Dramatic new developments in Washington yesterday have resulted in Microsoft agreeing to delay shipping Windows 98 to PC manufacturers at least until Monday.
The Department of Justice had arranged a press conference for noon, with a coalition of state attorneys general, to announce a new antitrust action against Microsoft. Janet Reno, the US attorney general, was to have taken part, but said during her weekly press conference that "I won't comment on any aspect" of the new Microsoft case.
A brief announcement was made that the DoJ, a coalition of state attorneys general, and Microsoft were engaged in telephone discussions. "They have reached an agreement under which, while the discussions continue over the next several days, Microsoft will not ship Windows 98 and the Department of Justice and the states will not file lawsuits."
Microsoft's own announcement added that discussions had been proceeding for over a week, and that it "continues with plans for the commercial launch of Windows 98 to consumers on 25 June". The initiative for the talks came from Microsoft, following Bill Gates visit to the DoJ. Gates said that "an entire ecosystem" of the industry depended on the timely release of Windows 98.
Both sides declined to elaborate, but the large number of parties involved has resulted in some leaks. Unusually, Microsoft spokespeople are sometimes asking not to be named. One said that Microsoft is maintaining that the government should not be able to "rip features or icons out of our products".
A DoJ official said that it is only in the last two days had the talks taken on "the flavour of negotiations". Other leaks say that a settlement "was not close ... there is a lot of lifting to do".
The 20 states identified as participating in the action are California, Connecticut, Florida, Indiana, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, New York, New Mexico, South Carolina, Texas, Utah, West Virginia, Wisconsin - and the District of Columbia.
On 13 May, Dan Morales, the Texas attorney general, announced that following representations by Texan PC manufacturers, he would be studying the matter before deciding whether to participate.
However, he changed his mind the next day. Ohio is also considering joining the action. At least one official was known to be waiting to file an action at the US federal courthouse, if instructed to do so. Any settlement would have to be approved by the DoJ and the states involved. A dissenting voice came from Senator Slade Gorton from Washington, Microsoft's home state, that "consumers aren't complaining, [Microsoft] competitors are".
It is not clear if there would be several cases - one by the DoJ and one or more by the states - and how they would link together, but there does appear to have been close collaboration between the DoJ and the states.
The DoJ would like it to be possible for PC manufacturers to substitute icons from other software developers. Until Judge Jackson's order in December, Microsoft had insisted in its contracts with PC manufacturers that they must keep the Internet Explorer icon on the desktop.
Compaq and other manufacturers had wanted to offer Netscape's Navigator on some models, as correspondence (disclosed by the DoJ during the present antitrust case) between Compaq and Microsoft showed.
Microsoft was able to insist that the IE icon remained, and so Compaq and others had to back down - or not be abe to license Windows 95. This is called tying, and was made illegal under the consent decree that Microsoft signed in July 1994, although Microsoft disputes this interpretation.
Even after Judge Jackson's December order, allowing PC manufacturers to distribute Windows 95 without IE and with Netscape Navigator, Microsoft's control of Windows pricing to manufacturers made it impracticable to offer an alternative in most cases, so none took up the possibility.
A likely outcome, if there is a settlement, is that PC manufacturers will get to have more control of the appearance of the Windows desktop. This is seen to be of importance because most users do not change the initial screens they see, and are therefore subject to Microsoft controlled advertising.
It also makes it difficult or impossible for other software developers to get their icons on the initial screen automatically. It is also possible that Microsoft's initial splash screen would be replaced by advertisements.
The indications so far are that the DoJ and the coalition of states may not have developed a sufficiently fundamental case against Microsoft to ensure future competition in the applications market. There has been no mention of breaking up Microsoft into operating system and applications companies, in a similar way to the break up of Standard Oil and AT&T.
It is likely that Microsoft would very strongly resist such a move. A more effective measure would be for the court to declare Windows to be an "essential facility", available to all on fair terms, and with the source code put in the public domain.
By apparently just trying to free a few further features of the desktop, it is probable that technical developments would again obsolete the value of any legal relief that Microsoft is willing to concede to stop the threatened action.
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