Microsoft defeated over monopoly: Four-year battle with US authorities ends with world's largest software company changing licensing terms

MICROSOFT, the world's largest computer software company, has conceded defeat in a four-year battle over allegations that it abuses its monopoly power.

The company has reached a settlement with the US Justice Department and with Directorate General IV of the European Commission which will mean changes in the terms under which it licences software.

Microsoft has also conceded that it should change the way it approaches non-disclosure agreements imposed on other software companies - including Lotus, Wordperfect and Borland International - over pre-releases of new versions of Windows, Microsoft's personal computer operating system.

Some industry sources said that the settlement did not go far enough and failed to address the full range of concerns. David Bradford, of Novell, the software firm which brought the European complaint, said the agreement was good for the industry but not as broad as Novell wanted.

Bill Gates, chairman and chief executive of Microsoft, said: 'We are particularly gratified that we were able to settle these issues with the Justice Department and with DG IV simultaneously and on the same terms. Many of our customers do business on a global basis and we are pleased that we have resolved this in a manner that will enable them to continue to license software from us easily and inexpensively throughout the world.'

The US Federal Trade Commission's investigation into allegations of anti-competitive practices by Microsoft began four years ago, spearheaded by Novell, one of Microsoft's greatest rivals.

The investigation was inconclusive but was later taken up by the Justice Department. An investigation by the European Commission began last year.

Novell was particularly concerned about Microsoft's 'per processor' licensing system which offers discounts to PC manufacturers who agree to pay a royalty fee for the right to install MS-DOS and Windows on all the machines they sell.

Royalty payments to Microsoft had to be made irrespective of whether the software was installed on the computers. Novell believed that this acted unfairly against other software manufacturers.

As a result of the settlement a spokesman for Microsoft said that companies would only be billed for those computers on which the Microsoft software was installed.

The company said that between 80 per cent and 90 per cent of IBM personal computers ran Windows and 95 per cent used MS-DOS.

Under the second strand of the agreement Microsoft said it would clarify the rights and responsibilities of those companies signing non-disclosure agreements for pre- releases of Windows software.

This relates to a much more recent row over demands by Microsoft that software companies signing so-called NDAs agreed that some of their programmers could not work on competing products for at least three years. Although NDAs are not unusual, Microsoft's were considered in the industry to be very restrictive.

Analysts said that although Microsoft's reputation had been bruised by its decision to settle the government anti-trust charges the mild terms of the agreement represented a victory. There was a consensus that the agreements would have little effect on Microsoft's bottom line and would remove it from the shadow of time-consuming and costly litigation.

Rick Sherlund, an analyst with Goldman Sachs, said: 'It appears to be a significant victory for Microsoft.'

Microsoft continues to deny any wrongdoing. Bill Neukon, its senior vice-president of law and corporate affairs, said: 'We are pleased that we were able to reach an accommodation with these governments on terms that give assurances that we compete lawfully.'