Judge's Settlement Approval Is Win For Microsoft

In a 97-page ruling issued Friday afternoon, U.S. District Court Judge Colleen Kollar-Kotelly essentially threw out the states' case against Microsoft and gave her stamp of approval to the proposed consent decree Microsoft signed with U.S. Department of Justice last November.

The court approved the consent decree largely as written yet imposed an additional requirement that would force Microsoft to disclose technical information to competitors months earlier than agreed upon.

"The court is satisfied that the parties have reached a settlement which comports with the public interest," U.S. District Court Judge Kollar-Kotelly wrote. "Far from an amalgam of scattered rules and regulations, pieces and patched together to restrict Microsoft's anticompetitive business conduct, the proposed, final judgement adopts a clear and consistent philosophy such that the provisions form a tightly woven fabric."

With that, the Redmond, Wash., software giant has averted harsher penalties advocated by the nine state attorneys general who filed the lawsuit late last year, including one that would have required Microsoft to make available a stripped-down version of Windows without Internet Explorer.

"A remedy requiring code removal would disregard [an earlier court opinion that it is undesirable for the court to inject itself into matters of product design," the judge wrote.

The ruling is viewed as a big win for Microsoft. Despite the fact that the software giant was found in violation of both Sections I and II of the Sherman Antitrust Act last year, Microsoft successfully avoided two penalties of most concern: a potential company breakup and government intervention in Microsoft's product development efforts.

Tech industry association ProComp said the settlement sets a dangerous precedent in antitrust law. "The decision accepts the deeply flawed settlement between Microsoft and the DOJ, which does nothing to restore competition to the marketplace or prevent Microsoft from repeating acts explicitly held by the Court of Appeals to have been illegal," said Judge Robert H. Bork, a former appellate judge and antitrust expert associated with ProComp.

Many in the channel cheered the ruling, however, saying the government has no business dictating corporate product development efforts. They also said Microsoft has complied with the consent decree by making its OEM licensing terms more uniform, releasing hundreds of previously secret APIs and communication protocols and allowing more flexibility for OEMs and end users to display competitors' Internet programs on the Windows XP desktop.

Company backers say the ruling clears the way for Microsoft's .Net plans, ensures the continuance of Windows as the standard PC operating system, simplifies product support for channel partners and OEMs and perhaps removes at least one objection to IT purchasing.

Most weren't surprised, saying the states' case was a last-ditch effort after the consent decree was signed last fall. They also say Microsoft,the world's most valuable company with about 95 percent market share in the OS market,is untouchable. "Microsoft will elbow its way into the Web services arena regardless of the ruling," said Jim Gildea, president of Aegis Associates, a solution provider in Watertown, Mass.

"They're like a juggernaut, like the Borg. Resistance is futile," Gildea said.

Microsoft will likely plow ahead into Web services and worry about any monopoly-related consequences after the fact, said Peter Busam, vice president and COO of Decisive Business Systems, a solution provider based in Pennsauken, N.J.

"I don't see any drawbacks [to Microsoft's win," said Chris Cangero, vice president at Epoch Data, a Microsoft Certified Partner and full-range solution provider in New York. "I'll continue to do business with them in the same way I always have. Detractors, however, say the lenient treatment will allow Microsoft to extend its monopoly in the operating systems and applications market to the Web services era and crush rivals and future competitive technologies.

"Now that Microsoft has won, I think you'll have a whole new set of antitrust issues in the next three to four years," said David Koretz, CEO of Blue Tie, a Rochester, N.Y.-based ISV of messaging solutions that competes with Microsoft and Lotus.

"We've already seen that if Microsoft is not forced to do something, they don't do it willingly. They will use the same tactics they used against Real Player and AOL to lock them and other third-party developers out of their operating system. With Web services, if they have the browser and media player built in, that will become a proprietary system. The end result is you either buy Microsoft, or you can go home."

Patrick Derosier, CEO of CPUGuys, a Hanson, Mass., white-box solution provider, said he wanted the government to provide white-box builders with the ability to pull Internet Explorer out of the operating system.

"Right now there is zero control over the integration of Internet Explorer," said Derosier. "It is mangled and twisted into the operating system. It's like a DNA strand. You just can't remove it. I would like a tool that would allow us to take Internet Explorer out if we wanted to so customers can have the option of using Netscape, Mozilla or some other kind of browser."

Aside from the expected positive impact on Microsoft's stock price, however, the ruling will not impact channel business or reverse the standstill in tech spending, others say.

"This won't have a dramatic effect on [reseller sales or business," said Alan Weinberger, chairman of the ASCII Group, Washington, "These are two large forces competing, and there's no final settlement. They can appeal."

Grady Crunk, executive vice president at Central Data, a Titusville, Fla., solution provider, said the business has changed so dramatically since the case began that the ruling is a nonevent. "I forgot about it," Crunk said of the Microsoft controversy. "Microsoft has a great monopoly but, goddammit, they earned it. The government should stay out of this business."

While Microsoft still owns the PC desktop and won't be forced to break up or remove Internet Explorer from Windows, the scrutiny applied to the company over the past four years,and in the future,helps the competitive climate naturally, others say.

"This has opened up different avenues for us. It made us more cognizant of the other choices out there, such as Linux," said Brian Okun, vice president of marketing at CHIPS, a full-range solution provider in Lake Success, N.Y. "Microsoft competitors began appearing on our radar screen. Because of the uncertainty surrounding the outcome of the case, it has made technologies like Linux more appealing."

The Department of Justice cheered the ruling late last week. "The court's decision is a major victory for consumers and businesses,"' said U.S. Attorney General John Ashcroft in a statement.

Microsoft issued a statement saying, "We are pleased that the court has conditionally approved the settlement we reached with the federal government and the nine states. The settlement is a tough, but fair compromise. It imposes significant requirements on Microsoft, but it enables us to continue to innovate, and to create products that address the changing needs of our customers. We recognize that we will be closely scrutinized by the government and our competitors, and we will devote all the time, energy and resources needed to ensure that we meet our responsibilities."

Jeff O'Heir, Jennifer Hagendorf-Follett, Elizabeth Montalbano, Joseph F. Kovar and Amy Rogers contributed to this story.