117 Sullivan St., 5A
New York, NY 10012
January 28, 2002
Renata B. Hesse
U.S. Department of Justice
601 D Street NW
Washington, DC 20530-0001
re. Deficiencies in Microsoft settlement.
Pursuant to the Tunney Act, I am filing these
comments on the proposed resolution of United States, et al. v. Microsoft.
Experience, and Interest
I believe this case is tremendously important. As personal computers
and the Internet have become increasingly important to our everyday
lives, so too has the landscape of the technology markets become increasingly
important. Not only will the outcome of this case impact the fortunes
of a host of technology companies, but it will also affect how I and
millions of others communicate with our friends and family, what choices
we have for online services such as digital photography, and of course
how much we and businesses spend on technology infrastructure.
Once the government decided not to seek a structural remedy, it necessarily
embarked on a course of regulation. Regulation only works when the conduct
prohibitions truly restrain anti-competitive behavior, and create a
genuine opportunity for innovators to enter the market and compete in
it based on their merits. Unfortunately, the Proposed Final Judgement
(PFJ) presented by the Department of Justice and several states fails
on all counts.
Its results will be only a mild, temporary modification to Microsoft's
well-documented behavior, with no lasting or significant effect on competition.
Microsoft will retain its monopoly and every incentive to maintain it
through any means not specifically prohibited by the PFJ. Consumers
will continue to be deprived of the innovations and other benefits of
a truly competitive market, in part because innovators will be deprived
of the opportunity and incentive to challenge Microsoft's monopoly as
it expands and evolves. Most importantly, America's technology industry
will stagnate, as ever fewer competitors see any value in entering markets
dominated by Microsoft.
While I believe that many if not most Americans will be affected by
the disposition of this case, I have a particular interest in it as
a long-time technology consumer, entrepreneur, and enthusiast. Since
1980, I have used personal computers nearly every day, first as a hobby,
then for school, and later for my career in the technology industry.
In the early 1990s, I managed a small but pioneering desktop publishing
department for a large advertising agency. Later, I joined a groundbreaking
multimedia company that produced CD-ROMs for both Macintosh and Windows-based
computers. Most recently, I was a partner in a successful Internet development
firm, which designs and produces web sites and other interactive media
for corporate clients. Having sold my share of that business, I currently
consult for other companies in the technology industry.
Definitions Are Critical: the Devil Is in the Details
provisions of the PFJ depend on the definition of "Microsoft Middleware."
Accordingly, we should expect this term to be well-defined, with clear
boundaries and unquestionable meaning. Unfortunately, the reality is
that it is vaguely defined, in language that grants Microsoft itself
much control over what software it, and therefore the PFJ, governs.
According to the PFJ (PFJ VI.J), "Microsoft Middleware"
is any software which:
- is distributed separately from the operating system,
- controls the user interface of the Microsoft Middleware,
- provides substantially similar functionality as a Microsoft Middleware
- is trademarked.
gives Microsoft control. So Microsoft, which has long stated its
goal of incorporating browsing and other middleware functions into
its operating system products, can exclude code from the Microsoft
Middleware definition simply by not distributing it separately from
the operating system, or even just by not trademarking it.
Microsoft therefore will have enormous latitude in determining which
new operating system features will be governed by the PFJ.
Is Essential to Compliance and Public Confidence.
PFJ consists largely of vague prohibitions hobbled by numerous qualifiers
and exemptions. For instance:
of Microsoft Middleware.
2.1. The PFJ requires
Microsoft to enable users and OEMs to specify that Non-Microsoft Middleware
be used in place of Microsoft Middleware (PFJ, III.H.2). This is a
welcome change because it had previously been difficult to replace
Microsoft's Internet Explorer (IE) without facing "considerable
uncertainty and confusion" when IE would nonetheless unexpectedly
be invoked under certain circumstances (Findings, 171).
for Microsoft servers. Unfortunately, Microsoft is exempt from
this requirement when the Middleware Product would be invoked "solely
for use in interoperating with a server maintained by Microsoft"
(PFJ III.H). This may exempt Microsoft's current move into network
services (".NET") from the judgement, inasmuch as such
services communicate with Microsoft-owned servers. Microsoft considers
.NET to be the next phase of the Internet, at last offering 'real'
applications and services. The first .NET service, Microsoft Passport,
aims at becoming a cornerstone of Internet shopping and authentication
transactions, and stores its data exclusively on Microsoft-owned
for proprietary technologies. Another exemption allows Microsoft
to launch its own middleware when the Non-Microsoft Middleware "fails
to implement a reasonable technical requirement" (PFJ III H
3). Microsoft will be able to capitalize on this loophole simply
by emphasizing proprietary technologies not supported by Non-Microsoft
Middleware. To the extent that Microsoft can implement features
using proprietary technologies, it will better be able to exclude
Non-Microsoft Middleware. A truly pro-competitive PFJ would encourage
Microsoft to use open industry standards.
OEM Distribution Channel
Opened, But For Whom?
2.2. The PFJ requires
Microsoft to allow OEMs to customize the user's desktop by installing
icons for Non-Microsoft Middleware and other products (PFJ, III.C.1).
This is important to the PFJ because Microsoft has in the past excluded
Netscape and other competitors from the valuable OEM distribution
channel, often by contractually limiting an OEM's ability to customize
the desktop. In addition, Microsoft has used its control over the
valuable desktop real-estate as an incentive to get IAPs such as AOL
to support Microsoft Middleware instead of competing products.
lack incentive. Unfortunately, because Microsoft's Internet
Explorer is now the market leader, there is today little consumer
demand for alternatives to Microsoft Middleware. This makes it unlikely
that an OEM would see much gain, if any, in installing Non-Microsoft
Middleware. Such distribution may benefit the middleware developers,
but would not greatly benefit the OEM.
will be short-lived. This prohibition remains in effect only
for a 14-day window starting after the end user first turns on his
or her PC. Thereafter, Microsoft is free to re-arrange the desktop
as it sees fit, including automatic removal of any non-Microsoft
icons, e.g. by operating system features such as the "Clean
Desktop Wizard" built-in to Windows XP (PFJ, III.H.3). So,
any Non-Microsoft Middleware developers who do manage to secure
OEM distribution could well see their products wiped off the desktop
after a short two weeks.
results. These limitations beg the question: will any OEMs risk
irritating Microsoft for such minor benefits? If they do, will the
results truly be increased competition in the middleware market?
General Rule on Sharing
2.3. The PFJ requires
Microsoft to share APIs used by Microsoft Middleware with ISVs, et
al. (PFJ III.D). In its Findings of Fact, the District Court found
that Microsoft had repeatedly withheld such information from ISVs,
or used its disclosure as an incentive for 'friendlier' behavior,
in an effort to preserve the applications barrier to entry (Findings,
84, 90, 91). Because ISVs depend on such information to develop software
for a given platform, withholding APIs can limit or destroy an ISV's
ability to create competitive products. Therefore full API disclosure
should be considered a basic condition for any kind of effective competition.
2.3.1. Only APIs
necessary to mimic Microsoft's products will be disclosed. Unfortunately,
the PFJ requires Microsoft to share only those operating system
APIs used by Microsoft Middleware. This is a limited set of APIs,
of use only to those ISVs who want to develop middleware products
similar to Microsoft's. It does little to help ISVs offer features
or innovations not already offered by Microsoft's products. Since
ISVs typically must provide innovations to gain market share against
an entrenched market leader, this requirement is unlikely to promote
competition in the middleware market.
2.3.2. Many APIs
may be withheld on dubious 'security' grounds. The PFJ allows Microsoft
to exclude any APIs the disclosure of which "would compromise
the security of a particular installation or group of installations
of anti-piracy, anti-virus, software licensing, digital rights management,
encryption or authentication systems" (PFJ III.J.1).
- This is a surprising exemption because few security professionals
believe API disclosure could weaken any well-designed security
system. Indeed, the complete source code (a level of disclosure
far greater than simple APIs) is publicly available for several
operating systems and security-related products that are widely
considered to be more secure than Windows (e.g. the Linux operating
- Yet the inclusion of this exemption implies that there in fact
are such APIs whose disclosure could compromise security, and
thereby opens the door for Microsoft to make claims about which
ones they are. There is no basis for the Competitive Impact Statement's
("CIS") optimism that security-related exemptions will
be limited to "keys and tokens" (CIS, IV.B.5) of particular
installations. Nothing in the PFJ's language so limits the exemptable
APIs, and such entities aren't generally visible at the API level,
- With Microsoft's current push into network services (under the
.NET moniker), we can expect privacy and security features to
be suffused throughout the code, increasing the number of APIs
Microsoft will try to exempt from disclosure. Indeed, Microsoft
has just this month announced that privacy and security will henceforth
be its main priorities.
task of detecting whether Microsoft has violated these and other provisions
falls to a three-person "Technical Compliance" committee (the
"TC"). This committee will have access to the source code
and tools used to create Microsoft's products, as well as access to
the relevant Microsoft staff (PFJ IV.B.8). In theory, the TC's oversight
will prevent Microsoft from using technical strategies to camouflage
non-compliance, for instance by wrongly claiming that some important
API should not be disclosed for security reasons. While such oversight
may in fact be helpful, the TC is an inadequate, inefficient and non-transparent
attempt to ensure enforcement of a Judgement that otherwise relies on
voluntary compliance and enforces few penalties for transgressions.
3.1. Severe employment
restrictions threaten the TC's performance. The PFJ includes employment
restrictions which will dramatically narrow the pool of TC candidates-first,
to those experts not currently working for Microsoft or a competitor,
and then to those remaining candidates willing to forego any such
employment for two years after serving on the TC. In so doing, it
excludes nearly all of those experts in operating systems design and
programming whom the TC most needs, since it will be very difficult
to find any such experts not currently working for, and with no intention
of working for, Microsoft or a competitor. As a professional in this
field, I cannot imagine why a highly competent independent minded
computer scientist would wish to serve on the TC under these circumstances.
3.2. The TC will
be buried under a mountain of technical data. Even if well staffed,
the committee will have an enormously difficult task from a technical
standpoint. Inasmuch as deciphering computer source code can be difficult
even for the code's author, much less a new reader, and inasmuch as
Windows XP alone consists of some 45 million lines of code , this
committee will have an enormously difficult task. Even with a large
support staff, it is hard to imagine this committee effectively analyzing
Microsoft's source code and fully investigating allegations of non-compliance.
3.3. The TC cannot
ensure timely remedies. Further, because the committee is prohibited
from public comment (PFJ, IV.B.10), it will be unable to confirm any
ISV's suspicions about Microsoft's compliance, nor could it force
a timely remedy. Its only recourse will instead be to notify Microsoft
and the Plaintiffs and to suggest a possible remedy. Therefore, an
ISV suspecting Microsoft of non-compliance will not receive an immediate
remedy, but must instead rely on a bureaucracy whose natural tendency
will be not to pursue minor infractions. While such infractions may
indeed be minor in the scope of the overall judgement, they would
assuredly be of great importance to the ISV.
3.4. The TC's
findings may not be presented to the Court or the public. Under
the PFJ, the TC may not testify in any matter relating to the Final
Judgement, nor may its work product and recommendations be submitted
to the Court (PFJ, IV.D.4.d). Similarly, the TC is prohibited from
public comment (PFJ, IV.B.10). Thus, even if the TC's exclusive access
to source code should produce evidence of deception and non-compliance
by Microsoft, this evidence will not be presented to the Court.
- In theory, the TC will report to the Plaintiffs, who may in turn
report such non-compliance to the Court, and produce evidence of
it via other means. This may well happen in the case of massive
or severe non-compliance. However, what happens to the small ISV
who suspects Microsoft of non-compliance, e.g. by not disclosing
some necessary API? Such an injured party may report its concerns
to the TC, and then hope that the TC is able to verify its claims,
and further is able to convince the Plaintiffs to go to court on
their behalf. During this bureaucratic pursuit, the ISV's business
may suffer irreparable harm, or even vanish altogether (as has very
nearly happened to Netscape). Were such ISVs to have access to Microsoft's
source code, perhaps in a secure facility, they could investigate
such concerns themselves, directly and immediately. Indeed, API
disclosure would not be an issue in the first place.
- The point here is that the nature of the TC is as the first step
in a bureaucracy whose natural instinct will be to pursue only the
most serious transgressions. In the context of a rapidly changing
technology industry, this is a serious weakness in the PFJ.
3.5. PFJ places
enormous weight on third TC member. The PFJ proposes that the
Plaintiffs appoint one member of the TC, Microsoft appoint a second,
and then these two members themselves choose a third (PFJ IV.B.3).
This structure places enormous responsibility on the third member,
who can be expected to decide any disagreement between Microsoft's
representative and the Plaintiffs', especially in the context of the
Voluntary Dispute Resolution process in IV.D. It is unclear whether
the TC reports to the Plaintiffs only as a single unit, or whether
a dissenter's view also gets submitted to the Plaintiffs. A better
structure would at the very least make it crystal clear that any single
member of the TC may report to the Plaintiffs.
Also, creating such a fulcrum position in the TC makes this third
seat much less attractive and harder to fill, and injects an element
of politics into the TC that will distract from its technical mission
and smooth functioning. Because the TC is not a decisional body, but
simply a means to keep a watchful eye on Microsoft's compliance, it
is unclear why Microsoft should have representation here at all. All
of the TC's members should be appointed by the Plaintiffs, perhaps
with the DOJ appointing one member, the States appointing a second
member, and the Plaintiffs collectively appointing the third.
Given the enormity of the TC's tasks, the limits on its powers and
enforcement abilities, and the severe employment restrictions surrounding
service in the TC (IV.B.2), it is clear that any candidate for the
TC willing to accept the job is almost certainly too inexperienced
to be legitimately qualified for it.
Market, More is Needed.
4. In perhaps its
broadest weakness, the PFJ fails to recognize that the circumstances
of the original case were unique, and that circumstances today are very
different. The Internet's rapid public acceptance around 1994-1995 took
many established computer-industry firms by surprise, and radically
changed the personal computer market. The basic reasons users wanted
to own personal computers changed dramatically within less than two
years. Two companies in particular, Netscape and Sun Microsystems, were
able to aggressively exploit the new technologies and to take advantage
of Microsoft's slow response to the burgeoning consumer demand. As a
result, they were able to present a serious threat to the applications
barrier to entry that has long protected Microsoft's monopoly in Intel-compatible
4.1. No longer
any consumer demand for non-Microsoft Middleware. But that window
of opportunity is long closed. The Internet is an established part
of the personal computer market. Microsoft's Internet Explorer is
the dominant browser. There no longer is any great consumer demand
for alternative browsers. Netscape no longer exists as an independent
company, and development of the Netscape browser occurs at a fraction
of its former pace. Even the CIS acknowledges that Microsoft has "perhaps
extinguished altogether the process by which these two middleware
technologies [Java and the Netscape browser] could have facilitated
the introduction of competition into the market for Intel-compatible
personal computer operating systems" (CIS, III.B.3).
4.2. Cannot resuscitate
existing middleware competitors. Nothing in the PFJ can or will
restore these competitors to their former strength. There is no way
to rekindle the massive consumer demand, then left unserviced by Microsoft,
that gave these companies their initial momentum.
4.3. Hoping for
another thousand-year flood. Still, the CIS claims the PFJ will
"restore the competitive threat that middleware products posed
prior to Microsoft's unlawful undertakings" (CIS, II). Given
that Microsoft now dominates the browser market and retains its operating
systems monopoly, and given that the PFJ allows Microsoft to support
its browser market share by tying the browser to the operating system,
this claim seems to rest on the optimistic hope that some new disruptive
technology will appear, will be ignored by Microsoft, and will create
massive consumer demand for some non-Microsoft Middleware. Without
such an event, the PFJ merely establishes rules for a game that has
5. Finally, in a bizarre
and extreme limitation, the PFJ will expire in only five years-regardless
of whether or not Microsoft retains its operating systems monopoly (PFJ,
V.A). The DOJ must believe that not only is the PFJ an effective remedy,
but that it will be so effective that Microsoft will be reduced to a
shadow of its former self and must be unshackled in just five years
(seven, if the Plaintiffs seek and receive the maximum extension permitted
by the PFJ). Unfortunately, this clause is so careless that it will
release Microsoft no matter the circumstances-that is, even if Microsoft
retains or even strengthens its monopoly power. The message that the
PFJ sends is "we'll try this for five years, and then we're giving
Any judgement should remain in effect until the Court finds that Microsoft
no longer holds a monopoly in Intel-compatible operating systems. It
makes little sense to release Microsoft until competition has re-entered
the market and Microsoft may no longer commit the illegal acts described
by the Court's Findings of Fact.
This PFJ illustrates the difficulty in devising effective conduct remedies
for complex software cases such as this, especially where the defendant
retains its monopoly power and the incentive to expand and maintain
it by any method not prohibited by the PFJ. Vague technical definitions
and even apparently narrow exemptions can be exploited by the monopolist
to maintain its ill-gotten gains. It would be vastly preferable to create
the proper structural conditions for competition by decoupling parts
of the monopolist enterprise.
Without a structural remedy, it is imperative that the definitions
and prohibitions in the Final Judgement be as clear and comprehensive
as possible, so as to fully restrict the anti-competitive behavior that
has been denying consumers choice, innovation and fair market pricing.
There are a number of specific changes that ought to be made to the
- Any judgement should remain in effect until Microsoft no longer
holds a monopoly in Intel-compatible operating systems. Starting in
5 years, the Court should annually review Microsoft's position in
the Intel-compatible operating systems market. Should it find that
Microsoft no longer exercises monopoly power in that market, and therefore
cannot commit the illegal acts described in the Court's Findings of
Fact, it could release Microsoft from the terms of the judgement.
- The TC should be appointed entirely by the Plaintiffs, perhaps with
the DOJ appointing one member, the States appointing a second member,
and the Plaintiffs collectively appointing the third.
- Definitions such as that of "Microsoft Middleware" should
be tightened considerably, and the PFJ reworked to minimize its reliance
on such narrow categories.
- Microsoft should be required to make the full source-code for its
Intel-compatible operating systems available for viewing by ISVs et
al.. This will allow ISVs to better develop competitive products,
and will allow the ISVs themselves to monitor Microsoft's compliance
with the judgement's other technical requirements, instead of relying
on an inefficient, overworked TC.
- If the Court decides against requiring source-code sharing, it should
at a minimum require the disclosure of all operating system APIs used
by any Microsoft products (i.e. not just those APIs used by Microsoft
Middleware). A blanket disclosure requirement such as this will close
those existing loopholes whereby Microsoft might withhold critical
information from ISVs whose products threaten its operating system
- Exemptions permitting various proscribed behaviors under certain
circumstances should, as a whole, be stricken.
- Finally, the judgment should include real consequences for non-compliance,
such as further conduct prohibitions, financial penalties, or further
disclosure requirements. The PFJ currently provides only a possible
Court-imposed two-year extension of its rather toothless provisions.
I hope that the PFJ is modified by the DOJ or the Court, and that what
seems to be a great opportunity for antitrust law to make a difference
for tomorrow's entrepreneurs and consumers is not lost in a fog of complexity.
The technology may be complex and changing, but the underlying competitive
issues are fundamental. I take both comfort and concern from the fact
that I am clearly not alone in expressing these concerns. As the Financial
It would be wrong for the states, or the judge, to reject
this settlement merely because it is not sufficiently punitive.
The test is whether the proposal provides enough protection for
the public and for Microsoft's competitors. As it stands, it does
not meet this test. Though a continued trial would be expensive
and distracting, it would be better than an unsatisfactory settlement.
This proposal should be rejected..
(Financial Times, "Micro-too-soft", November 5, 2001)
I believe that the PFJ, if accepted by the Court in its current form,
will lead to clear and irreparable harm to consumers and to the United
States' technology industry. So pervasive has technology become that
the technology industry is an obviously critical component of the American
economy. Even BusinessWeek, itself no anti-capitalist Microsoft critic,
recognized the broad implications of the resolution of this case:
[T]he Justice Dept.'s weak censure of Microsoft for its serious
monopolistic practices could cost the U.S. mightily in the years
ahead. The great strengths of the American economy are its openness,
its competitiveness, and its innovativeness. Monopoly is the enemy
of all three.
(BusinessWeek, "Slapping Microsoft's Wrist", November
Based on my experience, I do not find the PFJ to be in the "public
interest", which is the standard that the DOJ and the Court are
subject to under the Tunney Act.
January 28, 2002