Microsoft and the Justice Department on Friday settled their long-running antitrust battle, in an agreement with far-reaching implications. The deal would impose mild restrictions on the software maker compared with earlier rulings in the three-year-old case, focusing largely on tweaking Microsoft's competitive behaviour. Among other provisions, the company has promised to refrain from contracts and related activities that compel other companies to do its bidding. The Windows operating system, at the heart of a court ruling that branded Microsoft a monopolist, will emerge largely unchanged, and Windows XP -- once a focal point of further proceedings -- will be free of any significant restrictions. Still, if it goes through, the agreement could greatly benefit computer manufacturers, which now will have the freedom to substitute non-Microsoft applications on Windows, including Web browsers, email clients, media players and instant-messaging applications. The two sides reached their agreement shortly before a Friday deadline set by US District Judge Colleen Kollar-Kotelly, who now must review their proposal. One complicating factor is that the 18 states that are co-plaintiffs in the landmark case are not yet on board. They are expected to ask the judge for more time to review the settlement document, as they weigh the possibility of continuing the case on their own. Friday's agreement, which falls short of the final proposal submitted during last year's failed settlement discussions, has some legal experts and high-tech trade organizations crying foul. The settlement, they say, lacks the bite warranted by an Appeals Court ruling in June that upheld eight separate antitrust claims against Microsoft, mostly notably that it illegally maintained a monopoly in Intel-based operating systems. The new proposal puts forward "a very mild remedy," said Emmett Stanton, an antitrust attorney with Fenwick & West in Palo Alto, Calif. "What of Microsoft's monopoly maintenance conduct is actually being remedied? If they're not opening up the APIs,(and if) the tie-in agreements are not in place, what's going to be different? It doesn't sound like Microsoft is giving up very much." Many of the provisions of the settlement reflect changes already made by Microsoft. Besides the provision regarding competing applications, the proposal submitted Friday requires that Microsoft disclose server protocols to ensure that it cannot make Windows desktop software work better with its server software than with that of competitors. In addition, the company agreed not to retaliate against PC manufacturers or software developers for supporting some kinds of competing products. To help enforce this provision, Microsoft agreed to license Windows to computer makers uniformly, rather than offer better pricing only to some, for a period of five years. Microsoft also is prohibited from engaging in exclusive contracts that would prohibit software developers or PC makers from using competing products. The proposed settlement would be in effect for five years, with the possibility of a two-year extension. "Each of these things is capable of being evaded, which Microsoft has successfully done in the past," said Bob Lande, an antitrust professor with University of Baltimore School of Law. "I don't have any confidence that these provisions are going to be effective." Lande criticised the agreement for not offering enough means to enforce the settlement and to ensure that there are no shenanigans. "So you're going to let (PC makers) take off the Microsoft media player and put in another media player if they want?" he asked. "But what if every five seconds a notice pops up and says, 'Are you sure you wouldn't like the Microsoft media player?' Not a done deal
While Microsoft and the Justice Department may have reached an agreement in principle, the settlement is not a done deal until approved by Kollar-Kotelly after holding a Tunney Act hearing. That law emerged from a Nixon-era settlement with ITT that critics charged was politically motivated. "The judge is required to review the public comments received, and she is permitted to undertake any evidentiary proceeding she wants, to make sure entry of the decree is in the public interest," said Glenn Manishin, an antitrust attorney with Kelley Drye & Warren in Vienna, Va. "The whole point of this Tunney Act is to make sure there aren't any backroom, smoke-filled deals like there were with the ITT deal in the late 1960s." Opponents of the settlement are likely to question the extent to which politics played a role in the agreement. The Justice Department has gone from advocating a breakup of Microsoft under the Clinton Administration to accepting a much milder settlement at the behest of Assistant Attorney General Charles James. "The obligation of Judge Kollar-Kotelly is to determine whether the settlement is the product of political influence or an objective appraisal of antitrust policy and precedent," Manishin said. Despite the appeals court ruling, recent action by the Justice Department raises the specter of political maneuvering, critics charge. In September, with little consultation with the 18 states, the agency unexpectedly took breakup and the tying claim -- whether Microsoft illegally integrated Internet Explorer into Windows 95 and 98 -- off the table. On word that a settlement might be imminent, trade groups opposing Microsoft's monopoly behaviour distributed the last proposal prepared by US District Richard Posner before earlier settlement talks collapsed in April 2000. The Computer & Communications Industry Association (CCIA) was one of the groups canvassing here on Thursday using Posner's final settlement draft to attack the negotiations. "This is a total capitulation," said CCIA President Ed Black. "They're settling for something less than what they could have had a year and half ago. Since then they succeeded in having Microsoft found to be a monopolist (and) they had a unanimous Court of Appeals ruling in their favor with very strong language." CCIA is one of the groups expected to challenge the settlement as not being in the public interest. Whatever Kollar-Kotelly does with the settlement, there is no guarantee that an appeals court would not later overrule her. In 1995, US District Judge Stanley Sporkin refused to sign an earlier consent decree hammered out between the Justice Department and Microsoft. "Sporkin got reversed because he relied on evidence that wasn't in the record before him," Manishin said. A federal appeals court later replaced Sporkin with US District Judge Thomas Penfield Jackson, Kollar-Kotelly's predecessor responsible for the landmark antitrust case. After the two sides failed to settle before an earlier deadline, Kollar-Kotelly appointed Boston University Law professor Eric Green to mediate the talks. Lawyers for the Justice Department, Microsoft and 18 states were expected to deliver the proposed settlement to Kollar-Kotelly during a 6 a.m. (PT) status hearing. There, the states plan to ask the judge for more time to review the proposed settlement, which will be presented in the form of a consent decree, said sources familiar with the matter. About five states, among them California, led the coalition seeking more time to review the document and weigh continuing the case without federal trustbusters. See the DoJ/Microsoft News Section for the latest headlines. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the Microsoft forum. Let the editors know what you think in the Mailroom. And read other letters.