Reaction mixed to Microsoft-DOJ settlement

The proposed settlement between Microsoft Corp. and the U.S. Department of Justice (DOJ) drew a mixed response Friday from observers of the antitrust lawsuit filed more than three years ago.

Some observers wonder if the enforcement mechanism has any teeth, while others worry that more regulation will trip up the Redmond, Washington, software giant. The settlement is unlikely to change the opinions of those in IT circles – companies that like and use Microsoft products say they plan to continue, while those who don’t stopped relying on the company’s wares a long time ago.

Most customers of Borland Software Corp., based in Scotts Valley, Calif., who have been approached by chief information architect Mike Rozlog, have been trying for the last year to minimize the risk of being trapped in one software maker’s grip, he said. Borland is an application development and management house.

Open platforms like XML (Extensible Markup Language) and other standardized technologies are ways of solving problems without being caught between Windows, Sun Microsystems Inc.’s Java language or the Linux open-source operating system, he said.

The proposed settlement terms wouldn’t change his customers behavior in this regard, he said, and he’s not sure how it would change Microsoft’s behavior either.

“I haven’t found the meat of the punishment from being observed,” Rozlog said regarding a provision that calls for oversight of Microsoft by an independent panel. “I don’t know what the damages are if they do something that’s bad … if they misbehave, they will get two more years of observation, but what is misbehavior?”

The punishment “is a little light, as far as I can see,” he said.

Others agreed.

“Microsoft got off relatively easy,” said Michael Silver, research director for client operating systems at Gartner Inc. in Stamford, Conn.

Microsoft emerges as the big winner with this settlement, because the consent decree focuses on behavioral restrictions, but allows Microsoft to continue to tie new functionality to its operating system, and thus extend its desktop dominance, Silver said.

The settlement also lifts the cloud of antitrust concern that had been hanging over Redmond for the past several years, which had made Microsoft act more carefully in its business dealings, he said. With the case settled, Gartner expects to see Microsoft become more aggressive within the next year; specifically, Gartner expects Microsoft to go on a buying spree to acquire companies it may have held off on acquiring while the case was ongoing, Silver said.

The idea of a world without a Microsoft powerhouse seemed an implausible outcome at best to some in the industry.

“I’ve said all along that even if they broke up Microsoft, you would end up with two companies that were dominant in their fields,” said Chris Mackenzie, vice president for business development and marketing at Chelmsford, Mass.-based Biscom Inc., which handles application development for computer-based fax machines and image communication products.

While Microsoft may have held off on decision making until the resolution of the suit, others haven’t worried too much about it.

“We’ve seen nothing but people using more Microsoft technology,” he said. “Nobody has been holding off decisions … everybody has assumed that Microsoft technology would be there in the future.”

No one is really going to be happy with the result of the settlement as it is proposed, said Ernest Dellhorn, a law professor at George Mason University School of Law in Arlington, Va. The question is whether, 10 years from now, Microsoft will be the dominant software company that it is now, and if so, whether that dominance is because the company took full advantage of its monopoly or was more innovative and “built better mousetraps,” he said.

“There are still going to be people out there that say that Microsoft should have been broken up … or that as long as Microsoft isn’t forced to open up its source code to everybody, then no competition will rise,” Dellhorn said.

The settlement would force Microsoft to license its middleware interfaces and server protocols, which are programming elements allowing competing software developers to make products that work well with the Windows operating system.

“The definition of disclosure is crucial,” said Richard Stallman, a free software advocate and the author of the GNU Public License software copyright used in open-source products like Linux. If Microsoft must post the code online in a way anyone can use, then it might do some good, he said. If Microsoft can limit access by forcing companies to sign nondisclosure agreements or work through other hurdles, then the disclosure agreement can be subverted.

Still, the agreement as it stands now “could be a real step forward,” he said.

The deal also calls for an independent review panel of three technical experts to monitor Microsoft’s compliance with the disclosure rules. The panel would have access to Microsoft source code, but it wasn’t immediately clear what enforcement powers the panel would receive.

The panel would monitor compliance with the disclosure terms, but not other elements of the proposed settlement, including the ban on Microsoft retaliating against computer makers and developers who use or create software that competes with Microsoft, or the monitoring of licensing terms, Dellhorn said.

Not everyone is particularly pleased by the proposed agreement.

“I think that it’s important for this case to be settled, but there are provisions that are potentially hazardous to the software industry,” said Jonathan Zuck, president for the Association for Competitive Technology, an industry advocacy group that has supported member Microsoft in the legal fight. “The compulsory licensing of intellectual property sets a bad precedent.”

Regulators on site at Microsoft could delay shipments and bog down innovation if the company must clear every new product or upgrade with the panel, Zuck said.

On the other side are Microsoft’s competitors, who said they believe the settlement doesn’t go far enough.

The proposed consent decree does too little to promote competition and protect consumers, and could be too easily evaded by Microsoft, said Paul T. Cappuccio, executive vice-president and general counsel for AOL Time Warner, in a statement. AOL called for a more effective remedy, and supports efforts by the state attorneys general to insist that any settlement leads to protection for consumers and competition, he said.

The 18 state attorneys general who are also plaintiffs in the case have refused to agree to the proposed settlement. They asked District Court Judge Colleen Kollar-Kotelly for more time to review the proposal and Friday she gave them until next Tuesday to do that.

The attorneys general have not signed off on the settlement proposal because they believe they need to “fully assess the specific language of the agreement,” said Iowa Attorney General Tom Miller in a statement. Illinois Attorney General Jim Ryan said in a statement that he is “inclined” to sign onto the agreement because it seems “to achieve the overall objectives” of the lawsuit, but he, too, is withholding judgment until his staff can more carefully review the deal.

Whatever the attorneys general decide to do, the debate over who won and who lost the antitrust case will go on.

“I like Microsoft, and I work with Microsoft products all the time, but it’s wrong for Microsoft to drive competitors out of business. I have a problem with them not being punished,” said John Horn, chief executive officer of Interstate Software LLC, a small Web development company in Higginsville, Mo.

“I’m glad that there is one major force in the industry, and without it we wouldn’t have the foundation for moving the world forward,” he said, ” but a lot of people have started looking at open source a lot more.”

(Sam Costello in Boston and Juan Carlos Perez in Miami contributed to this report.)

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