Translation: If certain conditions exist, Microsoft can prohibit a co-development partner from competing with whatever Microsoft and the partner collaborated on. The question is whether words and phrases like "any material value-add", "[significant] other resources", "object", "other arrangement", and "reasonable" leave too much room for interpretation, thus paving the way for Microsoft to exercise the rights afforded to it by the provision in virtually any business dealing.
One possible test for the provision is the 10th criterion from Rating the remedies . This criterion tests whether the provision could survive an existing or future market dynamic. A good scenario to test is the emerging Web services segment of the computer industry--a segment that Microsoft is already working hard to dominate. When Web service technologies, tools and protocols started to emerge, Microsoft and IBM teamed up to create some of the most important Web Services protocols such as SOAP, UDDI, WSDL, and WS-Inspection. The collaborative effort, which has been highly publicized ), is unusual because Microsoft and IBM compete in the Web services space.
Microsoft's Web Services wares will be based on Windows and its .Net family of products. IBM, on the other hand, has a competing Web Services platform called WebSphere that's based on the biggest known threat to Windows: Java.
The question is whether provision III.G would allow Microsoft to prohibit IBM from selling a competing Web Services technology. Clearly, WebSphere will compete with Windows .Net Server. The technology that WebSphere is based on--Java--competes with Windows as well.
Could the protocols that Microsoft and IBM collaborated on be considered "material value adds?" Probably. Did both companies contribute "significant resources?" Based on the publicity they sought for the collaborative effort, one could easily say yes. The question of whether Microsoft could prohibit IBM from selling the Java-based WebSphere might then depend on what was considered to be the "object" of that collaboration. Technically speaking, the object of the collaboration appears to be the protocols that guarantee interoperability. However, short of an official definition for the word "object," the provision's exception could be open to a variety of legal interpretations.
On one hand, if the object is considered to be the collection of protocols, then IBM's WebSphere is a supporter of those protocols and not a competitor. However, if Microsoft stretches the interpretation of "object" to include "Web Services" and then includes .NET in its definition of Web Services, IBM's WebSphere would then be considered a competitor to the object.
Debunking the possibility that Microsoft could keep IBM from selling WebSphere in this scenario, a Microsoft official indicated that the object of the collaboration would be the protocols and not .NET.
Furthermore, the DOJ filed a companion document to the settlement proposal--the Competitive Impact Statement--that states: "By limiting the joint agreement exception to activities that meet these conditions, Section III.G ensures that Microsoft cannot use the exception to attempt to evade the prohibitions and to engage in exclusionary contracts in the course of normal commercial relations between it and ISVs, IHVs, IAPs, ICPs and OEMs."
When asked about what they thought of the provision, officials from IBM cited a company-wide policy that prohibits them from discussing the case.
Even though the Competitive Impact Statement attempts to clarify the meaning of the provision's exception, the inclusion of subjective terms like "any material value-add," "[significant] other resources," "object," "other arrangement," and "reasonable" may require too much attention from a compliance committee. This is the fifth of ten criteria that ZDNet has identified for challenging the effectiveness of an antitrust remedy provision. In addition, the subjective nature of the terms might result in additional litigation because of the broad interpretation that these phrases invite. In that case, the provision doesn't pass muster with the sixth test criteria, which is to keep the litigants out of court.
According to Department of Justice spokesperson Gina Talamona, the DOJ has until February 27, 2002 to file its response to the public's comments on the proposed settlement. "That response could include modified provisions," says Talamona. It's likely that any modifications would narrow the room for interpretation.
In an attempt to eliminate room for interpretation altogether, the litigating states offered a counter-provision in its suggested remedy. The "Ban on Exclusive Dealings" provision (provision 6) says the following: "[Microsoft shall not enter into or enforce any Agreement in which a third party agrees, or is offered or granted consideration, to:] restrict its development, production, distribution, promotion or use of (including its freedom to set as a default), or payment for, any non-Microsoft product or service."
Microsoft spokesperson Jim Desler says his company prefers the language in provision III.G of the settling proposal. According to Desler, III.G "simply reflects a fundamental in law: If you enter into a joint venture with someone, then you don't normally compete with that joint venture."
ZDNet's antitrust legal advisor and former Texas State Deputy Attorney General Linda Eads agrees, but with a caveat. "If you enter into a co-development effort with another company, it wouldn't be unusual, as a part of everyday business, for you to add a measure of protection into the contract that ensures that your new partner won't also undermine the success of that effort by competing with it as well. Unless of course," Eads adds, "You have a monopoly. As with many other business dealings, if you have a monopoly, then the rules are different. In that case, placing that sort of restriction on your partner is against the rules."
"Therefore," says Eads, "as a part of its attempt to restore competition, an antitrust remedy shouldn't offer any protections that allow the defendant to prevent companies, partners or otherwise, to compete with it. The litigating states' provision doesn't leave a whole lot of room for interpretation. It pretty much says that there exists no circumstance under which Microsoft can enter into an exclusive deal with a third party." The provision therefore places no limitation on who can compete with Microsoft, or when they can compete with it. "Since the provision has no exceptions that allow Microsoft to prohibit competition" says Eads, "it stands a better chance of restoring the market." Eads adds that "with limited room for interpretation," the non-settling states provision shouldn't command too much of the oversight committee's attention, nor should there be a dispute that requires action on behalf of the court. "Both of these criteria are listed in Rating the remedies--ZDNet's list of criteria that can be used to challenge the effectiveness of antitrust remedy provisions.
Linda Eads, a professor of law at Southern Methodist University, contributed to this report. Eads has taught courses on the Microsoft antitrust case and, prior to joining the SMU faculty, served as the Deputy Attorney General for the State of Texas where she was in charge of the state's antitrust division. After Eads' tenure with Texas' Attorney General's office, Texas pursued Microsoft on antitrust charges, but later ceased its antitrust actions.
