Series: Playing Monopoly!
Microsoft is the 400 pound gorilla of software - and now it's legally a monopoly.
Article 1 of 19 in series
by Geoff Duncan
Microsoft Antitrust Case to Supreme Court -- U.S. District Judge Thomas Penfield Jackson - who has been presiding over the Microsoft antitrust trial - has agreed with the Justice Department's request under the Expediting Act to send Microsoft's appeal directly to the U.SShow full article
Microsoft Antitrust Case to Supreme Court -- U.S. District Judge Thomas Penfield Jackson - who has been presiding over the Microsoft antitrust trial - has agreed with the Justice Department's request under the Expediting Act to send Microsoft's appeal directly to the U.S. Supreme Court, bypassing the U.S. Circuit Court of Appeals. Judge Jackson has already found Microsoft guilty of violating antitrust law and, earlier this month, ordered both a series of restrictions on Microsoft's business practices and that Microsoft be split into two separate entities. The decision to expedite the case directly to the Supreme Court is a blow to Microsoft, which wanted to proceed to the Appeals Court, which has previously been friendly to the company and (in a controversial move) had already agreed to hear Microsoft's appeal with a panel of seven judges rather than the usual three. However, Judge Jackson's decision does have a silver lining for the software giant: the judge's divestiture order and conduct restrictions on the company are suspended until the ruling is overturned or Microsoft exhausts its appeals. The Supreme Court must now decide whether it will hear the case - a decision which may come quickly or could take months - and it could still cede the case to the Appeals Court. (For more background, see TidBITS's coverage of Microsoft antitrust issues.) [GD]
Article 2 of 19 in series
As trial continues on the U.S. Department of Justice's antitrust case against Microsoft, the public remains divided about whether or not Microsoft has tried to interfere with competition, and if so, if it mattersShow full article
As trial continues on the U.S. Department of Justice's antitrust case against Microsoft, the public remains divided about whether or not Microsoft has tried to interfere with competition, and if so, if it matters. If you think this isn't an Apple problem, think again, because this issue has repercussions throughout the computing industry. Apple could benefit or lose no matter which way the issue is resolved, but after staking out the available paths, I think you'll discover a preferable one.
What Exactly Is Wrong? The problem presented by Microsoft's domination of the computer industry is complex and will likely have a complex solution, something you've probably guessed because no proposal has yet made sense to everyone. The issue defies attempts to encapsulate it in sound bites, so please indulge a more thorough discussion.
U.S. laws from the early 20th century classify businesses that hold a nearly exclusive position in a given market as "monopolies." That era saw several such businesses achieve virtual strangleholds on the markets they allegedly served. When competition arose, the monopoly firms would use their powerful positions either to squash it or to assimilate it in moves that predated the Borg by 500 years. Standard Oil, for example, owned railroads, insuring that Standard-brand oil was transported less expensively than any other oil. That gave Standard Oil lower costs and an unbeatable price advantage.
Standard Oil theoretically consisted of several companies, but they acted in collusion as a giant entity to fix prices and eliminate competition. Such a collaboration is called a "trust," defined by the American Heritage Dictionary as "a combination of firms or corporations for the purpose of reducing competition and controlling prices throughout a business or an industry." That's why the pro-competition laws in the U.S. are called "antitrust" laws, even though they're often applied to a single corporation, such as AT&T or Microsoft.
The laws themselves are often debated. Some quote economist Adam Smith, who theorized than an "Invisible Hand" works to guide free markets to optimal positions. If one company becomes too powerful, the Invisible Hand points to opportunities for smaller companies to come in and pick off sales, restoring competition. If no company succeeds in a market, the Invisible Hand is signing that no such market exists. The theory has withstood a few centuries of interpretation and practice, and remains the chief explanation of why a mostly unregulated economy manages to stay afloat so well. Regulations on U.S. businesses are typically social; few firms are told what products they can and cannot sell, and prohibited items are usually banned for social reasons like toxicity or "national security." Since the Invisible Hand usually keeps the economy flourishing, people are reluctant to see a bureaucracy like the U.S. government start regulating commerce.
Proponents of regulation and antitrust laws say this is a simplistic notion. Adam Smith, living hundreds of years ago, couldn't have imagined modern business. Corporations today are commonplace - it takes only a form and a small payment to start one. But they were extremely rare in Smith's day and for a long time thereafter - when Texas became a state, chartering a corporation took a two-thirds majority of both houses of the legislature. Corporations divorce personal responsibility from economic action, and it can be argued this has greatly changed how our economy works. Today, corporations are seen as responsible only to their shareholders. As little as 20 years ago, such businesses were widely - and without much question - seen as also having duties to their employees, the communities in which they reside, and their customers. Today there is little controversy, though much grumbling, if a corporation decides to lay off a few thousand people in the name of higher profits.
Abandoning older customers in favor of newer ones may not be the best business move, but many companies do just that if the new path leads to higher profitability - how many profitable Macintosh software companies have decided to become more profitable Windows companies? The news is full of lawsuits, boycotts, and other actions against companies that have allegedly sold products they knew were harmful, or engaged in practices which they knew could damage the environment or employee health, simply for higher profits. Exploitation of workers was a staple of Adam Smith's era also, but in Smith's economy, such business owners could be held personally responsible for their actions. Today that responsibility lies with the corporations themselves, and corporations can be punished only economically unless specific charges can be proven against specific people. The buck stops nowhere, and lack of responsibility leads to a lack of social conscience.
That said, there are two key questions in the Microsoft matter:
1. Did Microsoft break the letter or spirit of the U.S. antitrust laws?
2. If they did, should Microsoft be punished, or should the laws be changed?
Is Microsoft Guilty? Judge Thomas Penfield Jackson is currently presiding over a trial to decide that question, but even "guilty" is a loaded word. Microsoft is charged with civil, not criminal, violations of the antitrust laws.
In June, when we first considered this issue in MWJ, we concluded that Microsoft was probably in violation of these laws based on evidence available at the time. The revelations at trial have been interesting, but haven't done much to damage the basic case against the company.
Under U.S. law, a company that holds a monopoly position cannot use that advantage to achieve dominance in another market. A monopoly position by itself is tolerable; public utilities are often said to constitute "natural monopolies" because the infrastructure of power lines and phone cables is impractical, if not impossible, to duplicate. Those utilities can often stay intact at the price of regulation, but sometimes even that isn't enough for regulators, as the 1984 breakup of AT&T demonstrated. It's easy to forget that in 1984, AT&T was pressing to require that all modems be used on business-rate phone lines. Today's competitive market would laugh at such a notion.
Conservative estimates give Microsoft 80 percent of computer operating systems sold today, a monopoly by most standards. For better or worse, companies in monopoly positions are held to stricter standards. If Microsoft tries to use its position as the dominant OS vendor to become a dominant force in another market, the company has broken the rules. It's pretty clear this is what happened with Internet Explorer.
The U.S. Justice Department alleges that Microsoft entered the Web browser market in 1995 because Netscape was talking about Netscape Navigator replacing the operating system. Windows (or Mac OS) would host Navigator, but Navigator would be your gateway to Internet capabilities, from the Web to file transfer to videoconferencing. Historically, Microsoft has made its Big Money on applications like Office and Encarta, with help from server software like BackOffice and Windows NT Server Edition (the one bundled with lots of Microsoft's servers). Windows is now posting lots of revenue for Microsoft, but it's unclear how the company accounts for the servers that are technically applications but sold with Windows NT Server Edition as "platforms." Microsoft software often does well because it takes full advantage of the latest advances in Microsoft operating systems. Microsoft Office 95 was available when Windows 95 was released, providing benefits like long file names to frustrated Office users. If Microsoft became "just another developer" writing Internet software to specifications set by Netscape, they'd lose a major competitive advantage, and that was not acceptable to super-competitive Microsoft.
So they created an Internet strategy that involved not only moving applications towards Internet standards and providing servers for those standards (a smart move few people would question), but also creating a Microsoft Internet browser to provide Microsoft's own layer of "middleware." If the Internet did become the next operating system, Microsoft wanted it to be their Internet. They wanted the standards for multimedia to be Microsoft standards, not QuickTime. They wanted people to write ActiveX controls to add on to a browser's functionality - not Netscape plug-ins or OpenDoc parts or Java applets. They wanted standards invented in Redmond and incorporated in Microsoft applications, not some third-party technology that another company knew better.
This is all healthy competition, an area the government normally wouldn't touch - but it didn't stop there. Microsoft also allegedly decided to use its position as the supplier of Windows to force its Internet software into customer hands. The Department of Justice (DOJ) claims that Microsoft required Windows licensees like Compaq and Dell to include the Internet Explorer icon on all systems or risk losing the right to distribute Windows. The DOJ further alleges that Microsoft initially refused to allow PC makers the right to include Netscape Navigator or any other Web browser with PCs equipped with Windows 95, and that Microsoft coerced Internet service providers into preferring Microsoft Internet software by providing priceless marketing exposure within Windows for those who cooperated and denying it to those who stuck with Netscape.
Early evidence released in the trial supports some of these claims. David Colburn, AOL's senior vice-president of business affairs, has testified that Microsoft approached the company to make Internet Explorer the browser of the AOL software - specifically asking "How much do we need to pay you to screw Netscape?" Microsoft points to other documents in the AOL negotiations emphasizing the technical merits of Microsoft's software - how it competes with Netscape. But the government's claim is not that Microsoft's browser works poorly, it's that they tried to use a monopoly position with Windows to dominate the Internet software market. In that sense, the AOL testimony was particularly damaging, because Colburn was not swayed from his claim that AOL chose Microsoft's technology because it was the only way to have AOL's client software included on the desktop of every copy of Windows 95.
Other allegations say Microsoft used similar tactics with ISPs - unless they agreed to promote Internet Explorer, restrict distribution of Netscape Navigator, and try to convert users to Microsoft software, they wouldn't be included in Windows 95's built-in software for signing up new Internet accounts. In each case, Microsoft is accused of using the power of owning Windows to push Microsoft Internet software into the hands of people who may or may not have wanted it. Few people will purchase a program when a free version does almost everything they need. If you doubt this, think of how many email users you know who have never purchased a commercial client like Claris Emailer, Eudora Pro, or Bare Bones Mailsmith. Microsoft counts on this strategy to increase market share; recent figures show Microsoft Internet Explorer now has anywhere from 40 percent to 55 percent of the browser market, up from nothing in 1995.
The Joy of Bundling -- Microsoft, in part, defends against these allegations by saying Internet Explorer is part of the operating system. The Justice Department says Internet Explorer is an application, just like Microsoft Word or Netscape Communicator or Riven. As such, Microsoft's inclusion of the browser in Windows 98 is bundling, and anything that's bundled can be unbundled. Microsoft rebuts by saying Internet Explorer functionality is built into Windows 98 and used by many parts of the operating system; the Internet Explorer "application" is just a shell that puts an application wrapper around core Windows 98 capabilities. Trying to rip out those capabilities would be as disastrous as trying to remove the Apple Event Manager from the Mac OS.
The Internet Explorer functionality is increasingly contained in what Mac OS users know as shared libraries (called dynamically linked libraries, or DLLs, to Windows folk). The Windows version of Internet Explorer calls those libraries to do the majority of its work. Other parts of Windows 98 use those libraries as well, as do a growing number of applications (for example, Eudora Pro 4.0 for Windows can use those libraries to render HTML-formatted email), so unbundling them is not an option for Microsoft. That's why the company maintains that the government's demand to remove the "shell" application is misguided, since the bulk of the Internet Explorer functionality must remain in Windows 98 for it and other applications to work properly.
So is it bundled? Not in a traditional sense. Microsoft is to be commended for adding more Internet functionality to the OS, since the media continues to emphasize how the Internet is increasingly important to Every Single Person in the World. Removing the Internet Explorer shell doesn't solve the problem, and neither would the government's belated request that Microsoft should bundle Netscape Communicator with Windows 98. Communicator is now free in response to Microsoft's free browser, so Microsoft would incur no cost for the bundling, but the company's resistance to the suggestion shows how deeply Microsoft is out to control the middleware layer Netscape threatened to dominate just two years ago.
Before we surrender Microsoft to the DOJ's legal wolves, however, it's important to realize that this isn't a simple case of one company bullying others. The outcome of Microsoft's antitrust trial promises to impact the rest of the industry as well, and we'll look at that in part two of this article.
[Matt Deatherage is the publisher of MWJ, an acclaimed subscription-only newsletter for serious Macintosh users. Those who sign up this week for a free three-issue trial subscription can still receive MWJ's Mac OS 8.5 special edition, the most comprehensive coverage of Mac OS 8.5 available anywhere.]
Article 3 of 19 in series
Last week, I looked at how Microsoft wound up facing monopoly and antitrust complaints from friends and enemies alike. Now it's time to see if the charges are relevant or leftovers from a different economic time - and why only Microsoft seems to be facing such scrutiny. Could Microsoft Learn From Apple? Why doesn't Apple get complaints like those against Microsoft? A former Mac OS clone vendor has filed suit against Apple, claiming that Apple abused a monopoly position in Mac OS hardware to kill clones in 1997 - but no one has filed a similar suit claiming Apple has abused a software monopolyShow full article
Last week, I looked at how Microsoft wound up facing monopoly and antitrust complaints from friends and enemies alike. Now it's time to see if the charges are relevant or leftovers from a different economic time - and why only Microsoft seems to be facing such scrutiny.
Could Microsoft Learn From Apple? Why doesn't Apple get complaints like those against Microsoft? A former Mac OS clone vendor has filed suit against Apple, claiming that Apple abused a monopoly position in Mac OS hardware to kill clones in 1997 - but no one has filed a similar suit claiming Apple has abused a software monopoly. It's surprising, because software firms love to file lawsuits. It's a status thing.
Apple generally avoids such difficulties by building systems that invite third-party participation and not tightly integrated components that can't be separated. Think about your Internet software. You can't rip the email functionality out of Netscape Communicator and put Eudora or Mailsmith into your browser, but you can use Eudora or Mailsmith instead of the built-in email capability. That's the difference.
Look at AppleScript. It's based on Apple events - an inter-application communication mechanism useful in many ways other than scripting. Apple events in turn are based on other Mac OS components like low-level events and AppleTalk. None of these technologies is restricted to AppleScript - developers are free to use any of them without including AppleScript support, or even if AppleScript isn't installed.
But Apple didn't limit the Mac OS to a single scripting implementation. UserLand Frontier was available before AppleScript hit the market, and programs from CE Software's QuicKeys to MacPerl to WestCode's OneClick all provide some level of system-wide automation. Anticipating third-party interest, Apple constructed a layer called the Open Scripting Architecture, or OSA. (In fact, the technical name of a scripting addition is "Open Scripting Architecture Extension," or OSAX.) The mechanisms for scripting, but not the actual AppleScript language, were made available in the system to any scripting language. Through this layer, all Macintosh scripting languages can work together if they want. That's why the Script Editor lets you edit and compile scripts in any OSA-compliant language you have installed (clicking the word AppleScript in the lower-left corner of a Script Editor window activates a pop-up menu for selecting languages).
AppleScript comes free with the Mac OS, but other scripting languages do a better job of meeting other needs. This kind of open-ended support is typical of the Mac OS. You may not know it, but even fonts are now handled this way. QuickDraw GX introduced the Open Font Architecture, which lets developers insert their own code to draw fonts in their own formats. When OFA is available, Adobe Type Manager works as an OFA font scaler, as does the built-in TrueType scaler. OFA is available without QuickDraw GX in Mac OS 8.5 and later, though documentation is still not available to mortals.
If Microsoft had created some kind of "Open HTML Rendering Architecture" and supplied Internet Explorer's engines as one implementation, there wouldn't be much problem. Netscape could write their own components to replace Microsoft's components, and customers would have their choice of code to use underneath the application level. For instance, Eudora Pro 4 for Windows would ask the operating system to provide HTML functionality, and users could choose whether that functionality came from Microsoft, Netscape, Spyglass, or from any other developer of HTML renderers.
If Microsoft had done this, it's unlikely the Justice Department would have had a complaint concerning bundling. If the government were more engineering-savvy, this might be the kind of remedy they want a court to impose if they win their suit. Such a solution addresses problems of Microsoft stifling competitiveness without swinging the pendulum too far the other way - forcing Microsoft to bundle Netscape's code when the two have legitimate competitive issues about middleware layers.
Yet it's the absence of this solution that, to me, shows more of Microsoft's probable intent. Microsoft hasn't been shy about appropriating Apple ideas in the past, and they're currently in the process of lifting the scripting architecture for use in Windows. Microsoft knows how to do the third-party expandability drill, as they've shown in areas like ActiveX. By deliberately ignoring these well-known and successful ways of allowing third-party integration - and bundling Internet Explorer and only Internet Explorer with Windows 98 - Microsoft has inadvertently shown just how intent they are on controlling the middleware layer and not just providing the new features they're constantly crowing about.
I see little doubt that Microsoft broke at least the spirit and probably the letter of the antitrust laws. Internal Microsoft memos released by the U.S. government have shown Microsoft trying to drive Netscape out of business, using Windows as a club wherever they believe it will work. If the Justice Department establishes these allegations as fact in Judge Jackson's eyes, the government will have made its case. Using Windows to muscle other software into everyone's hands is exactly the kind of behavior the antitrust laws were designed to prevent, or at least to punish.
Does Microsoft's Behavior Matter? Are these alleged violations of U.S. law something that means Microsoft should change, or something that means the laws should change? After all, these laws were written in the days of an industrial economy. When a company in 1912 included something "free" with another product, the free item had a definite cost. It's fair to guess that none of those legislative authors ever conceived that the entire cost of a product could one day be tied up in research and development, with virtually no cost for each individual unit. Once Microsoft creates Internet Explorer and makes it available for download, the "cost" of each new user is only the barely measurable cost of the bandwidth for the download. Even the classic information distribution methods of newspapers and books have production costs. How do - and should - the government and citizens respond to monopolistic behavior in the information age?
Microsoft argues that their behavior is competitive, not anti-competitive. In a 1998 Wall Street Journal op-ed piece, Bill Gates says the main reason Microsoft is a target of government investigators is that they innovate too well.
"The government's proposals for how software products should be designed would hurt Microsoft, but they would hurt others more. They would deny independent software developers the ability to make use of the latest operating system technology in their own products. And they would deny consumers the ability to buy innovative software that allows them, say, to download data from the Internet while they are using Microsoft Word or Intuit's Quicken. Some of our competitors don't think consumers should be allowed to benefit from such innovations. They don't want to compete in the marketplace; they want to compete in court."
As usual, Gates is twisting the truth in his desire to win. Nothing stops anyone from downloading material from the Internet while using Word or Quicken today; browser functionality doesn't have to be built into the operating system for Windows's vaunted preemptive multitasking to work. But the real battle here, as an article in Information Week points out, is more about bundling and architecture than anything else.
Whenever Microsoft releases a new product, part of the feature list includes new code added to address customer concerns (or Microsoft's strategic concerns), and qualifies as "new features" by anyone's definition. But part of the feature list almost always includes formerly separate products that Microsoft tosses in for free. If a particular expensive stand-alone server isn't doing well, Microsoft may decide to make it free with another, more popular server, in the name of adding functionality to the more popular product.
The trouble here, of course, is that Microsoft is essentially giving away certain products to build market share - the same products can't win in the free marketplace. Information Week talks about a new Microsoft Online Analytical Processing (OLAP) server bundled with the latest release of Microsoft's SQL Server (version 7.0). Existing OLAP servers, reports IW, sell for up to $3,500 per user, but Microsoft's will be free with their popular SQL Server. If Gates's mantra about "choice for consumers" were more than an empty marketing slogan, his company wouldn't routinely undertake moves like this to eliminate those pesky competitors.
He could be the world's most self-absorbed person, but Oracle CEO Larry Ellison may have been on target about Microsoft. Ellison may have studied Microsoft more closely than anyone else in the world, since his overwhelming drive in life is to be Bill Gates Except With Style. Ellison thinks Gates's mantra of "choice" via bundling is, to no one's surprise, total crap. The Oracle chairman has told interviewers that Gates's logic sounds good, except that what he sees as "innovation" is whatever his major competitor's main product is. What if Oracle becomes Microsoft's next strategic threat? Will SQL Server become a free part of Windows NT - or Windows 98? Will Gates then argue that he can't "innovate" without the ability to take any piece of application software and build it into the operating system?
Microsoft's strength as a combined application and OS vendor has always been integration, like the simultaneous release of Office 95 and Windows 95. If Microsoft's servers are the most integrated with Microsoft's operating system features, it follows that Microsoft's servers already enjoy a serious competitive advantage. Tight integration, as with Internet Explorer, makes it impossible for competitors to replace functionality. If Microsoft then uses that position to destroy competition by bundling inferior servers, giving away a mediocre but free built-in product in a high-quality but high-price market, then in the end they're using the monopoly OS position in more than just the Internet market.
What's the Result? Most roads lead to the same conclusion: Microsoft's behavior is bad for the industry and thus bad for consumers. It's not about giving people more choice; it's about giving them the choice of Microsoft for free or other products for way more money. Once the choice to use Microsoft products would be too expensive to change, Microsoft can then start raising fees and moving their servers towards working well only with their applications, locking in more Microsoft choices. Think about how many offices today have already standardized on Microsoft Windows and Microsoft Office. Will any situation be helped by those same offices locking into Microsoft Internet software, Microsoft server software, and who knows what else?
When a company obtains a market share as large as Microsoft's, the rules simply are different. A small company can use a strong product to wedge its way into new markets, just like BMW has done by using its niche in luxury cars to enter the upscale sport utility vehicle market in the U.S. A large company can't use this sort of tactic, because the lack of competition in one market gives them an unfair advantage over the others. Even if other makers of OLAP servers did decide to give away their products (and their revenue), they couldn't reach all the customers of Microsoft's SQL Server. In short, anti-competitive actions may be unpleasant and even unethical when practiced by small companies, but they don't violate antitrust law, as they do when they're practiced by monopolies.
If Microsoft hadn't shown signs of anti-competitive behavior in the past, maybe its critics could cut the company some slack. If Microsoft's version of "innovation" wasn't so often just buying or copying a product and giving it away at lower prices, the arguments might not ring hollow. If Microsoft's examples of competition were companies that had thrived instead of barely hanging on, they might sway detractors. But they have, it has, and they are, and it all adds up to trouble. Messy though it is, and unsympathetic though U.S. courts sometimes are to antitrust claims, the Department of Justice is moving wisely to at least keep Microsoft in check.
The recent past has shown U.S. citizens that ignoring antitrust laws doesn't lead to more choice - it leads to larger companies with fewer options. It's become apparent with banks, cable TV providers, regional phone companies, and others too obscure to mention. It may not be the government's business to regulate Adam Smith's Invisible Hand, but the government does serve the people by preventing too much power from being vested in non-elected bodies. The strange part is that Adam Smith agreed - he was strongly opposed to monopolies and corporations.
The U.S. Great Depression of the 1930s showed us how dangerous large and unrestricted banks can become - not because they don't operate well, but because the consequences of failure are too much to bear. The 1970s and 1980s showed that when large companies would seriously damage the U.S. economy by their failure (Continental Illinois Bank, Chrysler, and recently Long-Term Capital Management), those companies are bailed out instead of letting the Invisible Hand run them through. The result could easily be a Microsoft that has freedom to forget everything it knows about innovation and competition and still remain the strongest software company in the world - at taxpayer expense.
Microsoft seems beyond failure now, but if their products become so good that upgrade sales evaporate, the story could change. No company is crash-proof, and no interest other than Microsoft's is served by so much power residing in one company's hands. If it really was about innovation and choice, no one would care.
Implications for Apple -- Had things gone differently for Apple, this might be a battle fought in Cupertino instead of in Redmond. Pundits love to speculate that Apple would be in Microsoft's position had the company licensed the Mac OS in 1985 like Bill Gates wanted. Unfortunately for revisionists, there remains no evidence to support this conclusion, making it speculative at best, sensationalistic at worst.
But Apple has already seen a taste of this, as noted earlier, with frustrated cloners claiming Apple is in the same position as Microsoft, just over the smaller Mac OS market as opposed to the entire PC market. (Microsoft is trying to avoid prosecution using a similar tactic, claiming they don't have a monopoly on all computer operating systems, especially if Unix is added to the mix.) If the claims against Microsoft succeed, Apple could find itself in similar straits by those who want to force the company to restart a cloning policy. If done under court order, cloners would be sure Apple wouldn't suddenly decide to end all the contracts again, and Apple could once again be in financial trouble.
While breaking Microsoft's stranglehold on competition bodes well for the PC industry, the major effect these specific lawsuits would have on Apple is the strengthening of Netscape. Microsoft argues this is the only reason they're being persecuted, but Netscape is simply the strongest competitor in the market Microsoft is trying to corner. The strongest second-place company will always benefit when a monopoly is broken; this one just happens to be Netscape. A stronger Netscape could help the Macintosh browser market, although the Mac OS hasn't been Netscape's platform of choice for some time. And Netscape isn't above this kind of behavior, either - they announced an OpenDoc part for their browser in 1996 and never followed through, largely to prevent investment in Spyglass's set of OpenDoc Internet parts. It's good to remember that hypocrisy is typical in business allegations.
If the Justice Department succeeds in making Microsoft create a more open operating system, Apple may reap benefits. When developers and users aren't so locked into Microsoft technology, the Macintosh becomes a more viable platform. Such folks wouldn't depend on Microsoft largesse in implementing Microsoft technologies for the Mac OS just to render it suitable for their use, and that won't hurt a bit.
There are also the obvious benefits - testimony in the trial so far has alleged that Microsoft tried to make QuickTime for Windows look buggy and threatened to discontinue Microsoft Office for Macintosh unless Apple chose Microsoft Internet Explorer as the default Web browser. However, the plaintiffs are not alleging that Microsoft has a monopoly in application software. The plaintiffs' introduction of these claims - which are not directly related to the Windows monopoly - is risky. If they prevail, the judge may grant them broad remedies; if they fail, Microsoft will have been "cleared" to proceed with these business practices. And that's the rub.
Remember what Microsoft did after Apple's interface lawsuit of 1988? Microsoft prevailed in the infringement battle, largely because Apple unwisely and unwittingly licensed Microsoft to use interface elements. Once the U.S. Supreme Court turned down Apple's final appeal, Microsoft wasted no time in appropriating more Macintosh user interface elements for Windows 95, and even more in Windows 98. If Microsoft wins this battle with the Justice Department, the kind of behavior we saw from them before the investigations started could pale in comparison to the ensuing bundling, integrating, and wholesale elimination of competing products. The stated goal of Microsoft is to see a computer on every desk on the planet, and Microsoft software running on all of them. That's not a goal you achieve by being either shy or scared of lawsuits you've lost.
You may disagree, and that's great. Your ideas may be better, and only through discussion and debate will those come to light and implementation. But no matter how Microsoft tries to reassure people, I still think it's a problem. A monopoly position almost always is, because power still corrupts. Unlimited economic power in the hands of the richest man in the world can spell real trouble for anyone who decides to compete with him, as lots of companies have already seen. The Invisible Hand has difficulty controlling a market where individual responsibility is divorced from corporate interests. Even Adam Smith knew this, and what the world has seen of such experiments so far isn't encouraging. Given Microsoft's stated goals, keeping the powers in check remains a good idea.
[Matt Deatherage is the publisher of MWJ, an acclaimed subscription-only newsletter for serious Macintosh users. Those who sign up before 01-Dec-98 for a free three-issue trial subscription can still receive MWJ's Mac OS 8.5 special edition, the most comprehensive coverage of Mac OS 8.5 available anywhere.]
Article 4 of 19 in series
Antitrust Lawsuits Filed Against Microsoft -- After settlement talks collapsed this weekend, the United States Department of Justice and 20 states have filed closely related antitrust lawsuits against MicrosoftShow full article
Antitrust Lawsuits Filed Against Microsoft -- After settlement talks collapsed this weekend, the United States Department of Justice and 20 states have filed closely related antitrust lawsuits against Microsoft. The lawsuits allege that Microsoft has illegally exploited its dominant position in operating systems to extend that dominance into the Internet software market. In addition, the lawsuit filed by the states accuses Microsoft of unfairly using its position to promote Microsoft Office at the expense of competitors. Microsoft has said that it will fight the charges in court, although Microsoft chairman Bill Gates also said the company is still open to settling. For more details, see ZDNet's "Special Report: U.S. v. Microsoft." [ACE]
Article 5 of 19 in series
by Geoff Duncan
In an ironic Valentine's Day present, U.S. District Judge Stanley Sporkin on February 14th rejected an agreement made between Microsoft and the U.S. Justice Department regarding charges that Microsoft licensing practices stifle competitionShow full article
In an ironic Valentine's Day present, U.S. District Judge Stanley Sporkin on February 14th rejected an agreement made between Microsoft and the U.S. Justice Department regarding charges that Microsoft licensing practices stifle competition. The dispute primarily involves how Microsoft licenses operating systems to personal computer manufacturers, including restrictive arrangements that allegedly exclude other operating systems and that may require manufacturers to pay a per-unit fee to Microsoft even on computers that do not contain Microsoft software. Additionally, Microsoft's proposed licensing arrangements for Windows 95, due to be released later this year, have drawn sharp criticism from computer manufacturers, who admit they have little choice but to agree to terms Microsoft dictates.
Microsoft had reached an agreement with the Justice Department to change the way it licenses its products to personal computer manufacturers. However, Judge Sporkin rejected the agreement on the grounds it did not constitute an effective antitrust remedy and that it failed to adequately address Microsoft's past and future monopolistic practices. In Judge Sporkin's words, "simply telling a defendant to go forth and sin no more does little or nothing to address the unfair advantage it has already gained." In strong language, Judge Sporkin also characterized the agreement as "too little, too late."
The Justice Department has decided to appeal Judge Sporkin's ruling, and U.S. Attorney General Janet Reno defended the original agreement, saying that the judge is going beyond his legal authority by examining Microsoft business practices not alleged in the original complaint. Not surprisingly, within a few hours Microsoft announced it would join the Justice Department's appeal of the ruling.
Although the proposed $1.5 billion Microsoft/Intuit merger (see TidBITS-248) is a completely separate case being examined by the Justice Department, Intuit's stock price fell when Judge Sporkin's ruling was announced last week.
The direct implications of this ruling on the Macintosh community are comparatively slight, since the case primarily concerns Microsoft's DOS and Windows licensing. However, as Apple licenses the Macintosh and its operating system to third parties, it might take care to notice where Microsoft is allocating its legal budget. Ironically, an argument could be made that a successful appeal of Judge Sporkin's decision could be financially advantageous for Apple in the future, particularly if the Mac clone market takes off. Since a successful Macintosh clone market will eat into Apple's hardware business, a legal precedent for restrictive OS licensing practices might allow Apple to earn back some of that money in the form of licensing fees if the clone market proves viable.
Article 6 of 19 in series
by Geoff Duncan
Late last week, the U.S. Justice Department filed suit to block the proposed merger between software giant Microsoft Corporation and Intuit, Inc., makers of finance and tax software (see TidBITS-248)Show full article
Late last week, the U.S. Justice Department filed suit to block the proposed merger between software giant Microsoft Corporation and Intuit, Inc., makers of finance and tax software (see TidBITS-248). The proposed merger is the largest ever in the software industry, with Microsoft's offer to buy all Intuit stock currently valued at about U.S. $2 billion. Microsoft and Intuit have both indicated they will defend the proposed merger and press for a quick resolution of the suit.
Microsoft and the Justice Department are actually working together on a separate case involving U.S. District Judge Stanley Sporkin's rejection of an anti-trust case settlement between Microsoft and the Justice Department (see TidBITS-264). Nonetheless, the Justice Department moved to block the Microsoft-Intuit merger on the grounds that it would stifle innovation in personal finance software and lead to higher software prices. Microsoft and Intuit maintain the merger is in the best interests of the market.
However, more is at stake here than the immediate future of Quicken: this merger is about electronic funds transfer and banking, a rapidly-growing industry set to explode in the next few years. At present, Intuit's Quicken dominates more than two-thirds of the personal finance software market, and it's no secret that Microsoft wants a hefty slice of the online-transaction pie. If the merger is approved, Microsoft could be reasonably expected to roll electronic funds transfer technologies into its operating system and desktop applications and, further, to leverage off the upcoming Microsoft Network to provide a single-click solution to electronic banking, shopping, and commerce. By providing the only widely-accepted development tools and packages, Microsoft would be in a unique position to license those technologies to anyone wanting to develop for its platforms. And it's not just Windows: by controlling Intuit, Microsoft also gains a significant advantage in developing commerce technologies for future broadband applications such as interactive television. No matter which of these (or other) scenarios play out, Microsoft will likely position itself to receive royalty checks as often as possible, perhaps even on a per-transaction basis.
Industry analysts have split opinions on the Justice Department suit. Some say it only indicates an agreement couldn't be reached immediately. Others believe the Justice Department case is legally sound, and note that the suit was filed in San Francisco rather than the more conservative environment in Washington D.C. Personally, I think it'd be a shame if the merger was approved. I'd hate to see the relatively svelte Macintosh version of Quicken turn into a 4 MB application that required a Power Mac, OLE, a dozen or more installation disks, and that featured a responsiveness and interface that reminded me of going to the bank.
Article 7 of 19 in series
by Geoff Duncan
Microsoft and Intuit announced on 20-May-95 they are terminating their planned $2 billion merger rather pursuing additional months of legal negotiation and investigation by the U.SShow full article
Microsoft and Intuit announced on 20-May-95 they are terminating their planned $2 billion merger rather pursuing additional months of legal negotiation and investigation by the U.S. Justice Department (see TidBITS-275). The merger, originally announced in October of 1994, would have been the largest in the history of the software industry.
Speculation about the future of the deal began only the week before, when Microsoft failed to meet a filing deadline for a court brief, causing a temporary drop in Intuit's stock price. Until that point, it was widely anticipated that both companies would vigorously purse the deal, especially in light of recent announcements by BankAmerica and NationsBank that they plan to enter the electronic banking market.
Asked about reasons for withdrawing the offer to buy Intuit, Microsoft Chairman Bill Gates has been quoted as saying the industry is moving too fast for Microsoft to wait for the sale to go through. Some industry sources estimate it might have been as late as mid-1996 before the deal could be finalized - assuming it was approved under U.S. antitrust laws.
Does this mean Microsoft is dropping its designs on electronic banking and commerce? Don't count on it. Microsoft continues to aggressively recruit vendors and businesses for its upcoming Microsoft Network online service and you can bet online transactions are part of the package. Also look for Microsoft to offer finance services in upcoming wireless devices and personal information managers, in addition to direct integration in desktop applications and versions of Windows.
Article 8 of 19 in series
Last week the Federal Trade Commission (FTC) announced that it will begin a non-public investigation of Microsoft for allegedly crippling Windows 2.1 in favor of OS/2Show full article
Last week the Federal Trade Commission (FTC) announced that it will begin a non-public investigation of Microsoft for allegedly crippling Windows 2.1 in favor of OS/2. The investigation stems from a 1989 press release in which Microsoft and IBM discussed the direction they would take in respect to Windows and OS/2. At the time, the companies agreed that Windows would serve the low end of the market and OS/2 would take the high end. Since then, quite obviously, Microsoft has changed its mind about what Windows will do and has put its OS/2 work on the back burner.
There are a couple of possibilities here. First, the FTC investigators have been in another part of the galaxy for the past year and haven't seen what Microsoft is doing with Windows. That's possible, but unlikely. Second, IBM and Microsoft were (and perhaps still are) in some sort of collusion designed to reduce competition. That's a no-no in the eyes of the FTC and is quite likely, given Microsoft's bid to control even more of the software industry than it currently does and IBM's tainted history with such things. Third, the investigation is broader than one might be led to believe from the start, and Microsoft's hegemony of both the operating system and applications worlds looks bad in terms of fair competition. The idea here is that Microsoft applications developers can just talk to the Microsoft OS developers over lunch, which gives both an advantage over third party developers. It's no insight that Microsoft has taken advantage of its position as the developer of Windows to release the most powerful and most popular Windows applications. Microsoft has something like five of the top ten Windows applications, and those five are in the upper half of the ten. If Microsoft were found guilty of unfair competition, I doubt any of its competitors would be at all upset.
Although this third possibility is the most likely, there are arguments on both sides. For instance, Borland negotiated with the Windows group at Microsoft to release a version of its Turbo languages that could create Windows applications before Microsoft's own languages feature the same level of support. On the other hand, developers have been complaining because Microsoft released only a beta version of the Object Linking and Embedding (OLE) specs in December, but had been shipping a version of PowerPoint that used OLE for several months. Of course, like Apple's AppleEvents in System 7.0, it will take quite some time before programmers become familiar with OLE and start using it, so it may not be that big of a deal.
No matter what happens, it seems that Microsoft is clearing the legal decks (or was that docks :-)) for a large legal battle. Bob Cringely tells me that Microsoft is trying to settle other litigation quickly, out of court if possible, in preparation for the potential antitrust suit. This might mean an early settlement to the Apple suit, though if Microsoft settles out of court, Apple will certainly extract some royalty payments for Windows. While I'm on that subject, it looks as though I was incorrect when I wrote that the judge might be moving the whole thing into court to decide the issue once and for all. It now seems that he has limited the issue to the simple contract dispute and isn't allowing Apple to bring the larger issues into the case at all.
Bob Cringely -- CRINGE@mcimail.com
MacWEEK -- 19-Mar-91, Vol. 5, #11, pg. 75, 77
COMMUNICATIONS WEEK -- 11-Mar-91, pg. 6
InfoWorld -- 18-Mar-91, Vol. 13, #11, pg. 1
InfoWorld -- 11-Mar-91, Vol. 13, #10, pg. 1
PC WEEK -- 18-Mar-91, Vol. 8, #11, pg. 1, 6
Article 9 of 19 in series
Judge Finds Microsoft a Monopoly -- Last Friday U.S. District Court Judge Thomas Penfield Jackson released his "finding of fact" in the ongoing federal antitrust lawsuit against Microsoft Corporation, finding that Microsoft holds a monopoly in Intel-compatible PC operating systemsShow full article
Judge Finds Microsoft a Monopoly -- Last Friday U.S. District Court Judge Thomas Penfield Jackson released his "finding of fact" in the ongoing federal antitrust lawsuit against Microsoft Corporation, finding that Microsoft holds a monopoly in Intel-compatible PC operating systems. (For a history of Microsoft antitrust actions covered in TidBITS, including a detailed look at the current case in the two-part "Who Do You Antitrust?" article, see the arrs in the landmark antitrust case. A final ruling in the case is not expected until sometime next year, and appeals and settlement negotiations could cause the suit to drag out for some time yet. [ACE]
Article 10 of 19 in series
by Geoff Duncan
Microsoft Violated Anti-Trust Laws -- U.S. District Court Judge Thomas Penfield Jackson has ruled that Microsoft Corporation violated the Sherman Anti-Trust Act by using its position in the Web browser market to "the detriment of competitors." The judge also found that Microsoft could be liable under state anti-competition lawsShow full article
Microsoft Violated Anti-Trust Laws -- U.S. District Court Judge Thomas Penfield Jackson has ruled that Microsoft Corporation violated the Sherman Anti-Trust Act by using its position in the Web browser market to "the detriment of competitors." The judge also found that Microsoft could be liable under state anti-competition laws. Judge Jackson must now schedule hearings later this year to consider remedies for Microsoft's actions, which could include structural changes to the company, business restrictions, or an actual breakup of the company. The only major point on which Judge Jackson disagreed with the government's case was that Microsoft's marketing arrangements with other companies did not ultimately exclude Netscape's browser software from the worldwide browser market. Microsoft has repeatedly said it would appeal any ruling against it; experts estimate the case could easily drag out to the year 2002. Microsoft stock was down nearly 15 percent in anticipation of Judge Jackson's announcement, dragging the NASDAQ index down 7.63 percent in its largest single-day point decline in history. [GD]
Article 11 of 19 in series
by Geoff Duncan
Judge Orders Microsoft Breakup; Company to Appeal -- U.S. District Court Judge Thomas Penfield Jackson last week ordered Microsoft be split into two separate enterprises, one focusing on operating system software, and the other encompassing Microsoft's other business interests, ranging from office applications and hardware to games and online servicesShow full article
Judge Orders Microsoft Breakup; Company to Appeal -- U.S. District Court Judge Thomas Penfield Jackson last week ordered Microsoft be split into two separate enterprises, one focusing on operating system software, and the other encompassing Microsoft's other business interests, ranging from office applications and hardware to games and online services. This ruling comes during the penalty phase of the Microsoft antitrust trial; Microsoft has repeatedly claimed it will appeal any decision against it, and also says it would resist any government action to bypass the appeals process via an expedited hearing before the U.S. Supreme Court. In his final judgment, Judge Jackson requires Microsoft to submit a divestiture plan within four months and to adhere to a series of interim restrictions on its business practices until three years after the divestiture is complete. Microsoft's spin-off businesses would have to remain separate for at least ten years. Despite the definitive tone of the order, however, don't expect anything to change soon. Microsoft has filed a motion seeking a stay of the interim measures, pending appeal, and the appeals process for the entire case may drag out two or more years before any breakup goes into effect. [GD]
Article 12 of 19 in series
by Geoff Duncan
In a substantial victory for Microsoft Corporation, last week the Court of Appeals for the District of Columbia unanimously reversed Judge Thomas Penfield Jackson's ordered breakup of Microsoft under U.SShow full article
In a substantial victory for Microsoft Corporation, last week the Court of Appeals for the District of Columbia unanimously reversed Judge Thomas Penfield Jackson's ordered breakup of Microsoft under U.S. antitrust laws. The 125-page ruling comes more than a year after Judge Jackson's initial order to break up the company, and more than eighteen months after his finding of fact that Microsoft constituted a monopoly.
Although the Appeals Court upheld that Microsoft is indeed a monopoly and engaged in anti-competitive practices, it also concluded that Judge Jackson engaged in "serious judicial misconduct" in his statements outside of court and to the media during the penalty phase of the trial. The Appeals Court then remanded a portion of the case back to district court, but under terms which gut substantial portions of the government's case against Microsoft. The bottom line is that Microsoft was found to have violated the law, but is unlikely to face serious consequences for those actions, and almost certainly will not be broken into two or more companies.
We've repeatedly examined the Microsoft antitrust case in TidBITS, but in essence two central points of the government's case were reviewed by the Appeals court:
That Microsoft maintained a market monopoly in operating systems through anti-competitive actions; and
That Microsoft tried to monopolize the browser market by tying its browser to its existing operating system monopoly.
The Government's Victory -- The first point above is largely established through Judge Jackson's findings of fact from late 1999, and an Appeals Court can't just toss out those findings unless they're plainly erroneous or it can be proven the trial court was substantially biased. The Appeals Court overturned a handful of Judge Jackson's findings of fact, but for the most part, those findings were upheld and the Appeals Court was not able to find instances of actual bias in Judge Jackson's findings.
This is the part of the Appeals Court decision the government can tout as their victory: unless Microsoft appeals to the Supreme Court (and wins), Microsoft now has a monopoly in the eyes of the law. Contrary to popular opinion, under U.S. law it's not illegal to have a monopoly in a particular market. However, it is illegal to create or protect a monopoly by stifling competition in that market. This means that in the future, anyone who wants to come after Microsoft has half their case made for them: they won't have to prove Microsoft has a monopoly, they'll only have to prove that Microsoft has deliberately stifled or eliminated competition in that market. This potentially exposes Microsoft to heaps of litigation from other companies, particularly as Microsoft continues to integrate more and more previously separate functionality into what it considers to be its core operating system. Microsoft's never-subtle CEO Steve Ballmer has repeatedly said he doesn't feel there's any limit to what Microsoft can unilaterally declare part of its operating system; now he may find that stance is more frequently challenged in court.
Incidentally, this is the part of the case where Apple figured most prominently: the Appeals Court upheld that Microsoft illegally engaged in anti-competitive practices when it used threats of cancelling Microsoft Office for the Mac "as a club" to force Apple to adopt Internet Explorer as the default Web browser installed with the Mac OS.
Microsoft's Victory -- It's on the second point - that Microsoft illegally tried to leverage its Windows monopoly to create a monopoly in the browser market - that Microsoft can declare its victory. First, the Appeals Court found that the government failed either to define the browser market or to establish that Microsoft set up barriers to protect that market for itself. Furthermore, it reversed this finding without remand, which means the government can't even try to make the point again in a retrial. Unless the government appeals to the Supreme Court (and wins), it's now a matter of law that Microsoft did not attempt to monopolize the browser market.
Further, the Appeals Court disagreed with Judge Jackson's finding that Microsoft committed a "per se" violation of the Sherman Antitrust Act by integrating its browser with the operating system. As a legal standard, "per se" basically means Microsoft's integration of the two products was "in itself" a violation of law, simply because they did it. However, the Appeals Court found that since the software industry is unlike other industries to which antitrust laws have been applied, a "per se" analysis of the law wasn't valid. Instead, Microsoft would have to be found in violation of the Sherman Antitrust Act by "rule of reason," a different legal standard which basically grants leeway to the first company to integrate what had previously been perceived as two disparate markets. The Appeals Court tossed this issue back to the district court for resolution (also stipulating that it be heard by someone other than Judge Jackson). However, since the Appeals Court found that the government failed to define a browser market, the government would have to prove integrating Internet Explorer with Windows harmed competition in the browser market without "arguing any theory of harm that depends on a precise definition of browsers or barriers to entry." That's going to be hard to do, so the government faces a heavy burden to prove this part of its case at a retrial.
Jackson's Packin' -- The harshest words of the Appeals Court ruling were reserved for Thomas Penfield Jackson, the trial judge for the Microsoft case. Judge Jackson and the Appeals Court have previously disagreed in regard to Microsoft: in 1998, a three judge panel on the Appeals Court overturned Jackson's preliminary injunction barring Microsoft from requiring computers pre-install Internet Explorer with Windows. Although the Appeals Court did not find any instance where Jackson demonstrated actual bias in his handling of the case, they held that Jackson violated ethical rules by holding "secret sessions" with journalists during the penalty phase of the trial, which "seriously tainted the proceedings before the District Court and called into question the integrity of the judicial process." In reversing Jackson's ruling, the Appeals Court also requires that any new penalty consideration or retrial take place before a different judge. So, this case is over for the man who made history presiding over the Microsoft antitrust trial.
You Get What You Settle For -- Since Judge Jackson's original ruling, the U.S. presidency has changed hands. During his campaign, President Bush repeatedly stated he wasn't in favor of breaking up Microsoft, and his Republican administration is generally not in favor of regulating markets or business activity. Although Attorney General John Ashcroft has said very little about the Microsoft case since assuming his post, in the wake of the Appeals Court decision, it would seem the odds that Microsoft and the government will settle out of court have increased.
However, the federal government isn't the only plaintiff: nineteen states are also party to the antitrust case, and so far haven't shown much interest in backing down. During settlement talks in mid-2000, the states were said to have resisted settlement proposals, and so far the states seem to feel the Appeals Court ruling upholds the core of the case. It's conceivable the Justice Department and Microsoft might agree to terms of a settlement, but the states could refuse to go along with it. Under a statute known as the Tunney Act, any proposed settlement would have to be reviewed by a federal judge in a hearing, and the states could urge the judge to stop any proposed deal on the basis it wasn't in the public interest. After all, Microsoft's failure to adhere to the terms of a 1995 court settlement are how the current antitrust case got underway in the first place.
For now, the next move is in the hands of the Justice Department, which must decide whether to pursue the case or a settlement, and the whole process will undoubtedly take several more years to unravel.
Article 13 of 19 in series
by Geoff Duncan
Microsoft Appeals Monopoly Ruling to Supreme Court -- One month after an appeals court upheld that Microsoft Corporation is a monopoly and engaged in anti-competitive practices (see "Breaking Up is Hard to Do" in TidBITS-586), Microsoft has appealed the antitrust case to the U.SShow full article
Microsoft Appeals Monopoly Ruling to Supreme Court -- One month after an appeals court upheld that Microsoft Corporation is a monopoly and engaged in anti-competitive practices (see "Breaking Up is Hard to Do" in TidBITS-586), Microsoft has appealed the antitrust case to the U.S. Supreme Court. In its appeal, Microsoft argues that the appeals court ruling should be overturned because U.S. District Judge Thomas Penfield Jackson was biased against the company and should have been disqualified from the case. The appeals court strongly rebuked Judge Jackson for his comments to the media during the penalty phase of the Microsoft trial, but did not find any instance of actual bias in Jackson's decisions. At the same time, Microsoft has asked the appeals court that currently has the antitrust case to postpone any action until the Supreme Court decides whether or not to hear Microsoft's appeal.
The U.S. Supreme Court is under no obligation to hear Microsoft's appeal and is unlikely to take up the now four-year-old case or overturn the earlier appeals court decision. Thus, Microsoft's action is widely seen as a delaying tactic to extend litigation of the antitrust trial well past the expected ship date of Windows XP, which, like Microsoft's bundling of Windows and Internet Explorer, integrates even more previously separate functionality into the Windows operating system. [GD]
Article 14 of 19 in series
by Geoff Duncan
Government Drops Microsoft Breakup Effort -- Last week, the U.S. Justice Department announced that it will not seek to break up Microsoft Corporation during the next phase of the long-running antitrust trialShow full article
Government Drops Microsoft Breakup Effort -- Last week, the U.S. Justice Department announced that it will not seek to break up Microsoft Corporation during the next phase of the long-running antitrust trial. Further, the Justice Department will not pursue charges that Microsoft illegally tied its Web browser to the Windows operating system. The announcement is a reversal of the previous Clinton administration's legal strategy, and the Justice Department says the decision to drop key aspects of the Microsoft case is intended "to obtain prompt, effective and certain relief for consumers." Apparently, the new strategy will be to use the finding that Microsoft illegally maintained its monopoly in PC operating systems (a finding unanimously upheld by the Court of Appeals last July) to end Microsoft's illegal conduct and open the operating system market to competition, though no details of possible remedies or settlements were revealed.
The announcement is widely seen as a victory for Microsoft, and vastly improves the likelihood of the company reaching a favorable settlement with the U.S. federal government (though at least 2 of 18 U.S. states - California and New York - that are also party to the antitrust lawsuit have expressed a more hard-line view). In the meantime, Microsoft is on the verge of releasing Windows XP, the latest version of its primary operating system, which integrates even more previously separate technologies into its operating system. Now that the government will no longer be pursuing the issue of whether Microsoft illegally tied its Web browser to its operating system, it seems less likely that legal ramifications will prevent Microsoft from usurping applications and markets by unilaterally declaring the technology to be part of Windows. [GD]
Article 15 of 19 in series
Often lost in the news surrounding the state and federal antitrust lawsuit against Microsoft is the fact that numerous other private class-action lawsuits have been filed against MicrosoftShow full article
Often lost in the news surrounding the state and federal antitrust lawsuit against Microsoft is the fact that numerous other private class-action lawsuits have been filed against Microsoft. These private lawsuits allege that Microsoft overcharged for its software, and they were bolstered by (or indeed engendered by) the Appeals Court ruling that Microsoft did indeed maintain a market monopoly in desktop operating systems through anti-competitive actions (see "Playing Monopoly," our collection of articles on the Microsoft antitrust case).
On 20-Nov-01, attorneys for some of the class-action plaintiffs and Microsoft proposed a bold settlement for all of the private class-action lawsuits; in short, the company would over five years spend an estimated $1 billion to equip some 12,500 of the nation's poorest schools with software and computers and to train teachers. It sounds like a great deal, especially if you agree with the lawyers who say that due to the huge number of class-action plaintiffs (about 65 million), the damages would probably work out to be less than $10 per person.
Unfortunately, as much as the proposal would no doubt help schools, it creates a situation where Microsoft isn't so much paying a penalty for monopolistic abuses, but is instead being allowed to spend $1 billion to extend their reach into the hotly contested education market, where Apple claims a nearly 50 percent market share. Apple filed a brief arguing that the settlement would merely further Microsoft's monopoly power, and Apple CEO Steve Jobs has been widely quoted saying, "We're baffled that a settlement imposed against Microsoft for breaking the law should allow, even encourage, them to unfairly make inroads into education - one of the few markets left where they don't have monopoly power."
It's difficult to tease out exactly what the proposal entails, but reports include Microsoft donating $150 million for schools to use to purchase hardware or software, up to $100 million matching other donations, $160 million for technical support, and $90 million to train teachers. Microsoft would also make 200,000 refurbished computers available to schools for no more than $50 each, and would donate a free Windows license for each new or refurbished computer provided.
Although schools would be allowed to spend the money on non-Microsoft products, Microsoft has conceded that those who utilize Microsoft products will receive more resources, such as free software and training. (Some wags have suggested that Microsoft should be required to provide all Apple equipment and software.) Plus, it seems likely that Microsoft's overt presence in the education market would become increasingly pervasive, creating a situation where schools felt even more pressure to purchase PCs with Windows over other alternatives, such as Macs or even PCs running Linux.
Criticism has come from educators too, with some expressing concern the proposal could derail years of technology planning already in place rather than providing funding for existing plans. Other concerns revolve around the refurbished computers, which could be too underpowered to be worthwhile with current software, and the amount earmarked for support, which can be particularly expensive with PCs and older computers in general.
More generally, there's a question of how this settlement punishes Microsoft for overcharging consumers, lacking as it does any conduct restrictions, pricing changes, or direct payments to the aggrieved parties.
U.S. District Judge J. Frederick Motz listened to arguments from plaintiff's lawyers and Apple on 27-Nov-01, but after time ran out, scheduled additional time on 10-Dec-01 for Microsoft's presentation. The case has become extremely complex, and along with the settlement, there are also issues surrounding how the roughly 100 lawsuits were combined, how some of them were dismissed under Illinois Brick (a 1977 Supreme Court decision that determined that indirect purchasers of a product cannot sue manufacturers directly), and how all this affects those lawsuits from California, where state law explicitly allows indirect purchasers to sue manufacturers directly.
In general, I approve of the effort to settle the class-action lawsuits, if for no other reason than to end all this litigation, the primary beneficiaries of which are always the lawyers. And as much as the current proposal is fatally flawed, the basic concept of funneling vast sums of money to education rather than giving a pittance (which could very well end up in the form of a discount off a Microsoft product) to each of the individual plaintiffs isn't a bad one - if the lawyers on both sides can come up with a revised settlement proposal that meets the real-world needs of educators and doesn't further Microsoft's monopoly at the expense of competitors like Apple.
Article 16 of 19 in series
Proposed Microsoft Settlement Rejected -- U.S. District Judge J. Frederick Motz agreed with critics that the proposed $1 billion settlement of the combined private class-action suits against Microsoft appeared to "provide a means for flooding a part of the kindergarten through high school market, in which Microsoft has not traditionally been the strongest player (particularly in relation to Apple), with Microsoft software and refurbished hardware." (See "Into the Briar Patch: Microsoft's Self-Serving Settlement" in TidBITS-607.) In rejecting the settlement, Judge Motz also commented that the proposal for Microsoft to give away software "could be viewed as constituting 'court approved predatory pricing.'" Despite these harsh words, Judge Motz was not unsympathetic the basic idea behind the settlement, but he suggested that Microsoft should pay the settlement amount in cash iShow full article
Proposed Microsoft Settlement Rejected -- U.S. District Judge J. Frederick Motz agreed with critics that the proposed $1 billion settlement of the combined private class-action suits against Microsoft appeared to "provide a means for flooding a part of the kindergarten through high school market, in which Microsoft has not traditionally been the strongest player (particularly in relation to Apple), with Microsoft software and refurbished hardware." (See "Into the Briar Patch: Microsoft's Self-Serving Settlement" in TidBITS-607.) In rejecting the settlement, Judge Motz also commented that the proposal for Microsoft to give away software "could be viewed as constituting 'court approved predatory pricing.'" Despite these harsh words, Judge Motz was not unsympathetic the basic idea behind the settlement, but he suggested that Microsoft should pay the settlement amount in cash into a special fund, from which schools could purchase whatever hardware and software they chose. Lawyers for both sides said they would continue to work on a revised settlement, and failing that, go to trial. [ACE]
Article 17 of 19 in series
[A quick refresher in the Microsoft antitrust case. Judge Thomas Penfield Jackson found that Microsoft was indeed a monopoly and ordered the company broken upShow full article
[A quick refresher in the Microsoft antitrust case. Judge Thomas Penfield Jackson found that Microsoft was indeed a monopoly and ordered the company broken up. Microsoft appealed, the District of Columbia Circuit Court of Appeals reversed the breakup order, and, after the Bush administration took over, the Justice Department dropped its efforts to break up Microsoft. Of the states involved in the case, nine plus the District of Columbia broke ranks with the Justice Department in the remedy phase and are seeking harsher terms than those proposed by the Justice Department and the nine remaining states. -Adam]
Bill Gates took the stand last week in the Microsoft antitrust remedy hearings, and from most accounts, acquitted himself well, far better than in his previous videotaped depositions. Joe Wilcox of CNet News said Gates "redeemed himself as a witness." The Washington Post described Gates's depositions in the earlier trial as "embarrassing" but said this time, "a well-prepared Gates provided a human face and a modicum of deference," and that he was a "controlled, polite, and more mature chairman" who "displayed encyclopaedic knowledge" of the proposed remedy. Other reports described Gates as calm, thorough, and professional. (If you haven't yet seen full reports of Gates's testimony, read the links below.)
Despite these positive reports, the technical community immediately insisted he was lying when he said that Microsoft could not remove components of Windows such as Internet Explorer and Windows Media Player. In the Eastside Journal of the Seattle area where Microsoft is based, writer Cydney Gillis reported on people skeptical of Gates's claim, including Dave Winer. At UserLand, Winer ran a survey on the topic, and out of 413 votes expressing an opinion, only 1 percent say Gates was telling the whole truth. 64 percent say he's lying and 30 percent say he's misleading by saying code couldn't be removed from the current Windows without breaking it.
The reporters present in the courtroom say Gates did well, and hundreds of people who weren't there think he's lying. Some of that's gratuitous Microsoft bashing, no doubt, but most complaints are technical. People do not understand how something that was a separate program now can't be separate again. Since the court will decide the question, it's worth exploring.
Background Concepts -- Let's try to take the issue in Mac OS 9 terms for clarity. Many key components of Mac OS 9 are implemented as extensions - AppleScript, QuickTime, Disc Burner, and even USB and FireWire support. Reboot without these extensions, and you get a version of Mac OS 9 without their capabilities. Any program that requires one of these components, however, will not run without them - QuickTime Player won't run without QuickTime, DragThing won't run without AppleScript, and no Carbon application runs unless CarbonLib is present.
Yet these programs do not crash, they simply don't function as you expect. That's because Apple has, for about fifty years, warned developers to make sure a component is available before calling it. Programs that call components that aren't installed crash hard. Checking before calling a component is roughly equivalent to making sure your car has come to a complete stop before getting out.
Back to Windows. The states that don't want to settle with Microsoft say that since programs like Internet Explorer, MovieMaker, Windows Media Player, and MSN Messenger were previously stand-alone programs, they can stand alone again. Any integration into the operating system should be like an extension, so programmers can use them only if present, and so other companies can replace them with their own versions. Microsoft says that's technically impossible.
Obviously it is possible, since Windows programs have had to work with or without those components in the past. Now however, many programs, including some in Windows, do not work properly in the absence of those components because their presence is assumed. If a necessary component were to be removed today, those programs would break, just like Gates says. That's not what the states have in mind, but that's the way he's spinning it.
Gates's testimony says that to meet the states' requirement that Microsoft remove components from Windows while maintaining the capabilities of Windows APIs, the company would have to leave the binary code for all those components in Windows after all. If you take out Internet Explorer and its HTML rendering engine, Windows stops displaying all HTML, including help text. Windows doesn't duplicate Internet Explorer's HTML rendering in other code - take out Internet Explorer, and HTML goes with it.
Microsoft chose a similar approach during the trial in 1998, breaking Windows by ripping out every piece of code Internet Explorer used rather than repackaging it as a replaceable module. Microsoft feared, then as now, that proving it can modularize software would mean a court would eventually require modularized versions of Windows, in turn forcing Microsoft to give up the control over which programs stay installed in Windows. The states say Microsoft shouldn't be able to do that anyway, and Microsoft is pulling out all the stops to make sure it can.
Weasel Words -- So how can Microsoft say modularity is impossible under the states' proposed remedy? The weaseling is in the word "middleware," used in the remedy to identify the components that would have be modular. Microsoft and Gates say the word is so poorly defined it could refer to any API - that is, any routine at all in Windows. It's as if Apple not only had to make QuickTime a separate extension, but also make every routine within QuickTime a separate extension that could be removed or replaced at will.
That approach would never work - programmers can test for components before using them, but not for every single API. It would lead to chaos and mass confusion, exactly the effects Gates describes. By hammering on the details and dogmatically sticking to the worst possible interpretation of the proposal, Microsoft is trying to make sure only Microsoft decides what is and is not part of Windows, the company's position since 1995. And it's truthful, too: Gates says the proposed remedy can be read this way, and if it can, Microsoft may have to implement it this way.
Actually, he's signalling the court that Microsoft will read it this way, ripping out sections of "middleware" under court order even though other parts of Windows might need the APIs they provide. Such versions would never wind up on store shelves, but if a PC maker purchases more than 10,000 Windows licenses and demands that Internet Explorer be removed, Microsoft would rip it out, breaking any program that needs HTML rendering. Such a modified Windows might not even boot.
The new remedy would also require that any "modular" versions run "without performance degradation" over the full version. Microsoft says it absolutely cannot do that. Adding checks to see if HTML rendering is present adds more instructions to a program and therefore degrades its performance. Hence Gates's assertion of impossibility: if you remove something, the resulting operating system either doesn't function right or is slower than the full version. It's an extreme reading, but it's within the language of the remedy.
Given the choice between stripping features out of Windows to the point where it might not even boot (thus undoubtedly provoking complaints and legal challenges from affected PC makers), or being accused of degrading performance by adding checks for missing components, Gates indirectly cautioned the court that Microsoft would pick the former. With the District of Columbia Circuit Court of Appeals's past track record of supporting Microsoft in designing its products, the likelihood of a punitive injunction against the company for not obeying any remedy is small. Also, as the Washington Post reports, Judge Colleen Kollar-Kotelly is sustaining almost every Microsoft objection, and allowing Microsoft to make presentations to the court when the states were barred from similar presentations despite numerous pleas. Don't count on the courts spanking Microsoft for hyper-literalism.
Back to the original question. Was Gates lying? No. He testified that a decree will cause some behavior in the future and that it's "impossible" to make it work the way the states want. It's legal posturing, certainly, but as Microsoft Chairman, he can make sure his testimony comes true.
The states can either admit that Microsoft will sabotage their proposal or come back to the court with one so tightly worded that Microsoft cannot read it in any way other than the way it's intended, a difficult if not impossible task. Last Tuesday's testimony confirmed this, as the states's attorney portrayed Gates as deliberately adopting the most extreme interpretations, unsuccessfully attempting to get Gates to provide more acceptable language on the stand.
In short, Gates's testimony was consistent with everything he has said and done for his company since this mess started - promising the world that any restriction on Windows that Microsoft didn't like would result in a version of Windows the world wouldn't like. It's not an empty threat.
[Matt Deatherage is the publisher of MacJournals.com, where he oversees MDJ and MWJ - daily and weekly subscription-based, ad-free journals for serious Macintosh users. For a free trial, visit MacJournals.com.]
Article 18 of 19 in series
On Friday, 01-Nov-02, the four year-old antitrust case brought by the U.S. Department of Justice and 18 states and the District of Columbia drew to a close with a ruling by U.SShow full article
On Friday, 01-Nov-02, the four year-old antitrust case brought by the U.S. Department of Justice and 18 states and the District of Columbia drew to a close with a ruling by U.S. District Court Judge Colleen Kollar-Kotelly. Judge Kollar-Kotelly essentially accepted the proposed settlement between Microsoft and the Justice Department and nine states, making relatively few substantive changes. Unless they challenge it on appeal, her decision also ends the effort by the states dissenting from the original proposed settlement. (See our article series tracking the progress of the long-running case.)
In reading Judge Kollar-Kotelly's opinion, I was struck by three things:
She said that the court's role was not to re-try the case, but to evaluate the proposed settlement and determine if it was in the public interest. Plus, the fact that the case exists only because it was brought by the government informs the court's evaluation of the proposed remedies. That means that even if she would have imposed more stringent remedies on her own, she must "accord deference" to the government's predictions as to the effect of the proposed remedies, and determine, based on those predictions, whether those remedies are in the public interest.
She made a significant distinction between terminating Microsoft's monopoly and terminating the illegal maintenance of that monopoly. Monopolies are not inherently illegal, and the fact (agreed upon by all parties) that Microsoft gained its monopoly legally means that remedies (such as breakup of the company) to terminate the monopoly aren't warranted. Instead, the proposed settlement aims to terminate the illegal maintenance of the monopoly.
She drew attention to the fact that there's a difference between the commingling of functionality (such as building Internet Explorer's functionality into Windows) and the anticompetitive effect of that action. The commingling of code is not the problem; the effect it has on competition is, and thus the remedies must address the effect, not the act. She also commented that preventing the commingling of code could harm third-party developers that depend on such functionality.
Let's skim through the final judgment. You can read the entire document and Judge Kollar-Kotelly's 101-page opinion (prefixed with her comments about the dissenting states) here:
Anti-Retaliation -- A number of clauses prevent Microsoft from retaliating against or threatening retaliation against an OEM (Original Equipment Manufacturer) if the OEM is developing, distributing, promoting, using, selling, or licensing any software that competes with Windows or any Microsoft middleware product. (Middleware is software that other developers can use to run applications and that could easily be ported to other operating systems; examples are Web browsers and Java virtual machines.)
Also protected from retaliation or threat of retaliation is the act of shipping a PC that either includes both Windows and another non-Microsoft operating system, or can boot with more than one operating system. This last part ensures Microsoft cannot prevent OEMs from selling PCs with Linux pre-installed or as an option.
Along with OEMs, independent software vendors (ISVs) gain protection from Microsoft retaliation or threat of retaliation, either for developing, using, distributing, promoting, or supporting any software that competes with Windows or Microsoft middleware. Plus, Microsoft may not enter into agreements that require an ISV refrain from developing, using, distributing, or promoting competing software.
(Judge Kollar-Kotelly added the bit about threatening retaliation to the language in the proposed settlement because she felt that was a significant concern, despite the government's claim that banning the act of retaliation itself was sufficient.)
As a variant on the protection, Microsoft may not enter into agreements that require a company to distribute, promote, use, or support Windows or Microsoft middleware exclusively or in some fixed percentage, unless the company in question can practically provide equal time to a competing product. Apple falls into this category because of the 1997 agreement in which Microsoft agreed to keep working on Microsoft Office in exchange for Apple making Internet Explorer the default browser, avoiding Netscape Navigator, and not promoting other Web browsers. That sort of agreement would now violate the terms of the settlement. (One limitation on this restriction: it doesn't apply if Microsoft licenses intellectual property from the third party and if the intellectual property license is the primary purpose of the agreement. This latter clause was Judge Kollar-Kotelly's addition; she didn't want every agreement to turn into a sham intellectual property license.)
Uniform Licenses -- This provision in the settlement requires that Microsoft issue uniform licenses to OEMs licensing Windows. In essence, this clause ensures a fair playing field for licensing Windows, although there are several exceptions for different language versions of Windows, for volume discounts, and for various marketing-related discounts (as long they're distributed uniformly to OEMs of varying sizes).
Judge Kollar-Kotelly took slight exception with this section because she felt that uniformity wasn't necessarily in the best interests of all licensees, and presumably, the public. However her concerns weren't sufficient to suggest an alternative.
Flexible OEM Licenses -- Many of the complaints about Microsoft stemmed from the company's restriction of how OEMs could modify the look of Windows. The settlement addresses this by forcing Microsoft to allow OEMs to:
Install and display icons, shortcuts, or menu entries for non-Microsoft products, although Microsoft may restrict such placement to locations that make sense for the product type in question.
Distributing non-Microsoft middleware by installing icons of any size or shape on the desktop as long as those icons don't impair the functionality of the interface.
Launch non-Microsoft middleware automatically after boot or while connecting to the Internet. Microsoft may restrict this behavior only if the product in question replaces or drastically alters the Windows interface. (Judge Kollar-Kotelly changed the original wording, which allowed such automatic launching only for products that replaced Microsoft middleware that were automatically launched at that time, and if the product either had no interface or used an interface similar to that of the Microsoft middleware.)
Offer users the option of booting other operating systems before Windows starts up.
Present an Internet access provider offer during the initial boot sequence. Judge Kollar-Kotelly removed language requiring that OEMs comply with Microsoft's technical specifications, in part because tech support costs aren't borne by Microsoft.
API & Communication Protocol Disclosure -- To prevent Microsoft from taking advantage of private APIs in its middleware products, the settlement requires Microsoft to disclose the APIs (Application Programming Interfaces; the hooks applications use to connect to middleware or an operating system). Plus, Microsoft must also make available, via reasonable and non-discriminatory licensing terms, the communication protocols used by any product Microsoft installs with Windows and that communicates with a Microsoft server operating system, such as Windows 2000.
In this section, Judge Kollar-Kotelly made one significant change by reducing the time before which these disclosures must be made to three months, down from twelve months and nine months, for the API disclosures and the communication protocol disclosures, respectively.
Some of the feedback to the court about the proposed settlement argued that Microsoft must issue royalty-free licenses for these communication protocols; in her opinion, Judge Kollar-Kotelly disagreed, saying that Microsoft's liability didn't require it to give away significant amounts of valuable intellectual property rights.
There is one significant limitation to this requirement that Microsoft disclose APIs and license communication protocols. Microsoft does not have to reveal anything that would compromise anti-piracy, anti-virus, software licensing, digital rights management, encryption, or authentication systems. Similarly, Microsoft can make licenses related to these type of systems conditional on the licensee having no history of software piracy or willful violation of intellectual property rights, having a reasonable business need, meeting reasonable standards for verification of the authenticity and viability of its business, and agreeing to submit the related software to third-party certification of specification compliance.
End User Control -- In an attempt to give end users more control over their computing environments, the settlement requires Microsoft to allow end users and OEMs to enable or remove access to Microsoft or non-Microsoft middleware through icons, shortcuts, and menu entries, and by controlling automatic launching. Plus, end users and OEMs may designate non-Microsoft middleware to replace Microsoft middleware.
Similarly, Windows itself may not automatically alter the OEM's configuration of icons, shortcuts, and menu entries without asking for confirmation from the user. That confirmation cannot happen until 14 days after the first time the user turns on a new computer, and any such automatic removal must include both Microsoft and non-Microsoft products. This particular section is aimed at protecting the Windows Desktop Cleanup Wizard, which removes unused icons from the desktop.
RAND Licensing of Microsoft IP -- If intellectual property licenses are required for a company to exercise the options provided in the settlement, Microsoft must license that intellectual property using reasonable and non-discriminatory (RAND) terms. The licenses can be narrow in scope and may be non-transferable, but Judge Kollar-Kotelly struck without comment a clause that would have required the third-parties to license back to Microsoft certain intellectual property rights related to the exercising of these options.
Compliance & Enforcement -- Perhaps the most significant change Judge Kollar-Kotelly made is in the Compliance and Enforcement Procedures section. Initially Microsoft and the Justice Department had proposed a Technical Committee of three independent people, one appointed by each side and the first two selecting the third. Though it's difficult to see what concern Judge Kollar-Kotelly had with this proposal, in the final judgment she replaced the Technical Committee with a Compliance Committee made up of at least three members of the Microsoft Board of Directors who are not present or former employees of Microsoft. This approach maps the method proposed by the dissenting states, so it's possible she adopted it to throw them a bone.
A major aspect of compliance is a Compliance Officer appointed by the Compliance Committee. The Compliance Officer's duties include distributing and explaining the settlement to all Microsoft officers and directors, providing annual briefings on the settlement, tracking Microsoft's compliance, certifying annually to the plaintiffs that Microsoft has remained in compliance, and reporting any violations to the plaintiffs.
Enforcement authority remains with the plaintiffs, and includes the states. For coordination, the plaintiff states must form an enforcement committee, and no individual state may take action without first consulting the enforcement committee. Jurisdiction and power to issue further orders or directions remains with the U.S. District Court for the District of Columbia; something about which Judge Kollar-Kotelly felt strongly, so much so that she made it explicit in the final judgment.
Next Update in Five Years -- Although most antitrust decisions remain in place for at least ten years, the settlement calls for termination after only five years due to the fast pace of the industry. However, the plaintiffs can apply to the court for a one-time extension of up to two years if Microsoft has engaged in a pattern of willful and systematic violations.
The final judgment is certainly far weaker than the dissenting states had proposed and hoped for, but in essence, they set their sights too high, and received almost nothing they wanted. The judgment is thus widely seen as a victory for Microsoft, which had faced the possibility of a breakup. The remedies, though arguably an appropriate attempt to terminate the illegal maintenance of Microsoft's monopoly, are unlikely to slow Microsoft down much at all. Whether or not other companies are able to compete with the Microsoft juggernaut even after these remedies are in place remains to be seen.
But Judge Kollar-Kotelly will be watching to make sure the playing field remains level; at the very end of her full 344-page discussion, she quoted Machiavelli in saying, "Let it not be said of Microsoft that 'a prince never lacks legitimate reasons to break his promise,' for this Court will exercise its full panoply of powers to ensure that the letter and the spirit of this remedial decree are carried out."
Article 19 of 19 in series
by Geoff Duncan
Microsoft Settles with AOL for $750 Million -- Last week, Microsoft Corporation announced it would pay AOL Time Warner $750 million as part of a wide-ranging settlement of AOL's 16-month old antitrust lawsuit against the company, ending one of the most troublesome legal disputes to come in the wake of the long-running federal antitrust case against MicrosoftShow full article
Microsoft Settles with AOL for $750 Million -- Last week, Microsoft Corporation announced it would pay AOL Time Warner $750 million as part of a wide-ranging settlement of AOL's 16-month old antitrust lawsuit against the company, ending one of the most troublesome legal disputes to come in the wake of the long-running federal antitrust case against Microsoft. The two companies announced the settlement would put past disputes behind them, and that they would immediately begin collaborating on media, technology, and bundling efforts.
The reported terms of the agreement would seem to represent a substantial victory for Microsoft, while enabling AOL Time Warner to put the litigation behind them and make a small dent in their estimated $26 billion corporate debt. Under the settlement, Microsoft grants AOL a royalty-free, seven-year license to Microsoft Internet Explorer, and the two companies will work together to leverage Microsoft media and distribution software for AOL Time Warner's substantial print, music, and film content. Microsoft will also begin bundling America Online software with versions of Windows distributed by some PC manufacturers.
Bottom line: AOL Time Warner gets to put some money in the bank and will have an easier time deploying its content using Microsoft technologies. Microsoft gets out from under a difficult antitrust lawsuit (which would have leveraged the federal finding that Microsoft engaged in unfair trade practices), probably puts the final nail in Netscape's coffin, and sets itself up as the gateway technology to AOL Time Warner's considerable media holdings - a move which could have substantial implications for Apple's online media fronts, including QuickTime and the new iTunes Music Store. [GD]