Nine states reject Microsoft antitrust deal

Nine of the 18 states involved in the Microsoft antitrust case agreed yesterday to join the U.S. Department of Justice in settling the landmark case. But nine other states and Washington rejected the settlement and will continue litigation in pursuit of tougher terms.

Connecticut Attorney General Richard Blumenthal, whose state is continuing litigation, called the Justice Department settlement “very good progress” but said it wasn’t strong enough to prevent a “recurrence of violations” of law. “The settlement reached today reflects a triumph of hope over history,” said Blumenthal. And “that history is due cause for caution.”

Yesterday’s events, which occurred during the course of two separate hearings in U.S. District Court, mean that despite the settlement announced Friday by the Justice Department, Microsoft will have to continue its court battle against the dissenting states in a series of remedy hearings scheduled to begin in March. Once those hearings are concluded, it will be U.S. District Court Judge Colleen Kollar-Kotelly’s job to impose a remedy against Microsoft, which was found to have violated U.S. antitrust law by illegally maintaining its monopoly.

The nine states that settled, according to the states’ lead trial counsel, Brendan Sullivan, are: Ohio, North Carolina, New York, Michigan, Kentucky, Illinois, Maryland, Louisiana and Wisconsin. The nine states that will continue litigation are: Iowa, Connecticut, California, Massachusetts, Florida, Kansas, Utah, Minnesota and West Virginia.

Bill Gates, Microsoft’s chairman and chief software architect, said in a statement that the decision by nine states to settle “is a very significant positive step toward resolving these issues once and for all.

“While this decree will place significant restrictions on our business, we believe this is a fair and reasonable settlement that will be good for consumers, good for the high tech industry and good for the economy,” said Gates.

Several of the states are continuing to review the settlement, and they could eventually join the Justice Department in ending the fight, said Eric Green, the court-appointed mediator. However, there are no plans to continue efforts to bring all parties to agreement. “[We] have exhausted the limits of the possible for the present time,” Green told the judge.

Kollar-Kotelly, who had urged both sides to reach agreement “in this time of rapid national change,” praised the mediators and parties in the case and then laid out her next course of action. “You have made the effort that I asked you to do, and for that I commend you,” she said.

Kollar-Kotelly will now take the case into what legal experts see as uncharted territory. The judge will conduct two separate proceedings. Under a federal law called the Tunney Act, the judge must accept public comments about the proposed settlement and then decide, before making it official, whether the settlement is in the public interest. That comment period will begin once the proposed settlement is published in the Federal Register, which isn’t expected until the end of the month. Comments will be accepted for 60 days. The Justice Department and other parties to the settlement will then have 30 days to respond.

While the Tunney Act proceeding is under way, the judge will move the case along its litigation path with state officials, leading up to the remedy hearings. The next big step for the litigating states is to file their proposed remedy by Dec. 7. Microsoft must respond by Dec. 12.

Events yesterday unfolded quickly. Both sides were in court for a 9 a.m. hearing, at which time the judge was told that six states were undecided about how to proceed. The parties were then given until 2 p.m. to decide what to do.

The settlement has drawn some sharp criticism, particularly from Microsoft competitors and a number of trade groups that, up until the settlement, had backed the government’s lawsuit. Microsoft’s lead attorney, John Warden, made it clear in court today that the vendor feels more talks are pointless.

“The issues in this case have been beaten to death, and they have been beaten to death by people who are worn out,” said Warden, in a booming voice. “Microsoft believes the settlement process has come to an end.”

Until yesterday’s court appearance, efforts to settle were continuous. The parties worked “through the night last night until the break of dawn this morning” on a revised version of the Justice Department settlement agreement, said Green, a private Boston-based law professor and mediator. Among the protections state officials said they believe need to be strengthened are those that safeguard PC makers from potential retaliation by Microsoft for offering competitive products; tougher enforcement provisions; and a broadened definition of middleware to make it sufficiently “expansive and clear,” said Blumenthal.

Phil Beck, lead counsel for the Justice Department, characterized the most recent changes as “in the nature of clarification” and not substantive. There is nothing precluding the federal government and Microsoft from settling the case on their own. In fact, New Mexico reached its own agreement with Microsoft earlier this year.

U.S. Attorney General John Ashcroft last week said the “proposed settlement puts in place enforcement measures that will require Microsoft to disclose internal operating system interfaces and protocols. Those disclosures, in turn, will create opportunities for independent software vendors to develop products that will be competitive with Microsoft’s products.”

The settlement is broadly designed to protect a range of applications that have the potential, as did Netscape Communications Corp.’s Web browser, to threaten Microsoft’s operating system monopoly. Those products include browsers, media players, instant messaging applications and any future products.

As part of the agreement, Microsoft would be required to disclose its application programming interfaces. The agreement also includes a number of protections for PC makers and requires Microsoft to license its operating system to PC makers on “uniform terms” for five years.