States prepare for Microsoft action

Several attorneys general are getting closer to filing an antitrust lawsuit against Microsoft, with a draft complaint circulating among lawyers from 11 states, sources said today.

"We are getting near the end of the investigation and are getting ready to take action," said one person familiar with the matter.

According to another source, California Attorney General Dan Lungren has committed his office to taking on Microsoft after sitting on the fence for a number of months. The decision is significant to the multistate action because California has more resources and experience in high-technology litigation than most other states.

A spokesman for Lungren, who is running for governor, declined to comment.

The other ten states circulating the draft complaint are Connecticut, Florida, Illinois, Iowa, Massachusetts, Minnesota, New York, South Carolina, Texas, and Wisconsin, said the sources, who spoke on condition of anonymity.

While a number of sources say no firm deadline has been set for a multistate suit, one said the states are leaning heavily toward taking action before mid-May, when Microsoft is expected to release the final code for Windows 98 to computer vendors and other distributors. Regulators say that courts are more reluctant to issue injunctions on products already in distribution channels, for fear of hampering the software market.

Microsoft spokesman Mark Murray said the company didn't want to speculate on what the states might do, but said that executives hope regulators are keeping an open mind, especially given the small amount of time many of them have had to review evidence gathered in the case.

"We only received their initial request for documents in February, and we are still compiling and providing the tens of thousands of pages [of documents] they've requested," said Murray. "We're hoping that they will withhold any judgment until they've received and reviewed our documents."

As previously reported, about a dozen states met in February with Justice Department officials to explore the possibility of filing a joint action and to discuss various strategies. Then, last month, 27 states filed a friend-of-the-court brief in a separate legal challenge the Justice Department brought against Microsoft. While federal and state regulators continue to stay in contact and share information, the states remain wary of taking further action.

"There's a great concern that the DOJ is not going to be tough enough, that they're essentially going to gum Microsoft to death and it's not going to work," one source said. Even if the states combining their resources, this person said, some officials are worried that they may not have the resources to take on the Redmond, Washington, software giant. Such concern has some state regulators wondering if they should bring in legal assistance from an outside law firm.

In October, the Justice Department brought a court action accusing Microsoft of violating the terms of a 1995 consent decree that prohibited it from licensing one product on the condition that another product be licensed as well. In December, U.S. District Judge Thomas Penfield Jackson ordered Microsoft to temporarily offer its Windows operating system separately from its Internet Explorer browser. Microsoft contends that the consent decree expressly allows it to integrate new features into its operating system, and is appealing Jackson's order and another pivotal issue in the case.

While pursuing the case, the Justice Department also has been engaged in a much broader investigation of the software giant. It is believed that federal regulators are looking at an array of issues, including:

marketing of the corporate networking operating system known as Windows NT

contractual arrangements with content providers and Internet service providers that allegedly are designed to shut Netscape Communications out of the market

potentially improper use of Microsoft's operating system division to give its applications arm an unfair advantage.

According to Bloomberg, U.S. Attorney General Janet Reno said at a weekly press conference today that people should "wait and see" how the Justice Department proceeds in its investigation. Asked to comment on states' concerns that the agency will let Microsoft off too easily, Reno is reported to have responded: "And there is some concern that the Justice Department will take too tough [an] action. But the Justice Department hasn't determined what it's going to do yet."

While some states began their investigation relatively recently, other attorneys general, most notably Dan Morales of Texas, are known to have been investigating Microsoft for more than a year.

Word of the draft complaint was first reported in the Wall Street Journal. According to a source, the 11 states circulating the draft appear to be using it as a way to collaboratively decide how to build the strongest possible case against Microsoft using the volumes of information that have been gathered so far.

Building a case "is an iterative process, so as you gather more and more information, you fill in more of the draft complaint," one source said. "You've got to figure out what information and documents you need to figure out if you have a good cause of action."