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With Attorney General Janet Reno and
Assistant Attorney General Anne Bingaman
Regarding the Microsoft Settlement
Saturday, July 16, 1994
(Transcribed from a provided audiotape.)

3The Justice Department has charged Microsoft, the
4world's largest software company, with using unfair
5marketing and contracting practices to choke off competition
6to preserve its monopoly position. Microsoft has agreed,
7yesterday, to settle the charges with a consent decree that
8will prohibit the company from continuing to engage in
9monopolistic practices in the future.
10While the company fairly and lawfully climbed to
11the top of the industry ladder, it used unfair and illegal
12practices to maintain its dominant position, and kept honest
13competition from other U.S. companies.
14The Justice Department has taken an action that
15is critical to the personal computer industry and the
16efforts to make it competitive. This settlement will save
17consumers money, enable them to have a choice when selecting
18PC operating systems, and it will stimulate innovation in
19this critical market.
20Today's settlement is the result of close
21coordination between the Department of Justice and the
22Competition Enforcement Authorities of the European
23Commission, which, today, also has indicated an undertaking
24containing essentially the same terms.
25This complaint and settlement marks the first

1coordinated effort of the two enforcement bodies in
2initiating and settling an antitrust enforcement action.
3I want to thank and to recognize Anne Bingaman and
4the fine staff of the Antitrust Division, who have worked
5through long hours of negotiations to resolve quickly this
6significant case, and achieve the best results for the
7consumers of America.
8And now I would like to ask Anne --
9MS. BINGAMAN: Thank you.
10We are proud of the achievement that the
11settlement filed in Federal District Court in Washington,
12the District of Columbia, at 9:30 last night represents.
13It is a significant -- in fact, historic -- breakthrough for
14the software industry, for innovation, for the
15competitiveness of the American economy.
16Let me describe for you briefly what the case we
17filed is about and what the settlement achieves, because
18they are significant.
19Number one, the settlement will open the playing
20field; it will level the playing field for Microsoft's
21competitors in the operating system software market, to
22enter this important market, to bring down prices to
23consumers, to innovate, to produce better products.
24Microsoft, for years, and has today, monopoly
25power in the software -- operating system software market.

1As this chart shows, Microsoft has 79-plus percent of that
2market. Its competitors are other American companies who
3have been struggling for years to enter this market to
4provide better, cheaper products to American consumers, and
5Microsoft's contracting practices, which are challenged in
6this lawsuit and which are ended by the settlement we
7achieved, have prevented those competitors from entering the
8market. They have deprived consumers of choice. And they
9have stopped innovation -- slowed innovation in this
10important market.
11Let me describe to you the four major things that
12Microsoft did and which this settlement ends.
13Number one, the per-processor license, I'll
14describe in a moment.
15Number two, contracts of extraordinarily long
16duration which blocks the market.
17Number three, huge, 100 percent minimum
18commitments for years, which amounted to take-or-pay
19contracts, which blocked the market.
20And, four, restrictive non-disclosure agreements
21for software writers which prevented them from writing for
22other software companies in some cases.
23Let me turn first to the per-processor license,
24what that is and what this settlement does to stop it.
25Number one, the settlement bans it outright. That

1is first. What the per-processor license has done until
2last night at 9:30 was to lock up 60 percent of this market
3in the United States in per-processor contracts which
4Microsoft began using in 1988. Per-processor contracts are
5contracts which Microsoft imposed by virtue of its dominant
6monopoly position on computer manufacturers, such as Dell,
7Compaq, Gateway, you name it, the OEM's they are called in
8the business, the computer makers, who have to license from
9Microsoft because it has had this monopoly position and the
10products are demanded in the marketplace.
11Nothing wrong with that, but rather than simply
12sell those products fair and square on the merits and on
13price, in 1988, Microsoft invented a form of contracting
14called the per-processor license, under which it required
15the computer manufacturers -- induced them with extremely
16low prices to pay for every processor they shipped of a
17certain type not just to Microsoft, but to the competitors.
18So it worked this way: Under a per-processor
19license, which 60 percent of the industry has had until last
20night, Microsoft got paid for every processor shipped by a
21computer maker, whether or not that processor had a
22Microsoft operating system loaded on it.
23Now, if you are a competitor of Microsoft and you
24wanted to sell your competing product to a consumer, you do
25that through these computer manufacturers. But they had to

1pay Microsoft.
2Now, if Microsoft -- take this hypothetical --
3operating system was $15, and you came in with a better
4operating system or cheaper, it worked just as well,
5hypothetically $10 -- these numbers are lower than average,
6but for ease -- under the per-processor license, the
7computer manufacturer pays Microsoft 15 and the competitor
810 for a total of $25 on what really is a $10 item.
9The result, computer manufacturer were reluctant
10-- extremely reluctant -- to buy from competitors. And that
11was the purpose and the effect of the per-processor license.
12It's obvious what it does. It drives prices up to
13consumers. It raises prices. It locks out competitors.
14And it slows innovation.
15So, this settlement stops the per-processor
17Two, Microsoft used contracts of three to five
18years in an industry that was rapidly turning over. These
19extraordinarily long contracts made it very difficult for
20competitors to get in. The settlement we achieved today
21reduces contract lengths to one year, with one, one-year
22extension on the same terms and conditions which the
23computer manufacturer, in its sole option, can elect.
24So, we have gone to one-year contracts, banning
25of per-processor.

1The third important feature of this settlement is
2abolishing minimum commitments. Microsoft's third way to
3lock up this market was to say to the computer makers who
4had to deal with it, We will give you a lower price if you
5estimate a large volume.
6Nothing inherently wrong with that volume
7discounting. The problem is Microsoft quoted these low
8prices in conjunction with 100 percent minimum commitments
9-- i.e., you get that price only if you sign on the dotted
10line to pay us every cent regardless of whether you actually
11ship our product or not -- a take-or-pay contract. You pay
12no matter what.
13Well, what does that mean?
14Over a long-term contract, what that means is if
15the computer manufacturer's business has not gone quite as
16well as it thought, it is locked into Microsoft no matter
17what because it owes them this minimum commitment, even if
18it has not sold any machines. So, minimum commitments was
19a third way that Microsoft locked up this market, locked out
20competitors, and minimum commitments are abolished. They
21are zero in the settlement we achieved yesterday.
22Finally, NDA's, non-disclosure agreements, were
23restrictive agreements which Microsoft, this winter, imposed
24in a manner that had never been done before in the software
25industry on certain applications writers. It would have --

1the NDA's challenged in this lawsuit and which Microsoft in
2the consent decree agrees to stop would have prevented
3applications writers from discussing Microsoft's operating
4systems for as long as three years after public disclosure
5of the operating system.
6The effect could take those application writers,
7the software writers, forever out of business, in effect,
8except for Microsoft. It is another way to, in effect, lock
9up the market -- this time by locking up the important
10software applications writers.
11Microsoft itself has said these NDA's were a
12mistake. It has agreed in this consent decree to never
13engage in such practices while this consent decree is in
14effect. And that also is a significant achievement of this
16The last thing the settlement does is prohibit the
17use of lump-sum contracts, which would have been another way
18that Microsoft could have locked up this market. They had
19not needed to use them in the past because they had these
20other methods, but looking forward, our concern was that
21they might. And so the settlement also bans lump-sum
22 contracts.
23This settlement is everything we could have hoped
24for in a fully litigated case and possibly more. It is an
25historic achievement. I tell you, the charts we have

1prepared today were prepared for the lawsuit we planned to
2file yesterday. The lawsuit was not filed because of the
3settlement. We filed instead a complaint with a settlement.
4We are extremely proud of this result.
5And the last point that the Attorney General
6noted, I think, deserves mention. This is the first time
7in history that the Competition Authorities of the European
8Commission and the Department of Justice have cooperated
9closely in investigating a major worldwide company, whose
10anti-competitive practices affected important markets both
11in Europe and the United States.
12We took this under a letter -- the EC and I and
13the Department of Justice asked Microsoft last October to
14waive any confidentiality restrictions under our respective
15statutes so that we could work together and think about the
16case we were jointly -- not jointly to them -- but that we
17had each initiated. Microsoft agreed to that in writing.
18We worked with the EC throughout the winter. We
19shared documents. We worked closely with them. We settled
20this together on terms that are substantially identical.
21We negotiated in Brussels the week of July 4th with
22Microsoft. We negotiated this week at the Department of
23Justice with EC officials here. And this also is a truly
24historic aspect of this settlement.
25So, we are extremely proud of this. We are

1gratified that it concluded with a consent decree which
2achieves the really 100 percent results that any lawsuit
3could have achieved, and possibly more. And I want to
4especially note that this was the ultimate team effort. We
5had a group of lawyers, led by Sam Miller, who is here
6today, and Don Russell, who is on his way back from Brussels
7-- he has been in Brussels all week coordinating this hour
8by hour with the EC over there -- we have had extraordinary
9people on this case. We had a team of lawyers I would put
10against anybody, and I would feel for the other side.
11And I want to simply state the names on the
12complaint we filed last night, because I am so proud to have
13been part of this group. The complaint was signed by Sam
14Miller, Don Russell, Joyce Bartu, Bob Zastrow, Dick Irvin,
15Peter Gray, Justin Dempsey, Gil O'Hana, and Larry Frankel.
16And there were more, and we had a paralegals. And this was
17an effort of a remarkable, extraordinary, incredible group
18of lawyers that I am so proud to have been part of. And I
19am proud of our partnership with the EC.
20So, with that, what can I tell you about any
21questions you have?
22QUESTION: What kind of room does this give
23Microsoft's competitors -- (inaudible) -- civil actions?
24MS. BINGAMAN: That is up to the competitors. I
25do not actually believe this case changes the legal status

1of any competitor's suit, because, by settling, Microsoft
2has admitted to no facts. It has consented to entry of the
3decree that was filed with our complaint. But facts are not
4established of record by a settlement, the way they are by
5a litigated case to conclusion, with a jury trial.
6So, my own horseback impression is that the
7action, as such, does not change the legal status. But, as
8far as private suits by competitors, it has enormous impact
9for competitors in opening the market. This is exactly what
10has been needed for years and years in the software
11industry. And I think, in the market-opening respects and
12for innovation, prices to consumers, it will have tremendous
14QUESTION: Why has this taken so long, and why is
15there no monetary penalty? And I notice it says that -- you
16say in the press release that it bans these practices in the
17future, but then says it only lasts six-and-a-half years.
18MS. BINGAMAN: Okay. You have got several
19questions there. Number one, we have had this case for a
20little less than one year. The FTC had it for, I think,
21two-and-a-half or three years before that. As everyone
22knows, or a lot of people, the FTC deadlocked two to two.
23We took the case acting as a fifth commissioner. We have
24looked carefully at this case because it is an important
25case, and we wanted to understand it fully ourselves.

1So, I have no concerns whatsoever about a one-year
2action by the Justice Department that ends these practices.
3There are no monetary penalties because they are
4not provided by any law and never have been. When the
5Justice Department settles a civil case, the Antitrust
6Division -- the antitrust laws do not provide for civil
7penalties, period.
8We obtain adjunctive reliefs to open the market.
9Under the American legal system, private actions obtain any
10monetary damages, and that is just the way it is in all of
11our cases. They are no different.
12You had a third aspect.
13QUESTION: The length of time, you say --
14MS. BINGAMAN: Oh, the six-and-a-half years. Our
15decrees normally last 10 years. We negotiated long and hard
16with Microsoft over the length of the decree. The EC's
17decrees last four-and-a-half years. We obtained immediate
18effect of this decree. That was a crucial aspect of the
19decree. And we believe we added, in effect, three to
20three-and-a-half years on the front end of the decree
21because the contract duration stops right now. The
22per-processor stops as of last night.
23The illegal practices that had locked up the
24market are ended. And they do not have to wait for
25contracts now in effect to run out. And it was our belief

1that based on all of those facts, plus the EC's practice of
2four-and-a-half year decrees, that this was a fair balance
3under the circumstances.
4Let me mention something. I neglected to thank
5-- and it was a major oversight on my part and I want to
6correct it -- Henry Kawati is sitting here, who worked long
7and hard on this case, he is an economist with our Economic
8Section; Rich Gilbert, who is head of that section, was in
9Brussels with me; and Mark Schecter, who killed himself on
10the case, along with Bob Lighten, but I want to thank Henry
11Kawati and Ken Hire and Rich Gilbert, because the economics
12aspect of this case, as you can imagine, was critical. We
13had outstanding outside economists who Henry worked with
14tirelessly for many, many months. And he was a critical
15part of it, as was Rich Gilbert and Ken. So, I wanted to
16say that.
17QUESTION: Can you estimate how much these
18practices may have cost consumers over the years?
19MS. BINGAMAN: We have not. Because we do not
20bring damage actions, we do not put efforts into trying to
21figure out monetary total impact. But I can, to illustrate,
22tell you this. If you were a consumer and wanted to buy a
23competing operating system, and despite Microsoft's
24practices, there have been, in fact, four major competitors
25in this market to Microsoft, who have clawed and grabbed and

1have managed to obtain some market share, if you bought one
2of those competing companies, and 20 percent of the American
3public does, and you were under a per-processor license, and
4many of these licenses, as we saw, are per-processor, you
5paid not just Microsoft anywhere from $15 to $50 for its
6operating system, you paid the competing price on top of
8And so Microsoft, in effect, taxed every consumer
9who bought a competing operating system and bought it from
10a maker who had one of these per-processor contracts, or a
11similar one. And so it's not insignificant. We have not,
12as I said, made any effort to quantify it, but it is --
13there are millions and tens of millions of PC's shipped
14every year, and it is a major amount of money.
15We can try to come up with some numbers after the
16press conference. But with all the other things we have
17done, that has not -- our focus has been opening the market,
18truly, and obtaining the relief we needed.
19QUESTION: To follow that up, do you have any
20estimate of how many computers were shipped under these
21agreements that would have been effected?
22MS. BINGAMAN: I can come up with numbers on that.
23We have not tried to. It is in the tens of millions. There
24are 120 million total computers with Microsoft operating
25systems on them. Many, many were shipped with this -- under

1these kinds of practices. And it has been a major market
2problem for competitors, and has restricted choice for
4Let me tell you why else this is so important to
5the American economy. We are about innovation and
6competition in this economy. That is what we are for. And
7Microsoft has its shot at the market. No problem. All we
8are saying is others should have their shot at the market,
9fair and square, a level playing field. That is the
10American way.
11And they may have a better mousetrap. They may
12not. But what we are saying is people should get a chance
13to judge it fairly on quality and price and the other
14factors. And that is what this case is about. It levels
15the playing field, opens the door.
16And if a competitor has a better product that can
17run computers faster, run them better, support better
18applications, build a base, cut into Microsoft's market
19share so that applications writers will write for it, that
20could have profound consequences for the American economy.
21What we are about is precisely that -- promoting
22competition, innovation, better products at cheaper prices,
23and letting the market take care of whatever happens.
24We are not about driving the market; we are about
25letting the market operate freely.

1QUESTION: Had this settlement not been reached,
2what broader or further action could Microsoft have been
3subjected to? And, a second question is, had there been any
4serious consideration about splitting Microsoft into two?
5MS. BINGAMAN: I cannot discuss our internal
6considerations as such. I can tell you that we looked at
7every possible legal theory and at all the facts throughout
8the course of a long, tough winter, that the legal team I
9mentioned went through. And it was our conclusion at the
10end of that that the case to be filed was the case we did
11file. We did not bargain off any case in exchange for a
12settlement. This was the case that was there after
13thousands of hours of work. And it needed to be brought,
14and it was brought.
15And that is really as much as I think
16confidentiality permits me to talk about specifics.
17QUESTION: Potentially, had this gone into
18litigation, what could we have seen perhaps in terms of time
19and cost?
20MS. BINGAMAN: Had this been litigated, we hoped
21to conclude it within a year. We planned to file it in a
22district in which the dockets are not crowded and we could
23have obtained a quick resolution, because the markets need
24to be open. This needed to get done. But it would have
25been a minimum of a year at the very best. It undoubtedly

1would have been appealed. And the key point is, after all
2that, two to two-and-a-half years at best through appeal,
3we could not have achieved one thing more than we got in
4this settlement.
5And, frankly, I am not sure we would have gotten
6as much. I do not know, because I do not know what a judge
7would have done. But this settlement is 100 percent of what
8we would have gotten with a lawsuit.
9QUESTION: Can you tell us more about the EC
10cooperation, how and when was that initiated? And wasn't
11there a British investigation as well?
12MS. BINGAMAN: No, there was no British
13investigation. It was the European Commission. It was a
14result, actually -- last September, I went to Europe for
15consultations, which are annual consultations with the EC
16that we have done for years, the Antitrust Division -- it's
17a mutual cooperative thing -- and Klaus Ailerman, the head
18of the Competition Directorate said to me, What are you
19doing about Microsoft, because we have a Microsoft case,
20too, you know, and I am very interested to talk to you about
22And I looked at him and I said, Klaus, I do not
23think I can say a word to you about Microsoft. Everything
24I know is under confidential documents. I am forbidden from
25talking about it. I can't speak to you.

1And he said, Well, what a great pity, because
2we've got, as far as I can tell from press reports, the same
4And I said, Well, it is a great pity.
5And I came back to the United States -- that was
6the end of September -- and 10 days or two weeks later, it
7just hit me out of the blue one day, we should ask Microsoft
8to waive confidentiality so that we could cooperate and
9decide whether in fact there is a case and coordinate
11And the coordination of remedies is really crucial
12for a company in Microsoft's position, which operates
13worldwide, literally, in -- I do not know -- tens of
14countries in the world. They need, for their own business
15reasons, to have the same contracting practices. It would
16be terribly disruptive -- and I called the EC. We asked
17Microsoft. Microsoft, for its own reasons, said that would
18actually -- they didn't have a problem. They waived
19confidentiality. And that is how it began last October, and
20it has continued since then.
21QUESTION: How is the Justice Department going to
22monitor the new agreements, the new contracts that Microsoft
23will sign with its OEM's? And what guarantees are there
24that Microsoft isn't going to turn around and say, you know,
25if we cannot do the kinds of volume deals that we have done

1in the past, we are going to charge 5, 10, 15 percent for
2the operating system than we have in the past?
3MS. BINGAMAN: If they charge more for their
4operating system, the competitors are there, without
5question, with comparable products. And the market should
6take care of that. That is the whole idea of this
7settlement. The market should take care of it.
8We are allowed, in the monitoring provisions of
9this decree, which you should have, to request documents
10from Microsoft, to inspect their contracts, to talk to their
11people. We are further -- the decree specifically provides
12we can cooperate with the EC in this monitoring, so we will
13continue our cooperation and close work with them.
14And we are watching. We are very much on the
16QUESTION: A question about the per-processor
17issue. From your presentation it wasn't entirely clear to
18me, but it sounds as though Microsoft main pressure on
19computer companies was that they got -- they would offer
20huge, huge discounts to the companies that would accept a
21per-processor kind of agreement. That being the case, it
22seems to me that, on one level, the sin is that Microsoft
23is simply charging too little for the operating system.
24And, to follow up on that, to follow up on that,
25it seems to me that the marketplace situation may not be a

1whole lot different, because Microsoft can continue, it
2seems to me, to charge that same low, low price.
3MS. BINGAMAN: Ed, you been talking to Microsoft?
4That is their line. They are not telling you right. If
5that was so easy, why did they have per-processor licenses?
6They are the only company in the industry that did. Why did
7they have three- to five-year contracts? They are the only
8company that in the industry that did. Why did they have
9100 percent minimum commitments? They are the only company
10in the industry that enforced that.
11If this was so simple, why were they locking up
12the market with practices which every computer manufacturer
13despised and which the competitors despised and which
14Microsoft hung tough through four years of Government
15investigation to hang on to? Do you think that is because
16it did not matter to them? That is the story they are
17putting out.
18You are darned right they are trying to spin it
19their way. That is not right. And let me tell you. Volume
20discounts, of course they can volume discount. No question.
21There is nothing wrong with volume discounting. It is done
22in all kinds of industries, in all kinds of situations. And
23the decree does not address volume discounts as such.
24The problem with Microsoft's practices is that
25they were using volume discounts to lock up the market with

1per-processor contracts and 100 percent minimum commitments,
2which then were like iron. You could not get out of. You
3 could not escape.
4To get those low prices, you had to sell your soul
5and never leave Microsoft. And that is what this decree
7Microsoft can compete on the basis of low price.
8We have no problem with that. That is good. We want that.
9What we do not want is competing on the basis of low price
10and then using that to impose contract terms which exclude
11every other competitor.
12And, Ed, the reason they were able to do that is
13because of their monopoly position in this market. I mean,
14this is an important question you are asking, because they
15are going to try to claim that this decree changes nothing.
16That is wrong. That is a lie. And people need to
17understand that.
18Because volume discounting, in and of itself, is
19not a problem. There are ways volume discounting can be
20abused. I have discussed those ways with Microsoft and Bill
21Gates. We are watching. We are watching closely what they
22do with volume discounts. They know it. I know it. And
23we are going to see what happens here.
24But volume discounting, in and of itself, is not
25a problem. There can be problems in how you structure them,

1whether you force -- it's a technical discussion. But, in
2any event, believe me, they did not hang tough on this for
3so long, right to the brink of a joint lawsuit by the U.S.
4and the EC yesterday because these practices were so
5harmless and meaningless and so forth. But I can see why
6they say it.
8QUESTION: Is there going to be an immediate
9effect that we will notice for consumers?
10MS. BINGAMAN: I hope consumers, within a short
11period of time, will have more choice of operating systems,
12genuine choice, more innovation in computers. Certainly,
13the prices will lower for consumers who already buy
14competing operating systems. Any of these companies in the
15market right now can now sell just for their price, not for
16this double tax that Microsoft has gotten.
17So, I think prices will immediately lower, and I
18think, over the medium to long range, this will, I hope and
19believe, have profound market opening impacts. It will help
20innovation, help the competition give us better products.
21You may be using a different operating system three years
22from now because of this -- maybe. And if you are, great.
23If you still want whatever, great.
24But the point is you should have a choice.
25Everyone should have a choice. And the companies that

1compete with Microsoft should be able to offer you that
2choice fairly and evenly.
3VOICE: Thank you.
4QUESTION: Microsoft's competitors in applications
5have complained about the access that they have had to all
6kinds of information about the operating system code. Did
7the Justice Department not find that Microsoft had unfairly
8restricted applications developers to various aspects of the
10MS. BINGAMAN: The nondisclosure agreement, the
11so-called NDA part of the case, focused on nondisclosure
12agreements required -- are you talking about something else?
13QUESTION: I mean, certainly the NDA has been part
14of it, but other companies --
15MS. BINGAMAN: The so-called interoperability?
16QUESTION: Yes, yes, hidden calls and all of the
17charges that have been raised over the past few --
18MS. BINGAMAN: I can tell you we have looked
19closely at all aspects of this case. We have examined it
20closely. And I think all that I can say, because of the
21strictures of confidentiality and the law, is that we have
22looked at it and this is the case we chose to bring because
23this is the case that is there and needed to be brought.
24And I think that is all I should say.
25VOICE: Okay. Thank you.

1VOICE: Thank you.
2MS. BINGAMAN: Okay. Thank you.
3VOICE: Thank you very much.
4(End of proceedings.)