Settlement reached in historic MS/DOJ case

The U.S. Department of Justice (DOJ) announced Friday that it has reached a settlement with Microsoft Corp. in the government’s historic antitrust case against the software giant.

The agreement “imposes a broad range of restrictions that will stop Microsoft’s unlawful conduct, prevent recurrence of similar conduct in the future and restore competition in the software market, achieving prompt, effective and certain relief for consumers and businesses,” according to a statement from the DOJ.

The 18 states participating in the lawsuit are widely expected to ask for an extension of the deadline imposed on settlement talks, requesting more time to craft a reply to the consent decree announced by the DOJ. The sides are due in court Friday morning for a scheduling hearing to report their progress on settlement discussions to the judge presiding over the case.

Under the agreement, Microsoft must license its operating system to key computer manufacturers on uniform terms for five years. The agreement also bans retaliation against manufacturers electing to use non-Microsoft middleware software. Microsoft must disclose its middleware interfaces – data used by software developers to write Windows-compatible code – and it must disclose its server protocols so non-Microsoft server software can work with Windows on a PC the same way that Microsoft servers can. The settlement also bans exclusive agreements for support or development of certain Microsoft software.

Key points of the settlement include:

– A broad definition for middleware products, including browsers, e-mail clients, media players, instant messaging software, and future new middleware developments.

– The freedom for computer manufacturers and consumers to substitute competing middleware software on Microsoft’s operating system.

– Compulsory licensing of any intellectual property necessary for computer manufacturers and software developers to exercise their rights under the deal.

– A panel of three independent, on-site, full-time computer experts to assist in enforcing the settlement, with full access to Microsoft’s books, records, systems, and personnel, including software source code.

Among the first to reactions to the news was a comment from Ed Black, CEO of the Communications Industry Association, who on CBS Radio Friday morning called the settlement “such a weak deal, after the government won an overwhelmingly powerful case,”

In one of her first actions after taking the high-profile case in August, the judge, District Court Judge Colleen Kollar-Kotelly ordered the software titan to go into intense settlement talks with the U.S. Department of Justice (DOJ) and 18 state attorneys general, hoping to bring an end to years of litigation. Kollar-Kotelly needs to approve any settlement agreement among the parties.

Kollar-Kotelly’s order that the two sides go into settlement talks, negotiating 24 hours a day, seven days a week if necessary to put an end to the case, was seen as a last-ditch effort at a compromise. If the two sides did not reach an agreement by Nov. 2, the case would go back to trial, where Kollar-Kotelly would craft a remedy to impose on the software maker. Once in Kollar-Kotelly’s courtroom, Microsoft could again try for an appeal.

Kollar-Kotelly took on the case after the U.S. Court of Appeals for the District of Columbia in June overturned part of a ruling, including remedies, that was decided by the first trial judge in the case, Thomas Penfield Jackson. The appeals court ordered the case back to a trial court. It also ruled that some of Jackson’s comments against Microsoft, made to the media and outside the courtroom, gave rise to the appearance of partiality, and ordered that the case be picked up by another judge.

The U.S. Supreme Court has already denied Microsoft’s appeal to overturn Jackson’s ruling that the software maker violated antitrust laws by holding a monopoly in the PC operating systems market.

Although it still faced the threat of remedies, Microsoft in September escaped the threat of being split into two companies when the DOJ announced that it was dropping its breakup effort to focus on restricting the company’s business practices. However, the DOJ’s change in strategy gave rise to other issues among the government plaintiffs. Shortly after the DOJ ditched its breakup effort, two of the 18 state attorneys general suing Microsoft released a statement saying they would continue litigation against Microsoft if they were not satisfied with a settlement reached by the DOJ.

(Marc Ferranti in New York and Matt Berger in San Francisco contributed to this report.)