The Microsoft Case
Settlement May Not Put End
By RIVA RICHMOND
Microsoft Corp.'s settlement with the
U.S. Justice Department, if approved by a federal judge, may
end a historic three-year antitrust case. But the final
chapter in a storied history of government probes into the
software giant's competitive practices still hasn't been
"There's definitely going to be some peace for a while, but
that doesn't say the battle is over," said Nicholas
Economides, a professor at New York University's Stern School
of Business who has closely followed the saga.
The Justice Department's case has roots that stretch back a
decade. Those tendrils are wrapped tightly around practices
that helped Microsoft, of Redmond, Wash., maintain and expand
its overwhelming dominance of the software industry, and
defeat rivals such as Netscape.
Whether the settlement will put an end to the heated
disputes that resulted seems unlikely. Microsoft faces a
widening investigation by European antitrust enforcers even as
it resolves its conflict with U.S. authorities. It also faces
the prospect of lawsuits from a number of companies, including
Sun Microsystems Inc. and AOL Time Warner Inc., whose Netscape
unit was at the heart of the U.S. antitrust case.
Under the deal presented to a federal judge in Washington,
Microsoft would provide rival software developers with
information allowing them to develop competing products and
ensure those products work with Microsoft's Windows operating
system. Microsoft also would allow three independent experts
to work full-time on its premises to ensure compliance with
the settlement's terms.
The first government probes into Microsoft's competitive
practices began at the Federal Trade Commission in 1991, some
10 years after the company introduced its MS-DOS operating
system and six years after it shipped its first version of
Windows. The FTC's investigations of antitrust allegations
ended in 1994 with no lawsuit filed against Microsoft.
But Justice picked up the ball, launching an investigation
in 1994 that ended a year later with a consent decree. Under
its terms, Microsoft agreed not to bundle products through
contracts with computer manufacturers, but kept its right to
expand the functions of its products, including Windows, in a
kind of "technological bundling," said Mr. Economides.
Peace didn't reign long. In 1997, Congress began to
consider Microsoft's alleged anticompetitive practices in
hearings led by Sen. Orrin Hatch of Utah. Members of Congress
heard testimony from the likes of Microsoft's Bill Gates,
Netscape's Jim Barksdale and Dell Computer Corp.'s Michael Dell.
Around this time, an alliance between Sun, Oracle Corp., International Business Machines Corp.,
Netscape and Novell Inc. formed to lobby for
antitrust action against Microsoft.
In October 1997, the Justice Department charged Microsoft
with violating the 1995 consent decree by bundling Internet
Explorer, its Web-browsing software, into Windows 95. With
this tactic, Microsoft sought to leverage its near-ubiquitous
operating system to grab a dominant place for Internet
Explorer at the expense of Netscape's browser.
The judge who presided over the case, Thomas Penfield
Jackson, issued a preliminary injunction in December 1997
barring Microsoft from bundling Internet Explorer with
Windows. That injunction was later voided by a court of
appeals, which also decided in May 1998 that the 1995 consent
decree didn't apply to Windows 98.
That line of recourse exhausted, the Justice Department,
together with 20 states and the District of Columbia,
immediately filed the broader antitrust case that the
department now hopes to settle.
The case went to trial for 78 days, beginning in October
1998 and ending in June 1999. It resulted first in Judge
Jackson's November 1999 "findings of fact," which leaned
strongly in favor of the plaintiffs' legal arguments.
Settlement talks mediated by Judge Richard Posner began in
December, but broke down on April 1, 2000. Two days later,
Judge Jackson issued "conclusions of law," which found that
Microsoft had illegally "tied" its Web browser to Windows to
shield its operating-system monopoly and extend it into new
markets. On June 7, the judge issued a remedy decision that
called for a breakup of Microsoft into two companies and
severe restrictions on its conduct.
Microsoft took the decision to the U.S. Court of Appeals in
Washington, D.C. In June, that court unanimously reversed
Judge Jackson's ruling that Microsoft be split in two, but
slammed the judge for negative comments made about Microsoft
to reporters outside of court. It ordered Judge Jackson
removed from the case and said it would appoint a new judge to
decide what penalties, if any, Microsoft should face.
In their ruling, the judges handed Microsoft a victory by
rejecting the government's claim that bundling of the Internet
Explorer browser with Windows was an illegal "tie" of two
products meant to block competition. But the court upheld
Judge Jackson's finding that Microsoft has a monopoly in the
market for operating systems for Intel-compatible personal computers, a
finding which Microsoft had contested. And the judges said
they agreed that Microsoft had behaved anti-competitively and
that those actions had contributed to the maintenance of its
In August, the appeals court named Judge Colleen
Kollar-Kotelly to decide penalties in the case. In early
September, the Justice Department and state antitrust
enforcers said they wouldn't seek a breakup of the company,
would drop the tying claim and wouldn't seek to halt the fall
shipment of Windows XP, Microsoft's latest version of its
That move was designed to narrow the two sides' differences
and make reaching a settlement easier -- an effort that
received a major boost after the terrorist attacks of Sept. 11
as Judge Kollar-Kotelly ordered both sides to pursue talks in
light of the attacks' effects on the U.S. economy. On Friday,
a proposed settlement was announced.
Write to Riva
Richmond at email@example.com