Microsoft tallies antitrust efforts

Microsoft outlined the ways it is complying with a November antitrust settlement in a Monday conference call, but analysts say it is little more than Windows dressing.

Microsoft also used the call to introduce a new licensing program for Windows communications protocols that have yet to be approved by the Justice Department. Federal trustbusters on Monday issued an advisory emphasizing that point.

Microsoft General Counsel Brad Smith focused on four August milestones as part of Microsoft's compliance progress on the deal, which nine months later awaits the approval of a federal judge. In general, the settlement seeks to force Microsoft to treat PC makers and developers evenhandedly and disclose more of the underlying technology behind its software. However, critics charge that the company is using the settlement to raise prices.

The first milestone came Thursday, when Microsoft put into place new Windows licensing agreements. On Tuesday, the software giant will begin licensing 113 communications protocols used by the Windows desktop operating system to work with the Windows Server products. On Aug. 28, Microsoft will release 272 previously undisclosed application programming interfaces (APIs) used to ensure that third-party software works well with Windows. Microsoft also revealed that Windows XP Service Pack 1 would ship in late August or in September.

Some analysts described the press conference as nothing more than a public relations stunt reiterating much of what Microsoft already had revealed publicly and an attempt to publicly increase the pressure on U.S. District Judge Colleen Kollar-Kotelly to approve the deal cut with the Justice Department and nine of 18 states. Nine other states and the District of Columbia are seeking stiffer sanctions.

"Microsoft's hoping to score some PR points by putting into motion some of the terms of the proposed settlement agreement," said Jupiter analyst Michael Gartenberg. "The problem for Microsoft is that the government has not agreed to the terms nor have the dissenting states backed down in seeking harsher penalties. While Microsoft would like to make this suit finally go away, PR moves like this are not likely to speed up the process."

But during the conference call, Smith said that "Microsoft is obligated as a company" to comply with the settlement, even while Kollar-Kotelly ponders its fate. Smith also firmly emphasized that Microsoft had no intention of influencing the settlement approval process through Monday's announcements.

"These things have been unfolding for many, many months, totally independent of the timetable in the courthouse," he said. "We are doing this for one reason and one reason only: to live up to fully the high responsibility that is set for us under this proposed decree.

But Rich Gray, a Menlo Park, Calif.-based lawyer who is closely following the trial, disagreed. "Generally Microsoft's efforts to comply with the yet unapproved settlement agreement are really of no legal significance and are really only of PR value," he said.

Kollar-Kotelly currently has two tracks of the case to decide. The first is what to do about the settlement, which she can approve or reject, as mandated by the Nixon-era Tunney Act. The law prohibits back-room political deal making regarding antitrust settlements and that the deals be in the public interest.

In early July, Microsoft cleared the first hurdle to settlement approval. Kollar-Kotelly found that the Justice Department and Microsoft had given proper disclosure on their communications, indicating politics played no part of the deal-making process.

But Kollar-Kotelly has yet to determine whether the proposed settlement is in the public interest. In its final tally of the 30,000 public comments submitted about the settlement, the Justice Department reported 12,500 respondents opposed the deal, 10,000 were in favor, and 9,500 did not express an opinion.

At the same time, Kollar-Kotelly must decide the fate of the continued prosecution of the nine states and the District of Columbia. They are seeking harsher sanctions than those mandated by the settlement. Among other things, the plaintiff states would like Microsoft to distribute a second, separate version of Windows without middleware, licensing through auction Office for competing operating systems, to give away the source code--or blueprint--to Internet Explorer and license for 10 years Sun Microsystems' version of the Java Virtual Machine.

During the court hearing on the states' proposal, trustbusters criticized one provision of the settlement that Microsoft began changing immediately: new uniform Windows licenses with PC makers, which are often referred to original equipment manufacturers (OEMs).

A Gateway executive, during testimony, alleged that Microsoft was using the settlement change to strong-arm OEMs into more restrictive licensing terms. Hewlett-Packard and Sony also raised concerns about the licensing changes.

With some minor modifications, those new licensing terms went into effect Thursday, Smith said.

Disclosing information
Critics started attacking the settlement as soon as the Justice Department and Microsoft announced the deal. They warned of potential loopholes in the deal, particularly concerning provisions protecting security.

As part of the settlement, Microsoft is required to increase the amount of information it discloses about APIs and communications protocols vital for third-party software working well with Windows. During the antitrust case, government prosecutors argued that Microsoft withheld such information so its middleware programs would work better with Windows than those from other companies.

Smith reported Monday that of the 272 APIs and 113 protocols disclosed as part of the proposed settlement, the company withheld only one for security reasons.

"There has been a great deal of speculation by our competitors last November that we would withhold internal interfaces and protocols on the basis of" security, Smith said. The single API withheld has to do with Windows file protection.

"Today's announcement makes clear that the (security) exceptions are not swallowing any of the rules," Smith said.

With regard to APIs, Microsoft plans to release that information soon. "We are obligated to this by the time Service Pack 1 ships," Smith said. "What we are announcing today is that we will make this disclosure on Aug. 28." Microsoft will post information about the APIs on the Microsoft Developer Network Web site.

While API information will be publicly available, the communications protocols must be licensed from Microsoft. Smith spent the longest portion of the conference call explaining the reasons why Microsoft chose to license the communications protocols rather than just making the information widely available.

"There is very substantial intellectual property and valuable technology in these protocols," Smith said. These "represent a substantial part of the value of the Windows server technology."

Microsoft will license the protocols on a nondiscriminatory fashion, but also charge a royalty for them. Smith described the prices as "very reasonable," but said Microsoft would not publicly reveal them.

"Some of these have never been made available even in our Shared Source programs," Smith said. "Certainly we have never licensed these 113 (protocols) to our competitors in the past."

Microsoft also has produced more than 5,000 pages of information for enabling third-party developers to take advantage using the protocols, Smith said.

Microsoft's licensing program for the communications protocols will be task-based. The software giant has created 12 tasks, which include file sharing or streaming media. So developers would largely license just the protocols they need, although there are "50 base protocols people will need regardless of which task they want," Smith said.

"There is no other company in the industry...that licenses its proprietary communications protocols to its competitors," Smith said. "So we will be standing in a different position from our competitors as these things launch."

Still, Smith acknowledged that Microsoft had not precleared the licenses with the Justice Department.

Following Microsoft's Monday morning conference call the Justice Department issued an advisory indicating it was undertaking a thorough review to ensure the licenses complied with the proposed settlement.

"The Department is strongly committed to ensuring that the licenses provide a mechanism for reasonable and nondiscriminatory access to the relevant technology in a manner consistent with the terms of the proposed final judgment," the advisory states. "The Department would benefit from industry input."

"There really isn't a vehicle for them to preclear it yet," as the settlement has yet to be approved," Gray said.

Modifying Windows
Much of Microsoft's other progress to date has been on technology. Last week, the Redmond, Wash.-based company issued the third collection of bug fixes, or service pack, for Windows 2000. Service Pack 3 introduced new controls that give computer makers and users more control over what middleware programs are the default ones.

Later this month or in September, Microsoft is expected to release an even more sophisticated control as part of Windows XP Service Pack 1.

"We are obligated to make that (service pack) available within a year of the agreement itself, so by November," Smith said. "We remain on track to release that this summer."

The new control would allow PC makers or consumers to set default middleware programs competing with Internet Explorer, Windows Messenger, Windows Media Player, Outlook Express and Microsoft's version of the Java Virtual Machine. PC makers and users would also be able to hide access to Microsoft middleware, but not remove it from their computers.

But beta testers and sources close to some PC makers reported problems with the new middleware control. For one, Microsoft has put the onus on software developers to modify their programs to work with the control. Without the updates, the new control cannot recognize the third-party middleware for the purpose of setting defaults.

The control's location also is a problem. In late beta versions of the Windows XP Service Pack 1 the new feature is buried in the Add/Remove control within the operating system's Control Panel. Microsoft earlier had said that the middleware feature would appear more prominently, as the fourth option in the Windows XP Control Panel.

While he wouldn't go into details, Smith said that Microsoft would make some changes to the middleware control in response to feedback from beta testers and the Justice Department.

"We are making some additional adjustments to the product before it releases that we believe will make the user interface even more clear to computer users," Smith said.

Microsoft's general counsel made it clear that Microsoft is making all these changes because it has to. Nothing is voluntary.

"The changes we are making today are changes that we are obligated to make under the decree," Smith said. "I think it's fair to say we would not be licensing our communications protocols and disclosing all these internal interfaces in the absence of this proposed decree."