Senate leaders skeptical of Microsoft deal

Committee Chairman Sen. Patrick Leahy, D-Vt., described the settlement as an "Invitation to the next chapter of litigation." Orrin Hatch, R-Utah, concurred, also questioning the "enforcement capabilities" of the settlement agreement.

The senators raised their concerns before kicking off a day of testimony from, among others scheduled: U.S. Assistant Attorney General Charles James; Jay Himes, chief of New York's antitrust bureau; Charles Rule with Fried, Frank, Harris, Shriver & Jacobson, counsel representing Microsoft; Stanford law professor Lawrence Lessig; and Red Hat CEO Matthew Szulik.

Hatch described an earlier 1995 consent decree made between the Justice Department and Microsoft as largely "ineffective." He argued the settlement agreement offered even less.

Based on the comments received by the court, Leahy said the "majority favor a settlement, but I don't think the majority of people favor any settlement. They favor a good settlement."

Herb Kohl, D-Wis., also raised doubts about the settlement.

"Does this settlement obey the Supreme Court mandate that it must deny the antitrust violator the fruits of its illegal conduct?" he asked. "It seems to me and to many...that this settlement agreement is not strong enough to do the job to restore competition in the computer software industry."

Microsoft faces some potentially powerful adversaries on the committee, including Leahy, whose state, Vermont, is home to IBM facilities, among others; Hatch, whose constituents include Novell; Diane Feinstein, D-Calif., whose state contains many Microsoft rivals, including Oracle and Sun Microsystems; Edward Kennedy, D-Mass.; and Charles Schumer, D-N.Y., whose constituents include AOL Time Warner, IBM and Kodak.

Schumer, in fact, publicly attacked Microsoft in July, charging that Windows XP's handling of digital images and cameras competed unfairly against Kodak and other photo companies. He called for Judiciary Committee hearings.

Microsoft later resolved its dispute with Kodak.

Leahy emphasized that the hearing is designed to determine whether the settlement is "good public policy."

This committee is conducting hearings to educate ourselves but also educate the public about what this proposed settlement really means for our high-tech industry," he said.

The day of testimony started hours before Microsoft is expected to file a legal brief outlining its remedy proposal in the case. California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, Utah and West Virginia, along with the District of Columbia, decided to continue with litigation. This group filed a hard-hitting remedy proposal Friday.

But Wednesday's opening session focused more on those parties settling than on those continuing with the landmark antitrust case. In June, a panel of seven appellate judges unanimously upheld eight separate antitrust claims against the software giant.

Still, Leahy encouraged U.S. District Judge Colleen Kollar-Kotelly to "take the opportunity to consider the remedy proposal of the non-settling states, but she consider it before she makes her final determination on the other parties' proposed settlement. The insights of the other participants of this complicated and hard-fought case are going to be valuable additions."

Among other things, the nine state attorneys general attempted to tighten up perceived loopholes in the settlement agreement, which during the hearing Kohl warned are numerous.

"It contains so many loopholes, qualifications and exceptions that many worry that Microsoft could easily evade its provisions," he said.

The hearing has no real legal standing and is not expected to affect the case's outcome, legal experts said.

"These hearings are part of the oversight process, where the senators bring in an appointed office holder and box him around the ears a bit," said Emmett Stanton, an antitrust lawyer with Fenwick & West in Palo Alto, Calif. "Otherwise, it pretty much has nothing to do with the process of approving the settlement."

Microsoft chose not to send a company executive, such as CEO Steve Ballmer or general counsel Bill Neukom. Instead, the company sent an outside counsel.

"We were asked to (send) a company representative and given that we were in the Tunney Act proceeding, we decided it was best that outside counsel represent the company," Microsoft spokesman Vivek Varma said.

Microsoft's settlement deal with the Justice Department and nine of 18 states is going through a period of 60-day public comment and judicial review, a provision of the Tunney Act, a 1960s-era law designed to ensure no backroom brokering or politics led to the deal.

The Tunney Act "requires an evaluation of whether the proposed settlement is in the public interest," Leahy said. "There is significant difference of opinion over how well this settlement passes this legal test. In fact, the states participating in the litigation against Microsoft are evenly split."

On Monday, Microsoft filed a legal brief summarizing its communications with government employees during the settlement process.