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."