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Microsoft and Govt settle antitrust lawsuit

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DQW Bureau
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More than four years after the case was first filed, Microsoft and the US Justice Department announced a settlement in the biggest antitrust lawsuit since the breakup of AT&T. Both parties announced they are pleased with the settlement reached after three weeks of round-the-clock negotiations. But several of the states, including New York and California, have indicated they don't think the settlement adequately punishes Microsoft and they may ask the presiding Judge to hold public hearings on the settlement.

Some of the 18 states that joined in the lawsuit against Microsoft appeared willing to accept the agreement in the face of the new war and the sagging effect the terrorist attacks have had on the US economy. One of the strongest critics of Microsoft in the four-year legal battle, Richard Blumenthal, Attorney General, Connecticut, appeared to stand behind the deal. He said the terrorist attacks spurred the two sides to settle differences. "The world changed on September 11 and that gave a powerful dynamic to resolving the issues in this case."

If Judge Coleen Kollar-Kotelly decides to hold public hearings, she will likely hear from a number of Microsoft competitors, which have voiced strong opposition to the deal which they say does little to protect them from Microsoft's predatory business strategy. Some of the comments included:

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  • "My guess is that all Bill Gates could do was to suppress a big grin when he held his press conference," said Mitchell Kertzman, CEO, Liberate Technologies, a rival provider of software for interactive TV. "This settlement does not come close to matching the scope of the violations of antitrust law that Microsoft has been convicted of. It was an inexplicably bad deal for the government."
  • Michael Morris, General Counsel, Sun Microsystems, said the Justice Department was "walking away from a case they had already won."
  • "This agreement allows a declared illegal monopolist to determine, at its sole discretion, what goes into the monopoly operating system in the future. This is a reward, not a remedy," said Kelly Jo MacArthur, General Counsel, RealNetworks, whose music and video software is threatened by Windows Media Player.
  • Paul Cappuccio, General Counsel, AOL Time Warner, said the settlement "does too little to promote competition and protect consumers, and can too easily be evaded by a determined monopolist like Microsoft."
  • "We are quite disappointed. We believe there are a lot of issues that have not been addressed," said Michael Mace, Chief Competitive Officer, Palm Computing.

Bill Gates, Chairman, Microsoft, said the deal was fair and projected an image of having given in to government demands. "The settlement goes further than we might have wanted. But it is the right thing to do. The settlement will help strengthen our economy during this difficult time and ensure that our industry can continue delivering innovations to the marketplace." He even tried a conciliatory tone. "We will focus more on how our actions affect other companies," he promised.

Added John Ashcroft, US Attorney General, consumers will benefit from the deal. "The pact will put an end to Microsoft's unlawful conduct and bring effective relief to the marketplace and ensure that consumers will have more choices in meeting their needs of computing and working with their computers. It provides prompt, effective and certain relief. This settlement is the right result for consumers and for businesses, the right result for the economy and the right result for the government."

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Under the agreement, computer makers will be able to ship computers with multiple operating systems, such as Windows and Linux. And they will be able to offer AOL's instant messaging software instead of Microsoft's Windows Messenger. They will also have greater control over what they want their start-up Windows desktop to look like and which products and services are displayed.

Over time, customers "will get a greater number of bundled choices," said Rob Enderle, Analyst, Giga Information Group.


One provision strongly supported by the states requires that Microsoft shares technical information to ensure that their non-Windows server software work as well with Windows-based servers. This will enable a Microsoft competitor to create an Internet service that would operate both with PCs and Microsoft's network. IBM, for example, could benefit if Microsoft has to give access to the interface technology behind its .NET software.

Other provisions of the deal include:

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  • Microsoft has to provide software developers with technical information so that their products can inter-operate with Windows.
  • Microsoft has to offer uniform licensing terms to key computer makers.
  • Microsoft will have to modify its new Windows XP operating system within a matter of months so that software can be added and deleted by consumers and computer makers, the department said.
  • Microsoft will be banned from signing agreements with software makers and computer manufacturers that require exclusive support or development of Microsoft software. This will allow rival manufacturers to work with Microsoft and at the same time support and develop rival products.
  • A special panel will be set up to oversee the implementation of the technical details of the agreement. The panel will be made up of three independent, on-site, full-time computer experts to help enforce the settlement.
  • A second 'Oversight Commission' will be set up to access Microsoft's financial books for five year in order to ensure that Microsoft is complying with the settlement. The commission will be jointly chosen by Microsoft and the government.

The settlement was reached after a gruesome round of secret negotiations that started three weeks ago under the control of Eric Green who was the court-appointed mediator. The negotiation sessions went on 12 hours a day in downtown Washington DC at Justice Department or in the offices of one of Microsoft's outside lawyers.

Green generally permitted Microsoft and the government to be represented by four lawyers each. At the peak of the talks last Wednesday the two sides negotiated from morning until sunrise Thursday. When talks threatened to stall, the mediator would gently point out weaknesses in one side's legal position. "He would say, 'You did not win this' in earlier court rulings," an insider to the negotiations was quoted.

But in negotiating a settlement, the government argued, it won immediate concessions from Microsoft without the delays from another year's worth of court proceedings. Justice antitrust chief Charles James said the deal "has the advantages of immediacy and certainty," important in the fast-moving technology industry.

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