New Mexico Settles with Microsoft

Microsoft Corp. on Thursday scored a victory in its ongoing legal battle with the Department of Justice and state attorneys general by independently settling its antitrust case with the state of New Mexico.

Microsoft Corp. on Thursday scored a victory in its ongoing legal battle with the Department of Justice and state attorneys general by independently settling its antitrust case with the state of New Mexico.

The settlement still leaves 18 states united against the Redmond, Wash., software giant, but legal sources say others could follow suit.

New Mexico Attorney General Patricia Madrid said in a statement that she felt the matter was "now ripe for speedy resolution. I am no longer persuaded a breakup remains appropriate or will ultimately be ordered by the courts. It is obvious Microsoft will continue to resist attempts to require this remedy. It is time to settle this case and move forward."

In terms of the settlement between the two parties, New Mexico would benefit from "any and all remedies imposed on Microsoft in the resolution of this lawsuit with any and all of the remaining litigating states and the U.S. Department of Justice." Microsoft would also reimburse New Mexico for legal fees and other costs associated with the case, Madrid said.

Tom Miller, the Attorney General of Iowa, tried to downplay the move, saying Madrid had inherited the Microsoft lawsuit from her predecessor, Tom Udall, and that New Mexico had been a good partner state for the past two and a half years.

"She has acknowledged the strength of our case, especially as it was fortified by the unanimous Court of Appeals decision on monopoly maintenance. We of course have the resources and will proceed without New Mexico," Miller said, adding that "we look forward to sharing the benefits of any settlement or judicial decision with her through the most-favored-nation clause she has with Microsoft."

He also downplayed the possibility that the case was now weakened, saying "we have a very strong team, and we recently received a strong finding of liability by a unanimous Court of Appeals. This will not hamper the states. We will go full speed ahead on this case."

But the news is a blow for the 18 attorneys general still fighting Microsoft in the courts, coming as it did just one day after Microsoft announced major concessions relating to the inclusion of its Internet Explorer browser in the Windows operating system.

Those concessions followed the recent findings of a U.S. Court of Appeals that a number of Microsofts past licensing policies were "restrictive, anti-competitive and violated Section 2 of the Sherman Act."

Microsoft on Wednesday conceded it had taken the action as "the appeals court ruled that certain provisions in our licenses with PC manufacturers impaired the distribution of third-party Web browsers."

As such, it will allow computer manufacturers to retain the option of placing icons directly on the Windows desktop. While Microsoft has touted the "clean and uncluttered" aspect of the desktop in the upcoming Windows XP, and wants to limit the number of icons allowed, "PC manufacturers will now have the option of continuing to place icons on the Windows desktop if they want to," the company said in a statement.

Microsoft will also now allow PC manufacturers to remove entries and icons in the "Start" menu that provide end users with access to Internet Explorer. Microsoft will include Internet Explorer in the Add/Remove Programs feature in Windows XP.

Computer makers will further have the option of removing the Start menu entries and icons that provide end users with access to Internet Explorer from previous versions of Windows, including Windows 98, Windows 2000 and Windows ME.

Observers said the moves could pave the way for a negotiated settlement with the Department of Justice and the state attorneys general involved in the antitrust case. While Microsofts CEO Steve Ballmer said the concessions "do not take the place of settlement discussions with the government parties or any future steps in the legal process," he remained positive about a settlement. "We are hopeful that we can work with the government parties on the issues that remain after the courts ruling," he said.

But antitrust experts expect the government and states to hold out for even greater concessions. Dana Hayter, a lawyer with Fenwick & West LLP in San Francisco, and a former attorney in the Justice Departments Antitrust Division, said it was unlikely that the concessions Microsoft has announced so far would satisfy the Justice Department or the state attoneys general.

"The battle is far from over," he said.

If a settlement is not reached, the matter could be appealed to the Supreme Court or heard by a new District Court judge. The District Court was mandated to undo not just past harm but to prevent future conduct of the same sort. As such, Microsoft would still have to face and agree to the far more stringent settlement demands anticipated from the government and attorneys general if they wanted to settle.

"This is just the tip of the iceberg and the start of possible concessions in the matter," Hayter said.