Posted on: Saturday, June 30, 2001

Microsoft pledges continued innovation

Associated Press

WASHINGTON — Freed at least temporarily from a court-ordered breakup, Microsoft declared yesterday it would not accept any settlement with the government that made changes to the company's structure.

"We don't believe that structural relief is appropriate especially in light of the Court of Appeals decision to drastically narrow ... this case," said Microsoft spokesman Jim Cullinan.

The declaration — one day after a federal appeals court voided the ordered breakup of Microsoft — puts the company on a collision course with attorneys general from the 19 states that brought the antitrust suit against the software maker.

The states don't want any precondition on settlement talks and believe structural changes, up to and including a breakup, must remain on the table, according to Connecticut Attorney General Richard Blumenthal.

A breakup is "on the table so far as the Court of Appeals is concerned," Blumenthal said. "Structural remedies, including divestiture, are still very much in play."

Cullinan's statement came just a few hours after Microsoft chairman Bill Gates expressed optimism about the possibility of a settlement during appearances on yesterday's morning talk shows.

"We've tried before and now, with so much of the case resolved in a positive way by this court, it might be easier," Gates said on CBS' "The Early Show."

Howard University law professor Andy Gavil said the breakup question could scuttle the settlement process even before it begins. "They were awfully close to settling the last time around," Gavil said. "One important question is going to be whether the states are on board and willing to give up on a breakup."

The Justice Department said that it is still studying its options. The White House said President Bush would prefer a settlement.

In a unanimous decision, the U.S. Court of Appeals for the District of Columbia Circuit set aside an order breaking the company in two for antitrust violations. The judges also said they agreed that the company had abused its monopoly position in violation of antitrust laws.

The appeals court narrowed some of the findings of violations and sent it to a new trial judge, who must decide whether a breakup or some other penalty is warranted for Microsoft.

The appellate judges based their decision in part on outside statements by U.S. District Judge Thomas Penfield Jackson that criticized Microsoft and founder Bill Gates as arrogant. The appeals court said those comments "seriously tainted" the case.

Gates cheered Thursday's ruling as his company pressed ahead undeterred with its new Windows XP operating system and Internet services with a promise to continue innovation.

"Every company must have the ability to innovate and improve its products," Gates said from the company's Redmond, Wash., headquarters. But the world's richest man said, "The legal process can be hard on anyone who goes through it."

As for settlement talks, Gates said: "It's absolutely worth making an effort there."

In his ruling, Jackson concluded Microsoft improperly dominated the Internet browser market and should not have bundled its Windows operating system with its Web browser because it illegally disadvantaged competitors.

The appeals court, however, reversed the finding about Internet market dominance and said a new judge will have to reconsider whether tying pieces of software together harms consumers.

To Microsoft's delight, it warned against stifling innovation.

Lawmakers from both parties urged that the case not drag on.

"This gives this administration the opportunity to settle the rest of this case so all high-tech companies can move forward," Democratic Sen. Patty Murray of Washington said.

Sens. Herb Kohl of Wisconsin and Mike DeWine of Ohio, chairman and ranking member of the Senate Judiciary's antitrust subcommittee, said whatever occurs, it was important "to assure that no one company can abuse a dominant market position to the detriment of competition and consumers."

Though the breakup they sought was reversed, state attorneys general found victory in the court's conclusion that Microsoft had violated the law. They pledged to continue the case vigorously, with or without the Justice Department. Some, however, opened the door to settlement talks.

"Our continuing duty is to fight for a fair and open marketplace," said California Attorney General Bill Lockyer, "either by settlement ... or litigation."

New York's attorney general, Eliot Spitzer, warned against making too many concessions. "There is nothing in this opinion that would justify a revised perspective on this litigation on the part of DOJ," Spitzer said.