November 5, 2001 Letter from Ralph Nader and James Love to
Judge Colleen Kollar-Kotelly regarding the USDOJ/Microsoft
proposed settlement
Ralph Nader
P.O. Box 19312
Washington, DC 20036
James Love
Consumer Project on Technology
P.O. Box 19367
Washington, DC 20036
November 5, 2001
Judge Colleen Kollar-Kotelly
United States District Court for the District of Columbia
333 Constitution Avenue, NW
Washington, DC 20001
RE: US v. Microsoft proposed final order
Dear Judge Kollar-Kotelly,
Introduction
Having examined the proposed consent final judgment for USA
versus Microsoft, we offer the following initial comments.
We note at the outset that the decision to push for a rapid
negotiation appears to have placed the Department of Justice
at a disadvantage, given Microsoft's apparently willingness
to let this matter drag on for years, through different
USDOJ antitrust chiefs, Presidents and judges. The proposal
is obviously limited in terms of effectiveness by the desire
to obtain a final order that is agreeable to Microsoft.
We are disappointed of course that the court has moved away
from a structural remedy, which we believe would require
less dependence upon future enforcement efforts and good
faith by Microsoft, and which would jump start a more
competitive market for applications. Within the limits of a
conduct-only remedy, we make the following observations.
On the positive side, we find the proposed final order
addresses important areas where Microsoft has abused its
monopoly power, particularly in terms of its OEM licensing
practices and on the issue of using interoperability as a
weapon against consumers of non-Microsoft products. There
are, however, important areas where the interoperability
remedies should be stronger. For example, there is a need
to have broader disclosure of file formats for popular
office productivity and multimedia applications. Moreover,
where Microsoft appears be given broad discretion to deploy
intellectual property claims to avoid opening up its
monopoly operating system where it will be needed the most,
in terms of new interfaces and technologies. Moreover, the
agreement appears to give Microsoft too many opportunities
to undermine the free software movement.
We also find the agreement wanting in several other areas.
It is astonishing that the agreement fails to provide any
penalty for Microsoft's past misdeeds, creating both the
sense that Microsoft is escaping punishment because of its
extraordinary political and economic power, and undermining
the value of antitrust penalties as a deterrent. Second,
the agreement does not adequately address the concerns about
Microsoft's failure to abide by the spirit or the letter of
previous agreements, offering a weak oversight regime that
suffers in several specific areas. Indeed, the proposed
alternative dispute resolution for compliance with the
agreement embraces many of the worst features of such
systems, operating in secrecy, lacking independence, and
open to undue influence from Microsoft.
OEM Licensing Remedies
We were pleased that the proposed final order provides for
non-discriminatory licensing of Windows to OEMs, and that
these remedies include multiple boot PCs, substitution of
non-Microsoft middleware, changes in the management of
visible icons and other issues. These remedies would have
been more effective if they would have been extended to
Microsoft Office, the other key component of Microsoft's
monopoly power in the PC client software market, and if they
permitted the removal of Microsoft products. But
nonetheless, they are pro-competitive, and do represent real
benefits to consumers.
Interoperability Remedies
Microsoft regularly punishes consumers who buy non-Microsoft
products, or who fail to upgrade and repurchase newer
versions of Microsoft products, by designing Microsoft
Windows or Office products to be incompatible or non-
interoperable with competitor software, or even older
versions of its own software. It is therefore good that
the proposed final order would require Microsoft to address
a wide range of interoperability remedies, including for
example the disclosures of APIs for Windows and Microsoft
middleware products, non-discriminatory access to
communications protocols used for services, and non-
discriminatory licensing of certain intellectual property
rights for Microsoft middleware products. There are,
however, many areas where these remedies may be limited by
Microsoft, and as is indicated by the record in this case,
Microsoft can and does take advantage of any loopholes in
contracts to create barriers to competition and enhance and
extend its monopoly power.
Special Concerns for Free Software Movement
The provisions in J.1 and J.2. appear to give Microsoft too
much flexibility in withholding information on security
grounds, and to provide Microsoft with the power to set
unrealistic burdens on a rival's legitimate rights to obtain
interoperability data. More generally, the provisions in
D. regarding the sharing of technical information permit
Microsoft to choose secrecy and limited disclosures over
more openness. In particular, these clauses and others in
the agreement do not reflect an appreciation for the
importance of new software development models, including
those "open source" or "free" software development models
which are now widely recognized as providing an important
safeguard against Microsoft monopoly power, and upon which
the Internet depends.
The overall acceptance of Microsoft's limits on the sharing
of technical information to the broader public is an
important and in our view core flaw in the proposed
agreement. The agreement should require that this
information be as freely available as possible, with a high
burden on Microsoft to justify secrecy. Indeed, there is
ample evidence that Microsoft is focused on strategies to
cripple the free software movement, which it publicly
considers an important competitive threat. This is
particularly true for software developed under the GNU
Public License (GPL), which is used in GNU/Linux, the most
important rival to Microsoft in the server market.
Consider, for example, comments earlier this year by
Microsoft executive Jim Allchin:
http://news.cnet.com/news/0-1003-200-4833927.html
"Microsoft exec calls open source a threat to
innovation," Bloomberg News, February 15, 2001,
11:00 a.m. PT
One of Microsoft's high-level executives says that
freely distributed software code such as Linux
could stifle innovation and that legislators need
to understand the threat.
The result will be the demise of both intellectual
property rights and the incentive to spend on
research and development, Microsoft Windows
operating-system chief Jim Allchin said this week.
Microsoft has told U.S. lawmakers of its concern
while discussing protection of intellectual
property rights . . .
''Open source is an intellectual-property
destroyer,'' Allchin said. ''I can't imagine
something that could be worse than this for the
software business and the intellectual-property
business.'' . . .
In a June 1, 2001 interview with the Chicago Sun Times,
Microsoft CEO Steve Ballmer again complained about the
GNU/Linux business model, saying "Linux is a cancer that
attaches itself in an intellectual property sense to
everything it touches. That's the way that the license
works,"1 leading to a round of new stories, including for
example this account in CNET.Com:
http://news.cnet.com/news/0-1003-200-6291224.html
"Why Microsoft is wary of open source: Joe Wilcox
and Stephen Shankland in CNET.com, June 18, 2001.
There's more to Microsoft's recent attacks on the
open-source movement than mere rhetoric: Linux's
popularity could hinder the software giant in its
quest to gain control of a server market that's
crucial to its long-term goals
Recent public statements by Microsoft executives
have cast Linux and the open-source philosophy
that underlies it as, at the minimum, bad for
competition, and, at worst, a "cancer" to
everything it touches.
Behind the war of words, analysts say, is evidence
that Microsoft is increasingly concerned about
Linux and its growing popularity. The Unix-like
operating system "has clearly emerged as the
spoiler that will prevent Microsoft from achieving
a dominant position" in the worldwide server
operating-system market, IDC analyst Al Gillen
concludes in a forthcoming report.
. . . While Linux hasn't displaced Windows, it has
made serious inroads. . . ]. . In attacking Linux
and open source, Microsoft finds itself competing
"not against another company, but against a
grassroots movement," said Paul Dain, director of
application development at Emeryville, Calif.-
based Wirestone, a technology services company.
. . . Microsoft has also criticized the General
Public License (GPL) that governs the heart of
Linux. Under this license, changes to the Linux
core, or kernel, must also be governed by the GPL.
The license means that if a company changes the
kernel, it must publish the changes and can't keep
them proprietary if it plans to distribute the
code externally. . .
Microsoft's open-source attacks come at a time
when the company has been putting the pricing
squeeze on customers. In early May, Microsoft
revamped software licensing, raising upgrades
between 33 percent and 107 percent, according to
Gartner. A large percentage of Microsoft business
customers could in fact be compelled to upgrade to
Office XP before Oct. 1 or pay a heftier purchase
price later on.
The action "will encourage--'force' may be a more
accurate term--customers to upgrade much sooner
than they had otherwise planned," Gillen noted in
the IDC report. "Once the honeymoon period runs
out in October 2001, the only way to 'upgrade'
from a product that is not considered to be
current technology is to buy a brand-new full
license.'"
This could make open-source Linux's GPL more
attractive to some customers feeling trapped by
the price hike, Gillen said. "Offering this form
of 'upgrade protection' may motivate some users to
seriously consider alternatives to Microsoft
technology." . . .
What is surprising is that the US Department of Justice
allowed Microsoft to place so many provisions in the
agreement that can be used to undermine the free software
movement. Note for example that under J.1 and J.2 of the
proposed final order, Microsoft can withhold technical
information from third parties on the grounds that Microsoft
does not certify the "authenticity and viability of its
business," while at the same time it is describing the
licensing system for Linux as a "cancer" that threatens the
demise of both the intellectual property rights system and
the future of research and development.
The agreement provides Microsoft with a rich set of
strategies to undermine the development of free software,
which depends upon the free sharing of technical information
with the general public, taking advantage of the collective
intelligence of users of software, who share ideas on
improvements in the code. If Microsoft can tightly control
access to technical information under a court approved plan,
or charge fees, and use its monopoly power over the client
space to migrate users to proprietary interfaces, it will
harm the development of key alternatives, and lead to a less
contestable and less competitive platform, with more
consumer lock-in, and more consumer harm, as Microsoft
continues to hike up its prices for its monopoly products.
Problems with the term and the enforcement mechanism
Another core concern with the proposed final order concerns
the term of the agreement and the enforcement mechanisms.
We believe a five-to-seven year term is artificially brief,
considering that this case has already been litigated in one
form or another since 1994, and the fact that Microsoft's
dominance in the client OS market is stronger today than it
has ever been, and it has yet to face a significant
competitive threat in the client OS market. An artificial
end will give Microsoft yet another incentive to delay,
meeting each new problem with an endless round of evasions
and creative methods of circumventing the pro-competitive
aspects of the agreement. Only if Microsoft believes it
will have to come to terms with its obligations will it
modify its strategy of anticompetitive abuses.
Even within the brief period of the term of the agreement,
Microsoft has too much room to co-opt the enforcement
effort. Microsoft, despite having been found to be a law
breaker by the courts, is given the right to select one
member of the three members of the Technical Committee, who
in turn gets a voice in selecting the third member. The
committee is gagged, and sworn to secrecy, denying the
public any information on Microsoft's compliance with the
agreement, and will be paid by Microsoft, working inside
Microsoft's headquarters. The public won't know if this
committee spends its time playing golf with Microsoft
executives, or investigating Microsoft's anticompetitive
activities. Its ability to interview Microsoft employees
will be extremely limited by the provisions that give
Microsoft the opportunity to insist on having its lawyers
present. One would be hard pressed to imagine an
enforcement mechanism that would do less to make Microsoft
accountable, which is probably why Microsoft has accepted
its terms of reference.
In its 1984 agreement with the European Commission, IBM was
required to affirmatively resolve compatibility issues
raised by its competitors, and the EC staff had annual
meetings with IBM to review its progress in resolve
disputes. The EC reserved the right to revisit its
enforcement action on IBM if it was not satisfied with IBM's
conduct.
The court could require that the Department of Justice
itself or some truly independent parties appoint the members
of the TC, and give the TC real investigative powers, take
them off Microsoft's payroll, and give them staff and the
authority to inform the public of progress in resolving
compliance problems, including for example an annual report
that could include information on past complaints, as well
as suggestions for modifications of the order that may be
warranted by Microsoft's conduct. The TC could be given
real enforcement powers, such as the power to levy fines on
Microsoft. The level of fines that would serve as a
deterrent for cash rich Microsoft would be difficult to
fathom, but one might make these fines deter more by
directing the money to be paid into trust funds that would
fund the development of free software, an endeavor that
Microsoft has indicated it strongly opposes as a threat to
its own monopoly. This would give Microsoft a much greater
incentive to abide by the agreement.
Failure to address Ill Gotten Gains
Completely missing from the proposed final order is anything
that would make Microsoft pay for its past misdeeds, and
this is an omission that must be remedied. Microsoft is
hardly a first time offender, and has never shown remorse
for its conduct, choosing instead to repeatedly attack the
motives and character of officers of the government and
members of the judiciary.
Microsoft has profited richly from the maintenance of its
monopoly. On September 30, 2001, Microsoft reported cash
and short-term investments of $36.2 billion, up from $31.6
billion the previous quarter -- an accumulation of more than
$1.5 billion per month.
It is astounding that Microsoft would face only a "sin no
more" edict from a court, after its long and tortured
history of evasion of antitrust enforcement and its
extraordinary embrace of anticompetitive practices --
practices recognized as illegal by all members of the DC
Circuit court. The court has a wide range of options that
would address the most egregious of Microsoft's past
misdeeds. For example, even if the court decided to forgo
the break-up of the Windows and Office parts of the company,
it could require more targeted divestitures, such as
divestitures of its browser technology and media player
technologies, denying Microsoft the fruits of its illegal
conduct, and it could require affirmative support for rival
middleware products that it illegally acted to sabotage.
Instead the proposed order permits Microsoft to consolidate
the benefits from past misdeeds, while preparing for a weak
oversight body tasked with monitoring future misdeeds only.
What kind of a signal does this send to the public and to
other large corporate law breakers? That economic crimes
pay!
Please consider these and other criticisms of the settlement
proposal, and avoid if possible yet another weak ending to a
Microsoft antitrust case. Better to send this unchastened
monopoly juggernaut a sterner message.
Sincerely,
Ralph Nader James Love
Cc: Stanley Sporkin, Judge Thomas Penfield Jackson, Anne K.
Bingaman, Joel I. Klein
_______________________________
1 http://www.suntimes.com/output/tech/cst-fin-micro01.html
"Microsoft CEO takes launch break with the Sun-Times,"
Chicago Sun Times, June 1, 2001.