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Microsoft's Soft Reboot

July 18, 1994



THIS weekend's consent decree reached this weekend between Microsoft Corporation and the United States Justice Department constitutes a ``soft reboot'' for competition in the software industry.

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The government's hope: By curbing the software giant's ``monopolistic'' business practices, rivals will get a fairer shake, particularly in operating software, which provides the link between the computer hardware itself and applications such as spreadsheets or word processing.

Among the practices that the decree prohibits:

* Requiring computermakers who install MS-DOS or Windows operating systems to pay a royalty on every machine produced. Companies had little incentive to install other operating systems, such as IBM's OS-2 or Novell Inc.'s RD-DOS, in some machines if they had to pay royalties to Microsoft as well as the other vendors.

* Requiring computermakers to sign contracts that committed them to buying set quantities of Microsoft software years in advance of use.

* Preventing software designers who develop applications compatible with Microsoft operating systems from working with any company producing competing operating systems.

The decree also covers the European Union, which for the first time cooperated with the US in an antitrust investigation.

In effect, the decree emphasizes potential gains in competition over punishment of Microsoft. Perhaps that was the most that could be expected after four years of investigations and a Federal Trade Commission that deadlocked over whether Microsoft's practices were monopolistic. No fine or determination of guilt is involved. The company - which denies wrongdoing - moves out from under the cloud of lengthy litigation.

The company remains dominant. Microsoft ships 2 million copies of Windows each month, while IBM ships only about 3 million copies of OS-2 in a year. Microsoft is on the verge of releasing ``Chicago,'' a new version of Windows billed as more powerful and more user-friendly than the current version. And operating systems constitute only about one-fourth of Microsoft's revenue base.

Still, the Justice Department effort sends an important - if moderate - signal that in its zeal to support high technology, the government remains ready to strive for a level playing field.