Microsoft ruling: Devil in the details

Judge Jackson's decision to cut Microsoft in two is making the headlines -- but, for Microsoft, his tough conduct remedies are causing headaches
Written by Mary Jo Foley, Senior Contributing Editor

While most of the focus on US district judge Thomas Penfield Jackson's remedy in the Microsoft antitrust case centres on his two-way breakup proposal, the judge's conduct remedies could have an equally far-reaching -- and more immediate -- impact on Microsoft, its partners and its competitors.

Microsoft officials have strongly indicated that they were as worried about the government-proposed conduct remedies as they were about the potential split of the company into separate Windows and applications businesses. And they had good reason to be: the judge adopted seemingly every one of the government's suggested conduct remedies.

And, unlike structural remedies, which could take years to implement (if they ever are implemented), conduct remedies are to go live 90 days from today, unless Microsoft is granted a stay.

In his remedy recommendation issued Wednesday afternoon, Jackson backed the government's conduct wish list, agreeing to even the most stringent conduct remedies suggested by the US Department of Justice and 19 state attorney generals suing Microsoft for antitrust violations.

Like the government, the judge wants Microsoft to be forced to:

  • disclose to third parties its application programming interfaces, communication interfaces and related technical information to software and hardware vendors, in the same way it discloses this information to internal Microsoft product groups;
  • make the cost of Windows licenses more equitable, in terms of prices charged and discounts allowed -- at least among Microsoft's 20 largest PC maker partners;
  • offer PC makers flexibility in how they configure Windows-based PCs, in terms of being able to modify the boot sequence, contents of startup folders and choice of Internet start page;
  • end all contractual tying arrangements, whereby licensing of other Microsoft products is predicated somehow on licensing Windows;
  • and cease practices that discriminate among Microsoft's friends and foes, such as threatening software vendors, hardware makers and Internet service providers with agreements limiting competition or other retaliatory practices, as a result of these vendors' choice to work with Microsoft competitors.
  • Of these conduct remedies, the two that Microsoft has fought against the hardest are the full disclosure of its programming interfaces and changes in the way it prices Windows licenses.

    During the final remedy hearing on 24 May, Microsoft's lawyers argued that forcing the company to open its APIs the way that the government has advocated would be equivalent to requiring the company to forfeit its crown jewels -- its APIs and part, or all, of its source code.

    "There is no basis adduced in the proof in this case that would justify a court of equity acting under any rubric or condition or principle of equity known to the Anglo-American legal system that would justify confiscation, forfeiture, diversion, conversion or whatever, of Microsoft's intellectual property," argued Microsoft attorney John Warden during the remedy hearing. Warden added that Microsoft had done nothing to merit the placement of its intellectual property "in the public domain".

    Microsoft reiterated its interpretation in its 6 June response to the updated DOJ remedy proposal. "The government has made plain that it contemplates a wholesale transfer of proprietary information about Microsoft's operating systems to competitors on a royalty-free basis, a radical step that will undermine Microsoft's incentives to innovate," said Microsoft, in its legal brief.

    Not everyone read the government's suggestion that way, however -- including the judge. While Microsoft had argued that it be allowed to keep at least its "internal" Windows APIs private, the judge did not agree with that distinction.

    Andrew Schulman, Microsoft watcher and author of the books Undocumented Windows and Undocumented DOS, both of which itemized APIs he says Microsoft had failed to disclose on its own, bristled at Microsoft's characterization of the open API remedy suggestion.

    "This would not be the equivalent of requiring Microsoft to open source the OS (operating system)," Schulman said. "They could just tell developers how to use a function without telling them how it (an API) does what it does."

    The other hot button is pricing. Indeed, how Microsoft should license and price Windows among PC vendors has been one of the driving issues of the antitrust case.

    When it issued its first court-ordered remedy proposal, Microsoft attempted to skirt the original equipment manufacturer (OEM) pricing issue all together. Microsoft later responded to the DoJ's suggestions that Microsoft eliminate the alleged loopholes in its Windows licensing schedules which favoured certain PC partners over others, in terms of the cost per system of Windows, as well as in the type of marketing incentives provided. The government proposed Microsoft be required to publish to the Web a pricing schedule for its 20 largest OEMs to insure fairness -- a suggestion that Microsoft balked right up to the very end.

    In its 6 June filing, Microsoft stated that "the government has admitted that it wants to force Microsoft to treat all Covered OEMs, ISVs (independent software vendors) and IHVs (independent hardware vendors) exactly the same way, regardless of the extent to which such companies cooperate with Microsoft in developing and marketing its products, thereby restricting competition among OEMs, ISVs and IHVs by preventing them from working closely with Microsoft to develop products that differentiate them from their competitors."

    Again, the judge didn't seem to see things Microsoft's way on the pricing front, arguing Microsoft should end its practice of using market incentives and discounts to award favored OEMs. In the past, Microsoft has offered to OEMs that agreed to participate in joint-marketing programs and adopt Internet Explorer as their primary user interfaces, a certain reduction in the price it charged them for each per-system Windows license.

    Rupert Goodwins thinks the split may yet turn out to be the best thing that's happened to Microsoft. In the most optimistic scenario, the software will be better, more reliable, more flexible and cheaper. But as rivals and Microsoft partners cackle happily what does it actually mean to us users? Go to AnchorDesk UK for the news comment.

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