Is it a win-win streak?

Krishnan Thiagarajan

WHAT a difference a year and a change in government can make to the course of a ''landmark'' anti-trust suit launched against Microsoft in 1998? From a judicial standpoint, Microsoft was declared a predatory monopolist by Judge Thomas Penfield Jackson in April 2000 (under the Clinton Administration).

In effect, the findings of fact had clearly established that Microsoft used ''its prodigious market power and immense profits to stifle innovation'' by erecting barriers of entry to the Windows operating system (OS) monopoly and using the applications (such as Microsoft Office) to strategically protect the Windows monopoly.

As an offshoot to these findings of fact, Judge Jackson had ordered a reorganisation of Microsoft into two companies - the first one, an operating company which was to own Windows and the second one, an applications company which was to own all of Microsoft's other businesses (namely, its Office suite, Internet Explorer and other business tools).

In the face of such daunting odds, the change in government from Democrats (spearheaded by Bill Clinton) to the Republicans (headed by George W. Bush Jr.) decisively swung the verdict in favour of Microsoft in less than a year. The removal of Judge Thomas Penfield Jackson from the anti-trust case on the grounds that he talked to reporters during/after the trial, represented the first victory for Microsoft.

The Microsoft case progressed to the Washington DC appeals court which upheld Jackson's verdict (of Microsoft being a monopolist) in June 2001. But it paved the way for Microsoft's second victory, by debunking the idea of a break-up of Microsoft. Instead, it strongly urged the parties (the Department of Justice and 18 states as the plaintiffs in the case and Microsoft as the defendant) to enter into a settlement of some sorts.

And in a startling turn of events, the September 11 attacks on New York and Washington softened the otherwise obdurate stand of the plaintiffs to impose ''stringent conduct remedies'' for Microsoft in the case. Despite finding Microsoft guilty of abuse of its monopoly power, the Department of Justice entered into a ''relatively soft'' settlement with Microsoft on November 2, 2001.

As things stand today, nine out of the 18 States have chosen to reject the settlement, thereby indicating that they want the trial to continue in the normal course. Though these nine dissenting states have the right to file their ''suggested remedies,'' the trial stands on a weak footing, with the Department of Justice and nine states consenting to a settlement.

A cursory reading of the existing settlement shows that the remedies proposed are a watered-down version of the ''conduct remedies'' suggested by Judge Jackson earlier in the anti-trust trial. If the remedies are approved according to the existing settlement, it will provide sufficient leeway to Microsoft to exploit some of the loopholes in them. But the key questions which remain unanswered are: What is the likelihood that the settlement in the current form will ensure that Microsoft does not abuse its monopoly position in the Internet domain (in the market for e-commerce products and services)? Will competition and innovation be restored in the IT market, with the proposed remedies, given the proclivity of Microsoft to use proprietary technology and bundling initiatives to scotch competition?

eWorld attempted to examine the strengths and weaknesses of these settlement terms in the current form, in the backdrop of the prevailing technology initiatives such as Windows XP, VisualStudio.NET, .NET MyServices of Microsoft.

Middleware threat

Settlement terms: The proposed final judgement covers all technologies which have the potential to be middleware threats to Microsoft's operating system monopoly. It includes browser, e-mail clients, media players, instant messaging software and future new middleware developments. In addition, it also x proposes to allow PC manufacturers the freedom to substitute middleware software on Microsoft's operating system.

Efficacy of the remedy: Prima facie, this agreement is likely to benefit PC manufacturers such as IBM, Dell, Compaq or Hewlett Packard by giving them freedom to substitute non-Microsoft applications such as instant messaging, e-mail clients or media player.

But as Carl Shapiro, co-author of Information Rules: A Strategic Guide to the Network Economy puts it, ''Microsoft has long recognised that the best way to avoid or defuse challenges to the desktop dominance is by controlling more and more functionality surrounding its desktop Windows OS and to limit the development and popularity of non-Microsoft middleware.'' That is precisely what Microsoft will continue to do going forward. And the agreement terms provide enough loopholes to help the company do just that. A close reading of the agreement terms shows that PC manufacturers can hide Microsoft's middleware and use other icons as default settings in the 'Windows' opening page. But assuming the default settings and other middleware are changed, it is unlikely to provide a lasting solution to other non-Microsoft PC manufacturers.

Mainly because, the Windows OS is to be programmed in such a way as to prompt consumers, within two weeks of its use, on whether they want to reconfigure the PC to its original settings. Without allowing the PC manufacturers the right to remove the Microsoft code relating to middleware, it is highly unlikely that Microsoft will lose its stranglehold over other ''middleware'' technologies and create greater scope for innovation in the foreseeable future.

'Bundling' issue

Settlement terms: Even before the Microsoft trial reached the settlement stage, the Appeals Court had decided to drop the ''bundling or tying up'' issue (which related to tying up of Internet Explorer with Windows OS) as one of the key remedies in the case. This effectively means that Microsoft is free to bundle any further applications to the Windows OS in future. In order to restrain Microsoft to some extent, the settlement terms only provide that Microsoft will be required to provide software developers with the interfaces (called application programming interfaces or API protocols) used by its middleware to interoperate with the operating system.

In addition, Microsoft must also ensure that other non-Microsoft server software can interoperate with Windows on a PC the same way as Microsoft servers.

Efficacy of the remedy: By dropping the bundling provision from the settlement, the Appeals Court literally knocked the wind out of the sails of other Microsoft competitors. The bundling provision was one of the strongest planks on which the anti-trust trial against Microsoft was waged and by allowing Microsoft to continue with this practice, the non-Microsoft players have completely lost their competitive leverage.

Besides, the settlement terms also provide that Microsoft is not expected to disclose APIs to companies/parties which do not have a viable business. This essentially means that the ''open- source software'' companies may not be offered access to the middleware interfaces by Microsoft. And by extension, it means that none of the other non-Microsoft products will be in a position to attract a significantly high consumer base to justify new product/applications developers in future.

Array of web services

Settlement terms: It has been consistently established (in the case of Netscape Navigator and the Office suite of applications) that Microsoft had used/may continue to use its so-called ''Embrace-Extend-Extinguish'' strategy to kill its competitors in different domains. Despite ruling Microsoft a monopolist, the settlement terms have hardly spelt out any specific terms which may ensure that Microsoft does not abuse its monopoly power in the Windows OS arena to become a dominant player in the Internet domain.

Efficacy of the remedy: Microsoft has recently unveiled the .NET strategy which is currently using the open standards of XML and SOAP to build/develop the entire gamut of programs/applications which will run on the Internet. It is well known that Microsoft has always advocated open standards as long as it is seeking to gain entry into a new market, but has abused it on gaining marketpower. Acting at that stage, when the damage, in most cases is already done as Netscape Communications can testify, is hardly meaningful. Unless proactive remedies are spelt out, any anti-trust trial launched after the event will be a futile exercise, specially in the fast-paced field of technology.

maverick@thehindu.co.in

Please e-mail us at eworld@thehindu.co.in if you have queries on computer usage or if you find an interesting way of using the computer.