Economics of Networks

US and some States settle with Microsoft

By Nicholas Economides

November 8, 2001, Incomplete, not for quotation

Last Updated: 11/8/2001

Disclaimer: I am not a consultant of the United States Department of Justice, Microsoft, or any of the Attorneys General of the 19 States and the District of Columbia that have sued Microsoft

On November 2, 2001, the United States and Microsoft proposed a settlement in the major antitrust case. U.S. District Judge Colleen Kollar-Kotelly gave until Tuesday 11/6/2001 to the plaintiff States to decide whether to settle as well. Among the States, New York, Illinois, North Carolina, Kentucky, Michigan, Louisiana, Wisconsin, Maryland and Ohio settled on 11/6/2001.  California, Connecticut, Iowa, Massachusetts, Minnesota, West Virginia, Florida, Kansas, Utah, and the District of Columbia will pursue the suit further to a full remedies trial.

Summary of Proposed Microsoft Settlement of November 6, 2001

A.               Provisions seen as favorable to Microsoft


1.                 No breakup

There are no structural changes, such as a breakup of Microsoft.


2.                 Microsoft can expand functions of Windows

Microsoft can add any functions it wants to the operating system


3.                 No restrictions on bundling

There are no general restrictions imposed on product bundling by Microsoft


4.       No wide disclosure of source code

Mandated disclosures are limited to interfaces



B.                Provisions seen as favorable to the plaintiffs


1.       Broad scope of definition of middleware products

The settlement defines "middleware" to include browser, e-mail clients, media players, instant messaging software, and future new middleware developments.


2.       Requirement to partially disclose middleware interfaces

Microsoft will be required to provide software developers with the interfaces used by Microsoft's middleware to interoperate with the operating system.


3.       Requirement to partially disclose server protocols

The settlement imposes interoperability between Windows and non-Microsoft servers of the same level as between Windows and Microsoft servers.


4.       Freedom to install middleware software

Computer manufacturers and consumers will be free to substitute competing middleware software on Microsoft's operating system.


5.       Ban on retaliation

Microsoft will be prohibited from retaliating against computer manufacturers or software developers for supporting or developing certain competing software.


6.       Uniform pricing of Windows for same volume sale

Microsoft will be required to license its operating system to key computer manufacturers on uniform terms for five years. Microsoft will be allowed to provide quantity discounts.


7.       Ban on exclusive agreements; contract restrictions

Microsoft will be prohibited from entering into agreements requiring the exclu