Microsoft and US government reach landmark settlement

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The Independent Online

Microsoft and the US Justice Department edge towards the end of their epic legal battle yesterday when they asked a judge to approve a settlement that would set new rules for the nation's hard–hit technology industry.

The deal would require Microsoft to give independent monitors full access to its books and plans for five years to ensure compliance and to provide information to help rivals make products compatible with its dominant Windows operating software.

Attorney General John Aschcroft and Microsoft founder Bill Gates hailed the settlement, saying it would help the sagging economy.

"This settlement is the right result for consumers and businesses, the right result for government and the right result for the economy," said Ashcroft, adding that the new restrictions would help independent software makers be competitive with Microsoft.

Gates said, "The settlement goes further than we might have wanted," but it "is the right thing to do."

"The settlement will help strengthen our economy during this difficult time and ensure that our industry can continue delivering innovations to the marketplace," he said.

U.S. District Judge Colleen Kollar–Kotelly agreed to review the settlement and gave states involved in the case until Tuesday to decide if they would accept the plan.

"I will applaud the effort to come to an agreement ... in this time of rapid national change," the judge said, alluding to her earlier plea for the rival sides to settle their case in the aftermath of the September 11th terrorist attacks.

The software giant, credited with helping drive the technology revolution of the last decade, would be forbidden from striking exclusivity deals with computer sellers that disadvantaged competitors, the government said.

The settlement imposes a "broad range of restrictions that will stop Microsoft's unlawful conduct," the Justice Department said, hailing a deal many hope will invigorate the slumping economy and the technology industry. Microsoft's share price soared on Thursday on word of the deal but by midmorning on Friday it had slipped 25 cents to $61.59.

Microsoft urged the states to accept the plan. Company lawyer John Warden called the agreement "good for the parties, and for consumers as we fully expect the states will conclude."

He added the "greatest beneficiary is the national interest."

Phil Beck, a private lawyer representing the Justice Department, outlined a three–month process for reviewing the deal and winning final approval from the court. There would be 60 days for the public to weigh in with comments.

Beck said the government was confident "that at the end of this period the court will rule the settlement is in the public interest."

Brendan Sullivan, a lawyer representing the 18 states that joined the Justice Department in suing Microsoft for antitrust violations in 1998, said his clients needed until Tuesday to review the terms and "be sure that this is a good agreement that is enforceable."

One of the lead attorney generals in the case, Tom Miller of Iowa, stopped short of endorsing the deal, but said it "represents some progress." Another Microsoft critic, Connecticut Attorney General Richard Blumenthal, said the terrorist attacks spurred the two sides to settle differences.

"The world changed on Sept. 11" and that gave "a powerful dynamic to resolving the issues in this case," said Blumenthal.

Kollar–Kotelly provisionally accepted the settlement and ordered the parties to return to court on Tuesday.

The restrictions would be imposed for five years, and could be extended for another two years if Microsoft failed to follow the terms, the government said.

Microsoft would also allow a panel of three independent experts to base themselves in its offices and work full–time to ensure the software giant complied with the settlement, Justice officials said. The experts would have access to the programming code that is the blueprint of Microsoft's Windows software.

"These experts will have full access to all of Microsoft's books, records, systems and personnel, including source code, and will help resolve disputes about Microsoft's compliance," the department said.

The deal, if approved, would bring to end a historic antitrust case in which the American icon credited with helping driving the computer revolution was judged to be an illegal monopoly that thwarted competition.

The proposed settlement marks a sudden shift in a case that began under the Clinton administration, which sought to break Microsoft into two for its antitrust violations.

A judge originally agreed to do that, but the breakup was reversed by a federal appeals court this summer. The Bush administration took the breakup off the table before starting negotiations this autumn.

President George W. Bush has long urged a settlement in the case but the White House remained on the sidelines during the final days of negotiations led by Justice Department antitrust chief Charles James.

Critics complained the deal doesn't go far enough to ensure Microsoft won't engage in the same practices that led to the monopoly charges. Government officials countered it would prohibit the software giant from entering into exclusive deals with computer sellers to squeeze out rival products.

"This historic settlement will bring effective relief to the market and ensure that consumers will have more choices in meeting their computer needs," Attorney General John Ashcroft said on Friday.

James said the deal would also "promote innovation, give consumers more choices and provide the computer industry as a whole with more certainty in the marketplace."

Microsoft will be required to provide software developers with interfaces for its browser, e–mail programs, media players and other Windows additions so that rival developers can write programs that work with those features.

The settlement would also require non–Microsoft Internet server software to work with Windows on a personal computer just as well as Microsoft servers do.

And Microsoft must license its operating system to key computer makers for five years and can't require manufacturers to exclusively support Microsoft software. The company will also be prohibited from retaliating against companies that support competing products.

Senior Justice lawyers and Microsoft executives decided to press forward without full cooperation from their state partners in the case and to present the deal to Kollar–Kotelly. She has strongly urged the sides to settle since taking over the complex case in August.

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