States get tough in Microsoft case

Among the highlights of the states' requests, outlined in a late draft of the document, according to sources: tightening up perceived loopholes in the settlement agreement; changing the definition of "middleware" to be more in line with a Court of Appeals decision; requiring Microsoft to ship a stripped-down version of Windows; compelling the software giant to ship Java with Windows XP; replacing a three-person oversight committee with a special master; requiring Microsoft to continue offering Office for the Macintosh beyond the August expiration of an existing deal; and requiring Microsoft to develop a version of Office for Linux.

The Justice Department, nine of 18 states and Microsoft cut a deal last month in the landmark antitrust case against the company. The settlement is going through a 60-day period of public comment as required by the Tunney Act.

The remaining states--California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, Utah and West Virginia, along with the District of Columbia--decided to continue with litigation.

The group is scheduled to file its remedy proposal to address Microsoft's antitrust violations later Friday. The software giant has until Wednesday to respond to the states' remedy proposal.

Despite the long list of requests, the states' proposal isn't expected to go as far as some of Microsoft's competitors and legal experts expected, signaling that the litigating states might be willing to settle the case with stiffer restrictions on Microsoft's business practices.

Some legal experts had expected the states to ask for the opening up of Windows source code to competitors, the forced removal of components--not just icons--from Windows, and a limited or complete ban on bundling, for example.

But the proposal does seem to benefit Microsoft's competitors, namely Apple Computer, Sun Microsystems and distributors of the Linux operating system.

"That may be why they're not trying to overreach here," said Andy Gavil, an antitrust professor with Howard University School of Law. "The states may be trying to signal that without filing formal Tunney Act opposition they are implicitly sending a message to the judge they would be willing to settle but for stiffer terms."

Sources familiar with the drafting of the remedy proposal indicate the states are hopeful their proposal will highlight to U.S. District Judge Colleen Kollar-Kotelly glaring weaknesses in the Justice Department-Microsoft settlement.

"We're seeing for the very first time the variance between what the federal government settled for and (what) the non-settling states want," Gavil said.

Kollar-Kotelly must "look and decide (if) that (is) a gap or a chasm. She has the option by withholding her approval in the federal court settlement to try and move the parties together once she sees how far they are apart," Gavil said.

Bob Lande, an antitrust professor with University of Baltimore Law School, agreed.

"She could reject their (federal court) settlement as not serving the public interest unless they conform" to the states' proposal, he said.

Jeff Shohet, head of San Diego-based Gray Cary's antitrust practice, believes Kollar-Kotelly might be more inclined to take a bird-in-the-hand approach.

"If you try to tackle the whole thing at once, it's too much," Sholet said. "You can't get everybody to agree. So I think the judge is trying to build some momentum, starting with the Justice Department, which was the biggest player."

If the states do push forward, they face a hard road.

"I think the states would be foolish if they don't really stretch once the settlement is done to try and work something out with Microsoft to avoid another trial," Sholet said. "That's just a mistake. The political momentum and legal momentum is all going out of the case once the settlement is finished."

A spokesman for Iowa Attorney General Tom Miller, one of the leaders of the litigating states' coalition, declined to comment.

Streamlined but direct
The proposal is expected to address a wide range of potential loopholes in the settlement agreement, said sources familiar with the legal filing.

Such a strategy makes sense, Shohet said. "I think they will be looking to plug the loopholes and extend the settlement agreement the Justice Department proposed, taking some of the ambiguities out and some of the favorable components in terms Microsoft negotiated. They'll be doing that all over the place," he said.

The litigating states also are expected to include a provision to compel Microsoft to continue to offer its dominant Office software for Apple's Macintosh computer beyond the August expiration of a deal between Apple and Microsoft. The provision also would require Microsoft to develop a version of Office for the Linux operating system.

The states apparently see Microsoft's dominance in desktop operating systems and office productivity suites to be a pair of clubs the company wields to maintain share in both markets. Microsoft controls more than 90 percent of both the PC operating system and PC productivity application markets, according to analysts.

The states also are expected to ask that Microsoft be required to ship Sun's versions of Java with Windows XP. During the trial, government prosecutors argued that Microsoft attempted to subvert Java, which they said the company viewed as a competitive threat to Windows.

Sun, Java's creator, separately sued Microsoft in 1997. The two companies settled the case in January, giving Microsoft the option to continue shipping its own version of the Java Virtual Machine, which is based on 4-year-old Java technology.

In April, Microsoft decided not to ship its JVM with Windows XP, opting to make it available as a separate download instead. Sun started offering its own Windows XP-compatible JVM early last month.

In drafting the remedy proposal, the states, in part, built on the foundation of the Justice Department-Microsoft settlement but more strictly adhered to the language of the U.S. Court of Appeals for the District of Columbia Circuit's June ruling, said sources familiar with the process.

The settlement largely left the middleware definition up to Microsoft, whereas the remedy proposal uses the more stringent language used by the court. The court defined Web browsers as middleware, which plays into one of the hottest-button issues throughout the case: Microsoft's bundling, or integrating, of its Internet Explorer Web browser with Windows 95 and 98.

Anti-bundling
In its ruling, the Court of Appeals sent part of that claim--about product tying--back to a lower court for more litigation. Under federal tying statutes, it is illegal for a monopoly to force consumers to buy one product to get another.

The appeals court, in its unanimous seven-panel decision, also found that Microsoft's commingling of Internet Explorer and Windows software code constituted an anti-competitive act. This made it more difficult for Netscape to compete with Internet Explorer, the court concluded.

The states would like to prevent Microsoft from bundling other technologies, such as media playback and instant messaging, into Windows for the same reason.

Giving up its ability to add new features to Windows is one concession Microsoft has been unwilling to make throughout the case.

"My guess is Microsoft is never going to accept such a provision," Shohet said.

In its settlement proposal, the Justice Department opted to let Microsoft remove access to bundled features, such as Web browsers and media players, rather than the actual programs.

Shohet said the commingling aspect is in some ways just too tough to tackle.

"That's about making (the products) easily separable," he said. "The settlement the Justice Department is attempting to get is trying to achieve that in some ways. It's not perfect and it's subject to be (taken advantage of) by Microsoft.

"We know that in any settlement or any deal, Microsoft is going to push the edge of the envelope and press it as far as they can," Shohet said.

Gavil also noted the Court of Appeals saw such a resolution as somewhat inadequate for consumers.

"If you're still forced to buy the whole package, even if you remove the icons, the extra stuff could deteriorate performance," he said.

The states' solution would have Microsoft sell a slimmed-down version of Windows, without the extras, opening up competition to rival products and giving consumers greater choice.

"Under that plan, PC vendors could pick and choose what parts to add to the operating system, sort of customizing it for consumers," Gavil said.

As of Friday morning, some states were still debating whether the browser should be included in the trimmed-down version of Windows or whether Microsoft would have to remove it.