Microsoft concessions considered meager

Microsoft on Wednesday said it will allow PC makers to remove Internet Explorer icons from the Windows Start menu and to block access to Internet Explorer in the new Windows XP operating system. The company also will extend this to Windows 98, Windows Me and Windows 2000.

Though the more lax licensing requirements may seem a monumental shift from previous restrictions, Microsoft has left plenty of room to retract the changes through other arrangements, such as co-marketing deals for promoting Windows XP.

More importantly, the licensing changes would let Microsoft continue with other potentially anti-competitive business practices, legal experts said. Specifically, the licensing changes address only one out of eight separate antitrust violations upheld by a recent Court of Appeals ruling.

"It is an important first step, even if only a tiny one," said Bob Lande, an antitrust professor at University of Baltimore School of Law. "On the other hand, this only addresses the browser. But that war is over. What do any of these concessions mean when Netscape is on life support? It's a public relations move."

Microsoft delivered the concession at an important juncture in its continuing antitrust case. Sources close to the Justice Department said the agency is debating its next move following a largely favorable appeals court ruling. The key issue is how to weigh the concerns of longtime DOJ staff members--the agency's "institutional memory"--against those of the newly hired political appointees who are in charge.

The Justice Department and the attorneys general for 19 states sued Microsoft in 1998, alleging that it illegally leveraged its OS monopoly to thwart competition in the browser market. A federal judge ruled last year that Microsoft did abuse its monopoly and ordered that the company should be broken into two pieces. A federal appeals court recently agreed that the company abused its monopoly but threw out the break-up order.

Many legal experts had speculated the Bush Administration would be more willing to settle the case rather than push hard for restrictions against Microsoft or possibly a breakup. Any act of contrition could be an attempt on Microsoft's part to influence that process before a bid for settlement.

"We're looking at this as an olive branch to try and win some favor with the Justice Department and courts," said Gartner analyst Michael Silver. "Microsoft has taken a realistic look at the case, and if they can win some favor with some folks who are less likely to pursue the case, the better for them."

Even if the licensing concessions are the first overture to settlement discussions, the company could find the Bush Administration more willing to take a hard line than previously thought, said Glenn Manishin, an antitrust attorney with Patton Boggs in McLean, Va.

"If Microsoft wants to discuss settlement, the Justice Department will talk to them," he said. "They would and they should. At the same time?if Microsoft proposes a limited set of conduct remedies that mirrors what they've already done, I believe this current Justice Department with the new leadership would issue to reject it."

Horse is out of the barn
Microsoft announced its licensing changes on Wednesday, giving ground in an area it had previously treated as sacred. PC makers will now be able to remove either or both the browser icons--Internet Explorer 6 and MSN Explorer--from the Windows XP Start Menu. Microsoft also backed off a plan that would have shipped Windows XP without desktop icons. The software maker will now give PC makers more freedom to customize the operating system.

In another change, Windows users will be given the option to remove access to Internet Explorer using the operating system's Add/Remove feature. But Internet Explorer would not be uninstalled, only direct access to it removed.

"It would be fine with me if you could just choose whether to install IE as a component the same as you would for other Windows features," said Martyn Sibbald, a systems engineer from Vancouver, British Columbia. "The catch is that many of Microsoft's other programs and even third-party programs require you to have IE installed." So, in essence, IE never really goes away, said Sibbald.

Microsoft also has left tremendous wiggle room in the licensing changes, which "would have been significant back in 1997, when there was still competition in the browser market. But the horse is out of the barn," Manishin said.

For example, PC makers choosing to remove both browser icons from the Start Menu would have to leave another for Microsoft's MSN Internet service.

"The idea of the icons for IE 6 and MSN service not being prominently displayed on the desktop, and users being able to remove the icons for these programs, but not the programs themselves, is like enticing us with a dangling carrot but never receiving the actual carrot," said Scott Schulze, a network consultant from Healdsburg, Calif.

"Their so-called concessions, they could take them back tomorrow," law professor Lande said. "They could undermine them by not giving co-op advertising, through all kinds of techniques the Justice Department brought out at trial--in a dozen ways not put down on paper."

Microsoft is expected to spend as much as $200 million promoting Windows XP, some of which could be given to PC makers. "There's nothing here preventing Microsoft from playing favorites, for those that would choose to keep IE 6," said Guernsey Research analyst Chris LeTocq.

More seriously, Microsoft's action fails to address issues that remain at the heart of the case. The licensing change addresses only one of eight separate antitrust violations upheld by the U.S. Court of Appeals for the District of Columbia Circuit. The violations include:

• Exclusive deals with PC makers to carry Microsoft products.

• Overriding users' choices to use Netscape's browser.

• Intermingling of Windows and browser code so that Internet Explorer could not be deleted.

• Deals with Internet service providers for exclusive promotion of Internet Explorer.

• Exclusive contracts with some developers to create software that would make Internet Explorer the default browser.

• Making Internet Explorer the exclusive browser for Apple Computer, in part by threatening to end Office development for the Mac.

• Deceiving Java developers into believing Microsoft's version of Java was cross-platform when it was not.

• Compelling Intel to abandon its own version of cross-platform Java.

Sherman Act or play acting?
If Microsoft is interested in opening settlement discussions or affecting the case's outcome when a new judge is assigned, the company must throw out a much bigger olive branch, say legal experts, government prosecutors and Windows users.

"Microsoft has complied with the court as narrowly as possibly, but they've looked backward not forward," Howard University's Gavil said. "The remedy in an antitrust violation is not just that you stop the conduct. Merely abandoning the practice doesn't necessarily cure the competitive problems."

Government prosecutors--the Justice Department and 19 states--are most concerned about Microsoft's integrating new features into Windows XP that could conceivably squelch competition. From one point of view, Windows Media Player and other integrated features are outside of the scope of the case because they could not replace the operating system.

"But each of those instances is an application that would control, with its own architecture, APIs and code (that are) an important element of the new computing experience in the broadband age," Manishin said. "Whether its Windows Media Player, instant messaging, games or whatever the actual technology they're trying to integrate into the desktop, if Microsoft can stop one and then them all, they've enacted a Chinese water torture kind of competition."

If Microsoft wanted to make a concession in any area that would impress the government, it would be to allow the customization or removal of other features integrated into Windows XP, said Tom Miller, Iowa attorney general and one of the leaders for the 19 states involved in the antitrust suit.

"If they have successfully bundled a product, that limits considerably what (a PC maker) can do in terms of choice on the desktop," Miller said. "It's restricted by the integration. That's the case for media player, instant messaging, Passport and Internet access."

But if Microsoft would allow PC makers freedom to "construct any combination of services they wanted" with either Microsoft software or competitive products, "Now, that would be significant," Miller said.

Bill Buchanan, a software developer from Atlanta, agreed. "What Microsoft is allowing PC vendors to remove from the operating system is fairly negligible considering that the remaining applications are simply applets and have no real competition," whereas "Windows Media Player and the MSN ISP service all have real commercial competition."

For Gavil, the limited scope of Microsoft's olive branch shows any resolution of differences between the government and the software maker are probably a long way off.

"This could show where the fundamental gap between Microsoft and the government remains in what it means to change their conduct to cure the competitive conduct it created," he said. "They've taken too narrow a letter-of-the-law approach."

Miller said that he couldn't interpret Microsoft's response or make judgments about the company's legal strategy. But he added, "If that's their approach, then there would be a wide gap between them and us."