DOJ, Microsoft Settle Antitrust Suit

The U.S. Department of Justice (DOJ) and Microsoft Corp. Friday agreed to settle the ongoing antitrust suit that
has hounded the software titan for three years. The settlement imposes an independent panel to monitor the company’s practices, but
requires few changes to its business model.

The DOJ said that the settlement, “imposes a broad range of restrictions that 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.”

Microsoft Chairman and Chief Software Architect Bill Gates added, “The settlement is fair and reasonable and, most important, is in
the best interests of consumers and the economy. While this settlement imposes some very tough rules and restrictions on our
business, we believe that resolving this case now is the right thing to do for our customers, for the entire technology industry,
and for the economy.”

The DOJ filed the settlement agreement with U.S. District Judge Colleen Kollar-Kotelly Friday. The department said the settlement is
modeled on the conduct provisions from the Final Judgment entered by Judge Thomas Penfield Jackson, though it does not call on a
break up of the company. The DOJ said it also made a number of “key additions and modifications that take into account the current
and anticipated changes in the computer industry, including the launch of Microsoft’s new Windows XP operating system, and the Court
of Appeals decision revising some of the original liability findings.”

The settlement does not prevent Microsoft from tying software like its Web browser, e-mail client and media player with its
operating system — initially an issue that was a cornerstone of the government’s case against Microsoft. However, the settlement
broadly defines middleware, including browsers, e-mail clients, media players, instant messaging software and future middleware
developments. It goes on to require the company to provide software developers with the APIs used by Microsoft’s middleware to
interoperate with its operating systems, allowing developers to create competing products that can utilize the integrated functions
Microsoft includes in its own middleware. It also gives computer manufacturers and consumers the freedom to substitute competing
middleware software on Microsoft’s operating systems.

The agreement also prohibits Microsoft from retaliating against any PC manufacturers or software makers for supporting or developing
competing software. Additionally, it requires the company to license its operating systems to PC manufacturers on uniform terms for
five years. It also bans Microsoft from entering into exclusive agreements.

Microsoft also agreed to ensure that non-Microsoft server software can interoperate with Windows on a PC the same way that Microsoft
servers do.

Finally, the settlement includes a provision for a panel of three independent monitors, which will work from Microsoft campuses and
have full access to the company’s books, records, systems (including source code), and personnel for five years. The court will have
the option to extend that period for another two years if it finds that Microsoft violates the settlement.

But while the federal government has settled its grievances with the company, the 18 states which have been pursuing the case
together with the federal government have not yet signed off on the deal. Led by hard line holdouts Iowa, Connecticut, Wisconsin,
California, Ohio and Kansas, the states have asked U.S. District Judge Colleen Kollar-Kotelly for permission to review the
settlement agreement until Thursday before making a decision. Some consider the settlement’s provisions too lenient on a company
which has been branded a monopolist.

If the states decide to balk at the settlement, they may choose to raise objections when the judge reviews the settlement under the
Tunney Act. They may also choose to pursue the case independently.

“We would expect to see the states argue for tougher action, but it is unclear how this might play out,” Goldman Sachs & Co. analyst
Rick Sherlund said Thursday as tentative details of the plan became available. “It is certainly a positive for Microsoft to have the
DOJ move on and argue to the judge that they have reached a satisfactory agreement.”

Sherlund added, “If the states (who prevented a settlement earlier this year) resist, the DOJ could proceed independently and the
federal judge could accept the settlement, irrespective of the states’ views. The states would need to try to block the settlement
under the Tunney Act Review, arguing that the judge did not reach a fair remedy in the consent decrees, which might be difficult to
prevail on. Bottom line, good news for Microsoft. Buy.”

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