The Microsoft Ruling: What It Means to You

Last Friday, Judge Colleen Kollar-Kotelly handed down her long-awaited ruling in the Microsoft antitrust trial, surprising legal experts by essentially green-lighting the company's proposed settlement with the US Department of Justice (DOJ). Although the judge was critical of Microsoft in the ruling, she basically gave the company a major legal victory, especially when one considers the seriousness of the crimes of which Microsoft was found guilty. Regardless, Judge Kollar-Kotelly's decision has wide-ranging repercussions for Microsoft and the entire IT industry. Here's what happened.

The Microsoft antitrust trial split into two separate hearings late last year when the DOJ and nine of the states involved in the suit agreed to settle the case, while nine other states and the District of Columbia refused, asking for separate, less lenient remedies. This separation is now moot, however, because the judge denied the nonsettling states' request; her ruling effectively rubber-stamps the DOJ settlement, with very minor changes—and that's a shame. The nonsettling states' key request—that Microsoft reengineer Windows so that end users, IT administrators, and PC makers can remove middleware such as Microsoft Internet Explorer (IE) and Windows Media Player (WMP)—would have given the company's customers more choice and prevented Microsoft from continuing to abuse its Windows monopoly through product bundling. Instead, this final agreement lacks teeth, although Microsoft must adhere to some behavior changes.

First, PC makers can now launch non-Microsoft products during a PC's boot stage and bundle third-party products in Windows without fear of reprisal from Microsoft—and that's good. In the past, Microsoft threatened PC makers with the loss of their Windows license in such cases. In one famous example, Microsoft withheld IBM's Windows 95 license until the day Win95 shipped because IBM bundled Lotus SmartSuite with its PCs. This action prevented the hardware giant from offering Win95-based PCs until months later, costing IBM millions of dollars in lost sales.

Now, beginning in Windows XP Service Pack 1 (SP1), Microsoft is giving us an ineffectual UI that lets us "hide" (rather than remove) certain Microsoft desktop middleware products and replace them with third-party solutions. Ho-hum. We could do that before, without the UI.

The ruling also ensures that PC makers receive uniform licensing terms for Windows, eliminating favorable pricing for those companies that towed the Microsoft line in the past. Microsoft previously punished companies such as Gateway and IBM with higher Windows prices than other PC makers because those companies had the temerity to bundle third-party applications such as Netscape Navigator with their PCs. Now, Microsoft can provide only sales-volume-based discounts or discounts for companies that make PCs that boot more quickly than the competition and other similar criteria. This second condition is interesting because it rewards PC makers for being innovative, but some PC makers, such as Gateway, complain that it lets Microsoft continue to arbitrarily threaten companies because only Microsoft controls the criteria under which the discounts apply.

Also, Microsoft must now license the appropriate software source code to third-party developers that want to integrate applications with Windows in the same way Microsoft integrates middleware such as IE, WMP, Windows Messenger, and Outlook Express. But the ruling lets Microsoft set the licensing cost on a case-by-case basis, which could let the company continue to hold out on any organization it perceives as competitive or unfriendly. Companies such as RealNetworks and Sun Microsystems, which want to make server middleware products that run on Windows 2000 Server or Windows .NET Server (Win.NET Server) 2003, should, theoretically, be big beneficiaries of this requirement. But Microsoft's behavior toward these two long-time competitors will be very telling. My guess is that they'll find Microsoft as difficult to work with as ever. The reason? These companies have already complained to the DOJ that Microsoft isn't upholding its end of the bargain. They claim Microsoft is releasing information about only the software interfaces that the company deems relevant. If this situation continues, Microsoft might find itself back in court.

To ensure that Microsoft upholds the settlement agreement, Judge Kollar-Kotelly requires the company to create a three-person compliance committee. This committee will consist of Microsoft nonemployee board members—not third parties—raising speculation that the committee will act in Microsoft's best interests rather than in accordance with the committee's stated goal. However, the judge also granted herself the ability to monitor Microsoft's compliance for at least 5 years. Given its past transgressions, the company requires strong oversight.

The ruling means that the Windows of the future will be largely like the Windows of today: A product integrated with other Microsoft technologies that might or might not have succeeded on their own. The good news is that administrators will be able to replace certain desktop middleware products with third-party solutions, although the underlying Microsoft code will remain on the systems. And the good news for companies developing server middleware products is that Microsoft must now license technology—albeit at a price—that should make that development work easier.

For Microsoft and its products, the ruling means business as usual in Redmond. Whether that's good for you will depend on your relationship with the software giant and your opinions about the company's products. Would you describe the past 7 years as a period of innovation and technological advancement? Either way, the next 5 years should seem pretty familiar.

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