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A Microsoft Settlement Without Closure
by Drew Clark
Last week's settlement agreement between Microsoft, the Justice Department and nine of the 18 states that have been suing the company might end the long-running legal battles over Microsoft's anti-competitive domination of the software market. Then again, it might not.
One person likely to be breathing a sigh of relief is U.S. District Judge Colleen Kollar-Kotelly, a no-nonsense umpire given charge of cleaning up the mess and who ordered the two parties into mediation. The 28-page agreement could free her from the daunting challenge of crafting a remedy for Microsoft's illegal conduct. Presented with the agreement in court Nov. 6, Kollar-Kotelly declared herself "satisfied" that the parties had made a good-faith effort and that most of them had come to an agreement.
But her relief must be only partial because not everyone is satisfied. Those who disagreed include the other half of the state attorneys general who are party to the case and Microsoft competitors Oracle, Sun Microsystems and America Online -- each of whom have muscled onstage and have relished their rival's adversities in court.
Antitrust experts themselves are divided on whether the settlement would fail to meet or would exceed the strictures of the by the D.C. Circuit Court of Appeals' opinion. Those in the former camp doubt that it would be tough enough to check the power of an unrepentant monopolist. Those in the latter camp wonder who the remaining nine attorneys general think they are to reject a settlement deemed acceptable by the U.S. government.
A Snapshot Of The Agreement
Microsoft was found liable for illegally monopolizing the operating-system market over competitors like Netscape by systematically leveraging its Windows system to cut deals with software vendors, Internet service providers and computer makers that would favor other Microsoft products. Navigating a remedy to that violation would have been all the more daunting because it could not have been any broader than the appeals court's unanimous June opinion, in which it rejected two of the government's other antitrust claims against Microsoft.
Most of the agreement -- painstakingly negotiated over the past four weeks with Eric Green, a Boston University law professor who is an expert in alternative dispute resolution -- outlines 10 specific things Microsoft could not do and establishes a multi-pronged enforcement strategy, with most of its weight suspended on a three-person technical committee that would have total access to Microsoft's source code and internal documents.
The key constraints on Microsoft would be that it could not retaliate -- through higher prices or by withholding technical information -- against software companies that compete with it and against computer makers that choose competitors' software products. Hence the deal would grant greater flexibility for computer makers to alter their desktops by deleting Microsoft's Internet Explorer Web browser or any other component parts incorporated into Windows.
In other words, the remedy relies upon computer manufacturers to compete by removing Microsoft "middleware" -- or software that sits between the operating system and the user, such as a Web browser or a digital media player -- and replacing it with a rival's. Dell, Hewlett-Packard and Gateway thus become proxy for the consumer, and they compete by differentiating their desktops. That approach contrasts with stripping things from Windows on the grounds that they were illegally tied -- a government argument rejected by the appeals court.
Microsoft would have to change the next version of Windows XP in one year or less to include an "Add/Remove" icon that would allow consumers to remove access to any piece of middleware by Microsoft or its competitors. Also, the deal would require Microsoft to disclose elements of its source code in a way that facilitates interoperability with competing systems, to create uniform licensing contracts, and not to enter exclusive agreements that require Microsoft software.
The Quest For Court Consistency
"The settlement is consistent with the relief we might have obtained in litigation," said Assistant Attorney General Charles James, the current head of the Justice Department's Antitrust Division, which first brought the case under the Clinton administration. He said the remedies included in the agreement would match those called for in the appeals-court decision.
That view was contested by attorneys general of California and Massachusetts, the ringleaders of the effort to forestall a settlement by their fellow states. Massachusetts Attorney General Tom Reilly said the settlement is "fundamentally flawed. It has enormous loopholes and may prove to be more harmful than helpful to competition and consumers."
The associations of companies that compete with Microsoft share that view and were outraged by the settlement. Asked his opinion of the settlement while standing in line to enter Kollar-Kotelly's courtroom on Nov. 2, the day the agreement was announced, the top lobbyist for one of Microsoft's rivals deadpanned, "It's a pretty good deal ... for Microsoft."
"On what basis is the Department of Justice now willing to settle on terms less favorable than those set forth in settlement discussions that occurred prior to its overwhelming victories in the courtroom?" questioned Ed Black, executive director of the Computer and Communications Industry Association (CCIA), which is funded by Microsoft rivals.
Last week, Black also distributed a CD-ROM entitled "Microsoft's Money: An Investment in Influence." It promises to "help you follow the money" and to show how "Microsoft wants to buy its way out from under our antitrust laws."
Determining The 'Public Interest'
CCIA is planning to criticize the agreement in the 60-day public comment period required under the Tunney Act before the judge decides whether to accept the deal as being in the "public interest." CCIA already has experience in Tunney Act proceedings, having filed a motion to oppose the Justice Department's 1994 settlement with Microsoft on a related charge.
James, however, counters that while the agreement is pro-consumer, it is not designed to help Microsoft's competitors.
Besides California and Massachusetts, states continuing to oppose the settlement include Iowa, Connecticut, Florida, Kansas, Massachusetts, Minnesota, Utah and West Virginia. The District of Columbia also opposes it. That list of foes encompasses a collection of most of the major players in the suit except for New York, Ohio and Wisconsin.
The split by the states leaves Kollar-Kotelly with the responsibility to run two judicial proceedings, and last week she announced that she would run both concurrently. One is the Tunney Act proceeding; the other is an actual hearing on remedies that would be acceptable to the non-settling parties. Last Friday, she formally set March 4 as the date for the latter hearing.
Although Kollar-Kotelly said the remaining nine state foes and Microsoft should start preparing for a trial that will start March 11, several observers said her decision to hold the Tunney Act hearing first means that intense pressure will be placed on the states to settle if she indeed finds that the settlement is in the "public interest."
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