European Competition Commissioner Neelie Kroes, fresh off her antitrust victory over Microsoft in the European Court of First Instance, has launched two new investigations into anticompetitive behavior by Microsoft:
When the first reports surfaced last week that a number of big name IT companies (including Microsoft) had participated in widespread kickbacks on US government contracts, it wasn’t clear to me exactly how Microsoft was allegedly involved. Today, the details are a little clearer in Lorraine Woellert’s report at Business Week. First the big picture:
With some big players already named in lawsuits alleging a widespread kickback scheme, the information technology industry will see further scrutiny as federal prosecutors pursue additional charges in coming weeks. Last week, the Justice Dept. filed civil charges against Hewlett-Packard (HPQ), Sun Microsystems (SUNW), Accenture (ACN), and Accenture subsidiary Proquire as part of a two-year investigation involving potentially billions of dollars in government procurement projects.
The Justice Dept. unsealed complaints Apr. 19 in U.S. District Court for the Eastern District of Arkansas in Little Rock, charging the four companies with fraud and conspiracy in their attempts to win lucrative government contracts. Prosecutors also made public six whistleblower lawsuits that had been filed under seal in September, 2004, by former Accenture employee Norman Rille and Neal Roberts, a onetime partner with Deloitte & Touche who has investigated alliances between technology vendors.
The lawsuits accuse at least a dozen technology vendors of operating rebate and commission programs, referral systems, and strategic alliances that they kept secret from the government agencies that bought their systems or followed their advice. The practice has been going on in some cases for a decade, the lawsuits claim. The Justice Dept. is seeking treble damages plus civil penalties.
There are more details in the article, but the problem is with the payment of referral fees which aren’t uncommon or illegal in many business situations, but have to be disclosed on government contracts. The way the fees were so visibly institutionalized at these companies indicates to me at least that they didn’t understand what trouble they were getting themselves into with the government. Where’s a lawyer when you need one?
As for Microsoft:
According to court documents, the original six civil cases Rille and Roberts filed will proceed against Cisco Systems (CSCO), Electronic Data Systems (EDS), SAP (SAP), Lockheed Martin (LMT), Oracle (ORCL), American Management Systems, CACI International (CAI), SeeBeyond Technology, and Dell (DELL). At least five other defendants remain cloaked under court seal, including one identified in court documents as a wholly owned subsidiary of IBM (IBM).
Boeing (BA), Raytheon (RTN), Microsoft (MSFT), SAIC (SAI), and Exostar were named in the original complaints, but the court, at the urging of prosecutors, dismissed them from the cases last week. The lawsuits themselves describe a network of relationships that reads like a Who’s Who of the nation’s biggest IT companies. Based on documents and information he received while a senior manager at Accenture, Rille claims in one of the original lawsuits, “all the major systems-integration consultants and technology vendors were and are engaged in the same kickback scheme and associated conspiracies.”
So Microsoft isn’t on the hook right now, but they and a number of other big names still seem to have a significant risk. I wonder if it will rate a footnote in tomorrow’s quarterly report?
Last week Microsoft held their Convergence 2007 soiree for their Microsoft Business Systems customers and announced a package linking Dynamics ERP to Office and the upcoming availability of Microsoft Dynamics GP 10.0, Microsoft Dynamics NAV 5.0 and Microsoft Dynamics SL 7.0.
They also trotted out CEO Steve Ballmer to demonstrate the upcoming Microsoft Dynamics Live CRM service targeted at Oracle, SAP, and Salesforce.com. You may recall that it has a rather checkered history involving Microsoft competing with partners for the hosting business.
I wish I could get more excited about the MBS family of products which were all solid if unexciting businesses until Microsoft took them over, at which point they settled into mostly profit-free lassitude despite promises of a grand convergence via Project Green. Now, we can’t even tell how they’re doing since they have been folded into the Windows Business Division (i.e. Office), but it is hard to believe that it is much better.
While Steve Ballmer may be excited about competing with long time partner SAP and the others (see also Barbara Darrow’s report), a relevant question is why they don’t just spin MBS off when it would likely be better for both parties.
Some Microsoft news items from last week that did not get a post of their own.
Microsoft competitor VMware is profiled in the NY Times. Uh-oh! Someone just said “Microsoft” and ”bundling.”
Wii outsold PS2 which outsold Xbox 360 which outsold PS3 in January big box retail sales in the US. Think there might be a message from consumers there?
If you purchased a PC before January 30 and took advantage of the Vista Express Upgrade program, you know by now that this program is everything else but “Express”.
Blu-ray disc sales finally passed HD DVD, but the question is why the attach rate is so low given that Blu-ray players outnumber HD DVD about 5 to 1. Could it be that most Blu-ray players are the Sony PS3?
Details of Exchange 2007 SP1 revealed. Beta coming in April with final release alongside Longhorn server.
Configuration Manager 2007 Beta 2 is now available for public download. It’s the rebranded old favorite, Systems Management Server (SMS). Also, RC1 of System Center Essentials is now publicly available.
Microsoft to launch new consortium aimed at Oracle users on Feb. 26. It’s all about interoperability, I’m sure.
The South African government plans to switch from Microsoft to Open Source. So does Cuba. Meanwhile in the USA, Dell users demand Linux and OpenOffice on PCs via the new Dell company blog.
And last, but not least: Microsoft offers to take Iowa antitrust jurors to dinner. I wonder if they can pay with vouchers?