Judge to Microsoft: Knock it off

Federal U.S. District Judge Thomas Jackson late Thursday ordered Microsoft Corp. to "cease and desist" the practice of requiring PC manufacturers wanting to license its Windows 95 operating system to also preinstall the company's Internet Explorer Web browser.

Judge Jackson also appointed a "special master" to take additional evidence in the antitrust case brought against the software giant by the U.S. Department of Justice (DOJ) on Oct. 20. The judge ordered the appointee, Harvard Professor Lawrence Lessig, to report back by May 31.

However, Jackson did not hold Microsoft in contempt of court, denying the DOJ's request to impose fines on the company of $1 million a day.

"The government has not clearly convinced the court that Microsoft violated a clear and unambiguous provision of the consent decree. Accordingly, the court declines to hold Microsoft in civil contempt of the Final Judgment," Judge Jackson wrote in his 19-page ruling.

In a statement, Microsoft hailed this portion of Jackson's ruling.

The company "is gratified that Judge Jackson denied the Justice Departments petition for an order holding the company in contempt of court for allegedly violating the consent decree. The Court has agreed with Microsoft that discovery and further proceedings are necessary before any final decision can be issued."

Although the government has not proved its case, Judge Jackson wrote, "it does not necessarily follow that Microsoft's licensing practices are, in fact, in compliance with the terms of the Final Judgment." Microsoft's interpretation is "plausible," but not necessarily "correct," the Judge wrote.

"The ultimate question for the court - whether Microsoft is actually violating [the consent decree] remains to be decided," Jackson said.

The DOJ had charged that Microsoft, based in Redmond, Washington, violated a 1995 court order obtained by the U.S. government barring Microsoft from conducting anti-competitive licensing practices.

"Our main concern is that by violating the court order, Microsoft is using unlawful advantage to beat back an important competitive challenge to its Windows monopoly," said Assistant Attorney General Joel Klein in October of this year.

The 1995 consent decree resolved a DOJ complaint that Microsoft was engaging in anti-competitive practices by making manufacturers - in order to obtain favorable, volume licensing conditions - pay for copies of Windows according to the number of PCs they shipped, even if some of the PCs did not have Windows on them.

But Judge Jackson wrote that "Microsoft has demonstrated, at the very least, the ambiguity of the term 'integrated product.' Microsoft... has provided a reasonable explanation for its understanding that the consent decree did not preclude Microsoft's insistence that OEMs accept IE as part of Windows 95," Jackson wrote.

Microsoft spokesman Adam Sohn said today's ruling is a "balanced decision" and that the company was gratified with several of the ruling's key points. Specifically, Sohn said, Microsoft is pleased that Jackson rejected the DOJ's petition to hold the company in contempt of court for violating the 1995 consent decree.

At least one analyst agreed that the decision is a balanced one.

"It's hard to see that it came down on one side or the other. The Justice Department's inability to get the fine levied is the most embarrassing part of this for them," said Rob Enderle, analyst at Giga Information Group Inc. in Santa Clara, California.

Enderle said the ruling as it stands will have "minimal" impact on Microsoft. Had the company been prevented a year ago from compelling OEMs to preinstall Internet Explorer, when the browser software was less well known, then such a ruling might have affected IE's popularity, Enderle said.

But today most computer manufacturers are inclined to install Microsoft's Internet Explorer anyway, particularly given the recent experience of Compaq Computer Corp., which ran into production problems when it tried to install its own, customized version of Internet Explorer on PCs it was shipping, Enderle said.

The judge's ruling indicates that he may not be as amenable to Microsoft's arguments as the software giant would have liked. Microsoft has argued that a number of its applications -- lately even its word processing software MS Word -- could be considered an integral part of the operating system, because such applications have comprised a fundamental part of the OS's functionality from the beginning, Giga's Enderle said. "Clearly the judge isn't going to agree with that," Enderle said. Today's ruling could indicate that when Microsoft ships Windows 98, it won't be able to use the same allegedly coercive tactics it is accused of employing today, he added.

Microsoft's Sohn said the company is pleased that the judge also rejected the DOJ's claims that Microsoft's Non Disclosure Agreements deter PC makers from coming forward to assist the DOJ in its investigation.

"We [Microsoft] look forward to presenting our case," Sohn said. Once all the facts have been reviewed it will be clear that Microsoft is complying fully with the 1995 consent decree and that integration of Windows and IE is good for consumers, Sohn said.

The DOJ had no comment, but said it would hold a late night press conference in Washington, D.C., today.