Original Sender : Ari <[EMAIL PROTECTED]> --------------------------------- http://www.nytimes.com/library/tech/99/03/biztech/articles/29soft.html March 29, 1999 Microsoft's Settlement Talks Hinge on PC Makers By STEVE LOHR hey will not be at the table on Tuesday when the Justice Department and state attorneys general are scheduled to meet with Microsoft in Washington for settlement talks. But the United States' personal computer makers -- and Microsoft Corp.'s relationship with them -- will be the main topic of discussion as the two sides warily approach each other to see if there is some way to settle the antitrust suit against Microsoft, according to lawyers close to the case. To try to get settlement talks started, Microsoft sent the government a framework document of less than four full pages last week. But if the negotiations are to move ahead, the lawyers said, Microsoft is going to have to go far beyond that initial step. Microsoft, they say, must be willing to open up its pricing and marketing contracts with the manufacturers in ways that fundamentally alter its relationship with personal-computer makers. The current relationship too often leaves the manufacturers, a government official said, in the position of being "captive distributors for Microsoft software and the high-tech equivalent of indentured servants." The government is skeptical about how much power over PC makers Microsoft is willing to concede. On the assumption that settlement talks will fail, the Justice Department has recently been trying to persuade industry executives to testify as rebuttal witnesses when the trial resumes. In the last couple of weeks, officials have focused in particular on urging Theodore Waitt, the chairman and co-founder of Gateway Inc., to testify for the government, a lawyer close to the case said. A spokesman for Gateway declined to comment on whether Waitt might testify. The framework document from Microsoft mentioned easing the contract restrictions on computer makers, such as allowing them greater freedom in presenting software products from Microsoft's rivals on the first desktop screen that users see when they turn on their machines. But Microsoft has already eased some of those restrictions under pressure from the government and the industry, leaving little that was new in the document, according to lawyers who have seen the Microsoft proposal. Of course, Microsoft would not be expected to put a complete offer on the table even before negotiations had begun. In broad terms, Microsoft, according to people close to the company, has told the government that overhauling its relationship with PC makers would amount to a change in the competitive structure of the industry. Still, that is far from the structural reform that has been mentioned as the kind of legal remedy that might be sought by the government if it wins the case. Structural options include measures like breaking up Microsoft or forcing it to license the software code for its industry-standard Windows operating system. In their public statements, the 19 states that have joined the federal government's suit against Microsoft have been particularly intent on seeking sweeping sanctions. But one state attorney general in the case observed that the PC-maker-focused approach "could be in the ball park for addressing our concerns about restoring competition in the industry." But he added that what Microsoft has proposed so far is "barely in the stadium, way off in left field in the bleacher seats." The government has held detailed discussions with PC makers about steps to make them less beholden to Microsoft. As a result of those consultations, the government, according to a lawyer close to the case, has compiled a list of what it considers necessary steps. The government, he says, wants to see Microsoft publish the prices it charges personal-computer makers for the Windows operating system. Under this concept, the only variation allowed in prices would be volume discounts for large purchasers, which are standard practice in any industry. But the major producers like Compaq, Dell, Gateway and Hewlett-Packard would receive the same price. What Microsoft could not do, under this proposal, would be to offer a PC maker the incentive of an additional discount on the Windows price if it also agreed to bundle in other Microsoft products -- like its Office suite of productivity programs. Another focus of the government's concern, the lawyer close to the case says, is in the confidential "market development agreements" that Microsoft has with PC makers. The secret pacts often include a couple of hundred items, according to one industry executive, some of which are tied to Windows pricing. The items can include discounts of 25 to 40 cents on the Windows price, the executive said, for preferred presentation of Microsoft logos or product icons on the company's machines. For manufacturers that ship millions of PCs a year, he noted, those small incentives can add substantially to profit. The government also wants to make sure that Microsoft cannot threaten to put a PC maker out of business by cutting off its Windows license, a threat Microsoft made to Compaq in 1996, when the company's consumer group wanted to replace Microsoft's Internet Explorer Web browser with the browser produced by Netscape Communications Corp. Microsoft has replied that its browser is a part of its Windows operating system, and thus Compaq was violating its Windows licensing agreement. "Microsoft is trying to concede as much as possible without altering its fundamental business model," said David Yoffie, a professor at Harvard Business School. "The question is whether that is enough." One proposal that extends beyond PC makers would be to force Microsoft to publish its program code for the Windows operating system but without requiring that the code be licensed to other companies. Under this concept, the published code could not be reused, resold or redistributed. Accordingly, it would not undercut Microsoft's profit from Windows, but would give Microsoft's competitors in software development the same access to the inner workings of Windows that Microsoft's own programmers have, a lawyer close to the case said. ---------------------------------------------------------------- Compu-Mania MailingList is provided by PT Centrin Utama Maintained by : [EMAIL PROTECTED] To Post a msg : Send mail to [EMAIL PROTECTED] To Unsubscribe : Mail to [EMAIL PROTECTED] BODY : unsubscribe Compu-Mania For more information, send mail to [EMAIL PROTECTED] with "HELP" in the BODY of your mail (without quote). ----------------------------------------------------------------
