Massachusetts rejects Microsoft settlement

Dissension reverberates in the ranks of state attorneys general over settling the three-and-one-half-year-old U.S. antitrust lawsuit against Microsoft Corp., with Massachusetts Attorney General Tom Reilly publicly saying he will not sign the settlement agreement proposed by the U.S. Department of Justice (DOJ).

At a press conference in Boston on Monday, Reilly said that before he signs off on the agreement, major changes must be made to eliminate exceptions in the definitions for operating system software and the conduct required of Microsoft.

After the DOJ announced its settlement proposal Friday, the 18 state attorneys general remaining in the suit asked for time to review the details. U.S. District Court Judge Colleen Kollar-Kotelly granted them until Tuesday to decide whether to accept the deal.

He said Massachusetts will not agree to the proposal as it stands, calling it “fundamentally flawed” and not in the interest of consumers or competition without better enforcement mechanisms. Little chance before Tuesday exists for the states and Microsoft to make the kinds of changes in the DOJ proposal before Reilly could sign the deal, he said.

“They have a consistent and long pattern of not playing by the rules,” Reilly said of Microsoft. The proposed agreement is “riddled with loopholes,” and uses definitions that each have “dozens of exemptions,” he said, without giving specific examples.

A core group of other attorneys general will likely reject the proposal as well, leading to a continuation of the fight, Reilly said. “There are other states that are disturbed by the way this happened,” he said. He would not say which attorneys general oppose the deal, characterizing as “fluid” the discussions between the states, before their next day in court on Tuesday.

The attorneys general of California, Iowa and New York have been the most public voices in the states fight against Microsoft. California is home to some of Microsoft’s biggest rivals – Oracle Corp. and Sun Microsystems Inc. – while New York is home to IBM Corp. and Computer Associates Inc. Massachusetts has relied on a strong technology sector for its economic growth over the past decade.

Reilly made the decision to oppose the settlement after consulting with industry representatives and small technology businesses, he said.

Illinois Attorney General Jim Ryan announced in a statement on Friday that he was inclined to support the deal, saying that the terms appear to achieve the overall objectives of the states’ lawsuit.

Other than Reilly, none of the other state attorneys general have announced definitive plans to accept or reject the deal. No state attorneys general office contacted would immediately comment about the suit.

Key points of the settlement include a broad definition for middleware software that includes browsers, e-mail clients, media players, and instant messaging software; and the ability for computer manufacturers and consumers to swap third-party middleware programs for Microsoft’s own middleware, and run them on Windows.

In October, the states in the suit hired Washington, D.C., lawyer Brendan Sullivan, a member of the firm Williams & Connolly and former attorney for Oliver North, for their antitrust efforts.

If the states continue to pursue the three-and-one-half-year-old case, a resolution could be months or years away, with the potential for substantially greater penalties for Microsoft. If the remedy phase begins, hearings will start in March.

If most of the states end up agreeing with the settlement, those continuing on with the case are unlikely to have much influence, said Bob Schneider, an attorney at the Chapman and Cutler law firm in Chicago.

“There will be a lot of pressure on them to come to some agreement,” he said, noting that it’s also possible for the states to force a more restrictive settlement for Microsoft. “If the states make a good argument that additional conduct remedies (are needed), it’s possible they could convince the judge.”

The terrorist activity of Sept. 11, the foundering economy and the change of administration at the DOJ have all factored into the settlement, Schneider said.

“The present people at the DOJ don’t have the same investment in the matter as those who left with the last administration, because they spent so much time on it and were much more knowledgeable about the facts and what went on during the period of litigation. Then the new administration comes in and wipes the board clean.”

Reilly acknowledged that the state of the economy had increased the pressure on him to find a way to settle the suit. But he said that America is “about principles of fair play and competition,” and neither the miserable economy nor the terrorist attacks have changed those principles.

“Microsoft is one of the richest, most powerful companies,” he said. “But you can’t use your power and dominance to crush competition.”