launch upon connection of that camera."
Vivek Varma, Microsoft's corporate affairs director, agreed that such a result should be and is permitted under XP, but claims that Kodak has not written the software that will connect the camera to XP. He said the newly created picture-transfer protocol (PTP) -- developed by digital camera makers working in consultation with Microsoft -- should be "camera-maker agnostic."
Sanzio disagrees. "[PTP's] intent was not to allow Microsoft to hijack digital cameras when they were connected to the PC, and that is what Microsoft is doing," he said.
A similar debate is raging over whether equipment makers can disable Microsoft's Window Media Player. That software competes with market leader RealNetworks' RealPlayer, which is allied with AOL. AOL has been attempting to break Microsoft's stranglehold on the desktop by striking exclusive deals with computer makers and paying them to favor AOL's Internet service over Microsoft's comparable MSN. But under almost all readings of the appeals-court ruling, Microsoft likely will be barred from such exclusive agreements of its own.
Last week, long-time Microsoft ally Compaq Computer accepted AOL's offer.
The Endgame
In calling for changes to Windows XP before its release, Schumer cited the cases of both Kodak and RealNetworks -- complaints that AOL Time Warner has echoed repeatedly.
"We think that Windows XP is fundamentally anticompetitive, anti-consumer and may well violate terms of the D.C. court of appeals judgment," said AOL Time Warner spokesman John Buckley. "Microsoft has been howling that AOL would promote services in partnership with the OEMs [original computer equipment manufacturers] because they are so used to forcing their services through the monopoly channel."
But most competitors' arguments that Windows XP is anticompetitive ignore several sweeping sections of the D.C. circuit's decision in Microsoft's favor. These sections include the judge's dismissal of the government's arguments about monopolizing the browser market and their holding that tying two software products together -- even when one is a monopoly product like Windows -- may not violate antitrust law.
Such ties need to be considered in light of the consumer benefits, the court concluded. It then declared a standard that makes it much harder for the government to argue against bundling Internet Explorer with Windows, let alone media players or digital photography software.
"The weight of the analysis provides a road for a [lower] court to be very-hard pressed to find illegal what Microsoft did on bundling," said George Priest, a Yale University antitrust law professor. "I can't see XP being involved in a remedy of the past, and I just don't think there is enough in the opinion to justify an injunction that might impede XP."
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