Microsoft, DOJ reach settlement; states' backing uncertain

WASHINGTON -- The U.S. vs. Microsoft antitrust case could soon draw to an end -- if the 18 states that joined to fight the software giant's predatory business practices back a U.S. Department of Justice settlement offered in court today.

The states have until Tuesday morning to decide whether to join the settlement reached this week by the Justice Department, said U.S. District Judge Colleen Kollar-Kotelly at a status hearing this morning.

The attorneys general from New York, Connecticut and Iowa, speaking after the hearing, all said the agreement represents progress. But they said they wouldn't commit to backing it until they have studied it further.

Nonetheless, the state officials said their desire for a settlement will be weighed against its potential benefits to the economy and the technology industry, in particular.

The settlement brings "results now, in real time," Connecticut Attorney General Richard Blumenthal said outside of court. "Time in this industry is not on our side," he said.

If the states don't agree, a remedy phase will begin in the proceedings. Even so, the court could still accept the federal settlement and begin a Tunney Act proceeding, which requires the court to collect public comment about an antitrust settlement for 60 days. The judge must then decide, after reviewing those comments and the government's response to them, whether the agreement is in the public interest.

The settlement is detailed in a 21-page, single-spaced document that's broadly intended to give protection to a range of middleware products that have the potential, as did Netscape's Web browser, to threaten Microsoft's operating system monopoly. These middleware products include browsers, media players, instant messaging and any future products.

As part of the agreement, Microsoft will be required to disclose its middleware interfaces or application programming interfaces.

The agreement includes a number of protections for PC makers. During the trial, the government successfully argued that PC makers were constrained from offering rival products on desktops by Windows licensing agreements and feared that they might have to pay more for the operating system. This agreement requires Microsoft to license its operating system to PC makers on "uniform terms" for five years.

The government, however, faces a potentially tough job selling the proposal to the high-tech industry, particularly those companies that operate under the cloud of Microsoft's operating system dominance. Technology industry groups that have supported the government's case until now say the agreement won't impact Microsoft's strategy of integrating more features into its browser, squeezing out other companies.

The Justice Department's antitrust division chief, Charles James, said the government "couldn't be more satisfied" with the consent decree, which imposes a number of restrictions on Microsoft's business practices for five years (see story).

James said the agreement will bring significant change to Microsoft's business practices, adding that it will give computer makers "complete freedom" to replace Microsoft's middleware products with their own without fear of retaliation. In particular, he cited the "tough enforcement" provision of the agreement, which calls for a panel of three independent, on-site, full-time computer experts.

Another provision that officials point to as significant, and as proof that the agreement will concern future product development, is a section intended to keep competition in the server market. The settlement ensures that non-Microsoft server software can interoperate with Windows on a PC the same way that Microsoft servers do.

The Justice Department spelled out its views on the agreement in a statement posted at midmorning on its Web site.

Microsoft, in a statement on its Web site, called the agreement "fair, reasonable and good for consumers."

In court, the judge asked each side to give an overview of progress so far, beginning with the court-ordered mediator in the case, Eric Green.

Green said the settlement involved all the parties, who reviewed "every sentence, every phrase" while meeting around the clock for more than a month. He said the settlement addresses all of the issues cited by the U.S. Court of Appeals in its decision last June, affirming that Microsoft had illegally maintained its monopoly in operating systems.

Green also said the final version of the agreement wasn't actually completed until 6 p.m. Thursday.

John Warden, Microsoft's lead trial counsel, told the judge that the company "is very pleased with the report we are able to give to the court today."

"The settlement is good for the parties and consumers," said Warden. "It's good because it puts the conflict to an end on a basis consistent with the Court of Appeals ruling."

In seeking more time, the state's recently hired lead attorney, Brendan Sullivan, of Washington, said state officials have already scheduled a series of conference calls during the next several days to review the settlement. Citing the sovereignty of the states, Sullivan said, "There is no shortcut to this process."

The judge, who received ongoing progress reports from Green about the settlement talks, praised the efforts of both sides, saying at one point that she was "gratified" by their efforts

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