Public frowns on Microsoft settlement

In the brief filed with U.S. District Judge Colleen Kollar-Kotelly, the Justice Department said it had received 30,000 responses, 1,250 unrelated to the case. Roughly half the comments were against the settlement, 7,500 were in favor of the deal, and 7,000 expressed no sentiment either way.

Microsoft, the Justice Department and nine states agreed to the settlement in early November, with nine other states and the District of Columbia choosing to continue with litigation.

Last week, Kollar-Kotelly ordered the two parties to file the joint status report, also asking if they planned to make changes to the settlement based on public response. Sixty days of public comment concluded on Jan. 28 as mandated by the Tunney Act, a Nixon-era law that requires antitrust settlements be in the public interest.

"There's nothing routine about this case," said Rich Gray, a Silicon Valley-based lawyer closely following the trial. "She basically put them on notice last week that she expects them to take into account the public comment."

The settling parties are scheduled to appear before Kollar-Kotelly on Friday in a meeting that could signal how she regards the settlement proposal. The judge has the option of accepting, accepting with conditions, modifying, or rejecting the proposed deal. But that decision is not expected for at least a month or more.

"That's assuming the judge gives any clear signals," Gray said. "She may not."

What impact the largely negative public comments will have is uncertain, but the settling parties are considering modifying the proposed deal.

"The United States and Microsoft are considering whether, in response to the public comments, to submit to the Court proposed modifications" to the settlement proposal, the brief states.

In the 13-page filing, the Justice Department and Microsoft said they would notify the court of any changes, if any, on or before Feb. 27.

The settling parties also said they would be open to a limited hearing on the settlement, spanning a day, but discouraged Kollar-Kotelly from turning it into a free-for-all. The Justice Department and Microsoft asked the judge to limit to a small number the third parties making presentations to the court, and that "the greatest portion of the hearing be allocated to the United States, the Settling States and defendant Microsoft."

The legal brief emphasized that "the parties believe that the Court should not conduct an evidentiary hearing in this case."

Treacherous path
Antitrust experts warn that Kollar-Kotelly has a treacherous path ahead of her, perhaps more daunting than the trails Olympic skiers will challenge at the winter games that start Friday.

"She has been put in an awkward position, because not everyone is a party to the settlement," said Emmett Stanton, an antitrust lawyer with Fenwick & West in Palo Alto, Calif. He said this was different from traditional federal government settlement cases, "with the state attorneys general, being non-parties, just yapping about it being inadequate."

Kollar-Kotelly must carefully deal with two different cases starting on parallel paths but winding toward different destinations. The settlement, which would span five years, calls for some restrictions on Microsoft's business practices under the review of a three-member oversight committee.

But the proposed deal puts little restriction on Microsoft software development and deployment, areas the litigating states contend require stiff oversight. They argue that a unanimous, seven-judge appeals court ruling, which last year upheld eight separate antitrust violations against Microsoft, demands tougher sanctions.

In a December remedy proposal, the litigating states asked for broad changes to or restrictions on Microsoft software, such as opening up the source code to Internet Explorer or compelling the company to carry Sun Microsystems' Java in Windows for 10 years.

Throughout their courses, the two cases crossed paths at several points that could bring them together. Among Kollar-Kotelly's concerns: that the course of one case could affect the other.

"It's very awkward if she approves this settlement and goes forward with a further trial for the remaining parts of the state (attorneys general's) claims," Stanton said. "It's just not very tidy. If she were to approve the settlement, some people would criticize her for prejudging the states' case."

Both Gray and Stanton are convinced Kollar-Kotelly will hold off ruling on the settlement until after she concludes the remedy hearing in ongoing litigation. Microsoft and the non-settling states go back to court March 11 for a hearing, from which the judge will craft a remedy. But given the number of witnesses scheduled to appear, that proceeding could wind on for a month or more.

Wait-and-see approach
At the same time, Kollar-Kotelly could convene separate hearings on the settlement, which Microsoft and the Justice Department would like restricted to a single day.

"She could then take the matter under submission and say that she will rule later and let the state process go forward for some period of time," Stanton said.

This strategy makes even more sense in light of Netscape's lawsuit filed late last month. The AOL Time Warner subsidiary sued Microsoft for damages based on the software giant's anti-competitive activity during the so-called browser wars.

"This judge is fully aware both of the position of the dissenting states and the Netscape lawsuit," Gray said. "She is going to move forward very carefully on this pending settlement in light of those two matters."

A number of legal experts said they believe the judge would be more inclined to reject the settlement as not being in the public interest, particularly in light of the public comment. But in that instance, both Microsoft and the Justice Department could appeal her decision, for which there is precedent.

In 1994, the Justice Department and Microsoft hammered out a settlement in an earlier case. U.S. District Judge Stanley Sporkin rejected the agreement and refused to sign the document even after the U.S. District Court of Appeals for the District of Columbia Circuit instructed him to do so.

"Judge Sporkin said, 'I'm not signing this. You can assign someone else to do that,'" Stanton said. The court later assigned the case to U.S. District Judge Thomas Penfield Jackson, Kollar-Kotelly's predecessor. Jackson signed the settlement.

Gray sees another scenario unfolding, in which Kollar-Kotelly would use the settlement as a minimum restraint on Microsoft's behavior, even though the company said it would comply with the agreement regardless of the outcome.

"The judge could say that on a clean slate, if this was the only remedy against Microsoft, that it's not enough," he said. "She could reason: 'But I know there is going to be another remedy imposed on Microsoft, either the one I order now or the one I order after appellate review. So it is in the public interest to put this minimum set of requirements while the other works its way through the system.'"

If Kollar-Kotelly does, in fact, decide the settlement is inadequate, she must contend with the reality that Microsoft will almost certainly appeal the remedy she later imposes, further delaying any restrictions on Microsoft's behavior. Although Jackson ruled in April 2000 that Microsoft violated two sections of the 1890 Sherman Antitrust Act, no action has been taken against the company during the appeals process.

"This is sort of an unprecedented situation, where she essentially has two bites of the apple," Gray said. "She could say that if she had one shot at this it isn't enough, but since she's got two shots at this, she could put one in place while the other one works its way through the system."