Going hard on Microsoft

Notwithstanding his brave postures, Mr. Bill Gates is on the back foot. Judge Jackson's verdict, if upheld, is bound to change the very face of computing around the world, says K. T. Jagannathan.

MICROSOFT CHIEF, Mr. Bill Gates, may have managed to close the gates on others. A ruling by a U.S. Judge, however, has shut the window of freedom for his mega company which has thrived on hard- sell. Operating system leader Microsoft is, surely, set for hard days ahead. Notwithstanding his brave postures, Mr. Gates is definitely on the back-foot, waging a back-to-the-wall fight.

The immediate cause of Mr. Gates' concern is the ruling by the District Court Judge, Mr. Thomas Penfield Jackson, to split Microsoft into two. Coming after several months of trial and following the failure of talks with the U.S. Department of Justice, the judgement, if upheld, is bound to change the very face of computing around the globe. A peep into the judgment will reveal the harsh nature of it. Observers find this one to be the harshest since the anti-trust action against AT&T in early Eighties which had forced the company to spin off the `Baby Bell' regional phone companies. Astonishingly, the judge has gone to the extent of observing that ``Microsoft has proved untrustworthy in the past''.

If upheld, Mr. Jackson's verdict will see Microsoft split into two. Essentially, it calls for de-linking the operating system business from the application business. The judge has laid down procedures to do this. Microsoft has been given enough time - four months, to be precise - to submit a divestiture plan. The plaintiffs - the U.S. Government and State of New York - will have 60 days thereafter to file in their counters. Microsoft will have to send in its response within 30 days thereon. Once the Court approves the divestiture plan, the company will have to implement it. No doubt, the verdict can be contested. Microsoft people have already indicated that they will. The U.S. Justice Department has, in the meantime; gone on record stating that it will ask the Supreme Court to hear the appeal so as to bring the curtain down once and for all on the Microsoft imbroglio.

The Microsoft split order envisages the transfer of the assets of the separated business (operating system) to an independent entity. In effect, it means transfer of personnel, systems and tangible and intangible assets, including the intellectual property, used to develop, produce, distribute, market, promote, sell, license and support the products and services of the separated business. Even the assets that are needed to run the operating system business as an independent and viable outfit are to be transferred to the entity. The intellectual property related to both the businesses will be assigned to application business.

The operating system business will, however, get a perpetual, royalty-free licence to license and distribute such intellectual property in its products. Further, the operating system business is allowed to develop, licence and distribute modified or derivative versions of such intellectual property. The Court, however, has put a rider. The operating business cannot grant the application business the rights to derivative versions of such intellectual property. In the case of intellectual property related to the Internet browser, the operating business will have no right.

To avoid any mischief by Microsoft, the Court has made it mandatory on the part of Microsoft people to ensure that the two businesses remain going and viable operations. At the same time, it expects these operations to be run independently until the implementation of the split plan. It has even asked the company to inform it within three months of the entry of final judgment of the steps taken to ensure these.

Significantly, the ruling bars any move to re-combine the two businesses. Further, it has said `no' to any alliance between the two. Interestingly enough, it has made it compulsory for these two to periodically inform the plaintiffs of any agreements between them. The final judgment will be valid for 10 years from the date on which it takes effect. This is bound to push Microsoft into greater peril in a competitive environment where mergers and acquisitions have become the order of the day.

The judgment, it is felt, is more likely to constrain Microsoft's ability to structure alliances in a dog-eat-dog world of competition. Just consider these. For one, Microsoft cannot have any arrangement with any third party to distribute, promote or use any Microsoft platform software exclusively. For another, it also bars the company from having any exclusive pact with Internet access or content provider to promote or use its software in exchange of placement with respect to any aspect of a Windows operating system product. Thirdly, the company is prohibited from degrading the performance of any non-Microsoft platform software.

Interestingly enough, the judge has ordained Microsoft to provide any OEM the predecessor version of the windows operating system products on the same terms and conditions for another three years even after the release of a new version in the marketplace.

The judge is keen that his writ runs in the ultimate analysis. Having found Microsoft `untrustworthy', he has suggested the establishment of a compliance committee of the board of directors. This panel will have to be in place within three months from the effective date of final judgment. This will, in turn, hire a Chief Compliance Officer who will report to the panel and CEO of Microsoft. In effect, he will be primarily overseeing the internal programmes of the company so as to ensure that it largely complies with the anti-trust laws and the final judgment. One may find this bit a little amusing. Yet, the Court has vested the Chief Compliant Officer with the responsibility to ensure that all Microsoft personnel understood the implications of this judgment. Moreover, the judgment makes it compulsory for the company to make records available on request to the Government.

Mr. Jackson, surely, has come down hard on Microsoft. If upheld, the judgment will rid Microsoft of its competitive advantage. Its leadership position in the marketplace will more likely be dented. Nevertheless, one has to wait a while to see what kind of metamorphosis the judgment will bring to Microsoft. One thing is sure, however. Post-judgment and post-split, Microsoft may not function with the same unhindered freedom it has been used to. With the visible hand of the rulers (thanks to the so many conditionalities the judge has envisaged), Microsoft may find the going too hard. Well, Mr. Gates will be hoping that the Supreme Court will keep the gates open for Microsoft to freely compete in the marketplace.

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