Microsoft Settlement Stirs Debate
The proposed settlement of the long-running Microsoft Corp. antitrust battle set off a furious national debate Friday about whether the Bush administration is letting Microsoft off the hook with a slap on the wrist or wisely concluding a contentious lawsuit that threatened to drag on for years.
The Justice Department confirmed Friday that it would drop the historic lawsuit in return for a set of conduct restrictions it hopes will restore competition and give the sagging technology economy a boost.
The proposed deal also set the stage for a potentially unprecedented split between the U.S. government and attorneys general in 18 states, including California, who now must decide whether to join in the controversial settlement or push for stronger terms.
U.S. District Judge Colleen Kollar-Kotelly gave the states until Tuesday to review the settlement--which was finalized Thursday night--and decide their next move.
Several states privately criticized the proposed settlement as too soft, but it appeared Friday that many were leaning toward accepting it, perhaps with some modifications, rather than carrying on the fight.
“This settlement not only resolves the department’s competitive concerns, but also does so in a quick and responsible manner,” U.S. Atty. Gen. John Ashcroft said. “It provides prompt, effective, certain relief for consumers and removes the uncertainty in the computer market, a critical factor in today’s economy.”
President Bush, who raised questions about the merits of the antitrust case during his campaign last year, declined to comment Friday on the settlement during an appearance in the White House Rose Garden.
Ashcroft said the White House was not involved in the decision and did not attempt to influence the outcome. The Microsoft case originally was brought under the Clinton administration.
Microsoft Chairman Bill Gates expressed satisfaction with the proposed settlement, which he said would cause the company to change its behavior.
“We will focus more on how our actions affect other companies,” Gates said. “We resolve ourselves to becoming an even better industry leader.”
Experts said the new restrictions are far weaker than those that were included in a settlement offer proposed last year, before Microsoft had been found liable for breaking antitrust laws.
Many rivals and antitrust experts had been pushing for a tougher punishment that would force Microsoft to reveal the secret code for Windows and prohibit the company from bundling its operating system with other products, such as media players, instant messaging and Web browsers.
“Today’s agreement signals a retreat by the federal government and a defeat for consumers,” said Scott McNealy, chairman of Sun Microsystems Inc.
AOL Time Warner Inc. said the settlement will do little to promote competition or rein in Microsoft’s anti-competitive conduct.
“The proposed settlement fails to fulfill the promise of the unanimous decision from the U.S. Court of Appeals condemning Microsoft’s extensive illegal conduct and requiring an effective remedy to prevent its reoccurrence,” said Paul T. Cappuccio, general counsel of the New York-based media giant.
Sen. Patrick J. Leahy (D-Vt.), chairman of the Senate Judiciary Committee and a critic of Microsoft’s past behavior, vowed to hold hearings to review the terms of the settlement.
“We will want to examine whether competitors have adequate opportunities to provide those products and computer manufacturers have the freedom to configure their machines as they think best,” Leahy said.
Ashcroft bristled at the suggestion that the settlement represented a sellout, as critics have claimed.
“That’s totally false,” he said. “We believe that this settlement is a very strong settlement.”
The proposed five-year settlement focuses largely on giving computer makers more power to offer non-Microsoft products to consumers, such as rival Internet browsers, Internet service providers and media players. Previously, Microsoft has used its licensing agreement for the Windows operating system to force PC makers to accept Microsoft’s products, sometimes to the exclusion of others.
The terms also seek to give software developers more power to create rival products by requiring Microsoft to reveal technological secrets about the inner workings of Windows so competitors can ensure that their products will work as well as Microsoft’s own products. A three-member board of independent experts will oversee Microsoft’s compliance with the disclosure requirements.
In a June 28 ruling, the U.S. Court of Appeals in Washington found that Microsoft violated antitrust laws by using its monopoly power to bully computer makers, drive rivals out of business and quash competition.
But the court threw out an order to break up the Redmond, Wash., software giant and sent the case back to a lower court to determine the appropriate punishment.
Though both Microsoft and the Justice Department had insisted that additional court-ordered settlement talks would be futile, Kollar-Kotelly named a professional mediator last month in a last-ditch effort to bring together the parties.
“I’m pleased in this time of rapid national change that they’ve resolved their difference,” Kollar-Kotelly said Friday, adding that she hoped the states will join the settlement. “It’s important, if we can, to have closure on all of this in a global settlement.”
If some or all of the states opt to press on with the suit, the judge indicated that she might proceed on two tracks: one approving the settlement and another proceeding to trial in March.
Microsoft and the Justice Department are pushing hard to convince states to join. Microsoft doesn’t want the uncertainty of ongoing litigation, and the Bush administration fears the embarrassment of having states press forward, potentially winning stronger terms.
Lead state attorneys general were circumspect in their public comments Friday, reflecting a realization that it will be politically and financially hard for them to carry on without the resources of the federal government.
Iowa and Connecticut, two leaders among the states, praised some elements of the settlement. Connecticut Atty. Gen. Richard Blumenthal said the Sept. 11 terrorist attacks provided “a powerful dynamic to resolving the issues in this case.”
New York Atty. Gen. Eliot Spitzer, in particular, also appears to be softening in his stance against Microsoft, sources said.
That puts considerable pressure on California Atty. Gen. Bill Lockyer, who is considered something of a hard-liner. Lockyer declined comment Friday, but a spokeswoman said he is reviewing the plan.
Some states and Microsoft rivals are hoping to use the weekend to rally opposition to the settlement and seek changes to strengthen the terms.
For example, under the current proposal, only the federal government has the power to enforce the agreement. States may seek to win enforcement powers as well.
But Charles James, the department’s antitrust chief who negotiated the deal on behalf of the government, said he did not expect to make any changes to the proposed settlement. If necessary, he said the Justice Department is prepared to join Microsoft in opposing those states that challenge the settlement.
“We will defend our agreement,” James said.
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Terms of the Proposed Deal
Here are the key provisions of the proposed agreement between the Justice Department and Microsoft Corp., which would be in place for at least five years.
* Independent software vendors will be allowed to develop Internet browsers, media players and instant-messaging products that are competitive with those included in Windows.
* Microsoft will provide the Windows code that will allow competing products to emulate Microsoft’s integrated functions.
* Computer manufacturers and consumers can substitute competing products for software on Windows.
* Microsoft cannot retaliate against companies that make or use competing software and will have to license Windows to key computer makers on uniform terms for the five years.
* Three independent, on-site, full-time computer experts will assist in enforcing the proposed settlement, including having access to all of Microsoft’s books, records, systems and personnel.
*
Times staff writer Joseph Menn contributed to this report.
