States Seek Limits for Microsoft
With a key hearing scheduled for this morning, Microsoft Corp. and many of the 18 states involved in the landmark antitrust suit plunged into a chaotic round of last-minute negotiations Monday evening.
Illinois said it was inclined to accept the settlement Microsoft reached last week with the Justice Department. Massachusetts said it would not. New York surprised almost everyone by trying to cut its own deal with the company.
And the leaders of the remaining states in the coalition, including pivotal California, were talking with Microsoft with the help of a court-appointed mediator in Washington, trying to get more restrictive terms than did the Justice Department.
“I’m cautiously optimistic that a fairly large number of states, like more than four, will not sign this [Justice Department] deal, but it’s a very fluid situation,” said Mike Morris, general counsel for Sun Microsystems Inc., a key Microsoft competitor.
Microsoft is hoping to reach an agreement before today’s hearing, when the states are scheduled to tell a judge whether they will accept the same terms as the Justice Department, people briefed on the talks said.
The states in the new round of talks, including California, Iowa and Connecticut, are pressing to limit the wiggle room that Microsoft won in the federal settlement and to have a stronger enforcement mechanism, the sources said.
Microsoft and those states declined to comment on the talks. The most important player in the mix, California Atty. Gen. Bill Lockyer, was studying the federal plan and “seeking to have concerns addressed,” a spokeswoman said. She declined to provide details.
One of the few states speaking publicly was Massachusetts, which became the first of the 18 to say it would not sign the federal deal.
“It has enormous loopholes and may prove to be more harmful than helpful to competition and consumers,” said Massachusetts Atty. Gen. Tom Reilly.
Other states wouldn’t give their position as they waited on reports from the various negotiating tables.
On Friday, Justice Department antitrust chief Charles James and Microsoft executives said their 21-page agreement, if approved by the judge, would keep the Redmond, Wash., software titan from retaliating against computer makers that favored non-Microsoft programs. They said the market for media players and other mid-size software would become more competitive.
But the states consulted with experts and Microsoft rivals such as RealNetworks Inc. and IBM Corp. over the weekend, and most resolved to push for more concessions from Microsoft.
“There’s a lot of ambiguity in the settlement, and Microsoft has not been shy about taking full advantage of ambiguity in the past,” said Steve Houck, a New York attorney who previously worked on the Microsoft case in the New York attorney general’s office.
Among the goals being pursued by states in the new round of talks:
* Earlier and broader disclosure of how smaller programs interact with new versions of Windows and other big Microsoft products. In the federal settlement, Microsoft doesn’t have to disclose parts of the interfaces that could “compromise the security” of the smaller programs. And the company has to disclose interfaces only when test releases go to as many as 150,000 users, which could be just weeks before a product hits the market.
* Stronger enforcement, including a special master with judicial power over what Microsoft must do to comply with the deal. Under the Justice Department plan, compliance inspectors would report to Justice, which in turn would decide whether to file an action in court.
* An extension of the term of the agreement from five years to 10 years.
* A ban on all retaliation by Microsoft against actions by the computer companies, not just on some forms of retaliation for some reasons.
* An end to the requirement that if the computer companies develop new technology, they license it back to Microsoft.
It would be politically and financially difficult for just a few states to continue the years-long antitrust case in court. But without a convincing threat that they would take the risk, the states will find it difficult to get much more out of Microsoft.
Either a draft hammered out by the states meeting in Washington or one reached with New York could become a model for the rest of the states.
New York Atty. Gen. Eliot Spitzer spent much of Monday negotiating with Microsoft attorneys to tighten the language and toughen the terms of the proposed settlement.
By late afternoon, a deal appeared imminent. But a final draft faxed from Microsoft failed to include an enforcement provision--requested by Spitzer--that would have given the state more authority to police the agreement in the event that Microsoft did not live up to the terms, according to a source close to the negotiations.
Spitzer balked, and a planned news conference was canceled. Negotiations continued Monday night, and Spitzer was still leaning toward signing a settlement.
If he does sign, that would put more pressure on California, which is home to Sun Microsystems and other Microsoft foes, including Oracle Corp.
Lockyer has been an ardent believer in prosecuting the Microsoft case so far, though he has largely stayed behind the scenes.
If Microsoft is unable to settle with all states by today, U.S. District Judge Colleen Kollar-Kotelly indicated Friday that she would proceed immediately with the states’ lawsuit, including a remedy hearing set for March 11.
At the same time, the judge will begin proceedings to determine whether the proposed settlement is in the public interest.
Under the 1974 Tunney Act, a judge must accept or reject the Microsoft settlement after giving interested parties the opportunity to comment on it.
Houck said Microsoft has a powerful incentive to bring all the states on board now, rather than risk more litigation and an unfavorable court ruling further down the road.
“The risk for Microsoft is that the states will be able to use [the litigation] to uncover embarrassing information about Microsoft or persuade a judge to put additional restrictions on the company,” Houck said.
At a minimum, all states still will benefit from the restrictions set forth in last week’s agreement, which apply to Microsoft’s behavior nationwide.
Also on Monday, European Commission officials said the settlement will not slow their own probe into Microsoft’s actions.
In August, European antitrust regulators accused Microsoft of illegally bundling its media player into the Windows operating system. Regulators also are probing Microsoft’s alleged attempts to monopolize the market for server operating systems.
Microsoft officials have expressed confidence that they will be able to satisfy the concerns of European regulators. They are expected to file a response shortly.
In late September, the Justice Department’s James met with EC Competition Commission officials to discuss ways to cooperate on antitrust enforcement. Neither side would say whether the Microsoft case was discussed.
