Feds, Microsoft Settle Antitrust Case; Doubts Linger

By Brian Krebs, Newsbytes

The U.S. Justice Department and Microsoft Corp. [NASDAQ: MSFT] reached a settlement today in the government's long-running antitrust case against the software giant. Antitrust experts and many Microsoft competitors, however, blasted the deal as a slap on the wrist for Microsoft.

The proposed agreement would give computer makers greater freedom to include products by rival software makers on Windows-based PCs, and force Microsoft to share much of its software source code with those companies.

The deal also calls for a team of three full-time, on-site computer specialists who would have access to all of the source code that runs Microsoft's operating system and software to make sure that future Microsoft operating systems are equally compatible with competing software makers' products.

The pact requires that non-Microsoft server software must work with Windows on a PC in the same way that Microsoft servers can, a provision the government hopes will prevent Microsoft from leveraging its monopoly in the PC market to throttle competition in the server business.

The software giant also must license its operating system to certain computer manufacturers on the exact same terms for a period of five years. The deal would prevent Microsoft from forging agreements with computer and software makers that call for exclusive support of Microsoft products.

The settlement represents what many see as the best possible outcome for Microsoft, which had at one time faced much tougher restrictions, including a breakup of the company.

But antitrust experts say the settlement terms are far too lenient, and do not require Microsoft to make any substantial changes to its new XP operating system, which continues Microsoft's practice of tightly bundling applications such as instant messaging and media players with its operating system.

ProComp, an anti-Microsoft group chiefly comprising the software giant's high-tech competitors, called the settlement "laughable."

"Let's not try to pretend that this agreement will restore competition to the market, because it won't," said ProComp President Mike Petit.

Andrew Schwartzman, president of the Media Access Project - a public interest law firm in Washington, D.C. - said the settlement falls far short of issues consumers should be concerned about in many areas.

"In general, by not focusing on Windows XP, it's fighting the last war rather than the next war," Schwartzman said.

He added that much of the settlement is structured in such a way as to allow computer manufacturers to sell stripped-down versions of Windows, something that could give PC makers the ability to actually equip systems with less functionality at a higher price.

Bob Lande, a law professor with the University of Baltimore, said the pact adds virtually nothing to settlement terms Microsoft tentatively agreed to under a settlement proposed by Judge Richard Posner in 1998. Among other things, that deal would have forced Microsoft to disclose all of its Windows source code.

"This is not an advancement from three years ago, it's a retreat," Lande said. "It's a capitulation, and the only thing that's changed since then is that we've had an election" that brought a more settlement-minded Bush administration into office, he said.

If approved by a federal court, the settlement would allow computer makers to substitute Microsoft software icons with those of competing products. The underlying Microsoft applications would not be permanently removed, however, and would instead lie dormant in the event that the end-user decides to reactivate the programs.

In a press briefing this morning, Attorney General John Ashcroft rejected claims that the settlement amounted to a slap on the wristfor Microsoft, calling that assertion "totally false."

"A competitive software industry is vital to our economy, and effective antitrust enforcement is crucial to preserving competition in the constantly changing high-tech arena," he said.

Ashcroft also said the White House was notified of the proposed settlement less than 24 hours ago, and that, "in no respect did the White House seek to shape or influence the outcome."

Attorneys general for the 17 states and District of Columbia who prosecuted the case beside the federal government said today they had not yet signed on to the agreement. Pursuant to an order issued today by Judge Colleen Kollar-Kotelly they will have until Tuesday to decide whether they will do so.

But speaking outside the federal district courthouse in Washington, D.C., several attorneys general suggested they could live with the pact's fundamental elements, and suggested the rest of the states would go along with the deal.

"When we announced this lawsuit, very few would have given us the chance to achieve what this settlement represents," said Connecticut Attorney General Richard Blumenthal. "There is a lot of good in this settlement."

Sources say while Blumenthal and a core group of three other attorneys general appear ready to settle the case, the decision couldbe a tough sell to other states pursuing the case, particularly California, which has argued for far more stringent conditions. Justice Department antitrust chief Charles James said the government was prepared to defend its settlement in court, should the states opt to challenge it.

Schwartzman said he would be surprised if the states can't hold themselves together and challenge the settlement.

"I think this is sufficiently red meat for a lot of state AGs that will make it easier for them to challenge this deal," he said.

--Reported By Brian Krebs, Newsbytes.com, http://www.newsbytes.com .

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