New Mexico drops out of Microsoft suit

New Mexico defends Microsoft settlement Patricia Madrid, New Mexico attorney general

Microsoft has independently settled its antitrust case with New Mexico, eliminating one of the 19 states participating with the Justice Department in the landmark lawsuit.

"To my mind this matter is now ripe for speedy resolution," New Mexico Attorney General Patricia Madrid said in a statement. "I am no longer persuaded a breakup remains appropriate or will ultimately be ordered by the courts. It is obvious Microsoft will continue to resist attempts to require this remedy. It is time to settle this case and move forward."

As part of the agreement to drop the case, New Mexico will receive reimbursement from Microsoft for legal fees and other costs incurred during the case and "the benefit of any and all remedies imposed on Microsoft in the resolution of this lawsuit with any and all of the remaining litigating states and the U.S. Department of Justice," Madrid said.

"What Microsoft got quite cheaply is a statement from one of the state AGs that it's time to quit," said Rich Gray, a Silicon Valley lawyer who is closely following the case. "What New Mexico's attorney general got is probably an unpleasant reception at the next gathering of the state attorneys general."

The announcement shocked legal experts and other states participating in the case.

"We're a little bit surprised," said Tom Miller, Iowa attorney general and one of the leaders of the 18 states.

"I'm quite surprised at this," said Glenn Manishin, an antitrust lawyer with Patton Boggs in McLean, Va. "But New Mexico has not been one of the leading prosecutors in the case."

Connecticut, Iowa and New York have generally been viewed as the three states championing the case. Also involved are California, Florida, Illinois, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Missouri, Minnesota, North Carolina, Ohio, Utah, West Virginia, Wisconsin and the District of Columbia.

"We're pleased to have resolved this matter with the state of New Mexico, and we thank Attorney General Patsy Madrid for her leadership in hammering out this agreement," said Microsoft spokesman Vivek Varma. "And we're committed to working with the federal government and the remaining state AGs to resolve the remaining issues of the case."

Follow the leader?
Madrid called on her peers and the Justice Department to follow New Mexico's lead.

"It is my hope that, along with the U.S. Court of Appeals' opinion, the decision to have New Mexico settle its case with Microsoft will help open the way for the remaining parties to pursue realistic settlement terms," she said.

New Mexico's defection is part of Microsoft's effort to compel the government to settle with the company, even though "the Court of Appeals delivered a unanimous decision supporting the main charge of monopoly maintenance," Gray said. "It's more political pressure for a quick and favorable settlement, and each of these state AGs, after all, is ultimately a political animal."

The Justice Department declined to comment on the settlement, but Miller said that New Mexico's decision would not change the government's strategy against Microsoft. "We have the resources to go ahead, and most recently we have been fortified with the unanimous decision of the Court of Appeals on the core of the case," he said.

In June, the U.S. Court of Appeals for the District of Columbia Circuit upheld a lower court's ruling that Microsoft had illegally maintained a monopoly in Intel-based operating systems. The seven appellate judges also threw out an order breaking Microsoft into separate operating system and software application companies.

Among the violations were the following:

• Exclusive deals with PC makers to carry Microsoft products.
• Overriding consumer choices to use Netscape Navigator.
• Intermingling of Windows and browser code so that Internet Explorer could not be deleted.
• Deals with the top 14 of 15 ISPs for exclusive promotion of Internet Explorer.
• Exclusive contracts with some developers to create software that would make Internet Explorer the default browser.
• Making Internet Explorer the exclusive browser for Apple Computer, in part by threatening to end Office development for the Mac.
• Deceiving Java developers into believing Microsoft's Java was cross-platform when it was not.
• Compelling Intel to abandon its own version of cross-platform Java.

Divide and conquer
But Microsoft's settlement with New Mexico could indicate a new plan to end the case quickly: picking off the states one at a time.

"It's a plausible strategy for somebody to take," said Miller, who emphasized the remaining states were united behind the case.

"It is unlikely a divide-and-conquer strategy would work for Microsoft between the states and the feds," Manishin said. "They've put (up) a united front in the past, and the Court of Appeals decision is unlikely to change that."

Miller noted that Madrid inherited the case from her predecessor and that "she has been a good partner for the last couple of years. She decided to settle based on a most-favored-nations clause, which provides that whatever relief or benefits we would get, she would get as well. That's fine with us."

But that benefit allows Madrid to claim at home that "the case did not cost New Mexico taxpayers anything" while bolstering Microsoft's push for an end to the case.

Microsoft on Wednesday loosened its Windows licensing terms with PC makers in what could be the first step in a settlement overture. That change means PC makers can remove the Internet Explorer icon from the Windows Start menu.

"I am encouraged by the initial steps that Microsoft has taken to provide computer manufacturers with greater flexibility," Madrid said.

But Andy Gavil, an antitrust professor with Howard University Law School, sees this concession and other recent Microsoft actions as recognition of how devastating the appeals court ruling is.

"This all could signal that they aren't planning a Supreme Court appeal," he said. "It seems to all us of very unlikely they could overturn the monopolization finding, and Microsoft may have reached the conclusion that is unlikely. So they are seeking other means to minimize the impact of further proceedings."