Judge OKs most of Microsoft settlement

update A federal judge largely accepts a proposed settlement in Microsoft's long-running antitrust case with the U.S. Justice Department.

7 min read

Gates addresses judge's decision in antitrust case
Bill Gates, chairman, Microsoft

Play clip
update A federal judge Friday largely accepted a proposed settlement in Microsoft's long-running antitrust case with the U.S. Justice Department.

U.S. District Court Judge Colleen Kollar-Kotelly said sanctions against the software giant are to last five years unless extended by the court.

"The court is satisfied that the parties have reached a settlement which comports with the public interest," Kollar-Kotelly wrote.

The settlement is "conditionally approved as the final judgment in this case," the judge wrote. The settling parties have until Nov. 8 to refile the settlement with changes requested by the judge.

The judge approved the settlement almost wholesale, basically rejecting a call by nine nonsettling states and the District of Columbia for stiffer sanctions.

Iowa Attorney General Tom Miller, one of the plaintiff states' leaders, referred to the decision as the "latest chapter" in the case, but would not comment on whether the plaintiff states would appeal the judge's decision. "We have to analyze the decision and talk to our colleagues" first, he said.

Kollar-Kotelly did call for some changes, requiring Microsoft to disclose communications protocols in Windows six months earlier than the company or the DOJ had specified in their joint proposal.

Kollar-Kotelly also modified the oversight of Microsoft's compliance with the settlement. Originally, the proposal included a technical committee and an internal compliance officer, both potentially influenced by Microsoft. In Friday's ruling, the judge combined the two into a compliance committee made up of Microsoft board members. In turn, the committee must hire a compliance officer, to report to the committee and to Microsoft's CEO. As corporate officers and non-Microsoft employees, the compliance committee in theory would be more likely to appropriately enforce the settlement in this era of renewed corporate responsibility.

"We are pleased that the court has conditionally approved the settlement we reached with the federal government and the nine states," Microsoft said in a statement. "The settlement is a tough, but fair, compromise. It imposes significant requirements on Microsoft, but it enables us to continue to innovate and to create products that address the changing needs of our customers. We recognize that we will be closely scrutinized by the government and our competitors, and we will devote all the time, energy and resources needed to ensure that we meet our responsibilities."

Breaking news
Judge: Case closed
A proposed settlement is given a nod
with few changes. What's next?

In a Friday afternoon conference call, Microsoft Chairman Bill Gates described the approval of the settlement as "a major milestone."

"This settlement puts new responsibilities on Microsoft, and we accept them," Gates said, adding that he is "personally committed to full compliance."

Microsoft CEO Steve Ballmer made similar promises, saying that adhering to the terms of the settlement is a "corporate commitment and personal responsibility for all our employees."

Ballmer also said Microsoft is working with the European Union to resolve antitrust issues there. The European Union's Competition Commission is expected to issue a preliminary ruling on an investigation into Microsoft's server business.

Attorney General John Ashcroft also praised Kollar-Kotelly's ruling. "The court's decision is a major victory for consumers and businesses, who can immediately take advantage of the final judgment's provisions," Ashcroft said in a statement released Friday afternoon.

Ashcroft emphasized that the DOJ is "strongly committed to ensuring that Microsoft complies with the final judgment and will continue to closely monitor Microsoft's implementation of its terms."

The plaintiff states' Miller said his side's call for a stiffer remedy "resulted in an improvement of the settlement," noting that Kollar-Kotelly adopted the states' concept of a compliance committee as an enforcement mechanism and tightened up the language prohibiting Microsoft's retaliation against other companies.

Connecticut Attorney General Richard Blumenthal described the decision as "historic" because the plaintiff states "achieved more than the federal government. We sought more and we got more." But he emphasized that "the last chapter has not been written."

Blumenthal also said that based on the judge's ruling, the costs of the litigation "will be borne by Microsoft. We will seek them promptly."

Witness for the competition?
In her 344-page memorandum, Kollar-Kotelly essentially charged the states with representing the interests of Microsoft's competitors.

"It appears that these types of remedial provisions (proposed by the plaintiffs) seek to convert certain legitimate aspects of Microsoft's business model and/or product design into a model which resembles that of other industry participants simply for the sake of changing the status quo," she wrote. "Certain Microsoft competitors appear to be those who most desire these provisions and, concomitantly, are the likely beneficiaries of those provisions."

The judge in large part objected to the plaintiffs' broad definition of "middleware," software programs that sit on top of operating systems and can run other applications. Kollar-Kotelly concluded that the states' definition exceeded the definition used at the original trial and at the appellate level. The states had wanted to extend that definition to include technologies such as media playback, Web services and interactive TV software that were not part of the original case.

"The technology associated with handheld devices has not been shown to have the potential to function in a manner similar to 'middleware,'" Kollar-Kotelly wrote in regard to the states' attempt to apply the middleware definition to handhelds.

In a small concession to the plaintiff states, the judge agreed that Microsoft stridently maintained that it did nothing wrong in the case. But that was no basis for unfairly punishing the company.

The "plaintiffs are correct that Microsoft has a tendency to minimize the effects of its illegal conduct," the judge wrote. "Yet this minimization, however frustrating, does not require a remedy which prodigiously exceeds even an expansive view of the illegal conduct."

Critics of the government's legal case welcomed Kollar-Kotelly's decision, while reserving criticism for the broader antitrust action.

"It's good news, diluted by the fact that the case should never have been brought in the first place," said Robert Levy, a senior fellow at the conservative Cato Institute. "I don't imagine that the exceptions (to the original settlement agreement) are going to cause Microsoft much consternation."

Lobbying groups that have supported stronger restrictions on the software giant said that the judge misinterpreted Microsoft's continuing power over the technology industry.

"We believe that (the judge) sorely overestimated the value of the proposed settlement," said Ken Wasch, president of the Software and Information Industry Association, a trade group that has pushed for stronger restraints on Microsoft's behavior.

"We're perplexed that she didn't recognize that Microsoft's antitrust violations today extend far beyond the browser, into other technologies and markets," Wasch said.

The decision is available at the district court's Web site.

A long road
Kollar-Kotelly delivered her ruling on the eve of the one-year anniversary of the settlement agreement between the Justice Department and Microsoft. On Nov. 6, 2001, nine states signed on to the settlement.

But nine other states and the District of Columbia rejected the deal. They sought stiffer sanctions against Microsoft, which they presented during a two-month remedy hearing earlier this year.

Illinois, Kentucky, Louisiana, Maryland, Michigan, New York, North Carolina, Ohio and Wisconsin signed onto the settlement. California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, Utah and West Virginia, along with the District of Columbia continued the litigation.

The settlement largely covered Microsoft's business practices, requiring it to disclose application programming interfaces (APIs) and communications protocols to software developers.

Microsoft made this information available in August; in September, the company released Windows XP Service Pack 1, which introduced a control that would allow PC makers and consumers to hide access to five pieces of middleware: Internet Explorer, Windows Media Player, Windows Messenger, Outlook Express and Microsoft's version of the Java Virtual Machine.

Kollar-Kotelly essentially decided two cases Friday. Besides approving the Justice Department settlement, she issued that agreement with some modifications as the remedy in the proceeding with the plaintiff states.

Rich Gray, a Menlo Park, Calif.-based attorney who has been watching the trial closely, said the ruling represented a "huge victory for Microsoft and a bad day for antitrust law, consumers and Silicon Valley."

"It's a damn near unqualified win for Microsoft," Gray said. "But as an antitrust lawyer, I find it troubling that a company could be found to have illegally maintained a monopoly and walk away with so weak a remedy."

"In my view," Gray added, "the judge has missed the best opportunity to impose a remedy--short of breakup--that could actually have an impact. There may be some things in there that Microsoft (executives) might say they don't like, and they'll moan, complain and thump their chests, while in a backroom they will be opening the champagne bottles."

Hillard Sterling, an antitrust attorney with Much Shelist in Chicago, said the states may have overreached in their demands.

"There wasn't enough for this judge to confidently reach these other applications and markets," Sterling said. "Microsoft did a tremendous job poking holes in the states' case during the remedy hearings."

Both Gray and Sterling said that should the states seek to appeal Kollar-Kotelly's ruling, they would be embarking on a steep uphill battle.

"An appellate court is going to show great deference to a trial court that has gone through a Tunney Act proceeding and has gone through a hearing on proposed additional remedies by the states," Gray said. "If the states chose to appeal, I think they would lose at the appellate level."

Sterling agreed. "Appellate courts are highly reluctant to overturn these kinds of decisions. This decision will stick," he said. "There is little chance an appellate court will restructure what happened here."

"Microsoft appears to have won the day," Sterling said. "The decision is a virtual rubber stamp of the proposed settlement. This judge didn't think that more was necessary to preserve competition. Underlying the decision is her view that the proposed settlement went even farther than was required by the appellate court's mandate. She appeared very comfortable that the deal was enough to protect consumers, the ultimate focus of antitrust law."

News.com's John Borland and Michael Kanellos contributed to this report.