by John M. Curtis
(310) 204-8700

Copyright November 6, 2001
All Rights Reserved.

reathing new life into the beleaguered Nasdaq, the Justice Department announced its long-awaited settlement with software behemoth Microsoft. Gaining nearly 5%, the tech-rich Nasdaq finally showed a pulse, since U.S. District Court Judge Thomas Penfield Jackson first ruled in April 2000 that Microsoft violated the 110-year-old Sherman Antitrust law. Since then, the DOJ torpedoed the tech market, ending the longest economic expansion in U.S. history. Though many people blame the Internet bubble or Fed Chairman Alan Greenspan for causing the crash, the DOJ didn’t help matters. “This opinion will . . . set the ground rules for enforcement in the Information Age,” said assistant Atty. Gen. Joel Klein, trumpeting U.S. District Court Judge Thomas Penfield-Jackson’s ill-fated ruling, but showing no regard for the overall market. Suing Microsoft was like giving the Nasdaq anthrax. Back then, the DOJ deluded itself into believing they were helping consumers, when, in fact, they were eviscerating the tech industry.

       From the get-go, the Justice Department got it wrong that Microsoft engaged in unfair competition. Creating its popular Windows operations system with proprietary codes had little to do with imposing monopoly power. Software—like other intellectual property—holds special copyrights, preventing unauthorized duplication. When Netscape Communications cried foul because they couldn’t market their browser with Windows, the DOJ drew a flawed conclusion. It wasn’t Microsoft’s fault that 95% of personal computer makers use Windows. Microsoft wasn’t engaged in a monopoly, they were victims of their own success. It was the marketplace—not Microsoft—that demanded Windows. Turning over its secrets wasn’t in the cards. Only after AOL bought Netscape Communications did they push litigation. Lobbying White House, Netscape blamed Microsoft, when all else failed. You can’t blame Microsoft for building a better mousetrap and protecting its secrets. Yet, even with the recent settlement, Microsoft’s envious competitors still aren’t satisfied.

       Several states attorneys general, hoping for a big payday, weren’t thrilled with the DOJ’s offer. “Today’s agreement signals a retreat by the federal government and a defeat for consumers,” said Scott McNealy, chairman of Sun Microsystems, showing the kind of sour grapes seen in Microsoft’s rivals. McNealy isn’t concerned about consumers, he’s concerned about the bottom line. Without tying Sun’s products to Windows, McNealy won’t capitalize on the lucrative personal computer market. Consumers don’t really benefit by competitors offering alternative media players and Internet browsers. McNealy and others still haven’t caught up with new developments. When Judge Penfield-Jackson went over the top asking, “Were the Japanese allowed to propose the terms of their own surrender?” Janet Reno’s original case lost steam—and credibility. Unhappy with the settlement, Microsoft’s enemies still won’t quit. “The proposed settlement fails to fulfill the promise of the unanimous decision from the U.S. Court of Appeals condemning Microsoft’s extensive illegal conduct and requiring and effective remedy to prevent its reoccurrence,” said Paul T. Cappuccio, general counsel for media giant AOL-Time Warner.

       While the appellate court found some problems, they didn’t agree with Penfield-Jackson’s inappropriate remarks. Nor did they concur with his excessive remedy of splitting up Microsoft. Today’s settlement, forged with the help of a federal mediator, places more pressure on new U.S District Judge Colleen Kolar-Kotelly to finally end the case. “This settlement not only resolves the department’s competitive concerns, but also does so in a quick and responsible manner,” said U.S. Atty. Gen. John Ashcroft, dismissing complaints that the settlement lacks teeth. Getting it right, “It provides prompt, effective and certain relief for consumers and removes the uncertainty in the computer market, a critical factor in today’s economy.” Whether it helps the economy is anyone’s guess. But, on its own merits, the settlement corrects past zealotry and unmistakable bias. Despite reservations, Microsoft Chairman Bill Gates accepted the settlement. “We will focus more on how our actions affect other companies,” said Gates, proving, if nothing else, that the bell-weather tech company learned a valuable lesson.

       Under terms of the new 5-year deal, Microsoft must now give rivals limited access, enabling computer makers to buy different products, including web browsers, Internet service providers, media players, etc. Even harsh critics like Connecticut Atty. Gen. Richard Blumenthal admitted that the events of Sept. 11 “provided a powerful dynamic to resolving the issues in this case.” Judge Kollar-Kotelly gave state attorney generals until Nov. 6 to review the deal and decide their next move. “I’d rather have nothing than this,” said one unnamed executive, expressing frustration that Bush’s DOJ let Microsoft off the hook. “That’s totally false,” said Ashcroft. “We believe that this settlement is a very strong settlement,” recognizing it was time to wrap it up. Getting Microsoft to fork over secret codes and act neighborly can’t be ignored. “We resolve ourselves to becoming an even better industry leader,” said Gates, swallowing hard after strenuously fighting the government’s case.

       Resolving the government’s antitrust case against Microsoft represents a powerful step toward rehabilitating the Nasdaq. With Microsoft accounting for about 20%, Ashcroft’s right when he says the settlement should help the tech market. No one expects Microsoft’s foes to be entirely satisfied, but nailing down some deal is better than no deal. “The people who are saying this agreement is nothing are overdoing it,” said Harvard law professor antitrust expert Andrew Gavil, rejecting the idea that Microsoft didn’t get its wings clipped. In reality, Gates gave up some proprietary secrets. Whether the deal encourages competition and helps consumers remains unknown, precisely because the DOJ’s original claims were never corroborated. While some companies were undoubtedly hurt, the vast majority have only profited from Windows and proliferation of personal computers. With a deal now in hand—despite all the complaints—it’s time call back the dogs and let it go.

About the Author

John M. Curtis is editor of OnlineColumnist.com and columnist for the Los Angeles Daily Journal. He’s director of a Los Angeles think tank specializing in political consulting and strategic public relations. He’s the author of Dodging The Bullet and Operation Charisma.

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