Lion lies with lambs

Information Age (London, UK), Feb 10, 2005

As we all know, the $37 billion software supergiant Microsoft is not the most universally popular of companies. Even its most trivial of business moves bring on wails of complaint and dark mutterings about unfair business practices, conspiracy and the stifling of innovation.

But perhaps, after a decade of domination, its unpopularity is beginning to wane. This may be due to any number of factors, not least the company's efforts to be more open and conciliatory in its business dealings with smaller rivals and partners. Or, perhaps, the rapid take-up of open source software has at last mellowed the vociferous anti-Gates movement.

It is, for all that, quite remarkable that the policy that lies at the heart of Microsoft's newly found rapprochement with the rest of the IT world has been so little examined, let alone much criticised, by the large army of Microsoft 'watchers' across the world.

The policy in question: Over the past eighteen months, Microsoft has been settling its differences with almost all the rival companies and organisations with which it has had serious disputes over its business practices. In every case, Microsoft has paid out a very large sum - usually worth years of profits to the companies involved.

The amounts are staggering: $750 million to America Online, now part of Time Warner, to atone for any damage Microsoft may have done to the nascent Internet software company Netscape; up to $2 billion to Sun Microsystems, if all possible future royalties payments are taken into account; $440 million to Intertrust to settle a dispute over patents; $20 million to Lindows to end a name and licensing dispute; $536 million to Novell, relating to technology used in the latter's now little-used Netware network operating system; and, perhaps, most surprising, just under $20 million to the Computer and Communications Industry Association, an influential trade body that, until the settlement, had taken a strongly anti-Microsoft line. In that last case, half the money went to one official, Ed Black, the CCIA's high-profile president and (former?) anti-Microsoft campaigner.

That totals more than $3.7 billion - but it is not the end of the story. Microsoft faces a further lawsuit from Novell, relating to alleged anti-competitive practices that hurt its WordPerfect office suite in the 1990s; and it still has to find a way to deal with RealNetworks, supplier of the RealPlayer media software at the heart of the European Commission's anti-competitive practices case against Microsoft.

Brad Smith, Microsoft's legal counsel, estimates that Microsoft could still have to pay out a further $950 million in order to settle all cases - although that is a worst case scenario. In total, Microsoft's final bill could come in at over $4.5 billion.

So here is the question: These settlements might have placated the companies concerned, but are they good for the IT industry or the economy at large? Should they be viewed as genuine, generous settlements intended to right past wrongs, or are they also attempts to undermine Europe's anti-trust action?

Certainly, the settlements mean that the EC has lost most of its important witnesses: Sun, the CCIA and Novell have all ended their support for the European case and, according to Smith, that should be the end of the matter. However, even he agrees that the testimonies they have already given should still stand.

The EC, meanwhile, has made it very clear that its duty is to maintain market competitiveness, not to right individual wrongs. The case will move "full speed ahead", a spokesperson said.

All eyes are now on Real Networks. At the end of November, its total market value was $1.18 billion, a figure that, at more than four times annual revenues, for a loss-making company, clearly includes a hefty Microsoft settlement premium. The company is saying nothing at all, although its lawyer has been reported as saying it would not "seek a settlement", but would be "willing to talk".

For anti-trust experts, much of this is breaking new ground. In the past, governments have moved so slowly, and so often reversed their own decisions, that defendants rarely felt the need to settle. Now, the EC is left with a case which only one smallish US company supports - and for how long?

It is easy, of course, to be cynical about the power of money. But for informed industry insiders, this is also one more example of markets moving ahead of policy-makers and enforcers. All of the companies that have settled have one thing in common: open source software, unless controlled, could devastate their businesses. There are lots of big political and legal issues to sort out, and they need to act together.