Is Bill Gates' nightmare over?

The Microsoft antitrust case appears to be ending -- not with a bang, but with a Bush administration-brokered whimper. Our experts weigh in.

Published November 2, 2001 6:31PM (EST)

Bill Gates says he is "pleased."

"Litigation is never a good thing for any industry or any company," he noted in a press conference held Friday to trumpet the proposed settlement between Microsoft and the U.S. government. Meanwhile, Attorney General John Ashcroft says he wants to express his "gratitude" to the antitrust division of the Department of Justice for all their "their hard work."

"The American people can be confident not only of the hard work that they have done, but of the result that they have achieved," said Ashcroft.

There's no doubt that the American people can be confident that the antitrust division lawyers put in a tremendous amount of work over the last three years. Whether they should be confident in the result is less obvious. The settlement, while ostensibly restricting some of the egregious practices by which Microsoft lorded it over the computer industry during the last decade, does little to prevent Microsoft from doing to some future Netscape precisely what it did in the browser wars.

In a nutshell, the settlement is supposed to restrict Microsoft from prohibiting "original equipment manufacturers" like Dell or Gateway from offering other operating systems or competing software applications on computers that also feature Windows. Microsoft is also supposed to release technical information that will help third party software and hardware vendors figure out how to make their applications work with Windows. And a technical review committee will be empowered to watch over Microsoft for the next five years to ensure that the company toes the line.

But there appear to be some significant loopholes in the settlement.

For instance, the company is specifically not required to divulge proprietary technical information for anything that might have to do with the "security of anti-piracy, anti-virus, software licensing, digital rights management, encryption or authentication systems." The area of digital rights management alone is certain to be a huge battleground in the future, affecting the online delivery of music, movies, books and other entertainment. In essence, Microsoft appears to have carved out huge swathes of potentially lucrative territory and put them off limits to competitors, with the explicit permission of the U.S. government.

It's possible that individual states will not accept the settlement -- it's also possible that European regulators will take a harder line. But for now, the bottom line is easy to read. Litigating may not be a good thing for any industry, but by successfully litigating its way into the welcoming confines of a Republican administration, Microsoft has gotten off the hook.

Norman Hawker, associate professor at Western Michigan University Law School and a research fellow at American Antitrust Institute

It's a travesty and I think it's appalling. The government had its greatest antitrust victory in nearly a century this summer with the unanimous decision from the Court of Appeals. And now Microsoft is getting off without even the faintest slap on the wrist.

The most egregious example of this would be the fact that there's no provision for penalizing Microsoft if they fail to comply with the order. All it says is that the order will be extended if they don't comply, but if you're not obeying it now, what difference does it make if the order stays in place for a few more years?

Also, before Microsoft had been found to violating the law under any court, they were willing to settle under much more restrictive term than this. Now, after winning in the district court and in the Court of Appeals, they have a weaker remedy in place. If you look at Ken Auletta's book on the case, you'll see that Microsoft had been willing to give up a lot more. Take the provisions about requiring disclosure, for example. They were willing to disclose the entire source code; now they're only disclosing part of the APIs [application programming interfaces]. Also, the retaliatory provisions -- they sound great: "We're not going to let Microsoft do uniform pricing." But there are all kinds of exceptions in there that they can use. Microsoft has an even bigger monopoly in its office suite, so they can keep their OS prices out of the mix and say we're not retaliating against you for not installing windows, but your MS Office price just doubled. Or they can say, we're not retaliating against you but we don't think you're handling Microsoft Office correctly so we're going to take away your license. There are all kinds of ways that they'll be able to truck through supposed restrictions.

The government was negotiating from a strong position. Microsoft, when they saw this settlement must, have thought it was raining pennies from heaven. It's rainwater turned into beer with the government agreeing to these terms. It's just amazing to me that they would agree to the weakest terms when coming from the strongest position.

How did this happen? The Bush administration does not believe in vigorous enforcement of antitrust law. They expected to lose in the Court of Appeals. When they won, they were put in the embarrassing position of winning a case that they were opposed to from the start. So now, a year from now, we'll be in no different position than we would have been if the government dropped the case. It's appalling.

Robert Litan, an economist at the Brookings Institute, who served as deputy assistant attorney general for economics in the Justice Department's antitrust division

The big issue here was whether Justice was going to go after Windows XP and any future software with some kind of un-bundling requirement. That was the big thing that was left off the table, and I think that we all got strong signals that they weren't going to do that when they dropped the tying case [the charge that Microsoft was illegally leveraging its monopoly over operating systems to take over the browser market].

This was foreordained. Once they dropped the tying case, to me they were signaling that they were not going to go after XP, and I think that philosophically this department is not comfortable interfering with software design, and they accepted Microsoft's argument there. Microsoft had maintained since the very beginning of the case that they want the freedom to design their own software. This settlement ratifies that.

Now, it doesn't mean that they will ultimately win because they still have to stare down the states and the European Union over this issue, and I'm assuming that some states will fight on. So, this isn't settled by any means, but this is obviously a big hurdle, because now they've convinced the Justice Department, and that was probably one of the biggest roadblocks in the way.

The problem is that in this industry things change all the time, and it's the same issues over and over again. Microsoft is constantly extending the scope of its software, and the people who are fighting it are constantly saying that they are unlawfully leveraging their monopoly and operating system, and again and again we have this argument. Microsoft now has won a big round, because they've convinced the Justice Department to leave them alone on product development. And that to me is the biggest victory for them out of this case, so far.

Bob Levy, senior fellow, constitutional studies, Cato Institute

It's good news. Not because I'm happy with the outcome, but rather because the alternative of protracted litigation was just unacceptable. What this all means is that Microsoft's rivals actually failed in their attempt to use government to win through political means what they couldn't win through competitive means.

It also means that consumers are not going to pick up the tab while the most creative executives in the business spend all their time currying favor with the politicians instead of developing new products. And that's good news. What's not so good news is that Microsoft is going to have to make more concessions than are justified by the lawsuit.

In my view, the lawsuit is baseless, therefore there were no concessions that would have been appropriate. And it also means that the company is going to face a lot more litigation not from the Justice Department, assuming the settlement is approved, but from competitors, from trial lawyers who will exploit this opportunity to begin class actions, from the European Union and maybe even from the states -- the attorneys general -- who don't agree to the settlement.

It will certainly hinder Microsoft compared to no restrictions at all. Microsoft has been told that they're going to have to allow others to dictate how their opening screen is going to look. Microsoft is not going to be able to engage in exclusive contracting, even though exclusive contracting is the normal course of doing business all over the United States. Microsoft has to disclose its so-called APIs; after all, the APIs are Microsoft's. Well, what business is it of the government whether they disclose it or not? And Microsoft has to make prior versions of Windows available for some specified amount of time. All of those are restrictions that I think are unwarranted. I don't think, however, that they are so draconian that they will cause any serious problems for Microsoft. Microsoft ought now to be able to go ahead with its new products and get on with business, which is what they should have been doing for the last three years instead of screwing around the courtroom.

The effects on the economy are going to be both short-term and long-term. There's a short-term kick, we've already seen the impact of that in yesterday's market. That's good news after weeks of lousy news on all fronts. It's kind of nice to have some good news, and longer term it has to be a positive development. I'm not suggesting that everything has hit rock bottom and now it's all roses from here on in. That's not the case. But this is a positive development. It can't be interpreted any other way, and I think that the state attorneys general to the extent that they decide not to go along with this are making a big mistake, both for the good of the country and for the good of the high-tech sector in particular.

James V. DeLong, senior fellow, Competitive Enterprise Institute

It seems like a reasonable settlement to me. The government got more than I think it should have under the Court of Appeals decision, which really left the case in shreds. But Microsoft could agree to all of this without damaging itself too much. Microsoft has claimed to be interested in being open and competitive and this codifies that stance.

Overall it's a victory for Microsoft and it's a victory for the economy in that it removes the uncertainty.

Luke Froeb, an economist at the Owen Graduate School of Management at Vanderbilt University, served at the Department of Justice's antitrust division from 1986-88 and 1990-93.

To me, the big event was two months ago when the government dropped the claims about tying or bundling. Even though they were giving away Microsoft's Internet Explorer, it was bundled with the operating system, tying the sale of one product to another.

Once they decided to not pursue that part of the complaint, it was inevitable that the relief wouldn't look very drastic. It's kind of uneventful now that they dropped the tying claim. It was clear that there'd be no significant relief once they dropped that claim. But they still could have problems with the states and the Europeans.

Mark Cooper, director of research, Consumer Federation of America

We think its outrageous. They [the Justice Department] asked for less than they had on the table before they won the case. It doesn't address the core question of commingling code; it doesn't go at that issue nearly hard enough. They looked back at Java but they could have looked forward to XP and that's what they should have done.

The enforcement mechanism is also very weak. It's basically, "if you don't act right, you have to stand in the corner for two years." The burden is not on Microsoft, it's on the programmers who have to figure out how the code works and whether or not it's a violation.

The settlement doesn't even provide a framework that a judge could work with. If the framework was reasonable, the parties could tinker with it and make it work, but this is so wrongheaded that that's not possible. That's why we were asking the state attorneys general to keep prosecuting the case. We're looking for a good remedy; this is not a sensible remedy. People have invested too much time and energy so to see them come up with something [like this] is very disappointing. And in the longer run, it's antitrust law that's going to suffer. Who's going to bring another case when you can win 7-0 and end up with this?

Tim O'Reilly, publisher, O'Reilly & Associates

I continue to have mixed feelings about the case.

Microsoft has abused their monopoly to reduce consumer choice, and is making every sign that they want to continue to use all the leverage they have in the desktop monopoly to lock in customers and lock out competitors in important future markets. The settlement looks like it will do little or nothing to solve this problem.

At the same time, there have never been any proposed remedies (at least proposed and considered by those with any power) that have made sense to me. Breaking up the company seems too strong, while conduct remedies regarding the browser and OEM deals are too little too late, since all the damage has been done.

I'd love to see remedies in which Microsoft was required to follow industry standards -- no more "embrace and extend." They can either compete with standards, or follow them, but they can't claim to follow them, while really creating incompatible extensions that, because of Microsoft's market power, end up giving them control over the standard. I'd love to see Microsoft required to provide detailed documentation, in advance, of all file formats, APIs and protocols they use, with serious fines for hidden information.

At the end of the day, though, I wish mostly for company management at Microsoft that had a vision of an industry beyond a zero sum game, in which Microsoft gets it all and everyone else gets zero. It's great to be competitive, and want to be No. 1 in the market. But once you're there, you need to act in a different way than you do when you're a scrappy upstart. I see some signs that Microsoft is growing into a position of mature leadership and industry stewardship, but they haven't gone far enough. I'd love to see a world in which we could trust a settlement and a consent decree, whatever its terms, because we trusted that Microsoft admitted that they have had a problem, and want to make a sincere effort to change. Microsoft's continued contention that they've done nothing wrong remains the biggest block to me in accepting any proposed settlement.

Bill Gates, chairman and chief software architect, Microsoft, in a press conference Friday morning

I'm pleased that we've reached a settlement with the Department of Justice ... Litigation is never a good thing for any industry or any company. We have said for some time that we would go the extra mile to resolve this case. That is exactly what we did in reaching this settlement. This agreement contains significant rules and regulations on how we develop and license our software, but it allows Microsoft to keep innovating on behalf of consumers.

The experience of the past three years has had a profound impact on me personally and on our company. We are in a fast-moving, competitive industry, but we will focus more on how our actions affect other companies. Along with this settlement comes new responsibilities to communicate in new ways, to be even more open and to offer new design flexibility. We accept these responsibilities and we resolve ourselves becoming an even better industry leader. This is a difficult time for our nation and for our economy. While this settlement imposes new rules and regulations, we believe that settling the case now is the right thing to do for our customers, for the technology industry and for the economy.

It certainly was a long, complex, sometimes draining, you would say. We learned a lot as we went through it, not just about the process, but how we can be a leader, how we can communicate in new ways. Many of the things that we're accepting in the settlement come through the thinking and the learning that came out of these last three years. During these three years there was a lot of uncertainty at our company -- what would come out of this court case? -- and if there is anything clear that I think is good for everyone here is that uncertainty is now resolved. The settlement sets forward what we need to do. That's known, and that's what we're going to do. So, it marks a boundary and puts the three years experience behind us, but with all the learning that took place during that time.

Jamie Love, director, Consumer Project on Technology

There is lots to like about the proposed agreement, but it is complicated, and will take a while to understand and evaluate, particularly the issue of possible loopholes, given Microsoft's past conduct.

1. Right up front there is a prohibition on multiple OS boot PCs, which is important, in our opinion.

2. The nondiscriminatory OEM licensing terms are good, and very important.

3. The interoperability provisions are sophisticated, but it will take a while to understand. For example, one wants to know more about the accessibility of file format information, particularly with the exceptions for information on anti-piracy technologies.

4. The Technical Committee and the ADR that is established to deal with oversight is welcome. The EU had its own oversight of the 1984 IBM agreement, and this turned out to be important.

Eben Moglen, Columbia University law professor and counsel to the Free Software Foundation

This is like IBM. The U.S. government gave up in 1984. The judgment was in effect a withdrawal of litigation. It's the same thing here. The Justice Department is arguing with an earlier version of itself, saying that Microsoft will behave a certain way if its behavior is modified within certain limits. But what the Justice Department's case proved was that Microsoft was a monopolist with a business that required it to take illegal measures to succeed. The settlement doesn't affect that reality at all. It hasn't done anything that would stop Microsoft from engaging in most of the kinds of conduct that the Justice Department found to be illegal. It's true that someone will be able to monitor the company's balance sheets but anyone who invests $100 in the company can do that.

There are [also] several provisions designed by Microsoft and accepted by an indifferent or careless government.

Sections III-D and E say that Microsoft must document its APIs within reasonable time, for ISVs [independent software vendors], "for the sole purpose of interoperating with a Windows Operating System Product." Not, in other words, to allow a competing Non-Microsoft Operating System Product to interoperate with Windows applications. This is designed to make it possible for Microsoft to deny information to developers of [free software like] GNU and Linux [who create products that are not designed solely to work with Windows.]

III-I(5) says that [developers and hardware manufacturers] "may be required to grant to Microsoft on reasonable and nondiscriminatory terms a license to any intellectual property rights it may have relating to the exercise of their options or alternatives provided by this Final Judgment; the scope of such license shall be no broader than is necessary to insure that Microsoft can provide such options or alternatives." Microsoft will use this to argue that code under the GNU General Public License (GPL) [which protects such software as GNU and Linux] must be licensed to it on non-GPL terms, so they can use the code in their own programs without having to GPL their programs.

The essence of what will happen then still depends on whether Microsoft has convinced all parties to accept these rules. We will certainly seek with the state attorney generals, the Justice Department, and the district judge to have the settlement altered to reflect the realities the government has overlooked and that Microsoft has twisted to its advantage here.

Richard McKenzie, author of "Trust on Trial: How the Microsoft Case is Reframing the Rules of Competition"

Reason, not Microsoft's competitors, has prevailed in the case. Of course, the settlement doesn't do everything Microsoft's competitors wanted. They wanted no less than for Microsoft to be hobbled, and unable to compete aggressively. The very fact that the competitors are unhappy with the settlement suggests that the settlement is pro-consumer. Nevertheless, the settlement is in line with the Appeals Court's decision that cited specific instances of Microsoft's abuse of it market position and addresses those specific problems.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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Katharine Mieszkowski is a senior writer for Salon.

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By Damien Cave

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