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States use source code to press Microsoft

Nine states and the District of Columbia want the company to open its software source code should it fail to comply with proposed restrictions on its business practices.

WASHINGTON--Nine states and the District of Columbia want Microsoft to open its software source code should the company fail to comply with proposed restrictions on its business practices.

In a remedy proposal submitted Friday, state trustbusters asked U.S. District Judge Colleen Kollar-Kotelly to accept the harsh penalty, in antitrust parlance typically referred to as a "crown jewel" provision.

The proposed remedy would force Microsoft to open up the source code to its Internet Explorer Web browser and possibly to the Windows operating system.

Microsoft would only be forced to reveal the code if the company failed to comply with the other terms of the proposed remedy, according to Glenn Manishin, an antitrust lawyer with Vienna, Va.-based Kelley Drye & Warren. In addition, only the source code for software found in violation of the remedy would be subject to this penalty, meaning the stipulation could apply to Windows or other Microsoft products.

"The purpose of a crown jewel provision is to coerce compliance by making the alternative so onerous that the defendant has a great incentive to do what they're supposed to do," Manishin explained. "If there's really a gun to their head, then they'll definitely comply."

The other terms of the proposed remedy would compel the company to sell a stripped-down version of Windows, license Office to a third party to be ported to competing operating systems such as Linux, and include Sun Microsystems' Java with Windows XP.

Microsoft has until Wednesday to respond to the proposal.

A Microsoft representative criticized the proposal. "The proposed remedies submitted today by the nine holdout states are extreme and not commensurate with what is left of the case," said Microsoft spokesman Jim Desler.

see special coverage: Microsoft, DOJ reach settlement "The settlement we reached with the Department of Justice and nine of the plaintiff states is a fair and reasonable compromise that is good for consumers and will be good for the economy. We are committed to complying fully with the proposed decree and remain hopeful that we can resolve any outstanding issues as quickly as possible in the interest of consumers and the industry," Desler said.

But Iowa Attorney General Tom Miller, who represents one of the dissenting states, defended the remedy proposal.

"The remedies have been crafted to relate closely to the Court of Appeals decision," he said in a statement. "They would achieve the objectives set forth by the appeals court, namely, to prohibit Microsoft's illegal conduct and prevent similar acts in the future, to spark fair competition, and to take away some of the illegal gains achieved by Microsoft. These remedies also contain a compliance mechanism that can work effectively, efficiently and fairly."

Nine states--California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, Utah and West Virginia--and the District of Columbia filed the proposal in preparation for a March remedy hearing. The Justice Department, nine other states and Microsoft settled their part of the landmark antitrust case last month. The proposed deal is going through a 60-day period of public comment as required by the Tunney Act.

The Justice Department-Microsoft settlement, if approved, would place restrictions on the company's business practices for five years. The crown jewel provision in that settlement would extend the period for two more years. But Manishin considers such a crown jewel toothless. "That's not a crown jewel," Manishin said.

Microsoft is particularly protective of its intellectual property rights, especially in regard to making changes to Windows, such as unbundling Internet Explorer from the operating system.

"Limitation of Microsoft's intellectual property rights and licensing restrictions and obligations are traditional and settled remedies for abuse of monopoly power," Manishin said.

Emmett Stanton, an antitrust lawyer with Fenwick & West in Palo Alto, Calif., saw no way Microsoft would ever agree to such a provision, even one mandated by a federal judge.

"It's inconceivable to me that Microsoft would agree to that unless and until it had lost in the trial court, lost in the Court of Appeals, the Supreme Court had denied an appeal, and the sun and the moon were properly aligned."

Opening IE
Microsoft faces the prospect of other software code being opened, even without violating terms of the remedy proposal.

The states want Microsoft to open the source code to Internet Explorer, in response to the company's elimination of rival Netscape. "Accordingly, the appropriate solution is to mandate open-source licensing for Internet Explorer, thereby ensuring at a minimum that others have full access to this critical platform," the legal filing states.

The proposed remedy also would compel Microsoft to sell through auction at least three Office licenses to companies for use on competing operating systems, such as Linux.

Through the provision, the states are trying to address what is known as the applications barrier to entry. No operating system can succeed without applications, but Microsoft Office--with more than 90 percent market share--is the undisputed leader and only available for Windows or Macintosh computers.

"The absence of appropriate office automation software applications on the Linux platform makes it impossible for--a practical matter--for Linux to penetrate those markets," Stanton said.

Another area affecting Microsoft software would limit how Microsoft bundles other products, such as Web browsers, instant messengers and media players, into Windows.

The litigating states want Microsoft to sell a stripped-down version of Windows, minus middleware products, such as media players and instant messaging. The Court of Appeals also defined Web browsers as middleware.

The appeals court, in its unanimous seven-panel decision in June, found that Microsoft's commingling of Internet Explorer and Windows software code constituted an anti-competitive act. This made it more difficult for Netscape to compete with Internet Explorer, the court concluded.

The states believe the only way to address that is limiting Microsoft's ability to bundle software. "Microsoft must be either required to cease such commingling or to offer its operating system software on an unbundled basis," according to the court filing.

But legal experts believe this provision might be a tough sell with the judge. In its June decision, the appeals court only upheld the monopoly maintenance claims--that Microsoft used anti-competitive means to protect Windows. It sent back another part of the case related to product tying to a lower court for a new round of litigation. Under federal tying statutes, it is illegal for a monopolist to force consumers to buy one product to get another.

In many ways, tying is a more appropriate way to deal with bundling, Stanton said.

"The states have to show why this remedy is appropriate for monopoly maintenance. But it extends to if they had won the tying claim, which they didn't, so that's a hard sell," he said.

Jeff Shohet, head of San Diego-based Gray Cary's antitrust practice, agreed.

"The only thing that was affirmed was monopoly maintenance," said. "My guess is Microsoft is never going to accept--and a court would not impose at this stage--anything that suggested they were guilty of tying."

Other provisions
In many other respects, the remedy proposal seeks to fix what the states perceive as potential loopholes in the Justice Department-Microsoft settlement. The remedy also replaces the settlement's three-person oversight committee with a so-called special master, which is a more typical approach in such cases.

Other proposals in the remedy include:

• Uniform and non-discriminatory licensing of Windows to PC makers and other companies.

• Full disclosure of application programming interfaces (APIs) to software developers.

• Banning exclusive dealings and retaliatory actions.

• Offering Sun's version of Java with Windows for 10 years.

The provision on Java addresses one of the most contentious parts of the case. During the trial, government prosecutors argued that Microsoft attempted to subvert Java, which they said Microsoft viewed as a competitive threat to Windows.

Sun, Java's creator, separately sued Microsoft over the issue in 1997. The two companies settled the case in January, giving Microsoft the option to continue shipping its own version of the Java Virtual Machine, which is based on 4-year-old Java technology.

In April, Microsoft decided not to ship its version of the JVM with Windows XP, opting to make it available as a separate download instead. Sun started offering its own Windows XP-compatible JVM early last month.