Nine States Go Separate Way

Nine of the 18 states involved in the Microsoft antitrust case, along with the District of Columbia, have rejected the federal government's settlement with the software company and have vowed to pursue litigation against it.

WASHINGTON -- Nine of the 18 states involved in the Microsoft Corp. antitrust case, along with the District of Columbia, have rejected the federal governments settlement with the Redmond, Wash., company and have vowed to pursue litigation against the software maker. The remaining nine states agreed to accept the deal, which is now on track for court approval.

The split decision came during a hearing before U.S. District Judge Colleen Kollar-Kotelly, which had been delayed for several hours to allow states one last chance to hammer out a deal that all parties would support. The outcome now puts Kollar-Kotelly in the unusual position of dealing with the final approval of the settlement, reached late last week between the federal government and Microsoft, as well as overseeing continuing litigation from the dissatisfied states in the same case.

"The settlement enables firms to develop new middleware products and get them onto operating systems, and it enables them to do it now," said Charles James, DOJ anti-trust chief. "Consumers in states like Massachusetts and California are going to get benefits regardless [of continued litigation]."

The parties that refused to sign onto the Microsoft/DOJ deal represent Iowa, Connecticut, West Virginia, Minnesota, Utah, Kansas, Massachusetts, Florida, California and Washington. Attorney Brendan Sullivan, who is leading the combined legal efforts of the states in the Microsoft case, said the attorneys general of those states remained concerned that the settlement is too lenient. Key concerns include the lack of assurances that OEMs who choose competing software will not face retalition from Microsoft; that the software maker remains in control of the disclosure of interoperability technology; and that states have few options for enforcement of the order.

Iowa Attorney General Tom Miller said the states need to be sure the anti-trust goals are met "without the possibility of evasion" by Microsoft. While making it clear that they intend to bring the case to the next level of litigation, Attorneys General Miller and Richard Blumenthal of Connecticut said they would also continue reviewing the settlement, meaning that a future agreement with Microsoft is still possible but unlikely. "The settlement reached today reflects a triumph of hope over history," Blumenthal said. "That history is due cause for caution and care in reviewing and evaluating any agreement." Microsoft made it clear in court this morning that it considers all relevant issues to have been thoroughly vetted, however. "The issues in this case have been beaten to death, and they have been beaten to death by people who are worn out," said John Warden, attorney for Microsoft. "Microsoft believes the settlement process has come to an end."

While the dissatisfied litigants press their case, the DOJ version of the settlement will continue on the path to final approval. The proposed settlement now enters the public comment phase, which will last through February. Sources close to the case said the dual track under the supervision of the same judge was highly unusual. It is unclear if negotiations in the continuing litigation could affect the settlement as it proceeds.

The action in federal court comes after a weekend of intense negotiation, which lasted well into the early morning hours Tuesday, sources said. The federal settlement with Microsoft was clearly in trouble as early as Monday, when Massachusetts Attorney General Tom Reilly said he would not sign off on it unless major changes were made to it.

In a statement released late on Monday, Reilly said: "The agreement reached by the U.S. Department of Justice and Microsoft is fundamentally flawed. It has enormous loopholes and may prove to be more harmful than helpful to competition and to consumers. We will show the utmost respect for the court and the process while at the same time conveying our problems with this agreement."

Microsoft had a "long and consistent pattern of violating the law and not playing by the rules. The original goals of this suit were to restore competition and prevent a return of illegal and abusive conduct. This agreement is license for Microsoft to use its dominance and power to crush its competition. We all lose if that happens," he said.

Earlier at a press conference held in Boston Reilly said that he and other attorneys general were prepared to ask a federal judge to impose a remedy that was harsher than the one Microsoft reached with the Justice Department, which was "riddled with exceptions" and would allow Microsoft to "crush smaller rivals," according to a Reuters report.

A source who declined to be named said the most likely large states to support Massachusetts would be California, New York and possibly Iowa.

Bill Brammer, a spokesman for Iowa Attorney General Tom Miller, who leads the 18-state Microsoft Working Group, declined to comment on the statements made by Massachusetts Reilly.

Neither the attorneys general for California and New York nor Microsoft could be immediately reached for comment. But Californias attorney general, Bill Lockyer, was the first to speak out last week about the proposed settlement, saying he would continue to urge the 17 other states to take the review time they needed to fully understand every word and every implication in the proposal before they decided whether to settle.

He and his New York counterpart, Elliot Spitzer, have also previously said they will pursue "strong and effective relief that will promote competition and consumer choice in the marketplace."

"We look forward to continuing to work with the Department of Justice in the proceedings that are about to begin before the trial court but will, if necessary to protect the public, press for remedies that go beyond those requested by the Department," they said in September.

Other parties also plan to voice their objections to the proposed settlement plan in Tunney Act hearings. Ken Wasch, the president of the Software and Information Industry Association, a Washington-based trade group with many Microsoft rivals as members, said he would "vigorously oppose and object to" the proposed settlement in these proceedings.

"We are shocked. The Justice Department once before entered into a consent agreement with Microsoft in 1995, and Microsoft scoffed at it before the ink was dry. Whats the Justice Department thinking here, working for 11 years on an antitrust case and then settling for nothing?" Wasch said.

Additional reporting by Caron Carlson in Washington, D.C.