Microsoft, DOJ Prepare to Settle

WASHINGTON--During their settlement hearing in front of a federal judge Wednesday, lawyers for Microsoft and the U.S. Department of Justice promoted their proposed agreement as going even further than last year's court of appeals findings specified.

Microsoft also told Judge Colleen Kollar-Kotelly that it hopes to put five years of arguing with the government behind it and instead build constructive relationships with the DOJ, state attorneys general, and the industry at large.

With periodic questions from the judge, the DOJ and Microsoft took turns Wednesday morning presenting their cases for why the proposed settlement is in the public interest. Before the proceeding began, Kollar-Kotelly told the courtroom that her questions "should not be interpreted or dissected" to determine whether she would approve the settlement.

"I have a lot of work before me before I make this decision," Kollar-Kotelly said, offering no hint of a time frame.

Kollar-Kotelly did say, however, that she will rule on the merits of the proposed settlement separately from any decision she makes in the case between Microsoft and nine other states, plus the District of Columbia, that did not agree to the settlement. Remedy hearings in that case are slated to begin on March 11.

The government made its presentation first, stressing that the proposed settlement better serves the public's interest than the likely outcome if the DOJ had pursued remedies against Microsoft.

"The DOJ and the states have negotiated an excellent decree that is in the public interest and furthers the policies of antitrust law," said Phil Beck, an attorney with the Justice Department.

Had the DOJ pursued remedies, as the nine states (and the District of Columbia) that did not settle with Microsoft are doing, it might well have been unable to prove that Microsoft violated antitrust law beyond the findings of the court of appeals. That court ruled last June that Microsoft was illegally practicing monopoly maintenance. Therefore, while critics of the settlement suggest that the agreement doesn't go far enough to curtail Microsoft's business practices, Beck maintains that such issues are outside the scope of this case.

Since the proposed settlement calls for modifications of Microsoft's business practices that go beyond those outlined by the appellate court, this agreement represents the best-case scenario, according to Beck.

The proposed settlement "addresses all of the issues addressed by the court of appeals ... and goes beyond in some respects," Beck said.

Microsoft's lawyer, John Warden, agreed that since the decision by the court of appeals, the scope of the antitrust case has been limited.

"That court of appeals decision is the reference for this court's decision," Warden told the judge.

Other Parties Speak

The judge asked Warden about third-party accusations that Microsoft had failed to live up to the letter of the Tunney Act, a federal law that offers guidelines for settling civil antitrust suits. The American Antitrust Institute claims that Microsoft did not disclose and describe all of its conversations with U.S. government employees since the settlement was reached. An AAI representative spoke as one of six third-party representatives chosen by Kollar-Kotelly.

Warden answered that Microsoft had no conversations with the legislative branch concerning the proposed settlement, but that surely there were discussions about other aspects of the case.

Also testifying were representatives of the Association for Competitive Technology, the Computer & Communications Industry Association, the Project to Promote Competition & Innovation in the Digital Age, SBC Communications, and the Software and Information Industry Association. An attorney representing the nine states that chose to settle also spoke in support of the agreement.

Making Changes

On the topic of changing its ways, Microsoft gave the judge a list of initiatives already under way at the company to modify business practices so that they comply with the proposed settlement. Microsoft has hired a director of compliance and an internal compliance officer to help ensure that the settlement is upheld, said Brad Smith, counsel for Microsoft, who will take over when the company's top legal advisor, Bill Neukom, retires later this year.

"We will do whatever it takes to comply fully with this decree," Smith said.

Microsoft has already begun to modify its contracts with PC manufacturers, giving them the right to delete Internet Explorer from the desktop and to install new icons as per the settlement, Smith said. Work is also under way to modify Windows XP; in the service pack update that Microsoft intends to release by late summer, users will be able to turn various pieces of middleware on and off and will be able to configure the default settings to their liking, he said.

The company is also reviewing its patent portfolio to determine which intellectual property rights will need to be licensed to third parties, as part of disclosing Windows' internal interfaces and communications protocols, Smith said.