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Microsoft antitrust debate heats up

Settlement opponents trot out some high-caliber legal and economic firepower, including Robert Bork and Kenneth Starr, to shoot holes in the company's deal with the DOJ.

    WASHINGTON--Monday marks the end for public comment about the Microsoft antitrust settlement, setting the stage for the final showdown between opponents and supporters of the deal.

    A wide range of groups and individuals have chimed in on the proposed settlement, with a vocal portion contending that the deal does not serve the public interest. The Justice Department has 30 days to respond to the comments and publish them in the Federal Register.

    Thousands of responses are expected, in part because of canvassing on behalf of Microsoft through its Freedom to Innovate initiative and on behalf of Microsoft's competitors working through trade groups.

    ProComp, a trade group based here and backed in part by Microsoft competitors AOL Time Warner and Sun Microsystems, rounded up opponents in a big way. The organization plans an afternoon press conference Monday featuring Judge Robert Bork and former Whitewater prosecutor Kenneth Starr.

    The organization filed 85 pages of comment with an affidavit from Nobel-prize winning economist Kenneth Arrow.

    The Association for Competitive Technology (ACT), a group strongly supporting Microsoft, marshaled two former attorneys general, Griffin Bell and Ed Meese, and former White House counsel C. Boyden Gray to its cause. ACT submitted the letter with its 40 pages of comment on Monday.

    Microsoft, the Justice Department and nine of 18 states reached a settlement in the company's antitrust case in early November, but the deal cannot go into effect without the approval of U.S. District Judge Colleen Kollar-Kotelly. Nine other states and the District of Columbia opted to continue litigation, and depositions for a March 11 remedy hearing begin Friday.

    The period of public comment is part of the process mandated by the Tunney Act, a Nixon-era statute intended to make sure no backroom political deal-making influenced an antitrust settlement. The law also requires that a judge ensure that any deal be in the public interest before it is approved.

    see special coverage: Microsoft, DOJ reach settlement In ProComp's coments, Bork argued that the settlement is riddled with loopholes. Arrow's supporting affidavit is potentially more damaging to Microsoft. Arrow supported an earlier 1994 settlement between the Justice Department and Microsoft, but is weighing in against this proposed deal.

    In 130 pages of comments submitted Monday, Microsoft competitor AOL Time Warner charged that the proposed settlement has "many loopholes" and that restrictions on the software giant "are inevitably swallowed up by broad exceptions and grants of power to Microsoft."

    AOL Time Warner argued that the deal would not be best for the public. "A consent decree that causes little or no change in the defendant's behavior cannot be found to advance the public interest, especially when the defendant's conduct has been found by both the district and appellate courts to be in violation of the law," the submission states.

    In Friday comments, 13 consumer groups from five states--among them, the Consumers Union and the Consumer Federation of America--ripped into the settlement proposal, which they characterized as "fundamentally flawed."

    The groups contend that consumers have been overcharged by $20 billion to $30 billion because of Microsoft's monopoly in Intel-based operating systems. The groups argued that the situation would only worsen if Kollar-Kotelly approves the settlement.

    On Thursday, the American Antitrust Institute (AAI), an independent research institute that receives some backing from Microsoft competitor Oracle, argued that the software giant and the Justice Department have not fully disclosed their communications, and noted many procedural errors in its 47 pages of comment.

    Microsoft filed a brief on Dec. 10, detailing all communications that it deemed relevant and necessary to meet the standard mandated by the Tunney Act.

    In what some legal experts consider a stretch, the AAI also argued in a separate legal filing that ambiguities in the settlement could prevent those wronged by Microsoft's anti-competitive behavior from collecting damages.

    "I find it hard to believe anything in the settlement would affect private litigants' right to sue," said Emmett Stanton, an antitrust attorney with Fenwick & West in Palo Alto, California.

    More than 100 private consumer lawsuits are pending against Microsoft, the majority alleging that the software giant overcharged by as much as $40 for every copy of Windows sold. Last week, AOL subsidiary Netscape joined the fray, filing suit to recover damages resulting from Microsoft's anti-competitive actions during the browser wars.

    In separate comments, Eugene Crew of Townsend, Townsend & Crew in San Francisco raised concerns similar to the AAI's. Crew leads a California delegation of lawyers suing Microsoft on the behalf of consumers. Crew also opposed a controversial $1 billion settlement for the more than 100 private consumer lawsuits; a federal judge in Baltimore rejected that settlement earlier this month.

    Collision course
    As Kollar-Kotelly weighs whether to approve the settlement, ongoing litigation will be moving toward its next phase.

    Since early November, the settlement and the continuing litigation have been proceeding on separate tracks. But legal experts say those two tracks could collide, or merge, if Kollar-Kotelly believes she can dispatch the entire case through a single proceeding.

    On one track, the Justice Department, nine states and Microsoft settlement has been going through the Tunney Act process leading up to Kollar-Kotelly's acceptance, modification or rejection of the deal.

    On the other track, the nine litigating states and the District of Columbia have been working toward the March remedy hearing and potentially stiffer restrictions on Microsoft's business practices than were worked out in the Justice Department settlement.

    The settlement and ongoing litigation will reach critical junctures around the same time. The judge will be looking at accepting the settlement; about the same time a remedy hearing will unfold in her courtroom. Kollar-Kotelly would then have the option of bringing the two tracks together into one remedy against Microsoft.

    "What I would do if I were her would be to work things out so I got to hear all the evidence before I had to make a judgment on either proceeding," said Rich Gray, a Silicon Valley-based attorney closely following the trial. "I would be very surprised if the timelines don't work out so she can do the one before she has to decide the other."

    Under terms of the proposed settlement, Microsoft would agree to refrain from contracts and related activities that compel other companies to do its bidding. It also would be prohibited from retaliating against PC manufacturers or software developers supporting competing products.

    But the Windows operating system, at the heart of a court ruling that branded Microsoft a monopolist, would emerge largely unchanged, and Windows XP--once a focal point of further proceedings--would be free of any significant restrictions.

    The litigating states delivered a much harsher solution in a remedy proposal filed in early December. That proposal argues that U.S. District Judge Thomas Penfield Jackson's November 1999 "findings of fact" and April 2000 "conclusions of law"--essentially his two-part ruling against Microsoft--demand stiffer sanctions against the company.

    Among other things, the states want Microsoft to open up the source code to its Internet Explorer Web browser, carry Sun's Java in Windows for 10 years and license through auction the Office productivity suite for competing operating systems. A "crown jewel" provision could force Microsoft to open the source code to Windows, should the company violate the remedy.

    Rather than treat the two proceedings separately, Kollar-Kotelly could weigh one against the other, drafting a remedy that falls somewhere in between or even largely supports the proposal put forth by the litigating states.

    "While the (litigating) states' remedy proposal is something Microsoft would never agree to, it's not outside the scope of the ruling handed down by the Court of Appeals," said Fenwick & West's Stanton.

    In June, seven appellate judges unanimously upheld eight separate antitrust violations against Microsoft.

    Many portions of the litigating states' remedy proposal tightened up ambiguities in the Justice Department settlement and strengthened the enforcement mechanisms, Stanton said, setting up a scenario in which Kollar-Kotelly could, "in a way, superimpose one over the other."

    Gray believes that a collision between the settlement and the court-sanctioned remedy is a fairly likely outcome.

    "At some point, she can just blend the two together," he said. "She can issue a judgment in one and then based on the other reject the settlement. She would then encourage those parties to sign onto the judgment she just issued."

    Another option: encouraging another round of settlement talks.

    Because Kollar-Kotelly is unlikely to be able to decide on the settlement before the remedy hearing--even if she wanted to--the non-settling states are in the strongest position to affect any outcome, Gray emphasized.

    "The dissenting states right now are in the driver's seat, not the settling ones," he said. "They already played their hand and said what they'll settle for. The dissenting states are the wild cards here."