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Microsoft/Justice Department Settlement Holds

Judge Colleen Kollar-Kotelly of Federal District Court in Washington handed Microsoft a virtual victory:

    a federal judge yesterday approved the company’s antitrust settlement with the Justice Department and rejected virtually all of the stiffer sanctions sought by a coalition of state attorneys general. The ruling brought at least a temporary close to the landmark case filed nearly five years ago.

    “While putting new responsibilities on Microsoft, this settlement also gives us the freedom to keep innovating for our customers,” Microsoft’s chairman, Bill Gates, said at a news conference at the company’s headquarters in Redmond, Wash. “We’re pleased to put another step of this case behind us.”

    Judge Colleen Kollar-Kotelly of Federal District Court in Washington did impose some new obligations on Microsoft that were not included in the settlement last November, requiring the software maker to disclose more information to competitors about its Windows operating system and to install a compliance committee made up of Microsoft board members.

    But taking a narrow view of the case, the judge imposed few new restrictions that would slow Microsoft’s aggressive push into new markets.

    She largely dismissed the contention by nine states that broader restrictions on Microsoft were necessary to restore competition in the computer software industry. Instead, Judge Kollar-Kotelly criticized the states for suggesting that Microsoft should be punished for actions beyond those a federal appeals court found it liable for last year.

    “This suit, however remarkable, is not the vehicle through which plaintiffs can resolve all existing allegations of anticompetitive conduct which have not been proved or for which liability has not been ascribed,” Judge Kollar-Kotelly wrote.

Steve Lohr says the ruling should make Microsoft happy:

    When the federal government and 20 states filed their sweeping antitrust suit against Microsoft in May 1998, the company dominated the personal computer business and was aggressively moving into the markets for software for hand-held computers, cellphones, television set-top boxes and data-serving computers.

    More than four years later, little has changed. And there is little in yesterday’s ruling on sanctions in the case by Judge Colleen Kollar-Kotelly of Federal District Court in Washington that will slow down the big software maker.

    By endorsing most of the Bush administration’s settlement with Microsoft, reached last year, the judge adopted a fairly narrow view of the case and showed a reluctance to meddle in Microsoft’s business practices and product designs. She rejected calls by nine dissenting states seeking tougher measures, like requiring Microsoft to offer a stripped-down version of its Windows operating system or to publish freely the programming code for its Internet browser.

    In doing so, Judge Kollar-Kotelly chided the plaintiff states, writing that some of the proposed remedies appeared to be intended “simply for the sake of changing the status quo.” In a passage that echoed Microsoft’s complaint that its legal problems were the work of its rivals, she wrote: “Certain of Microsoft’s competitors appear to be those who most desire these provisions.”

    Yet the ruling does not mean Microsoft is untouched. A federal appeals court last year found that Microsoft was a monopolist in the personal computer operating system market, and that it had repeatedly abused its monopoly power to thwart competition and stymie innovation. That means Microsoft is a court-decreed monopoly that is in the process of becoming regulated.

    But based on Judge Kollar-Kotelly’s ruling, that regulation will be done with a light touch. “It shows a great reluctance to go down the regulatory path,” said Robert E. Hall, an economist at Stanford, who has done consulting work for Microsoft.

    Her reluctance, Judge Kollar-Kotelly noted, was grounded in the appeals court’s ruling of June 2001. It upheld the monopoly ruling of the district court and several of its findings against Microsoft, but it also narrowed the scope of Microsoft’s liability and brushed aside the lower court’s order to break the company in two.

    ….Last month, in the middle of a severe slump in the technology industry, Microsoft reported that its quarterly profit rose 40 percent and its sales increased 26 percent. Part of the surge was attributable to a new pricing plan that raised charges for many purchasers and brought a chorus of protests from corporate customers. But nearly all of them paid up and went along.

    “Microsoft may be a little bit more restrained and a little bit less aggressive because of the antitrust case,” said David B. Yoffie, a professor at the Harvard Business School. “But not much. Microsoft’s market power has been unimpeded by the case.”

    Still, as some analysts note, the company’s corporate culture does seem to have been altered by the long litigation.

    It seems to have been, they say, a hard-learned lesson in humility. “Internally, within Microsoft, I think the company is very different,” said Michael Cusumano, a professor the Massachusetts Institute of Technology’s Sloan School of Business. “I think they are less aggressive with customers and partners than they were, and more respectful of the law.”

    But, Mr. Cusumano said, “Not much has changed in the marketplace.”

More on the ruling:

    The U.S. Justice Department applauded the ruling, saying the settlement would both address Microsoft’s unlawful conduct and restore competitive conditions in the software industry.

    Attorney General John Ashcroft said the department was “strongly committed” to ensuring that Microsoft complies with the settlement and will continue to closely monitor the company’s implementation of its terms.

    An appeals court ruling in June 2001 upheld trial court findings that Microsoft had illegally maintained its Windows operating system monopoly, but rejected breaking the company in two. The case was then transferred to Kollar-Kotelly to determine the appropriate remedies in the case.

    “Microsoft lost every battle and they won the war,” said Shane Greenstein, technology business professor at the Kellogg Graduate School of Management at Northwestern University. “The lesson everyone learned here is just stay out of Microsoft’s way.”

Microsoft strengthened:

    The federal court decision on Friday endorsing a settlement that closes the U.S. government’s landmark antitrust case against Microsoft Corp. will allow the software giant to leverage its dominance in computer operating systems to move into other markets, experts and rivals said.

    That is good news for Microsoft’s allies, such as Intel Corp., Siebel Systems Inc. and others, but bad news for the raft of companies including Oracle Corp, Sun Microsystems Inc. SUNW.O and RealNetworks Inc struggling to compete with Microsoft, they said.

    ….Competitors, however, were distrustful or resigned, while consumer advocates and industry analysts warned that the ruling was a step back from allowing freer choice in the market for technology.

    “This just means there is no way around the Microsoft citadel. They just can’t breach it,” said Roger Kay, a PC analyst at research firm International Data Corp. “Microsoft owns the desktop and may come to own the living room.”

    Ken Wasch, president of the Software Information Industry Association, a trade group for the software and digital content industry, said: “We expect Microsoft to use many of the same tactics that enabled them to gain dominance on the desktop and the browser to gain dominance in other areas,” such as handhelds and streaming media.

    “The proposed remedies won’t stop Microsoft from forcing out competitors and taking away consumer choice,” said Edmund Mierzwinski, consumer program director at the U.S. Public Interest Research Group.

However, an economist says ruling is tough:

    Brookings Institution economist Robert Crandall demonstrates in the study released today that the settlement is not only strong, but is by far the most intrusive imposed by the federal government in any similar litigation since World War II.

    Commenting on today’s ruling in light of his new study, Crandall said: “In my latest study, I’ve reviewed 180 antitrust cases, and I’ve found that today’s ruling in the Microsoft case imposes tougher penalties than those in any similar case since the end of the Second World War.

    “Despite the toughness of these measures, however, I take a hopeful view of how this decision will impact competition. While it’s hard to predict how competition will unfold in the high-tech sector, it is, after all, a very dynamic sector, with falling prices and ever-improving products.

    “Primarily, I take heart from the fact that today’s decision puts to rest four-and-one-half years of litigation. It is difficult for companies and people to be creative when they are uncertain about the rules of the road and whether or not they will be allowed to enjoy the fruits of their innovation and investments. As long as this litigation was pending, uncertainty hovered over innovation like a dark cloud. The big news today is that this uncertainty has been dispersed.

    “As a result, we now have a brighter day and a clearer road ahead.”

    Crandall’s study, released today by Washington Legal Foundation compares the proposed settlement in the Microsoft case with 200 earlier antitrust judgments. The study, The Proposed Microsoft Decree and Past Antitrust Remedies, A Systematic Comparison, is available here.

Judge took a bath to comply with ethics rules:

    U.S. District Judge Colleen Kollar-Kotelly, whose overall holdings still approach $1 million, took extraordinary losses last year in some of those trades, which occurred during a serious slump in the technology sector.

    The judge purchased up to $15,000 worth of stock in Sun Microsystems Inc., one of Microsoft’s fiercest rivals, in January when its price closed at $30.88, records show. Sun developed the Java programming technology that a U.S. appeals court determined was the victim of an illegal Microsoft campaign to undermine its popularity.

    But weeks after her appointment in a courthouse lottery as the new Microsoft trial judge in August last year – and facing ethics rules against such ownership – she unloaded Sun when the price had plunged to $10.95.

    Likewise, the judge purchased up to $15,000 in shares of Compaq Computer Corp. in January, when the price was $15.78. But when she sold her shares, also weeks after her new appointment, Compaq’s price had fallen to $8.52.

    Compaq, now owned by Hewlett Packard Co., has been a close ally of Microsoft’s and gains new freedom in how it can sell computers loaded with the company’s Windows software.

    The judge had previously said she sold technology holdings worth $45,000 to $65,000 between Jan. 1 and Sept. 28 of last year to avoid potential ethics conflicts. Details of those trades have been unavailable until she filed these latest disclosure documents with the Administrative Office of the U.S. Courts.

    Executives or employees from both Sun and Compaq testified before the original trial judge in the case, Thomas Penfield Jackson. Kollar-Kotelly, who was named to replace Jackson, did not report owning any Microsoft stock.

    Both U.S. law and federal ethics rules prohibit judges from ruling in cases in which they have a financial interest that could be substantially affected.

About Eric Olsen

Career media professional and serial entrepreneur Eric Olsen flung himself into the paranormal world in 2012, creating the America's Most Haunted brand and co-authoring the award-winning America's Most Haunted book, published by Berkley/Penguin in Sept, 2014.Olsen is co-host of the nationally syndicated broadcast and Internet radio talk show After Hours AM; his entertaining and informative America's Most Haunted website and social media outlets are must-reads: [email protected], Facebook.com/amhaunted, Pinterest America's Most Haunted.Olsen is also guitarist/singer for popular and wildly eclectic Cleveland cover band The Props.

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