Microsoft Seen as Victor

A decision by the U.S. Department of Justice to withdraw from its long fight to break Microsoft into two companies is being seen by some observers as a victory for the company. It's also left some wondering how effective any remedies imposed on Microsoft could be in the future.

On Thursday the government advised Microsoft that it will not seek a breakup of the company as the landmark antitrust case returns this month to a U.S. District Court. The government, which is a plaintiff along with 18 state attorneys general, also says it does not intend to pursue any action against Microsoft for tying its operating system to its Internet Explorer Web browser, an issue at the heart of government's original case.

While Microsoft has averted a breakup and an extension of the ongoing court battle over the issue of tying Windows and IE, the government has signaled that it will be aggressive in its efforts to impose a new behavioral and structural remedy on Microsoft. Trimming the case to focus specifically on a remedy should make it proceed quickly, the government said in a statement on Thursday. "Pursuing ... the tying claim would only prolong proceedings and delay the imposition of relief that would benefit consumers," the Justice Department wrote.

Even so, many observers view the plaintiff's announcement as a victory for Microsoft, although the company's status as a monopolist has been upheld by the Appeals Court.

"It's clearly a success for Microsoft, if for no other reason than the government has given up its biggest bargaining chip," says Dana Hayter, an attorney with Fenwick & West in San Francisco and former attorney with the Justice Department.

Giving up that chip does, however, mean that the case will move at a speedier pace, he says. "This can only make the case go faster," Hayter says. "It reduces the evidentiary burden on the government compared to what a structural remedy would require."

IT professionals attending the Embedded Systems Conference at the Hynes Convention Center in Boston expressed a range of reactions from resigned to questioning to surprised by the news, but the consensus among those interviewed seemed to be that Microsoft is the victor.

"This will be a continued monopoly by Microsoft," said Rich Hemmenway, who works for a large pharmaceutical company that he asked not be named. "It was predictable," he said of the Justice Department's Thursday announcement.

Attendee Bill Pilaud was caught off guard by the news. "I'm very surprised," says Pilaud, who works for a large technology vendor he asked not be identified. He says he expects no changes to come from the antitrust case and argues that "the market will still essentially be controlled by Microsoft and its partners.

"You either work with Microsoft or you don't work at all," he says.

A new U.S. District Court judge has been assigned to the next phase of the antitrust case and will decide a remedy to impose on Microsoft.

While upholding a lower court ruling that Microsoft used its monopoly in desktop operating systems to squelch competition in other markets, the Appeals Court overturned the structural and behavioral remedies imposed by District Court Judge Thomas Penfield Jackson.

Jackson's behavioral remedies largely applied to how Microsoft dealt with hardware and software vendors, including licensing restrictions the company placed on vendors. In his remedial findings Jackson banned Microsoft from bullying vendors who support competing products. He further ordered that Microsoft had to license products to original equipment manufacturers in a uniform way, with established licensing fees published on a Web site accessible to plaintiffs in the case and to OEMs.

In addition, Microsoft was forbidden from restricting how PC makers configured Windows computers they sold, and the company was ordered to open up some of its source code, application programming interfaces, communications interfaces, and technical information to ensure interoperability between industry products.

In response to the Appeals Court ruling, Microsoft has already loosened its restrictions on PC makers, although some critics argue the software maker has not gone far enough. Others contend that the government should stay out of IT issues.

"It's dangerous when people involved in legalese and corporate interest get involved in technology," says Joe Brandt, a senior scientific programming analyst at the National Radio Astronomy Observatory in Green Bank, West Virginia. "They are going to miss the boat," he says.

That sentiment echoes the view of others in the industry, some of whom have argued that Jackson should not have ordered that Microsoft be split.

Rajesh Patil is one such software developer. A senior software engineer at Mindflow, Patil works closely with Windows and Microsoft applications. He applauds the Justice Department's decision.

"Because the software understands the operating system and the operating system understands the software, it's easy for developers to write applications," he says. "They are so tightly bonded."

Although the company has avoided being split, the government still intends to push for a strong remedy that will stop Microsoft's illegal monopolist behavior, the Department of Justice insisted on Thursday.

"They need a remedy that will fix the harm that has already been done and [will] deter future harm," Hayter says.

The government plans to ask U.S. District Court Judge Colleen Kollar-Kotelly to give the plaintiffs enough time to investigate changes in the industry that have occurred since the trial concluded last year. The government wants to explore what remedies might be necessary to stop Microsoft's monopolistic behavior.

Both sides in the case are scheduled to file a joint status report with Kollar-Kotelly by September 14.

Michael Rold and Scarlet Pruitt in Boston and Stacy Cowley in New York contributed to this report.