Rivals, others lament Microsoft deal

The reaction to the deal reached by the software titan and the Justice Department boils down to one simple sentence: Microsoft got off easy.

John G. Spooner Staff Writer, CNET News.com
John Spooner
covers the PC market, chips and automotive technology.
John G. Spooner
5 min read
Consumer groups and Microsoft competitors reacted to Friday's proposed antitrust settlement with disappointment and skepticism.

The reaction to the deal reached by the software titan and the Justice Department in the landmark case boils down to one simple sentence: Microsoft got off easy.

"They seem to have done pretty well with the settlement with the DOJ," said James Love, director of the Consumer Project on Technology. The organization, formed by Ralph Nader in 1995, focuses on intellectual property rights, among other issues.

"We're disappointed," he said. "We would have expected to see more pop" in the settlement.

Earlier court decisions found Microsoft to be a monopolist that used its dominant position in operating systems to unfairly compete against other software makers and gain favorable deals with PC makers. A federal judge had ordered Microsoft split into two companies and the imposing of other strong remedies.

An appeals court in June threw out the breakup order, but in remanding the case to a lower court upheld the monopoly ruling and ordered that new remedies be set in keeping with that ruling.

AOL, Sun dismayed
AOL Time Warner, which owns the Netscape Communications browser that was at the heart of the antitrust charges that surfaced in the mid-1990s, responded to the settlement deal with dismay.

"In its current form, today's proposed consent decree, like the one entered in 1994, does too little to promote competition and protect consumers, and can too easily be evaded by a determined monopolist like Microsoft," Paul T. Cappuccio, executive vice president and general counsel at AOL Time Warner, said in a statement.

The proposed settlement, he said, "fails to fulfill the promise of the unanimous decision from the U.S. Court of Appeals condemning Microsoft's extensive illegal conduct and requiring an effective remedy to prevent its reoccurrence."

See MS-DOJ timeline AOL Time Warner's negative reaction to the settlement is not surprising. The company has sparred on numerous occasions with Microsoft and recently walked away from high-profile discussions to embed its America Online service in Windows XP. Its Netscape unit competed with Microsoft in the Web browser market and brought evidence of anti-competitive behavior to the attention of regulators.

Sun Microsystems lambasted the proposed settlement as "more narrow and less punitive" than the proposal rejected by the Department of Justice in March 2000 and said it merely "reinforces the status quo, and will do nothing to restore competition and innovation in the marketplace."

"Throughout the last century, the U.S. economy has profited greatly from sound antitrust enforcement," Sun Chief Executive Scott McNealy said in a statement. "Today's agreement signals a retreat by the federal government, and a defeat for consumers."

The proposed settlement, Sun said, is a blow to consumers and the technology industry and "a wholly inadequate response to Microsoft's major and continuing antitrust violations and to the two levels of Federal Court that found Microsoft guilty of violating U.S. antitrust law."

The other view: A "home run"
But not everyone is opposed to the settlement.

Dick Armey, majority leader of the U.S. House of Representatives, issued a statement calling the settlement a "home run for consumers" and urged the state attorneys general who are co-plaintiffs in the case to avoid dragging out the proceedings. The states have the ability to contest the settlement.

"Businesses should not be afraid that when they create popular products, they'll be saddled with endless litigation," Armey said.

Matthew Szulik, chief executive of Linux seller Red Hat, also took a contrarian tack, saying that Microsoft faces limitations on its behavior either through legal channels or in the unfettered marketplace.

In the absence of a strong settlement, Microsoft's own behavior--for example, its increasing software prices--will help hasten its decline.

"By their own actions, they've put themselves in a bit of a trap," Szulik said. "I can't see them escaping this trap without damaging their long-term prospects."

Microsoft will be forced out of its proprietary ways regardless of the settlement, because companies' increasingly networked computer systems can only be built on open communication standards, he added. "In an enterprise environment, there will be requirement to interoperate with other forms of computing."

Criticism of the settlement began to swell on Thursday as word of the impending deal leaked out. Trade groups opposing Microsoft's monopoly behavior distributed the last proposal prepared by U.S. District Judge Richard Posner before earlier settlement talks collapsed in April 2000.

The Computer & Communications Industry Association (CCIA) was one of the groups canvassing in Washington on Thursday using Posner's final settlement draft to attack the negotiations.

"This is a total capitulation," said CCIA President Ed Black. The government is "settling for something less than what they could have had a year and a half ago. Since then they succeeded in having Microsoft found to be a monopolist (and) they had a unanimous Court of Appeals ruling in their favor with very strong language."

CCIA is one of the groups expected to challenge the settlement as not being in the public interest.

Tying products together
The Software & Information Industry Association (SII) on Thursday also urged the Justice Department and the state attorneys general to reject the settlement.

Ken Wasch, the SIIA's president, said in a statement that the "settlement agreement, stunningly, will not change either Microsoft's business practices nor its software implementations one iota."

He added: "The purported settlement permits Microsoft to continue to technically tie the monopoly product of the Windows operating system to various middleware products, in direct contravention to the findings of fact affirmed unanimously by the Court of Appeals."

The settlement proposal does make some concessions regarding "middleware"--including Web browsers, e-mail clients, media players and instant-messaging applications. PC makers will have more freedom to offer such products from companies other than Microsoft, but a similar development over the summer resulted in few, if any, such offers.

The Windows operating system emerges largely untouched, and Windows XP will be free of any far-reaching restrictions.

The Progress & Freedom Foundation, a body that studies technology's effect on public policy, warned in a statement that the settlement does little to prevent Microsoft from "continuing monopolization."

President Jeffrey Eisenach said that, with the deal, the Justice Department "proposes to enter into a settlement that fails to meaningfully address any of the court's findings. It's an embarrassment for the Justice Department, a disservice to the law and an affront to the D.C. Circuit."

News.com's Jim Hu contributed to this report.