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  Judge Signs Microsoft Antitrust Settlement

By Mike Mills
Washington Post Staff Writer
Tuesday, August 22, 1995; Page D01

With a stroke of his pen, a federal judge yesterday swiftly ended one of the government's most protracted antitrust cases by signing a court settlement that places curbs on how Microsoft Corp. licenses its computer operating systems.

In a session lasting less than 20 minutes, U.S. District Judge Thomas Penfield Jackson signed the agreement, known as a consent decree, in which the Redmond, Wash.-based software giant vows to change some of its practices to settle Justice Department charges of antitrust violations. Jackson was brought to the case after an appeals court ruled that an earlier judge erred in rejecting the settlement.

"The decree has been entered," declared Jackson, ending the drawn-out and often bitter case he inherited.

The Justice Department continues to scrutinize another key part of Microsoft's business, its Microsoft Network on-line service, or MSN. Competitors say Microsoft will have a competitive advantage by packaging software enabling people to subscribe to MSN as an embedded part of its Windows 95 operating system, which it plans to unveil Thursday.

The only oral debate in yesterday's proceeding was when Jackson sided with the Justice Department and ruled that the decree would take effect immediately. Microsoft attorneys had pressed for the effective date to be retroactive to late last year.

Before approving the order, Jackson refused to hear pleas from three outside groups, representing computer hardware and software companies, who filed "amicus," or friend-of-the-court, briefs opposing the consent decree. Jackson said the three groups were not formally parties to the case and suggested they file later requests to have their arguments heard.

Jeffrey S. Jacobovitz, who represents a Massachusetts computer company called IDE Corp., had hoped to tell Jackson about nearly $2 million in royalties that Jacobovitz said his client is owed by Microsoft because of its past licensing policies. "Microsoft is violating the consent decree," he contended. "We would like to put forward that position to the court."

Microsoft officials denied any violations and said they were pleased with Jackson's approval.

"We've been in compliance since we entered into the consent decree with the government last July and we intend to make every effort to continue to be in compliance," said William Neukom, chief counsel for Microsoft.

Assistant U.S. Attorney General Anne Bingaman declined to comment afterward. But Justice Department attorney Donald Russell told Jackson the agency will continue to monitor whether the company is complying with the agreement.

The settlement was reached after a nearly five-year investigation by federal authorities. The Justice Department had contended that Microsoft's licensing practices forced computer manufacturers to use Microsoft products, choking off competitors and inflating prices in the personal computer software industry.

Microsoft's DOS operating system and Windows software, which carry out commands by computer users and run other software applications, are used in more than 80 percent of personal computers sold today.

Microsoft, which had sales last year of $5 billion, has maintained all along that it has done nothing wrong. But in the decree, the company agrees to change certain practices governing how it licenses DOS and Windows to computer makers that load the software onto their machines before selling them.

For example, Microsoft formerly offered computer makers a lower per-unit price for its operating systems if they paid Microsoft for every machine they estimated they would sell – whether or not Microsoft software was included with each machine.

The Justice Department contended that the effect of that requirement was to make manufacturers pay twice for installing non-Microsoft operating systems in their machines. Microsoft says it has stopped the practice.

Microsoft also can no longer require hardware vendors to pay royalties for a minimum number of copies, even if the vendors sell fewer machines than expected.

And Microsoft agreed to stop requiring two- and five-year contracts with computer makers; it will stick with one-year contracts.

After several months of often rancorous review, U.S. District Judge Stanley Sporkin in February issued an opinion refusing to sign the decree. Sporkin accused Microsoft of "monopolistic" behavior and argued that he did not find the agreement to be in the public interest.

The Justice Department and Microsoft jointly appealed that decision. In a sternly worded opinion released on June 16, the U.S. Court of Appeals not only overruled Sporkin but also said it did not believe that the judge could oversee impartially any questions of compliance that might arise once the decree was in place. The court consequently ordered that a new judge be assigned to the case.

Jackson was chosen by random ballot to administer the settlement.

Earlier this year, the agency challenged Microsoft's plan to buy financial software maker Intuit Inc. Microsoft then backed away from the $2 billion deal.

Staff writer Elizabeth Corcoran also contributed to this report.

© Copyright 1998 The Washington Post Company

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