Microsoft wins once again

Having long since buried the notion of being divided into a group of mini-Microsofts, Microsoft Corp. can once again smile at a recent court decision which approved most provisions of a deal between the software giant, the U.S. Department of Justice and nine of the states that sued the software maker, while denying the harsher penalties sought by eight other plaintiff states and the District of Columbia.

The ruling is in effect for five years unless the court chooses to extend it, and orders Microsoft not to retaliate against computer makers who offer competing software products with the PCs they sell.

“I think it was exactly what [Microsoft] expected and in reality it was probably the best outcome that they could have hoped for,” said Warren Shiau, software analyst with IDC in Toronto.

“It’s clear, given the alternatives, that Microsoft did pretty well with this ruling,” said Rob Enderle, a research director with Cambridge, Mass.-based Giga Information Group Inc.

One of the reasons U.S. District Court judge Colleen Kollar-Kotelly may have sided with the nine agreeing states and Microsoft (to settle the suit) is due to what she called causation, the belief that Microsoft would still have the market position it enjoys today even if it hadn’t done all it was accused of doing, Shiau said.

“I think it is how users want to buy that has resulted in Microsoft having its position,” he explained. “If you look in the marketplace, there are a lot of alternatives to Office, to Windows.”

In essence, consumer and corporate actions, or lack thereof, have allowed Microsoft to gain market share. Companies and individuals have always been able to download and install competing third party software, from Netscape and Opera Internet browsers to competing e-mail, multi-media, instant messaging programs and office suite programs. “The corporate market will stay with Microsoft and whatever comes bundled with Windows,” Shiau said. “I don’t think, in reality, much is going to change.”

Others were more vocal with their disagreement.

“What the opinion said basically was, ‘You robbed a bank, you can keep the money, and you can do it again, but don’t use exactly the same method,'” said Donald Falk, a partner with the law firm Mayer, Brown, Rowe & Maw, in Palo Alto, Calif.

Also up for debate is how much pressure Microsoft put on PC manufacturers not to install other third party software. Mike Maher, Round Rock, Tex.-based spokesperson for Dell Computer Corp., said it is a safe assumption that Dell never felt pressure from Microsoft. “What people ask for is what we actually provide them [with].”

With the ruling Microsoft is also prohibited from retaliating against independent software makers that consider “developing, distributing, promoting, using, selling or licensing any software that competes with Microsoft platform software or any product or service that distributes or promotes any non-Microsoft middleware,” the judge said in her final judgement.

Microsoft is also prohibited from retaliating against companies that ship PCs with more than one OS. Microsoft must provide written notice at least 30 days in advance when it seeks to terminate a licensing deal and must explain why it wants to end the contract.

dissenting states went too far

Shiau said the eight states and District of Columbia may have tried to get too much, and as a result were brushed aside.

“I guess the states overreached and asked for too much,” he said. They wanted Microsoft to open up its source code for Windows and IE, and create a much wider definition for middleware, he explained. But had the judge agreed, and Microsoft lost on appeal, it would have been a bad precedent, Shiau said.

“This would totally commoditize Windows. It would make Windows cost nothing, [so] anyone could replicate it.” If Microsoft is forced to do this, then potentially other software companies could be forced to do the same thing,” he warned.

The result, Shiau said, would be no corporate motivation to do research and development since proprietary information could be pirated at little or no cost.

But even with a Microsoft win, the software’s growth will not be hampered.

“I don’t think it stifles competition,” Shiau said. “I think this will open up the possibility of more choice for the consumer but how that actually translates into sales, or whether it takes away from Microsoft market shares, I don’t think that [will] really end up happening.”

“It is unclear what effect, if any, the ruling will have on our business,” Maher said, adding that customers have always been able to have third party programs preinstalled. There was just never much of a demand, he said. “The vast majority of the stuff we sell has Microsoft.”

However, even those who wanted tougher rules imposed on the software giant say they are pleased the judge retained some of their ideas. Notably, they wanted an on-site watchdog committee charged with ensuring Microsoft’s compliance, and provisions that order Microsoft to treat its PC vendor partners equitably. Both items are part of the settlement.

But the competition is not ready to give up the ghost.

“We will also continue to pursue our civil case and to co-operate with the European Commission’s case against Microsoft to ensure that the company does not continue to use its monopoly position to become the gatekeeper of the Internet,” said Sun Microsystems Inc.’s special counsel Michael Morris in a company-issued statement.

Shiau is not sure this is a good strategy. “I think Sun would be better off not competing through lawsuits… [and] concentrate resources on StarOffice and promoting it,” he said. “The legal alley appears, for all intents and purposes, to be a dead end.”

– With files from IDG