Settlements have been reached or proposed in six class-action antitrust lawsuits, continuing Microsoft's recent drive to settle private antitrust cases. Nonetheless, the company's antitrust woes will continue for some time: the European Union (EU) is conducting hearings in preparation for reaching a verdict on its investigation into certain of Microsoft's business practices, and the company's settlement with the U.S. Department of Justice (DoJ) is being questioned by the judge in the case and appealed by the state of Massachusetts.

Class-Action Suits Winding Up

Ever since Apr. 2000, when a U.S. district court ruled that Microsoft had a monopoly in desktop OSs, the company has faced a spate of private antitrust lawsuits brought by consumers who alleged the company overcharged them for Windows and certain applications. In Oct. and Nov. 2003, Microsoft announced that three of these class-action suits, brought by consumers in the District of Columbia (D.C.), North Carolina, and Kansas, have been settled. In addition, three tentative settlements have been reached for suits in North Dakota, South Dakota, and Tennessee. (These settlements must still be approved by the presiding judges.)

The settlements, which will cost Microsoft about US$200 million, employ a familiar template: the company will offer vouchers, redeemable for hardware, software, or peripherals from Microsoft or other companies, to consumers who purchased desktop versions of Windows, the Office suite, or Word or Excel as stand-alone applications, during a certain time period (which varies among settlements). After the deadline to claim such vouchers passes, half of the amount of the unclaimed vouchers will be donated to school districts in each state; Microsoft will retain the other half of the value of the unclaimed vouchers.

Microsoft has now paid more than US$1.5 billion to settle class-action suits brought by consumers in 10 cases, plus close to another US$1 billion to settle with private litigants such as AOL—an amount equal to about 25% of the company's expected annual profits for this year. Nonetheless, the ongoing distraction and negative publicity from such cases makes it worth paying this amount to end them, in Microsoft's view.

Microsoft continues to face class-action suits in five other states, as well as a federal antitrust lawsuit brought by plaintiffs Burst.com and Sun Microsystems.

EU, DoJ Troubles Continue

Even as it strives to settle private antitrust lawsuits, Microsoft continues to face antitrust scrutiny from governmental agencies.

European case heating up. The European Commission (EC), which enforces antitrust laws for the EU, began conducting a three-day closed hearing on Nov. 12. The hearing caps a four-year investigation and is Microsoft's last chance to defend itself before the EC reaches a decision about penalties—expected by June 2004. (The company could appeal the decision to the EU's Court of First Instance.) The EC has strongly hinted that it might force the company to make information about certain communications protocols more easily available and to unbundle the Windows Media Player from Windows XP or include a competitor's media player with the OS. The EC could also fine Microsoft up to 10% of its annual revenues and may be considering other injunctions against Windows XP.

In addition, in Oct. 2003, the EC sent letters to some OEMs inquiring about Microsoft's licensing terms for certain products (presumably desktop versions of Windows) and confirmed that it may launch a new investigation on this subject.

DoJ settlement terms questioned. In an Oct. 2003 hearing, Judge Colleen Kollar-Kotelly, who oversaw Microsoft's antitrust settlements with the DoJ and 17 states, expressed concern that not enough companies are participating in a program that allows them to license protocols used by Windows PCs and other devices to communicate and interoperate with Windows servers. As of press time, only nine companies had licensed the protocols since the Microsoft Communications Protocol Program (MCPP) was initiated in Sept. 2002, even though Microsoft has twice changed the terms of the program to address objections from the DoJ and would-be participants. The judge scheduled another oversight hearing for Jan. 2004 and urged government investigators to interview companies that had turned down the chance to license these protocols to find out whether they were put off by the terms. (For more information on the MCPP, see members.microsoft.com/consent/info/.)

Massachusetts, trade groups appeal. Hearings have begun in the state of Massachusetts' appeal of the DoJ-Microsoft settlement. In a Nov. 2003 hearing before a six-judge en banc panel of the U.S. Court of Appeals for the D.C. Circuit, Massachusetts claimed that the settlement does not serve the public interest because it does not do enough to prevent Microsoft from extending its OS monopoly into other markets. Two trade groups, the Computer & Communications Industry Association (CCIA) and the Software & Information Industry Association (SIIA), both of which include Microsoft competitors, are also appealing for status as "intervenors" in the case; both groups oppose the settlement.

Appeals courts seldom overturn verdicts for being too lenient on a defendant, nor are they prone to throw out settlements that have been signed by most of the parties in a case and approved as meeting the public interest—conditions which are all true in this case. Nonetheless, the judges appeared to be considering Massachusetts' case more carefully than some onlookers expected, with one judge, A. Raymond Randolph, questioning whether the settlement did anything to restore the status quo that existed before Microsoft's illegal activities, and another, David Tatel, saying that he "may agree" that the settlement isn't tough enough.

Overall, these developments illustrate an important point: now that Microsoft has legally been found to have a monopoly in the desktop OS market, antitrust litigation will always be a source of concern. Even if the company reaches settlements in individual cases, it must deal with government investigations and oversight committees and could face future government-sponsored litigation if current settlements are found to be ineffective.