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Microsoft settlement: Done deal

Microsoft, the Justice Department and nine states file a revised settlement that could finally end the software giant's antitrust case.

WASHINGTON--Microsoft and the Justice Department on Friday filed a revised settlement in the software giant's long-standing antitrust case.

The filing, which had been expected, incorporated changes requested by U.S. District Judge Colleen Kollar-Kotelly and brings the four-and-a-half-year-old case closer to a final resolution.

The judge approved the deal last Friday, contingent upon the changes. Additionally, she entered the revised agreement as her remedy in a case that is being pursued by nine states and the District of Columbia.

The Justice Department, Microsoft and nine states--Illinois, Kentucky, Louisiana, Maryland, Michigan, New York, North Carolina, Ohio and Wisconsin--agreed to settle on Nov. 6, 2001. But the District of Columbia and nine other states--California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, Utah and West Virginia--rejected the deal.

The litigating states wanted Kollar-Kotelly to impose on Microsoft stiffer sanctions, which they presented earlier this year.

"By writing an opinion that the settlement is within the reaches of the public interest and that she was not convinced by the states' evidence, she's basically delivered an appeals-proof decision," said Bob Lande, an antitrust professor with the University of Baltimore Law School. "There's no way she is going to be overturned on appeal."

Hillard Sterling, an antitrust attorney with Much Shelist in Chicago, expressed a similar view.

"It's highly doubtful that her ruling would be overturned. Trial courts have tremendous discretion to craft remedies, and they're rarely second-guessed by appellate courts."

Lande described Kollar-Kotelly's approval of the settlement and her decision to make it the remedy in the plaintiff states' proceeding "as the most risk-free thing she could do."

The plaintiff states, which received essentially none of the remedies requested, have 30 days from last Friday to decide whether to appeal Kollar-Kotelly's decision.

A spokesman for Iowa Attorney General Tom Miller, one of the plaintiff states' leaders, said no decision had yet been reached on the appeal. He noted that some of the attorneys general--Miller and Connecticut Attorney General Richard Blumenthal, among others--were in the midst of re-election campaigns when the decision came down. The re-election bids slowed down the states' examination of the decision, he said.

At the request of the states, the judge did make some modifications to the settlement, mainly tightening some language and installing a technology committee made up of Microsoft board members that will enforce a "consent decree." Those modifications could weigh heavily on any decision to appeal, legal experts say.

The consent decree largely places restrictions on Microsoft's business practices, such as disclosing to software developers application programming interfaces (APIs) and communications protocols.

Microsoft made this information available a couple months ago in Windows XP Service Pack 1, which included a control for hiding access to five pieces of middleware: Internet Explorer, Windows Messenger, Windows Media Player, Outlook Express and Microsoft's version of the Java Virtual Machine.

The plaintiff states had sought changes to Microsoft software code, such as compelling the company to release a second version of Windows with the middleware removed; auction the code for Office so it can be adapted to other operating systems; publicly disclose the software blueprint for Internet Explorer; and carry on Windows Sun Microsystems' version of the Java virtual machine for 10 years.

But Kollar-Kotelly rejected these remedies, in part because they "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 in a 344-page opinion.

"Certain Microsoft competitors appear to be those who most desire these provisions and...are the likely beneficiaries of those provisions," she wrote.

From surprise to acceptance
Many legal experts initially expressed surprise at Kollar-Kotelly's decision, which perhaps marked the most dramatic turnabout in the antitrust case so far. At one point, Microsoft faced the possibility of breaking into two companies. But in June 2001, an appellate court overturned the breakup remedy, admonishing U.S. District Judge Thomas Penfield Jackson for not holding a proper hearing before issuing the order.

"I was surprised by her decision," said Andy Gavil, an antitrust professor with Howard University School of Law. "But the more you read it, the more the surprise goes away. The story the government and Microsoft told and their reading of the Court of Appeals decision, everything just clicked for her as right. When you have that kind of alignment with the judge and one of the parties, the end is pretty well foreordained."

Gavil described the situation as "ironic." He noted that during the original 76-day trial, "everything--the law, the evidence--about the government's case really resonated with Jackson. He, the Reagan appointee, resonated with the Clinton antitrust division and (Kollar-Kotelly), the Clinton appointee, resonated with the Bush group."

But other more human factors may have played a pivotal role in Kollar-Kotelly's decision-making process. Following the Sept. 11, 2001, terrorist attacks on the World Trade Center and the Pentagon, Kollar-Kotelly ordered trustbusters and Microsoft to start settlement negotiations.

In last week's opinion, "the judge talks about the settlement in glowing terms, at one point praising herself for setting the parties on that path," Gavil said. "Of course, in some respects she's approving the settlement because she's taking ownership over it. She set them on that path, and she's proud of it."

Reverberations from Kollar-Kotelly's decision could be felt elsewhere, particularly among the more than 60 private antitrust cases pending against Microsoft.

Lawyers filed the majority of the lawsuits after Jackson issued his devastating two-part ruling against Microsoft in November 1999 and April 2000. Most of the lawsuits were filed on behalf of consumers, alleging Microsoft overcharged them as much as $40 for Windows.

Four lawsuits filed by four Microsoft competitors--AOL Time Warner's Netscape division, Be Inc., Burst.com and Sun--also are pending in Baltimore.

Legal experts expect Kollar-Kotelly's decision to make it more difficult for plaintiffs in the private suits to recover damages, even if they prove liability. In a setback this week for Netscape, U.S. District Judge J. Frederick Motz rejected a Netscape request for partial summary judgment against Microsoft.

Motz concluded that while the government's case proved Microsoft's anticompetitive behavior hurt competition, it could not be concluded that competitors also were injured.

"It cannot be fairly said that the facts found in the government case are sufficient to establish Microsoft's liability to Netscape," he wrote in a Monday opinion.