9 states call Microsoft deal flawed

Software company says they seek to `turn the clock back'


The nine states opposing the government's proposed antitrust settlement with Microsoft Corp. said in a court filing yesterday that the pact was riddled with flaws and, if approved, would extinguish competition and lock computer users into "a Microsoft-controlled world."

Microsoft, in reply, declared that if the sweeping sanctions proposed by the nine states were imposed it would "turn the clock back on the computer industry" and "inflict harm on software developers, hardware vendors and consumers."

The exchange came in a 140-page document in which the states and Microsoft presented to Judge Colleen Kollar-Kotelly of U.S. District Court for the District of Columbia each side's assessment of the disputed and undisputed facts of the case.

The dearth of undisputed facts points to the deep division between the two sides, perhaps setting the stage for a lengthy courtroom confrontation when hearings on remedies in the Microsoft case begin on March 11.

The Justice Department and nine of the 18 states suing Microsoft agreed in November to a settlement that would require the big software company to stop a series of anticompetitive practices and share technical information with industry partners and rivals.

But the nine states opposing the settlement say it would leave Microsoft free to continue abusing its market power in new markets, including the software that runs hand-held devices, television set-top boxes and large data-serving computers. Those markets are beyond the personal computer operating system market, where Microsoft's Windows was found to be a monopoly, which had illegally thwarted competition.

The dissenting states contend that Microsoft is trying to thwart competition in these new markets to protect its monopoly, just as it did in the Web browser market - the focus of the long-running federal antitrust case. These nine states have proposed sanctions that include forcing Microsoft to offer a version of its Windows operating system that does not include software for playing music or video or handling instant messages.

The stripped-down version of Windows, the states say, should be offered at a reduced price. In addition, the states want Microsoft to be forced to license the code to its Internet Explorer browser, opening up this gateway technology to the Internet to competition. The states also say Microsoft should be forced to write its dominant Office productivity software to run on other operating systems like Linux, and be required to continue to offer it on Apple's Macintosh.

The dissenting states contend that such sanctions are needed to prevent a rerun of Microsoft's past abuses in promising new markets. "The key is to be forward-looking, to focus on the road ahead," said Richard Blumenthal, the attorney general of Connecticut, one of the nine states opposing the government settlement. "The goal is to enable competition in software in new markets."

Microsoft declined to comment beyond its filing. Still, the document clearly regards the nine states' call for additional sanctions as little more than a "wish list" of Microsoft competitors. Repeatedly, the Microsoft filing cites one of the dissenting states' proposed sanctions, and declares that the "principal beneficiaries" will be its rivals. America Online, Sun Microsystems Inc. and Oracle Corp. are mentioned most often.

As if to underline the point, Microsoft filed a separate motion yesterday to compel Oracle to hand over documents that it said would show Oracle had encouraged the dissenting states not to settle and had helped to shape their proposal.

The confrontation between Microsoft and the nine states will involve depositions from industry and expert witnesses during the next few weeks. It is on that track of the case that Kollar-Kotelly must make the difficult decisions on how broad to make the scope of the remedies trial.

There was also a court proceeding yesterday involving the more sedate track of the case - the settlement that includes the Justice Department, Microsoft and the nine states who agreed with them. With public comments, as required by the Tunney Act, now in hand, the judge said she would hold a hearing the week of March 4 on the settlement.

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