States Lay Out Plans to Punish Microsoft

California and eight other states suing Microsoft Corp. offered a far tougher alternative Friday to the Bush administration’s proposed antitrust settlement, setting the stage for a legal showdown between dueling remedy plans.

In a filing in U.S. District Court in Washington, the nine states laid out the details of their plan to punish the software giant for breaking antitrust laws, including appointing a special master to monitor the company’s anti-competitive behavior. The plan also would require Microsoft to sell a cheaper, stripped-down version of Windows, without bundled products such as a Web browser or instant-messaging software.

“We wanted a remedy that would truly work, that would change how Microsoft used its monopoly power in the marketplace,” said Iowa Atty. Gen. Tom Miller, a spokesman for the nine states that have refused to sign the Justice Department settlement.

The states’ proposal also would force Microsoft to license its Windows operating system to third parties and reveal the source code of its Internet Explorer browser, so rivals could use the browser as a platform for their own products.

“I want to see Microsoft obey the law,” California Atty. Gen. Bill Lockyer said. “It’s not fair to other businesses and not fair to consumers to have one large company break the law for their commercial advantage.”

Microsoft must file its response by Wednesday. On Friday, a company spokesman characterized the state plan as “extreme.”

Earlier in the week, Microsoft Chief Executive Steve Ballmer said the company would oppose any conditions that go beyond those imposed in the settlement with the Justice Department and nine other states that signed on.

“It’s unfair to get two bites from the apple,” Ballmer said.

Microsoft supporters complained that the states’ plan includes special provisions for Microsoft foes. For example, the plan requires Microsoft to include Sun Microsystems Inc.’s Java technology in Windows and continue manufacturing Microsoft Office for Apple Macintosh computers.

State officials defended the provisions, noting that a June 28 appellate court ruling specifically ruled that those companies were harmed by Microsoft’s action.

The states’ 40-page plan goes far beyond the proposed Justice Department settlement.

That settlement requires Microsoft to give computer makers more control to configure the desktops of their machines and remove access to Microsoft products that are bundled into the Windows operating systems, such as the Internet Explorer Web browser and Windows Media Player.

The Justice Department plan also prohibits Microsoft from retaliating against computer makers or software developers that work with Microsoft rivals.

Critics say the Justice Department settlement does not sufficiently punish Microsoft and includes numerous loopholes.

“Our plan has no loopholes, not carve-outs and no lip service,” Utah Atty. Gen. Mark Shurtleff said.

A spokeswoman for the Justice Department declined to comment.

The states’ filing presents somewhat of a dilemma for U.S. District Judge Colleen Kollar-Kotelly, who is presiding over the case.

Kollar-Kotelly has indicated that she plans to proceed on two separate tracks: one to approve the Justice Department settlement in a proceeding in February and another to proceed to trial in March on the states’ lawsuit.

But such an approach could be problematic, particularly because the two plans are distinctly different and sometimes contradictory. It would be difficult for the judge to approve the Justice Department settlement and then later impose additional restrictions sought by the states, attorneys said.

As a result, the states will ask the judge to delay approving the Justice Department settlement until after they present their case. Microsoft is expected to oppose such an effort. Already, the software company has made an unsuccessful bid to delay the states’ lawsuit until after the Justice Department settlement was approved.

“How she relates one [plan] to the other is clearly uncharted water,” Iowa’s Miller said.

He said the states are still debating whether they should actively oppose the Justice Department settlement or focus on their own trial.

In addition to California, the states suing Microsoft are Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, Utah and West Virginia. The District of Columbia also is part of the coalition.