September 10, 2001
Microsoft Drafts Settlement Proposal,
By John R. Wilke
Hoping to Resolve Antitrust Lawsuit
Staff Reporter of The Wall Street
Corp. is drafting a settlement proposal for a new round of talks with the
government this week, aimed at resolving the landmark antitrust suit
against it, lawyers close to the case said.
The overture comes in response to the government's decision last week to
narrow legal issues in the case and not seek a breakup. It will be
Microsoft's first substantive effort to settle since a June 28 ruling by
the federal appeals court here that upheld the core of the government's
Earlier settlement efforts have failed and the government is continuing
to draft a broad set of restrictions on Microsoft's business conduct that
it will ask a federal court to impose. These rules are intended to take the
place of a breakup, a remedy that was thrown out by the appeals court in
June and formally abandoned last week by the Justice Department and 18
states involved in the case.
The proposed restrictions will be the subject of hearings here this fall
before U.S. District Judge Colleen Kollar-Kotelly, who has asked for briefs
from both sides by Friday and an initial hearing on Sept. 21. The
government will seek rules that allow computer makers to choose among rival
software products rather than being forced to take what Microsoft demands
when it licenses its widely popular Windows operating system software,
among other provisions, those close to the case said.
Software features or programs will be covered under the government's
approach if they are seen as potential threats to Windows, these lawyers
said. This category of products is almost certain to include Internet
browser software and
Inc.'s Java software, which were both cited by the
court as having been targeted by Microsoft, along with other current and
future technology that may threaten the Windows monopoly.
Examples of non-Microsoft products that PC makers would be free to adopt
could also include multimedia software plug-ins and instant-messaging
software, among other technologies, though these definitions are still
being worked out, the lawyers said.
Microsoft is expected to fight the restrictions now under development.
Last year, its chief executive, Steve Ballmer, called proposed conduct
rules "just as damaging" as a breakup and said that they would force the
company into court-ordered regulation.
Details of Microsoft's settlement proposal couldn't be confirmed. In a
prior effort to settle two years ago, Microsoft's proposal offered to end a
number of contract and licensing provisions, to provide for more disclosure
about the inner workings of Microsoft's products to software developers and
others and to more fully open the Windows "desktop" or first screen. The
government rejected these provisions as inadequate to restore
A spokesman for the Redmond, Wash., software maker declined to comment.
But a second Microsoft official confirmed that William Neukom, the
company's chief legal officer, will be here this week and is expected to
present Microsoft's new settlement proposal to state and federal antitrust
On Friday, state officials warned that they would press for tough
conduct restrictions in the forthcoming hearings. "It is imperative that
Microsoft not have another opportunity to use Windows XP to suppress
competition in emerging Internet areas," said a statement by New York
Attorney General Eliot Spitzer and the California attorney general, Bill
Messrs. Spitzer and Lockyer also delivered a veiled warning to the Bush
administration. "We look forward to continuing to work with the Department
of Justice in the proceedings that are about to begin before the trial
court, but will, if necessary to protect the public, press for remedies
that go beyond those requested by the department," the officials said.
In particular, some state officials are concerned about enforcement of
conduct restrictions. "There will have to be active oversight of
compliance," said Richard Blumenthal, Connecticut's attorney general.
"Enforcement has proved to be the quicksand for past conduct-based
Even as it seeks to resolve its long legal battle with the government,
Microsoft faces a widening investigation by European antitrust enforcers
and the prospect of private suits from a number of companies, especially
AOL Time Warner
Inc., whose former
Netscape unit was at the heart of the U.S. antitrust case.
Neither company has said whether it would sue Microsoft, though AOL
executives have said recently in interviews that the appeals court ruling
would give them powerful ammunition in a private suit. Sun's general
counsel, Mike Morris, said Friday, "we are evaluating that carefully, on
behalf of our shareholders, our customers and the industry." Indeed, given
the huge damages award that could be at stake, "we'd be remiss in our
fiduciary responsibility if we didn't take a hard look at a private
antitrust action," Mr. Morris said.
Any new restrictions on Microsoft's conduct will likely come too late to
affect the initial release of Windows XP, the next version of Microsoft's
monopoly operating-system software. Though it isn't set to hit stores until
Oct. 25, some consumers could get it much earlier: At least two major
Corp., have said
people can order and start receiving Windows XP-powered machines by late
Antitrust enforcers have made it clear that Windows XP won't be immune
after it is shipped. "When the judge enters a decree, it will be
forward-looking and apply to all of Microsoft's products, including Windows
XP," said Iowa Attorney General Tom Miller. "If XP is out of compliance,
Microsoft would have to bring it into compliance as soon as possible," or
face court sanctions, he said.
Windows XP will contain a number of features that could fall under the
government's evolving definition of a competing "middleware" technology,
including an Internet browser, media player and instant-messaging software,
plus tight links to Microsoft's new e-commerce services. It is unclear
whether other new features, such as video-editing or digital-photography
software, would fall under rules being developed. "The issue isn't simply
whether or not [Microsoft] is extending Windows, but how that stuff gets
packaged and sold," said Drew Brosseau, an analyst with SG Cowen in
-- Rebecca Buckman in San Francisco contributed
to this article.
John R. Wilke at
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