Economics of Networks

US and some States settle with Microsoft

By Nicholas Economides

November 8, 2001, Incomplete, not for quotation

Last Updated: 11/8/2001

Disclaimer: I am not a consultant of the United States Department of Justice, Microsoft, or any of the Attorneys General of the 19 States and the District of Columbia that have sued Microsoft

On November 2, 2001, the United States and Microsoft proposed a settlement in the major antitrust case. U.S. District Judge Colleen Kollar-Kotelly gave until Tuesday 11/6/2001 to the plaintiff States to decide whether to settle as well. Among the States, New York, Illinois, North Carolina, Kentucky, Michigan, Louisiana, Wisconsin, Maryland and Ohio settled on 11/6/2001. California, Connecticut, Iowa, Massachusetts, Minnesota, West Virginia, Florida, Kansas, Utah, and the District of Columbia will pursue the suit further to a full remedies trial.

Summary of Proposed Microsoft Settlement of November 6, 2001

A. Provisions seen as favorable to Microsoft

1. No breakup

There are no structural changes, such as a breakup of Microsoft.

2. Microsoft can expand functions of Windows

Microsoft can add any functions it wants to the operating system

3. No restrictions on bundling

There are no general restrictions imposed on product bundling by Microsoft

4. No wide disclosure of source code

Mandated disclosures are limited to interfaces

B. Provisions seen as favorable to the plaintiffs

1. Broad scope of definition of middleware products

The settlement defines "middleware" to include browser, e-mail clients, media players, instant messaging software, and future new middleware developments.

2. Requirement to partially disclose middleware interfaces

Microsoft will be required to provide software developers with the interfaces used by Microsoft's middleware to interoperate with the operating system.

3. Requirement to partially disclose server protocols

The settlement imposes interoperability between Windows and non-Microsoft servers of the same level as between Windows and Microsoft servers.

4. Freedom to install middleware software

Computer manufacturers and consumers will be free to substitute competing middleware software on Microsoft's operating system.

5. Ban on retaliation

Microsoft will be prohibited from retaliating against computer manufacturers or software developers for supporting or developing certain competing software.

6. Uniform pricing of Windows for same volume sale

Microsoft will be required to license its operating system to key computer manufacturers on uniform terms for five years. Microsoft will be allowed to provide quantity discounts.

7. Ban on exclusive agreements; contract restrictions

Microsoft will be prohibited from entering into agreements requiring the exclusive support or development of certain Microsoft software

8. Compliance and enforcement

A panel of three independent, on-site, full-time computer experts will help enforce the settlement. One panel member will be selected by Microsoft, one by the Justice Department, and one by both. The panel will have full access to all of Microsoft's books, records, systems, and personnel, including source code, and will help resolve disputes about Microsoft's compliance with the disclosure provisions of the settlement.

C. Duration

The settlement conditions will last for five years with the possibility of a two-year extension if Microsoft is found to found to willfully and systematically violate the agreement.

D. Conclusion

This is a fair settlement. It seems that DOJ got a bit more than what it would have gotten in a full remedies trial. It is unlikely that the dissenting States will, in the end, be able to get anything substantially different from this settlement.

The full terms of the revised settlement (11/6/2001)

The full terms of the settlement (11/2/2001)

DOJ's summary

DOJ's "Competitive Impact" Statement

2008 Settlement Modifications and Extension [1]

2008 Settlement Modifications and Extension [2]