Posted on: Tuesday, November 6, 2001

States consider Microsoft settlement

By D. Ian Hopper
Associated Press

WASHINGTON — The coalition of 18 states that stood surprisingly firm during the years-long court fight against Microsoft Corp. threatened to fracture over whether to join in a negotiated settlement that critics said was inadequate.

A confident Bill Lockyer, California's attorney general, told The Associated Press that despite "a very intense lobbying effort" against him by Microsoft, including calls from a Congress member from California, he and others are unswayed.

"I think ... most of the states will tomorrow (Tuesday) indicate they're going to continue their efforts to get the appropriate and necessary remedies," Lockyer predicted.

Lockyer also accused the Justice Department and Microsoft of trying to break up the fragile state coalition.

U.S. District Judge Colleen Kollar-Kotelly gave the states until Tuesday morning to decide whether to end the case under conditions already agreed upon by the Justice Department, or continue in court. A court hearing was set for the morning.

Eager to preserve the fragile cease-fire that few experts believed was possible, the court-appointed mediator, Eric Green of Boston, met Monday in Washington with officials from New York, Ohio, Connecticut, California, Iowa and Massachusetts. The outcome of that meeting was closely guarded.

The states stayed in touch through conference calls all day and late into the night.

The situation was fluid, but some important states appeared to be leaning toward settling, according to people familiar with the secret discussions. These include Illinois and New York, two states that helped organize the courtroom battle and whose officials served on an executive committee of government antitrust enforcers for the case. Utah and North Carolina also appeared to be headed for settling.

New York's antitrust chief sought additional penalties against Microsoft on Monday during a meeting with the company's lawyers, but Microsoft declined the overture, said a person close to the talks who spoke on condition of anonymity.

Howard University law professor Andy Gavil said New York Attorney General Eliot Spitzer, who inherited the case from his predecessor, is in a unique position because of the Sept. 11 terrorist attacks in his state.

"It could reflect a priority choice on the part of the attorney general, this is not where he wants to put his resources," Gavil said.

But other states, including California and Massachusetts, indicated they would tell the judge they were ready to move forward with the case.

"Microsoft is one of the richest, most powerful companies anywhere, and there's nothing wrong with that," Massachusetts Attorney General Thomas Reilly said. "But you can't use your power and dominance to crush the competition."

Lockyer said Microsoft and the Justice Department have been spreading gossip against California, accusing him of trying to cut a separate deal, because the state "has been one of the more consistent consumer protection advocates."

"Microsoft has been trying to break up the coalition for a year, and the federal (Justice Department has) been trying to break up the coalition since early last week," Lockyer said.

Justice antitrust chief Charles A. James held several private meetings with Microsoft lawyers without state officials or James' own staff present, Lockyer said.

"I think there's a PR war going on now where this discussion has devolved from policy into fingerpointing," said Lockyer, who recently hired top Washington attorney Brendan Sullivan to represent the states.

Legal experts said the states individually can accept the settlement, reject it or ask Microsoft to agree to tougher provisions. Even if some states decide to pursue the case in court, they also could seek to persuade Kollar-Kotelly that the agreement is flawed and ought to be rejected.

Over the weekend, the states heard from Microsoft competitors — including AOL Time Warner, IBM, Novell and Sun Microsystems — as well as trade associations and consumers groups about the complicated agreement announced Friday, said sources close to the deliberations.

"They were asking questions about practical applications," one participant said.

The proposed settlement would require Microsoft to give independent monitors full access to its books and plans for the next five years, and to provide information to help rivals make their products compatible with Windows. It would also give computer manufacturers more latitude to remove Windows features and replace them with competing products.

Microsoft spokesman Vivek Varma said the settlement is a "fair and reasonable compromise," and that the company is hopeful the states sign on.