Article 2 of 530
Overrule of MS break-up met with mixed response.
Copyright (C) 2001 VNU Business Publications Ltd.; Source:
World Reporter (TM)
The US Court of Appeals quashed government trustbusters'
efforts to split Microsoft into two companies last month (CRN,
4 July). However, the software giant isn't out of the woods
After the long-awaited decision, which also absolved
Microsoft of trying to monopolise the Web-browser market by
integrating its Internet Explorer browser with its Windows
operating system, many resellers are breathing a sigh of
relief. They now know they won't have to incur the
administrative headaches, added expense and inevitable
business interruption that a Microsoft break-up would have
Yet the fact the Court of Appeals agreed with the US
District Court that Microsoft violated the 1890 Sherman
Antitrust Act by "employing anti-competitive means" to
maintain a monopoly in the operating system market implies the
company won't be able to use that strategy in the Internet
Some of Microsoft's partners are pleased the software
vendor won't be split in two, but a number of them say
significant restrictions are appropriate to establish a more
level playing field in Web services.
Andy Kass, a partner at Array Technologies, a US-based
reseller, has never supported a break-up but feels Microsoft
should be monitored closely.
"The bottom line is Microsoft can now do essentially
anything it wants, short of napalming Pittsburgh, regardless
of how it affects any vendor or end-user. Dispelling this myth
of invincibility is a worthwhile result for all concerned," he
said. "If this textbook case of anti-competitive behaviour by
a dominant market player does not result in a real penalty,
the antitrust laws are meaningless and the phrase 'free
market' will become meaningless."
Enforcing business ethics, not policing product
integration, is essential for protecting competition, said Joe
Ivison, chief executive of US-based e-commerce reseller
Superior IS. "Microsoft needs to have some restraints placed
on its conduct," he said.
Even Microsoft chairman Bill Gates, anxious to end his
three-year battle with the US Department of Justice (DoJ),
humbly acknowledged last week that the case isn't over and it
won't be business as usual for Microsoft at any time in the
As the Court of Appeals remands the case to a lower court
to determine the penalty for Microsoft's antitrust violations,
the company's attorneys are considering an appeal against the
ruling to the US Supreme Court.
In addition, several state Attorneys-General have vowed to
appeal, with or without help from the federal government, to
protect consumers as the Internet-services era dawns.
"Today's decision overturned many of the findings, but not
all. We need to determine what actions to take," Gates said at
a press conference following the decision, roughly a year
after US District Court Judge Thomas Penfield Jackson ordered
that Microsoft be broken up. "Most of the licensing provisions
cited today by the court were discontinued years ago. But
we'll be reviewing them in the light of today's decision and
will work hard to resolve the issues without the need for
continued litigation," he said.
The Court of Appeal's decision, which questions Jackson's
impartiality and bars him from presiding over the remedial
phase, paves the way for a negotiated settlement between
Microsoft and the government, industry observers say.
In a press conference on the decision, US Attorney-General
John Ashcroft and DoJ officials said a settlement is not out
of the question. Other DoJ officials said the agency will
consider a settlement only under certain conditions. "We'd be
willing to entertain a settlement proposal if it addressed the
anti-competitive issues (that the Court of Appeals cited),"
said one official who wished to remain anonymous.
Since the Microsoft case began, competing operating system
technologies such as Linux have emerged and flourished. But
industry analysts, and the Court of Appeals, have not
overlooked the fact that Microsoft's Windows hegemony only
grew stronger as the case ran. Windows's market share has
surpassed 90 per cent in the desktop segment and 40 per cent
in the server segment, according to research firm IDC.
The antitrust decision also does not clearly define whether
Microsoft has the legal right to integrate Internet
technologies and services into its Windows and Office desktop
In its 125-page ruling, for example, the Court of Appeals
reversed an earlier ruling that such integration amounted to
"illegal tying", but at the same time declared some actions
taken in the integration of Internet Explorer with Windows to
be illegal and remanded that issue to the lower court for
For all practical purposes, however, Microsoft's legal
shackles have been removed, experts say. "Microsoft will be
free to do what it wants with Windows XP and dot Net," said
Nicholas Economides , an economics professor at New
York University's Stern School of Business. "The case for
tying (Internet Explorer and Windows) was dismissed by the
Court of Appeals. It is a problem for the government's case."
Until a new case is brought, Microsoft will not feel
restrained in driving its new technologies, Economides
claimed. "The decision is likely to put some restrictions
on those things, but it won't hit Microsoft that much."
During a press conference with Microsoft attorneys, the
firm's chief executive, Steve Ballmer, said he saw the court's
highly "technical, precise" distinction between co-mingling
and "illegally tying" Internet Explorer with Windows as a
green light for product integration. "It's the most
significant guidance we get on our plans to continue with the
Windows XP product as currently defined," he said.
"There's nothing in the ruling about HailStorm, and our
view is that we'll continue with innovations we have planned
in the Web services area," said Ballmer, when asked if the
ruling could affect Microsoft's plans to integrate Internet
services with Windows XP.
Still, resellers concerned about Microsoft's Web-services
strategy said the industry will benefit more if the government
pursues remedies that monitor how the company writes contracts
with OEMs and independent software vendors (ISVs), rather than
how it writes software.
"Times have changed, even since the initial ruling.
Microsoft is feeling more competitive heat," said Chris Ferry,
senior vice-president at systems integrator Bell Techlogix.
"There are better remedies than breaking it up, such as more
controls on its marketing and bundling practices."
When the Court of Appeal's decision emerged late last
month, both sides claimed victory. Though the ruling favours
Microsoft on two of three key legal issues, the court's
affirmation of "limited liability" on the monopoly charges
will make it tough for the new DoJ, under the Bush
administration, to give Microsoft just a slap on the wrist,
"It's hard to conclude if Microsoft has won a tremendous
victory or suffered a tremendous loss," said Alex Edelstein, a
fund manager at Gemstone-Edelstein Capital, who worked at
Microsoft from 1991 to 1995.
"I would like to see an environment where Microsoft can
compete effectively and small companies can compete against it
without worrying that Microsoft will illegally use its
monopoly contract for the Windows operating system against
them," said Edelstein, who also worked at Netscape
Communications from 1995 to 1997 and served as assistant to
former Netscape chief executive and Microsoft nemesis Jim
Barksdale. "It definitely is the case that if some sort of
regulatory action isn't taken, there really won't be any
reason for Microsoft to change its behaviour," he added.
The conduct remedies may be as challenging as a break-up,
argued John Hitchcock, vice-president of marketing at eForce,
a US-based professional services firm. "They'll still be under
heavy scrutiny," he said. "I think that the 'Big Brother'
effect will continue to be there."
Frustrated partners say Microsoft has already resolved some
issues with internal changes, as well as with its support of
industry standards such as XML for its dot Net platform over
its proprietary Windows APIs.
"If you think about when the trial commenced and where
Microsoft is today, it's a vastly different organisation with
a different strategy: software as a service," said Dave
Castellani, chief executive of Mi8, an ASP. "The dot Net
platform is an honest, genuine, open architecture move for
If you really understand how Microsoft is organised, you'll
know that it is already broken up. It is not a big company.
It's a lot of little companies that act in an entrepreneurial
way and compete with each other. This creates the ability for
them to change on a dime."
On the server side, the Linux oper-ating system remains
Microsoft's greatest threat. Linus Torvalds, the leader of the
Linux movement, said the court's decision is on target but
won't have much impact on the commercial progress of Linux.
"It matters much more for companies like AOL and Sun than it
does for Linux," said Torvalds, who owns the trademarked Linux
name. "A Microsoft split-up would have been interesting from
an 'industry needs a good jolt' angle, but I'm not in the
business. I thought the ruling was quite fair."
Yet one ISV said the ruling may have erased any chance of
"Whether or not you believe Microsoft abused its position
and acted in a monopolistic fashion, by overturning the ruling
the courts are giving Microsoft a green light to do it again,"
said Rick Onyon, president of FusionOne, which hopes to
compete with one of Microsoft's HailStorm services.
"The court has given out the message that companies can get
away with monopolistic and predatory behaviour."
Bill Coleman, chief executive of e-commerce software vendor
BEA Systems, lauded the decision, because it accounts for the
possibility of future anti-competitive conduct by Microsoft.
"Now that they've been judged guilty of antitrust behaviour,
the remedy will be cultural, which allows the government to
enact restraints on future behaviour," Coleman said. "Now
Microsoft's intended behaviour with HailStorm, which we think
is anti-competitive, can be brought up in the remedy phase."
THE MICROSOFT CASE: A RECAP
- August: US Department of Justice (DoJ) takes over Federal
Trade Commission investigation examining possible collusion
between Microsoft and IBM.
- July: Microsoft and DoJ sign consent decree that says
Microsoft cannot require computer makers licensing its Windows
operating system to also license other software. Decree
doesn't prohibit Microsoft from developing 'integrated
- February: US District Court Judge Stanley Sporkin rejects
consent decree as too easy on Microsoft.
- June: Federal appeals court reverses Sporkin's ruling and
upholds consent decree. Sporkin is removed from the case,
which is then transferred to US District Judge Thomas Penfield
- August: Jackson approves decree.
- September: DoJ begins probe of Microsoft's integration of
its Internet Explorer browser with its Windows 95 operating
- October: DoJ files petition alleging that Microsoft
violated the consent decree by bundling Internet Explorer with
- December: Jackson issues preliminary injunction that bars
Microsoft from requiring computer makers to install Internet
Explorer as part of Windows 95. Microsoft offers computer
makers a version of Windows 95 without Internet Explorer. DoJ
says this does not obey the injunction and asks Jackson to
hold Microsoft in contempt.
- January: Microsoft reaches an agreement with DoJ to give
computer makers the option to install Windows 95 without the
Internet Explorer icon.
- May: DoJ and 20 states file a major antitrust suit
against Microsoft, alleging that the software company abuses
its market power to stifle competitors.
Federal and state cases are later combined. Earlier in the
month, the appeals court had ruled that Jackson's December
1997 injunction should not apply to Windows 98, which came
bundled with Internet Explorer.
- October: Antitrust trial begins, with Jackson presiding.
- August: Antitrust trial concludes.
- November: Jackson issues 'findings of fact' stating that
Microsoft holds monopoly power and has harmed competitors and
consumers. In an attempt to reach a settlement, Jackson refers
the case to Richard Posner, chief judge of the US 7th Circuit
Court of Appeals, for voluntary mediation.
- April: Days after Posner ends the fruitless mediation
talks, Jackson rules that Microsoft abused its monopoly
- June: After remedy proposals stall, Jackson orders
Microsoft to be split into two separate companies: one for its
Windows OS and one for other software, including Internet
Explorer. Microsoft appeals the decision to the US Court of
Appeals. Jackson grants DoJ's request to send case to the US
- September: Supreme Court refuses to hear case and returns
it to the Court of Appeals.
- June: Court of Appeals overturns Jackson's order to break
up Microsoft but rules that the company did violate antitrust
laws. The case is remanded to a lower court under a different
trial judge to determine the penalty for Microsoft's