Microsoft Hits Snags on Deals

Case entanglements to cloud outcome.

Despite negotiating two settlement agreements, it appears increasingly unlikely that Microsoft Corp. will get a quick resolution of the antitrust actions dogging it.

In a week in which the Redmond, Wash., software company was dealt several harsh blows in its ongoing court battles, it became clear that once-separate legal issues are becoming entangled— and not beneficial to Microsoft.

At a Senate Judiciary Committee hearing last week, critics expressed grave doubts about the effectiveness of the settlement agreed upon by Microsoft, the U.S. Department of Justice and nine states, raising questions about how enforceable the deal is in its current form.

Meanwhile, Maryland District Judge J. Frederick Motz, who is overseeing a second settlement proposal for antitrust-related, class action lawsuits against Microsoft, voiced concerns over that deal, which would give the nations poorest schools computers and software estimated at $1 billion.

Motz told the parties to meet with a mediator this week to hammer out more-acceptable terms.

At the Senate hearing, leaders from the Democratic and the Republican parties made it clear they want U.S. District Judge Colleen Kollar-Kotelly, who is overseeing approval of the deal between Microsoft and the DOJ, to simultaneously consider tougher remedy proposals filed recently by nine states that opted out of the federal deal and chose to file a suit of their own.

The DOJ settlement includes provisions for protecting OEMs from retaliation, allowing custom configuration of Windows, requiring disclosure of interoperability features and the creation of a technical oversight committee. The dissenting states have called for additional terms including an unbundled version of Windows, disclosure of software interfaces prior to beta releases, better interoperability disclosure with competitors and the naming of a Special Master to encourage Microsoft compliance.

Microsoft had hoped to quickly wrap up its antitrust settlement with the DOJ before the dissenting states grievances could be drawn into—and further complicate—the settlement approval process, sources said.

But that seems unlikely.

As the DOJ deal wends its way through public review, as required by the Tunney Act, lawmakers took steps to ensure the states concerns infiltrate the DOJ matter. Senators will submit a transcript of the Judiciary hearing, which included discussion of the dissenting states arguments, as public comment in the Tunney review, which is set to culminate in a hearing in March.

Some legal experts said it may be possible for the court to avoid allowing either the DOJs or the dissenting states cases to prejudge the other by considering them under separate standards.

"The standard [the judge] uses is different in each case," said Andrew Gavil, professor of law at Howard University, in Washington. "The only question shes supposed to ask is Is the settlement in the public interest?"

But many legal experts agree—though few will say so on the record—that it would be tricky for the court to explain an outcome where both the settlement and the states proposal prevail, particularly because the court will have access to the states arguments in the settlement review.

"It would be very difficult [for the judge] to come back later and say, I didnt have enough information. Im going to change my mind," said Albert Foer, president of the American Antitrust Institute, in Washington.

Rejecting proposals for any further sanctions, Microsoft outside counsel Charles Rule contended that the DOJ settlement is already the strongest, most regulatory decree ever obtained through litigation or settlement by the department.

Settlement opponents said they hope the judge will delay Tunney proceedings until the states case is complete.

"We think the only reasonable way to approach this is to receive the comments [in the Tunney Act process] and not take any final action until after the [states] remedial hearing," Foer said.

For Microsofts adversaries, the Senates interest in the case can only help.

"The judge is going to recognize very quickly that the settlement will not do what the Justice Department says it will do," said Ken Wasch, president of the Software & Information Industry Association, in Washington.

Despite the uncertainty surrounding the settlements, Microsoft is moving ahead, last week appointing two compliance officers.

The company named David Dadoun, a former antitrust enforcement lawyer with the Federal Trade Commission, as its internal antitrust compliance officer to administer the companys antitrust compliance program, as required under the proposed consent decree.

Odell Guyton, a corporate compliance professional and former federal prosecutor, was appointed to serve as Microsofts director of compliance.