The legacy of Microsoft's 1994 consent decree
Published: 13 Jul 2004 16:00 BST
In the summer of 1994, with the threat of an antitrust charge looming, Microsoft agreed to settle charges that it was engaged in predatory business practices in its dealings with computer makers.
Though much less well-known than the broader Sherman Act case later brought by the Department of Justice, this initial action established a legacy of treating Microsoft as a company whose monopoly power needed to be kept in check.
The 1994 accord, signed 10 years ago this month, focused on the way Microsoft worded contracts with computer makers. Specifically, Microsoft agreed to do away with a number of practices, including a system in which manufacturers got a discount on copies of Microsoft's operating systems by paying for a licence for every computer they shipped -- whether or not it included a Microsoft OS. The agreement also limited Microsoft from engaging PC makers in contracts that lasted more than a year, and it demanded that the company not make contracts or pricing contingent upon acquiring any other product.
In a broad sense, these provisions did eliminate some barriers that would have made it tough for rivals to compete. But some say the fact that an antitrust suit was filed against the company a few years later shows that the deal didn't represent the promise that then Attorney General Janet Reno held out when she announced it.
"Today's settlement levels the playing field and opens the door for competition," Reno said in a press release announcing the 15 July accord.
That issue, though, hasn't been entirely laid to rest. Although a US Appeals Court last month upheld a deal between the software maker and the Justice Department, the European Union has levied a fine of about $600m against the company and required certain changes to its software. The EU ruling is under appeal in a process that could stretch out for years.
To mark the anniversary of the agreement and reflect on its legacy, CNET News.com spoke to three people who were involved in the case. Microsoft lawyers Bill Neukom and Brad Smith helped negotiate the deal, while author Wendy Goldman Rohm covered the case for Wired magazine and in her book, "The Microsoft File: The Secret Case Against Bill Gates". Neukom, formerly general counsel for Microsoft, is now the chairman of Preston Gates & Ellis. Smith was the associate general counsel for Microsoft in Europe, and is now Microsoft's general counsel.
News.com: What is the legacy of the 1994 consent decree?
Wendy Goldman Rohm: At that time, Microsoft agreed to a number of things, including not using illegal contracts to tie up the marketplace; disseminating technical information about the operating system in an open and nondiscriminatory manner (it had been preventing competitors from getting to market with their own applications and other products by withholding critical information that would allow them to maintain compatibility with new versions of the operating system); and, in essence, not leveraging its market dominance in one area of the marketplace (the operating system) for an unfair advantage in other areas of the market -- including new and emerging markets. It was behaving like a classic monopolist, and continues to behave that way -- unfettered by ongoing antitrust suits and settlements.
Has Microsoft, to this point, complied with the order?
Microsoft keeps moving faster than government regulators. It in fact is quite shrewd in this regard. Even after paying fines for noncompliance, it has made more profit over time by not complying with antitrust laws than by complying.
How many of the current complaints against Microsoft can be traced back to either the wording of that consent decree, its limits or the issues raised by it?
Many of the issues raised in the original DOJ lawsuit are the exact same issues that have been antitrust problems in recent years for Microsoft, both in this country and abroad -- the same issues, but involving different products and different markets. Product tying, technological tying, predatory pricing, are all practices it continues to use around the world to gain unfair advantages in new markets. These are advantages that come directly from misuse of its market power versus superior products -- something addressed directly by US as well as EU antitrust law.
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