According to Fade's deposition, two customers -- the top two PC makers -- have experienced a price increase, while the remaining PC makers have stayed the same or received a price break based on the new terms. The top two PC makers worldwide are Dell and Compaq, according to market researcher IDC. "It's a price-per-volume curve," said Fade in the deposition. "So the deepest discount we had we bumped up $4, and then the price we had for the smallest customers we brought down. So if you had a curve...we brought the customers that paid the most down and the customers that paid the least up to bring that range to the middle." Microsoft appears to be "taking some of the steepness out of the (pricing) curve," said Roger Kay, analysts with IDC. As a result, some PC makers will pay more, and some will pay less, to license Windows. "Anyone that's in a relatively worse position than they had been before will grouse and those who are better off can be expected to cheer," Kay said. However, increases in licensing fees for companies such as Dell, as the No. 1 PC maker, create a sticky situation. "If it gets stuck with $4 more than anticipated (in system cost), that's a big lump" for Dell, Kay said. "The final outcome, however, depends on what kind of market muscle Dell has and (depends on) the legal reality: Is it part of the settlement that Dell must accept the terms?" Dell and other PC makers have several options. They could pass the cost on to the customers or they could change their hardware configurations in order to reduce cost in some other area. Fade also said that in a series of meetings and email discussions, Microsoft's top executives, including chief executive Steve Ballmer, made it clear they did not want to "create financial gain" from the new terms. "We felt it was the right thing to do not to create financial gain for the company out of the Consent Decree," said Fade. "It just seemed imprudent and untoward to do that, that the company would be benefiting from the action with the government and the fact that the Consent Decree would become binding on us and that we would have no option and that our customers would have...less recourse with us." However, the litigating states said Microsoft had forced computer manufacturers to agree to sign a provision that would go further in preventing them from enforcing the patents on their own hardware against Microsoft. Computer manufacturers reasonably might have expected a consent decree with the federal government to decrease Microsoft's power, but "as Mr. Fade attested, (the settlement) has had the opposite effect," the states said in their brief. The states added that the top 20 PC manufacturers were all unhappy with the new terms. "Although more evidence is needed, the evidence gathered to date indicates that Microsoft may not only have profited from its (settlement) negotiation, but negotiated in order to profit," the states said in their brief. Microsoft's Desler said the patent provisions cited by the states were standard in past Windows licensing agreements and have been reviewed by US and European regulators. "It's fairly predictable that the states would distort information gathered in the deposition process in their effort to undermine the settlement reached by Microsoft, the department of justice, and a bipartisan group of states," Desler said. An appeals court in June agreed with a lower court that Microsoft had illegally maintained its monopoly in personal computer operating systems, but rejected splitting the company in two to prevent future violations. The US Justice Department and another nine states that had joined in the case have agreed to a settlement with Microsoft that would, among other things, give computer makers more flexibility to feature rival software on their machines. Nine states, including California and Massachusetts, have rejected the settlement deal as inadequate and are pressing for more severe sanctions against Microsoft. The states want to force the company to sell a cheaper, stripped-down version of Windows, to give competitors easy access to the detailed Windows code and to ensure Microsoft's Office suite of business programs works with other software applications. Reuters contributed to this report.
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