US states fear weak settlement in Microsoft talks

By Peter Kaplan

WASHINGTON: Some state attorneys general involved in the antitrust case against Microsoft Corp. fear the U.S. Justice Department is ready to accept a settlement that fails to fully curb the company's monopolistic practices, sources close to the case said on Wednesday.

Some of the 18 states in the case have privately voiced concerns that the department is offering terms they fear won't stop Microsoft from repeating tactics already deemed illegal by the courts, the sources said.

The department is pushing Microsoft to agree to allow PC manufacturers wide latitude to preload rival software on their machines and remove Microsoft software icons, one source said.

Microsoft's critics are also starting to grumble that the terms under discussion will not force major changes in its new Windows XP operating system, the sources said.

"It does seem to be a movement of some kind on the part of DOJ to kind of settle this thing quickly," the source said.

Representatives of the Justice Department and Microsoft declined to comment on the settlement talks. A spokesman for Iowa Attorney General Tom Miller, who typically speaks for the states, also declined to comment.

The two sides are under pressure to negotiate a settlement of the three-year-old case ahead of a Nov. 2 deadline imposed by U.S. District Court Judge Colleen Kollar-Kotelly.

Kotelly ordered the two sides into intensive settlement talks on Sept. 28, saying a quick resolution of the case had become more important "in light of the recent tragic events affecting our nation ..."

The case returned to the district court after an appeals court in June found that Microsoft had illegally maintained its monopoly in personal computer operating systems. But it reversed an order by trial court judge Thomas Penfield Jackson that would have split the company in two.

If there is no settlement, Kollar-Kotelly has said she anticipates starting hearings in March on what sanctions to impose on Microsoft to prevent future antitrust violations.

Justice Department attorneys have publicly said they will ask the judge to impose broad restrictions on Microsoft's business tactics that would be modeled after a set of interim sanctions handed down last year by Judge Jackson.

Those interim remedies were designed to guarantee that consumers and PC manufacturers would be given more freedom to decide what software should be preloaded onto their machines, and to make sure that competitors' software applications can run as well on Windows as Microsoft applications.

But according to one source, some state attorneys general believe the terms under discussion are "less than the interim remedy by a significant amount."

For example, the conditions would not do enough to stop Microsoft from bundling together new software applications into Windows, nor force the company to disclose enough of the operating system's inner workings.

Andrew Gavil, a professor of antitrust law at Howard University in Washington, D.C., said the government would need to enforce both provisions to ensure competition.

If Microsoft's competitors don't know enough about the inner workings of Windows they "can't produce compatible software that consumers and (manufacturers) might elect to choose in lieu of Microsoft software," Gavil said.

The states have been adamant in insisting the final remedy should thwart any future anti-competitive behavior by Microsoft using its latest products.

A rift between the Justice Department and the more-aggressive state attorneys general led to the failure last year of court-ordered settlement negotiations mediated by federal appeals court judge Richard Posner.

Recently some of the states have expressed particular concern about all the features bundled into Microsoft's new operating system, Windows XP.

Critics say inclusion of the new features are similar to Microsoft's addition of the Internet Explorer browser to Windows 98, a move that the appeals court deemed an attempt to fend of rival Netscape Navigator and illegally maintain the Windows monopoly.

Microsoft, meanwhile, has long resisted any settlement that would interfere with its ability to bundle new features into Windows. And at a court hearing last month, lead Microsoft attorney Dan Webb, told Kollar-Kotelly that Microsoft was very concerned about competitors getting access to the Windows source code. "It would be devastating to Microsoft to have that happen," Webb said.

(C) Reuters Limited 2001.