States, U.S. clash over Microsoft antitrust ruling

Filings show sharp divisions among plaintiffs over whether Microsoft needs watching

Plaintiffs in the U.S. antitrust case against Microsoft Corp. disagreed sharply on whether the company should be released from the rules put in place by a 2002 consent decree, legal filings revealed today.

Key parts of the consent decree -- which grew out of the 2002 antitrust settlement struck with Microsoft by the U.S. Department of Justice and 20 states -- are scheduled to expire Nov. 12. Those rules, which have been overseen by U.S. District Court Judge Colleen Kollar-Kotelly, spell out prohibitions against Microsoft -- including ones that bar it from retaliating against manufacturers -- as well as requirements, such as one that demands the company disclose application programming interfaces to competitors so they can make their software run more smoothly with Windows.

Reports filed to Kollar-Kotelly today show that regulators are split in their opinions of the decree's effectiveness and whether it should be extended past Nov. 12.

On one side, the U.S. Department of Justice and five states -- New York, Louisiana, Maryland, Ohio and Wisconsin -- told Kollar-Kotelly that the decree had done its job. "The United States and the New York group respectively submit that the final judgments have achieved [their] goals," the group's report read.

Thomas Barnett, the assistant attorney general who heads the Justice Department's antitrust division, was more specific. "The final judgments have been successful in preventing Microsoft from continuing the type of exclusionary behavior that led to the original lawsuit," he said in a statement.

Six states and the District of Columbia, all part of the group that rejected the settlement when it was first proposed by the Department of Justice in 2001, sharply dissented.

Lead by California, the group -- which also includes D.C., Connecticut, Iowa, Kansas, Minnesota and Massachusetts -- said Microsoft's grip on the industry was as strong as ever. "There can be little doubt that Microsoft's market power remains undiminished and that key provisions of the final judgment have had little or no competitively significant impact.

"Microsoft's commingling violation has not been effectively addressed, Microsoft remains in possession of the fruits of its violation, and the competitive conditions antedating Microsoft's anticompetitive conduct have not been restored," the California group said in its filing. "The final judgment clearly has had little or no discernible impact in the marketplace as measured by the most commonly used metric, market shares," the group said. Its report then went on to cite sources, including research firm IDC, to show that in some cases -- server operating system share, for example -- Microsoft's slice has grown dramatically.

Not surprisingly, Microsoft reached a different conclusion in its report filed today. "The final judgments created an environment in which market forces can determine the relative success and thus the market shares of participants," the company said. "Measured by that standard, the final judgments have been a success."

Earlier this year, Kollar-Kotelly told the plaintiffs that she didn't want last-minute objections to the Nov. 12 expiration, prompting them to file now. A status hearing before Kollar-Kotelly on Sept. 11 -- the next-the-last such hearing scheduled before the decree is set to lapse -- also played a part in the timing.

Hints that the California contingent would argue that Microsoft's probation should be extended came this morning in the Los Angeles Times, which quoted California Attorney General Jerry Brown as saying that the 2002 settlement "has not been all that effective."

Microsoft's general counsel, Brad Smith, disagreed. "As it was specifically intended, the consent decree defined clear rules for how Microsoft competes without preordaining winners in the technology marketplace," Smith said in an e-mailed statement. "The consent decree shaped how we view our responsibilities and led us to adopt a set of voluntary principles that will continue to apply, even after major parts of the U.S. antitrust ruling expire this November."

In July 2006, Microsoft published a three-principle, 12-tenet manifesto dubbed "Windows Principles: Twelve Tenets to Promote Competition" that it promised to abide by. The first principle on the list: "Choice for Computer Manufacturers and Customers."

California and its fellow states shot back. "These 'Windows Principles' are, of course, completely voluntary, and it is unclear whether they are simply a public relations gesture or something more substantive," the group's report stated.

Kollar-Kotelly will hear arguments from the parties at the Sept. 11 meeting; at some point after that, but presumably before Nov. 12, she is expected to render her decision.

Copyright © 2007 IDG Communications, Inc.

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