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Proposal cheers Microsoft competitors

A proposal greatly restricting the company's businesses practices had its competitors and some industry trade groups singing the praises of nine state attorneys general.

WASHINGTON--A proposal greatly restricting Microsoft's businesses practices had the company's competitors and some industry trade groups singing the praises of nine state attorneys general on Friday.

AOL Time Warner, Sun Microsystems and several trade groups backed by Microsoft, such as ProComp, rallied behind the states filing the proposal.

The remedy would compel Microsoft to open the source code of Internet Explorer, carry Sun's Java with Windows and sell a stripped-down version of the operating system, among other things.

But U.S. antitrust law is geared more to protecting consumers than competitors, setting up a potentially terse rebuttal when Microsoft responds to the legal filing on Wednesday.

"In reviewing today's filing, it really appears inconsistent not only with what the Court of Appeals has ruled but also with what was argued at court in trial," said Microsoft spokesman Jim Desler. "We appreciate the opportunity to respond next Wednesday."

The apparently competitor-focused proposal riled some other trade organizations.

"It's Christmas on Dec. 7 for these guys," Jim Prendergast, executive director of Americans for Technology, said on Friday. "It's the greatest gift these guys have gotten in a long time. Instead of going out there and designing products and competing in the marketplace, they're looking for some welfare."

Nine states--California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, Utah, West Virginia--and the District of Columbia filed their remedy proposal as part of the landmark Microsoft antitrust case.

Last month, the Justice Department and nine other states settled with Microsoft. The proposed deal is going through a 60-day period of public comment as required by the Tunney Act.

Friday's remedy proposal puts the states in the spotlight for the first time after following for so long in the Justice Department's shadow.

"It was always pretty clear who was calling the shots here," said Emmett Stanton, an antitrust attorney with Fenwick & West in Palo Alto, Calif., about the Justice Department's lead role throughout the nearly four-year-old case.

For the first time, the states are in charge, crafting the kind of tough remedy several attorneys general long ago indicated they wanted against Microsoft. In June, a federal appeals court unanimously upheld eight separate antitrust claims against Microsoft.

"I want to see Microsoft obey the law," Bill Locklear, California's attorney general, said during a Friday afternoon conference call with the media. "It's not fair to other businesses and it's not fair to consumers to have one large company break the law for their commercial advantage."

Not surprisingly, AOL Time Warner, which now owns Netscape Communications, rallied behind the remedy proposal.

"The remedial plan filed by the state attorneys general today offers, for the first time in years, real choice for consumers, and will promote competition on the computer desktop, Paul Cappuccio, the company's general counsel, said in a statement.

"It addresses the most important issues that the proposed settlement agreement between Microsoft and the Department of Justice ignored, and closes the most egregious loopholes that make that settlement ineffective," he added. "Moreover, it does so in a way that is not punitive to Microsoft, and promotes innovation and investment."

Sun, which would benefit from having Java bundled with Windows for 10 years, also came out in favor of the proposal.

"Sun is gratified by the proposal submitted today by the nine state attorneys general and the District of Columbia to the U.S. District Court," said company spokeswoman Penny Bruce. "If implemented, (it would) restrain Microsoft's ability to continue abusing its monopoly power."

The remedy also addressed apparent loopholes in the Justice Department-Microsoft settlement agreement.

"Perhaps the most striking difference between the states' proposed remedy and the Microsoft-(Justice Department) settlement is that the states' proposal was clearly drafted by prosecutors seeking to enforce the law, while the settlement was obviously crafted largely by Microsoft to provide a means of evading the law," said Ed Black, CEO of Computer & Communications Industry Association (CCIA).

But Microsoft may find some of those provisions excessive, particularly demands that it open source code to Internet Explorer or sell through auction licenses so competitors can adapt the Office productivity suite for other operating systems.

But Albert Foer, president of the American Antitrust Institute, praised Friday's proposal.

"The proposed remedy goes no further than is absolutely necessary. It will not deprive Microsoft of any incentives to innovate," he said in a statement. "Instead, it will give other computer companies these same incentives, and this greatly will benefit competition and consumers."

ProComp President Mike Pettit also praised the states' proposal but said it didn't go far enough.

"I continue to believe that a (breakup) of Microsoft would have been the most efficient way to restore competition, and I also believe the Court of Appeals decision established a blueprint for a structural remedy."

Interestingly, the state attorneys general talked more about competitors than consumers during their Friday conference call with the media.

"The Microsoft case is about bringing back competition and innovation into the software and computer industries," said Massachusetts Attorney General Tom Riley.

Richard Blumenthal, Connecticut attorney general, said that essential to the remedy was "assurance of equal access to competitive opportunities, equal access to the operating system as it becomes standard."

For one trade group that supports Microsoft, the proposal clearly favored competitors over consumers.

"This proposal seems designed specifically to take functionality away from consumers in order to benefit a few really large competitors," said Jonathan Zuck, president of the Association for Competitive Technology. "This proposal couldn't have less to do with consumers."

CNET's Stephen Shankland contributed to this report.