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MS scarier than the CIA, Gateway exec says

OEMs in terror of arbitrary contract enforcement

One of the more controversial items in the Microsoft v. Stubborn States hearing is the uniform licensing agreement with OEMs, which, depending on who you talk to, is either a triumph of egalitarianism, or a Trojan horse designed to rein in the most successful OEMs by lowering their contract terms to the level of the small fry.

Obviously, if MS is going to offer everyone the same deal, they can't give Dell terms to some punk outfit doing fifty thousand boxes a year. The solution of course is to round everything down. Way down.

This and several other insights into the uniform license which MS and the DoJ collaborated on as part of the settlement were elaborated in an exchange between MS lawyer Rick Pepperman and Gateway lawyer Anthony Fama this week. The dispute is significant because MS got slagged in court by a customer, rather than by a competitor.

No nudity

It's painfully clear that MS doesn't trust small OEMs, and indeed expects to be robbed by them through various means, most often by the selling of OS-less boxes which MS is convinced will be loaded with Windows in some perfidious manner.

Naked boxes are out -- virtually illegal now. The uniform license decrees that if you want to sell Windows PCs at all, you have to have an OS license from someone (not necessarily MS) on every single box that leaves your plant.

Since MS reserves the right to cancel a little guy's software license for fairly petty, even unintentional, infringement along these lines, it's necessary now, in the interest of fairness and Justice, to extend the threat of going on the Windows ban list to the Dells and Compaqs and Gateways of the world.

MS and DoJ call it law and order. But Fama knows how the world works. To him, it's an invitation to arbitrary punishment. That's because, as he pointed out, the settlement only requires MS to extend the same licensing terms to all OEMs. But it doesn't obligate them to enforce the terms, which is where the intimidation and dirty dealing starts.

Arbitrary enforcement of uniform terms is every bit the weapon that discriminatory contracts are. Or perhaps it's a bit nastier, because it inherently implies egalitarianism. It becomes harder to say you were singled out for abuse when the defendant can claim that your licensing deal is identical to everyone else's.

MS, the DoJ and the collaborating states have decided to institute a 'two strikes' policy on license irregularities. Sell more PCs than OS licenses, and you're on notice. Do it again, and you're on the Windows ban list. The Stubborn States figure that violators deserve 60 days to rectify the discrepancy before having their Windows licenses cancelled.

It was all about the sacred crusade of fighting piracy, Pepperman explained. A determined pirate could sell naked boxes for 40 days, stop for a week, do it again for 40 days, stop for a week, ad nauseum. Fama explained that MS could go after a repeat violator with criminal charges of copyright infringement, and even do so on the taxpayers' nickel, but Pepperman seemed not to hear him.


As the face-off between Fama and Pepperman began, the judge made a particularly apt comment. "Mr. Fama," she said, "I ask that you speak in a loud voice. We have the blowers going, and it requires you to keep your voice up."

And the blowers were droning away, we have no doubt. The one most persistent was Pepperman, who spent a good two hours exhaustively establishing the fact that Gateway failed to comment on the uniform license during the time MS had allotted, even though the document was a done deal. The implication Pepperman hoped to establish, apparently, is that Gateway has no business whingeing about it now. The comment period had already been graciously provided for that futile exercise.

It's a non-argument, and spending so much time nailing it down brings up suspicions that Pepperman was not so much questioning Fama as draining him.

As it turns out, the reason why Gateway failed to comment on the uniform license (for all the good it would have done) is that their OS license was about to expire at roughly the same time that the new and improved model was unilaterally decreed to be in force by MS, and Gateway had to devote their attention to parsing it out thoroughly and considering how to handle it. It doesn't appear that they could afford the luxury of chewing it over in the abstract and offering peer review services.

Another point of conflict was the way MS required Gateway to accept new versions of existing contracts as part of the OS license package "upgrade". That is, while it's true that Gateway's OS contract expired and was due to be replaced with the uniform license whether it liked it or not, several other agreements which hadn't expired were simply forced on the company as integral to the OS deal. Gateway figured these should be allowed to run their course and be renegotiated in due time.

But Pepperman would not let go of the fact that Gateway had blown its golden opportunity to bitch about it in a manner approved by Redmond. Why they weren't taking it like men, Pepperman could not for the life of him fathom.

Buying extra licenses

Another point of conflict for Gateway is the fact that they can no longer expect credit for OS and application licenses when PCs are returned by consumers. In the past, the company was allowed to remove the Microsoft certificate of authenticity (COS) labels from returned PCs and submit them for credit. That's out now, because MS is treating everyone like a little cowboy outfit run out of a garage.

Or at least, treating those it pleases like little cowboy outfits run out of garages. Here again, ambiguity invites arbitrary and preferential enforcement of terms. MS could, if it suited them, reimburse a Dell or a Compaq for their returned COS labels. It could, if it suited them, decline to reimburse a mid-level OEM like Gateway, or a smaller one.

MS has the right not to reimburse; they've got no obligation not to do it. Thus some OEMs may well end up buying more Windows licenses than PCs sold. Others may not. No wonder Dell isn't complaining.

Scarier than the CIA

Fama spoke of a meeting with MS senior veep for OEM sales and marketing Richard Fade, during which Fade became animated and intimidating when he learned that Gateway employees were to give depositions in the antitrust festivities.

"It's your testimony that you perceived Richard Fade's remark that he didn't want to see his comments showing up at the DoJ or in the courts as a threat of retaliation? That's your testimony?" Pepperman asked incredulously.

"I perceived that his comments indicated that Microsoft was aware that the Gateway witnesses had been deposed and he was not happy about it; and so my thought was, 'great, what does this mean for Gateway?'" Fama replied.

"You spent six years in the CIA, and you thought that was a threat?" Pepperman asked.

"I never had a Microsoft looking over my shoulder at the CIA," Fama explained in reply. ®

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