California and several other states have authored a report evaluating the efficacy of the Department of Justice's 2001 settlement with Microsoft. California's attorney general and representatives of other states that make up what is called the California Group believe that the government's scrutiny of Microsoft should extend beyond the November 12 expiration date stipulated in the settlement. The group will have a conference with Judge Kollar-Kotelly on September 11 to discuss their objections.
Meanwhile, the Department of Justice Friday gave Microsoft an okay for changes it has made to the Windows Vista operating system aimed at addressing the complaints registered by Google earlier this year. The DoJ also said that Microsoft was generally in compliance in other areas of monitoring, too. The DoJ's report was not a response to the California Group, but it does highlight the disparity in assessment of the settled.
Hence, we have a bit of a stand-off forming, with the DoJ and Microsoft on one side, and several powerful states on the other. In what follows, we examine the California's Group's complaint as well as Microsoft's response to it.
Microsoft to be a repeat offender?
The settlement, which was reached in 2001 after Microsoft was found by the courts to be in violation of the Sherman antitrust act, established a consent decree agreement which requires Microsoft to allow original equipment manufacturers (OEMs) and end users to easily replace or remove standard Microsoft "middleware" products like Internet Explorer, Outlook Express, and Windows Media Player. The consent decree agreement also prohibits Microsoft from retaliating against vendors that bundle or distribute third-party software. Microsoft's compliance with these terms has been monitored by court-appointed officials that investigate complaints issued by other companies.
According the report issued by The California Group, Microsoft's operating system market share, which still exceeds 90 percent, is evidence that the terms of the settlement negotiated by the Department of Justice have not adequately remedied the detrimental impact of Microsoft's prior anticompetitive behavior. Although the California Group report acknowledges that Microsoft has adequately complied with the requirements of the consent decree agreement, the states believe that Microsoft would resume using anticompetitive behavior if the terms of the settlement are permitted to expire in November as scheduled. Additionally, the California Group argues that pushing back the expiration date of the agreement is further necessitated by the recent release of Windows Vista, which they argue warrants further scrutiny.
"When the remedial regime imposed by the Court expires in large part in November 2007, the principal constraint on Microsoft's ability to abuse its market power will be gone," the report states. "There is no way of knowing whether Microsoft will continue to refrain from engaging in the anticompetitive conduct enjoined by the Final Judgment once it has expired and plaintiffs are no longer able to enforce it... Termination of Microsoft's obligations and of plaintiffs' oversight, including plaintiffs' ability to investigate complaints and review Microsoft's internal records, will remove a significant constraint on Microsoft's behavior."
Microsoft responds
Microsoft filed its own report with the courts in response to the report issued by The California Group. In its own report, Microsoft notes its compliance with all of the requirements of the consent decree and argues that the significant changes in the technology industry that have transpired since the settlement indicate the presence of broader competition.
"Fundamental changes have taken place in the information technology ('IT') industry that The California Group fails to note. Those changes reflect dynamic competitive forces at work," Microsoft's report argues. To support this, the report points out that web-based applications have "impacted the applications barrier to entry said to protect Microsoft's leading share in PC operating systems," and that OEMs now "distribute numerous non-Microsoft software products on their new personal computers."
Microsoft also argues that the Windows operating system market share isn't an appropriate metric to use for evaluating the efficacy of Microsoft's settlement with the Department of Justice. Microsoft argues that the company's dominance in the operating system market wasn't obtained illegally, and that anticompetitive practices were, according to the court's findings, only used to maintain that dominant position. Microsoft further argues that since the company no longer uses any of those practices-and even The California Group acknowledges that fact-the terms of the settlement have succeeded in equalizing competition.
"The Final Judgments have done exactly what they set out to do, i.e., remedy practices engaged in by Microsoft that were found to be anticompetitive by this Court and the Court of Appeal," the report states. "The Final Judgments were never designed to reduce Microsoft's share in any putative market...That 'metric' misconstrues the purpose of the Final Judgments and overlooks significant changes that have occurred in the IT industry since the Court entered the Final Judgments almost five years ago."
Misguided solutions?
It is arguable that the factors that have most contributed to increasing competition and leveling the playing field in recent years have come in the form of radically innovative business models like those used by open-source software companies. Looking back at the various regulatory remedies that governments have attempted to use to rein in Microsoft to spur competition, it would appear that they have no led to a consensus on their efficacy.
"To the best of The California Group's knowledge, no major OEM has taken advantage of the OEM flexibility provisions of the Final Judgment to designate a web browser other than Microsoft's IE as the default on the Start Menu of its new PC systems," the report says. "Moreover, there is no reason to believe that any decline in IE's usage share is attributable to the Final Judgment."
A big question, of course, is what are the outward signs of increased competition, and a reformed Microsoft? Need there be OEMs shipping Firefox as the default browser for the government to consider Microsoft defanged? A bigger dip in market share for Windows or IE? How do you know when it works?
That is the question which must be answered, for how else can the government judge whether or not it has succeeded, or whether or not it should extend oversight? To complicate matters, if The California Group's report is read as an indictment of the entire settlement process, it raises the question of what methods, if any, could have made a difference.
Comparing 2007 to 2001, it's hard to say that there isn't more competition. In the world of Windows web browsers, Firefox has done very well, and even Apple brought Safari to Windows. Large OEMs like Dell now sell Linux directly to end users, and Microsoft can't stop them. Yet, if we believe The California Group, Microsoft may very well try once it thinks that the DoJ isn't watching.
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