March 24, 2004 4:00 AM PST

The remedy vanishes?

When the Clinton administration filed its sweeping antitrust suit against Microsoft in early 1998, federal officials pledged that it would reshape the computer industry.

The lawsuit would "put an end to Microsoft's unlawful campaign to eliminate competition, deter innovation and restrict consumer choice," then-Assistant Attorney General Joel Klein promised.

Six years later, however, the lasting impact of the U.S. Department of Justice's action is anything but certain. An ambitious beginning to the lawsuit was sharply limited by a federal appeals court, resulting in a 2002 settlement critics say has done little to change the way Microsoft tosses around the weight of its Windows monopoly. And because the settlement lasts only five years, the limited restrictions it did impose evaporate in 2007.

"Has any part of the settlement loosened Microsoft's grip on their illegally maintained monopoly?" said Robert Lande, a professor at the University of Baltimore who teaches antitrust law. "The answer's 'No. Nothing. Zip. Zero.' If you count success that way, it's been a total failure."

One telling example lies in the now-ancient history of the browser wars. In mid-1998, when the Clinton administration filed its antitrust suit against Microsoft, browser share for Netscape Navigator hovered around a hefty 40 percent of the market, with Internet Explorer about to overtake it. Then-Attorney General Janet Reno said in May 1998 that the antitrust prosecution was necessary, because "no firm should be permitted to use its monopoly power to develop a chokehold on the browser software needed to access the Internet."

Reno never got what she wanted. Although the Justice Department's lawsuit was explicitly designed to give Netscape a leg up on rival Microsoft, that never happened. By January 2004, IE claimed 94.8 percent of the Web browser market, according to research firm OneStat.com, and Netscape's only lasting legacy is the free, open-source Mozilla Web browser.

What's more, Microsoft's legal problems remain as prickly as ever. A federal appeals court in Washington, D.C., is weighing whether to toss out the 2002 settlement with the Justice Department in favor of harsher remedies sought by the state of Massachusetts. And other state actions are under way in Nebraska, New Mexico, Iowa, Michigan, Vermont, Arizona and New York. Even more threatening is the effect of the European Union decision announced Wednesday.

Legal experts said European regulators were likely motivated in part by the end of the legal proceedings in the United States, where many of the harsher penalties once envisaged had vanished. "The case didn't accomplish anything, because the Justice Department surrendered after they won the case and had it affirmed on appeal," said Mike Pettit, a Washington, D.C., lobbyist who represents the ProComp, a group of Microsoft rivals that includes Oracle and Sun Microsystems. "They let them off the hook."



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Today, Microsoft is "stronger in every market--the U.S. case in no way has restored competition," Pettit said. While Pettit said he's not personally involved with the European pursuit of Microsoft, he savors the possibilities of the region setting a harsh precedent by slapping limits on what Microsoft can "bolt into Longhorn," the upcoming release of Windows.

Microsoft views the outcome differently. "The experience has made us understand more fully the importance of being a good partner in the industry, to understand that we're no longer a small company--that we're a larger company--and to act as a responsible industry leader," company spokesman Jim Desler said. "It's really fundamental, in terms of how we conduct business now. We conduct it now in full compliance with all laws and regulations."

But even Microsoft's defenders find it hard to point to a lasting impact of the U.S. lawsuit. Robert Levy, a lawyer at the Cato Institute who has criticized the U.S. antitrust suit, said he's not sure what effect the Clinton administration's pursuit of Microsoft has had.

"Whether it made any difference or not is very difficult to determine," Levy said. "Who knows what might have happened, if it had not been brought? I would find it very difficult to pinpoint anything that has transpired because of that case that would not have happened otherwise."

By the end of the trial in the 1998 lawsuit, U.S. District Judge Thomas Penfield Jackson concluded that Microsoft had violated the Sherman Act and some state laws in three ways: by illegally trying to maintain its operating system monopoly, by trying to monopolize nonoperating system businesses and by unlawfully "tying" software to Windows. For a penalty, Jackson chose what amounted to a nuclear option: a two-way breakup of Microsoft.

A federal appeals court eventually tossed out Jackson's idea of a breakup--which would have been an unprecedented punishment for a single company that had, like Microsoft, grown gradually without gobbling up other large firms. The appellate judges also said Microsoft violated the Sherman Act in only one way, which was the illegal maintenance of the Windows monopoly.

As a result, U.S. District Judge Colleen Kollar-Kotelly, who was assigned to oversee future proceedings, was sharply limited in what penalties she could levy. In her discussion of the case, Kollar-Kotelly noted that the appeals court had "drastically altered the scope of Microsoft's liability."

With the setback from the appeals court and new management in place after the 2000 presidential election, the Justice Department and most state attorneys general settled the case in 2002. Kollar-Kotelly essentially approved their consent decree, which required Microsoft to create a compliance committee; not retaliate against computer makers for distributing competitors' software; and disclose some communication protocols and application programming interfaces.

Since then, Microsoft executives have made a point of stressing that they wish to work closely with governments. Microsoft Chairman Bill Gates showed up in Washington, D.C., last year to say that "we're proud to be involved in the effort to connect a significant portion of the federal homeland security community into a national information-sharing and intelligence analysis network."

Microsoft's Desler underlined this approach. "One of the things we also learned is to engage in an open dialogue with government so that we can answer their questions, address concerns that are raised and to at least let them know what our plans are, in terms of present and future business," he said.

What that means in practice has been some increased scrutiny of the company's business practices by the Justice Department and state attorneys general. In January, for instance, the Justice Department warned that Microsoft had "fallen short" of fully satisfying the settlement and that "additional work still needs to be done." In addition, a three-person compliance committee is responsible for making sure that Microsoft follows the terms of the settlement.

The University of Baltimore's Lande said he's not terribly impressed. "When you start out with an incredibly wimpy settlement, you find yourself saying, 'If they enforce it 100 percent, what difference does it make?' It's a slap on the wrist at best. Of course they should enforce it--it's better than nothing--but it's not that big of a deal."

 

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