The settlement agreement, to which nine of the co-plaintiff states have now given their support, remains essentially unchanged from the proposal put forward by the Justice Department and the software giant on Friday. Any changes would be only clarifications and not a substantive reworking, according to the government.
Connecticut Attorney General Richard Blumenthal, who did not sign onto the proposal, said that the settlement is a "triumph of hope over history," a deal that is "good but may not be good enough." (Compare the original document with the revised proposal.)
Many outside the case, from consumer groups to Microsoft competitors and antitrust specialists, have said that the deal goes easy on the software titan.
Said Blumenthal: "My present intention is to proceed in the litigation."
Tuesday's refusal, however, does not mean that those states will not come to terms with Microsoft at a later date.
"We in Iowa continue to look at the agreement. We move on with the litigation, (but) we are open to settlement talks," said Iowa's attorney general, Tom Miller, who also has not signed the deal. "We congratulate the states that settled."
Miller said that the case's mediation process "produced some real progress," especially regarding its disclosure of technical information on servers. Other concerns remain about the dictates for Microsoft, including safeguards for PC makers and openness to third-party applications.
The federal government brought suit against the software maker in 1998, and subsequent court decisions found Microsoft to be a monopolist that used its dominant position in operating systems to unfairly compete against other software makers and gain favorable deals with PC makers. A federal judge had ordered Microsoft split into two companies and the imposition of other strong remedies.
An appeals court in June threw out the breakup order, but in remanding the case to a lower court upheld the monopoly ruling and ordered that new remedies be set in keeping with that ruling.
U.S. District Court Judge Colleen Kollar-Kotelly, a relative newcomer to the case, was randomly assigned at the end of August. On several occasions since then, she has said that a settlement would be in the best interests of the country.
On Tuesday, the Justice Department expressed satisfaction with the recent progress toward a settlement and expects more states to sign on.
"We are very pleased with the results thus far," said Charles James, assistant U.S. attorney general. "This settlement is good for consumers and the tech economy."
The other states that have not signed onto the settlement proposal are California, Florida, Kansas, Massachusetts, Minnesota, Utah and West Virginia. Also in the group is the District of Columbia.
"We made every effort to reach a compromise to address the states' concerns and allow everyone to move forward," Microsoft Chairman Bill Gates said in a statement Tuesday. "Yesterday, at the request of the states, we made some additional revisions to clarify the proposed decree and better capture the intent of the parties.
Earlier in the day, Microsoft indicated its willingness to keep working toward a settlement with the remaining states, even as it expressed a hope that the well-worked matter would be more or less closed Tuesday.
"Microsoft will never refuse to listen," said John Warden, an attorney for the company. "The issues in this case have been beaten to death...by people who have been worn out."
The case now will proceed on two tracks. One track will involve public comment as dictated by the Tunney Act, and the other will be continued litigation with the states not agreeing to the settlement.
"I'm going to be going forward from this point on two parallel tracks," Kollar-Kotelly said.
Mediation among the parties ceased with Tuesday's hearing.
The Tunney Act requires that the judge would review the deal to ensure that it is in the public interest and is not politically motivated.
Before Kollar-Kotelly holds a hearing in keeping with that law, there must be a 60-day period of public comment after the proposed settlement is published in the Federal Register, which should take place within the next two weeks. After the public comment period, there will be 30 days for the government to respond, meaning that the next phase should conclude in February.
One observer said that the remaining states face an uphill battle in their continuing opposition to Microsoft, given the loss of their allies and worries about limited resources.
"The states can't lose any more, other than the enormous expense of continuing the battle," said Bob Lande, an antitrust professor at the University of Baltimore Law School. "With California, they have $3.7 million assigned to their war chest. The question is, will that be enough?"
"We're very confident that there will be sufficient resources" to continue the process, said Connecticut's Blumenthal, who left the door open to settlement farther down the road.
Earlier in the day, the 18 state attorneys general were divided into three groups: One wanted to accept the settlement as it is, the second was undecided, and the third wanted to litigate. That split remained after several days of intense discussions that continued into the early hours on Tuesday.
"An extraordinary amount of work was done over the weekend," said Brendan Sullivan, the lead attorney for the states. "They negotiated until (12:30 PT) this morning, and a redline (amended) version was dispatched to the Justice Department and the remaining states at (5:30 PT) this morning."
Mediator Eric Green, a professor at Boston University, said that the states "worked through the night until the break of dawn this morning."
The states that have joined in the settlement are Illinois, Kentucky, Louisiana, Maryland, Michigan, New York, North Carolina, Ohio and Wisconsin.
The Justice Department and Microsoft delivered their settlement proposal, in the form of a consent decree, to Kollar-Kotelly last Friday to meet a court-ordered deadline. The states complained that they weren't given adequate input into the negotiations leading up to that settlement and that the proposal offers Microsoft too much wiggle room.
Microsoft's industry foes continued to find fault with the settlement Tuesday.
"The state attorneys general who today rejected the settlement agreement between Microsoft and the Department of Justice were right to do so, and we support them," Paul Cappuccio, AOL Time Warner's general counsel, said in statement. "That agreement fails to protect consumer choice and promote competition, by leaving Microsoft free to continue to abuse its monopoly."