Microsoft Legal Battles Heat Up Again

Three Microsoft legal cases are coming to a head simultaneously, and if the backlash from two of them is any indication, celebrations for the company's victories might be a bit premature. As WinInfo Daily UPDATE readers no doubt know, Microsoft is embroiled in lawsuits with the antitrust arms of the United States and Europe, the first of which also spawned more than 100 private class-action lawsuits related to Microsoft overcharging consumers for Windows products. The company is attempting to settle all three of these cases, but some of its plans are starting to unravel.

In early November, Microsoft announced that it had reached a tentative settlement with the US Department of Justice (DOJ), and within days, half of the 18 states also allied against the company agreed to the settlement, some after Microsoft made minor changes to the settlement. Microsoft had hoped to convince the remaining states to also sign on, and in the intervening days, representatives of many of those states talked candidly about the amazing efforts Microsoft and groups close to the company made in their attempt to convince the holdouts to agree to the settlement. But instead of winning converts, Microsoft's hard-hitting strategies have only entrenched the states further, and most of them have publicly stated that they're willing to go the distance, although we won't know what remedies they're seeking until next month.

That decision will eventually result in court hearings before Judge Colleen Kollar-Kotelly this spring, who will first rule whether to accept Microsoft's proposed settlement with the DOJ and nine US states. In the meantime, the nine remaining holdout states will give Kollar-Kotelly their recommendation for how the court should punish Microsoft for violating US antitrust laws. In mid-2000, the US District Court for the District of Columbia found the company guilty of harming competitors, consumers, and partners by illegally maintaining and extending its Windows monopoly.

"We have too many doubts as to the effectiveness of the agreement," said Iowa Attorney General Tom Miller, who represents one of the states still fighting Microsoft. Other states include California, Connecticut, Florida, Kansas, Massachusetts, Minnesota, Utah, and West Virginia. The District of Columbia is still undecided, although a spokesperson for the district says that it will probably continue the fight. "Our goal has always been to make sure that Microsoft's monopolistic misconduct is prevented from recurring and competition is restored, so that consumers benefit from more innovation and better prices and quality," said Connecticut Attorney General Richard Blumenthal.

Microsoft's problems with the proposed settlement don't end with the holdout states, however. The US Senate Judiciary Committee announced this week that it will question federal and state antitrust officials about the settlement to discover whether it goes far enough. Critics of the settlement have described it as a sweetheart deal that hands Microsoft a total victory without punishing the company for repeatedly breaking the law. Judiciary Committee hearings are tentatively set for December 12.

In a related case, last week Microsoft announced a separate tentative settlement with most of the plaintiffs of class-action lawsuits that arose in the wake of its guilty verdict in the US antitrust case. The settlement, which is roughly valued at $1 billion, has come under even sharper criticism than the wider antitrust settlement because it rewards, rather than punishes, Microsoft for overcharging consumers for Windows. Here's how the deal works: Microsoft reached a settlement in which the company will supply 1 million refurbished PCs to the country's poorest 14,000 schools, along with free copies of Windows. The agreement would let Microsoft extend its market share in the education market--according to various figures, by as much as 7 percent to 8 percent during the next 5 years. The problem with this approach, obviously, is that the education market is one of the few places where Microsoft still faces stiff competition. And by letting Microsoft provide free PCs to schools, its competition--notably Apple's Mac OS and the free Linux OS--will suffer further.

Apple said yesterday in a 30-page brief that the deal is "anticompetitive" and "baffling." CEO Steve Jobs, who was silent during the Microsoft antitrust trial, pulled no punches. "Around half of the computers in education today are Apple computers, and we're the second-largest supplier overall and the largest supplier of portable computers to education," Jobs said yesterday. "Given this, we're baffled that a settlement imposed against Microsoft for breaking the law should allow--even encourage--\[the company\] to unfairly make inroads into education, one of the few markets left where \[it doesn't\] have monopoly power." Although Apple has slipped behind Dell in yearly education sales, the company still clings to the majority of that market. "Today our schools have a choice, and to date they have chosen Apple around half of the time," Jobs said. "We think our schools deserve to keep their power of choice, and our kids deserve better than having to learn on old, refurbished (Windows/Intel) computers."

Also yesterday, Microsoft asked the European Commission (EC--the European Union's executive arm) to forgo hearings next month so that the company can attempt to settle its European antitrust case. The case combines two previously separate antitrust investigations, which center on Microsoft's alleged attempts to illegally extend its Windows desktop domination to the server market. Microsoft says that enough information about the case's core issues is already available and that hearings aren't necessary. The EC, however, says the case is going forward with or without the hearings.

"The investigation continues," an EC spokesperson said, noting that Microsoft has effectively given up the opportunity to defend itself. "It will be a matter now for the Commission hearing officer to decide how to proceed." The EC says that it will wrap up its investigation of the company by early next year.

Taken separately, any of these developments would be interesting. But with Microsoft apparently snatching victory from the jaws of defeat earlier this month, the industry increasingly believed that the company would simply walk away unscathed from its many legal battles. That conclusion might no longer be true.

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