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Friday, 2 November, 2001, 14:30 GMT
Q&A: The Microsoft deal
Bill Gates with Microsoft Windows
Bill Gates says Microsoft is good for consumers
The three-year court battle between US software giant Microsoft and the US government, with the support of 18 US states, appears to be drawing to a close. The two sides have agreed an out-of-court settlement, but the deal has not been sealed yet. BBC News Online looks at the issues surrounding the case.

What happened on Friday?

A US district court judge gave Microsoft and the US Department of Justice until Friday to reach an out-of-court settlement of their dispute over anti-trust issues.

The two sides say they have now reached an agreement. It wrings some concessions from Microsoft but stops well short of a break-up of the company - which would have been the worst case scenario for the software giant.

The settlement still has to be approved by district court judge Colleen Kollar-Kotelly, and the 18 US states and the District of Columbia that had joined the Justice Department in the law suit.

The states have until Tuesday to give their approval.

If the judge and all states are satisfied with the deal, the dispute between Microsoft and the Department of Justice will, to all intents and purposes, be over.

If the judge is not satisfied with it, new hearings could still be initiated to determine how Microsoft can be reined in.

But this is viewed as unlikely.

What are the terms of the settlement?

Microsoft has agreed to a raft of restrictions, including a panel of independent monitors to oversee its conduct and review its accounts.

Crucially, Microsoft will be obliged to provide rival software firms with information to allow them to develop competing products, and ensure those products work with the Windows operating system.

The restrictions "will stop Microsoft's unlawful conduct, prevent recurrence of similar conduct in the future and restore competition in the software market, achieving prompt, effective and certain relief for consumers and businesses," the Department of Justice said.

So who won?

Microsoft has successfully challenged the idea that it should be broken up into two separate companies.

Although it has been forced to make some concessions, many observers are saying the company has escaped relatively lightly - at least when compared with the sentence passed in the first round of the trial.

Some critics charge that not enough has been done to stop Microsoft bundling software applications into Windows and that the level of disclosure required from Microsoft is modest.

What was Microsoft accused of doing wrong?

The US Department of Justice alleged that Microsoft had used its domination of the operating system market to restrict competition.

Microsoft licensed its operating system more cheaply to computer makers such as Dell and Compaq, if they exclusively installed its software.

Practices banned by US antitrust law
Monopolies "in restraint of trade"
"Predatory pricing" at below cost to drive out competitors
"Price-fixing", an agreement among several competitors to fix prices or restrict output

When IBM refused to drop sales of its own rival operating system and software packages, it lost millions of dollars worth of sales by not receiving the crucial details of Windows 95 until 15 minutes before it launched. Other PC makers had computers with it installed and ready to ship.

But the key element involved the way in which Microsoft forced its Internet Explorer (IE) browser to leadership in a market that had been dominated by Netscape's Navigator.

The trial heard that Microsoft not only gave away IE but also "bundled" it into its Windows operating system, forcing manufacturers to pre-load it on to their computers.

Even if users wanted to use Navigator instead, the trial heard that its performance was not as quick, and that IE would be triggered as the default browser for a variety of functions.

Microsoft also encouraged Apple to pre-install Internet Explorer on its PCs, even though it used a different operating system.

Microsoft swiftly succeeded in winning a half share in the browser market, and now dominates it.

It was also alleged to have introduced a modified version of the Java computer language, developed by Sun Microsystems, which runs only on Microsoft's operating system. Java had been designed to be a language which could run all operating systems - something Microsoft did not want.

What had been Microsoft's defence?

It said it faced a great deal of competition and that its actions reflected that fact.

The consumer also gained from its actions as they received a free internet browser, when previously Navigator had been charged for.

The growth of the internet, and mergers between rivals such as AOL and Netscape (and now Time Warner) meant Microsoft did not have a monopoly position, it said.

What did the district judge in the first trial say?

Judge Thomas Penfield Jackson ordered that Microsoft be split in two for abusing its dominant market position. He said the action was needed to ensure that the company did not operate as a monopoly.

He also ordered Microsoft to modify its conduct to give its competitors a better chance of selling their own software.

Under this scenario, the company was to have been split into two separate businesses. One of the businesses would market and produce Windows and the other would handle Microsoft Office and other applications software, along with the IE web browser.

Judge Jackson had already ruled that Microsoft had broken anti-trust laws, abusing its dominant position in the computer operating system market.

Microsoft's business had been thought likely to be severely restricted by the court's remedies, which were designed to ensure that other companies could compete more effectively with the software giant.

The court ordered Microsoft to modify its behaviour in the following areas.

  • Give computer makers more flexibility in configuring their systems and in selling and promoting non-Microsoft software
  • Release technical information at the same time and equally to other software vendors as it does to its own personnel
  • Charge a uniform price for the Windows operating system to the top 20 computer makers
  • And to charge the same price for past supported versions of Windows as it does for the most current version of the operating system

Tell me more about Microsoft!

Microsoft is one of the world's largest companies by market value.

It provides the operating system for about 80% of the world's personal computers.

An operating system is the basic programme which, when loaded into a computer, makes it work.

Any software, such as games or Word, needs to be compatible with the operating system for it to work.

As well as producing the operating system which runs the vast majority of the world's PCs the company also produces a range of software products, such as Word and Excel which run smoothly on its operating system.

Apple's Steve Jobs
Apple was encouraged to pre-install Internet Explorer

Because its operating system is so dominant, companies or individuals writing software have tended to write for its system rather than for rivals such as Apple.

The trial judge pointed out that this dominance grows in turn with more people then choosing a Microsoft operating system because there are many times more software products on the market for it.

This dominance also feeds through to PC manufacturers who decide to install the Microsoft operating system in their products, because they know that it is likely to be the best seller.

The settlement

Appeal court ruling

Appeal hearing

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