Playing Monopoly . Frank HayesPyrrhic victory

For Microsoft Corp., the good news in last week’s appeals court decision in U.S. vs. Microsoft was that it won’t be broken up anytime soon, and that it will never have to face Judge Thomas Penfield Jackson in court again. The bad news was that the court confirmed Microsoft has a monopoly with Windows, and it repeatedly violated the Sherman Act to maintain that monopoly.

Or to put it another way, the execution is off and a new judge will pass sentence but the defendant is still guilty.

Relief in Redmond? Sure, and there should be. But there should be concern, too. Microsoft has been branded a monopoly. And that changes the rules.

From now on, Microsoft will have to tread more carefully. Monopolies don’t have the same flexibility as other companies. Monopolies have to justify their actions in terms of competition.

The appeals court’s decision is riddled with the phrase “Microsoft offers no pro-competitive justification” for its actions. From here on in, “pro-competitive justification” is exactly what Microsoft will need every step of the way.

That may not be easy. The appeals court ruled that Microsoft broke the law with some of its Windows reseller license restrictions, exclusive contracts with Internet service providers and agreements with other software vendors to use Microsoft’s version of Java. These deals were standard business practices for Microsoft. They’ll have to change.

The appeals court also said Microsoft’s exclusive browser deal with Apple broke the law, and so did the way Microsoft pressured Intel to stop supporting Java. Microsoft has been playing that kind of hardball for 25 years. From now on, it can’t.

But the thing that should concern Bill Gates, Steve Ballmer and Microsoft’s rank and file the most is that the appeals court’s decision finally answers the question of whether the courts can tell Microsoft how to design products.

Short answer: Yes.

More accurately, the courts can tell Microsoft how it can’t design products.

Mixing the code for Internet Explorer and Windows is illegal, the court said. So is excluding Internet Explorer from the Windows Add/Remove Programs utility, according to the court. And failing to disclose that its version of Java would create Windows-only Java applications was illegal too, the court said.

That’s right: the appeals court isn’t specifying what Microsoft can and can’t do just in software design, but also in its documentation.

All this because Microsoft is a monopoly.

Which means, yes, Microsoft’s competitors will now be able to do things Microsoft can’t. They’ll be able to cut certain contracts and offer certain deals that, if Microsoft did the same, would be illegal.

Microsoft’s competitors will now have more flexibility in designing their products than Microsoft. They’ll be able to compete in ways Microsoft can’t.

And if Microsoft’s competitors sue the company for illegal anti-competitive behaviour, they’ll have an easier time now because, as a monopoly, Microsoft has to meet much more stringent standards of behaviour.

Will Microsoft make the necessary changes? The answer will surface in the months to come. We’ve all seen Microsoft on its best behaviour, in the days immediately following the original trial. There’s no real doubt that Microsoft can play according to the new rules it faces and meet the new monopolist’s standards for its products and its behaviour.

Whether Microsoft will meet those standards or will fight them every step of the way will affect the lives of users, competitors and the whole IT business for years.

Hayes is a senior news columnist with ComputerWorld (US). Contact him at [email protected].

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