States, schools sharply divided over proposed Microsoft settlement

The epic legal battle between the United States Department of Justice (JD) and Microsoft Corp. took a giant step toward resolution last month, as the two parties on Nov. 2 asked U.S. District Judge Colleen Kollar-Kotelly to approve a settlement of antitrust charges that would set new rules for the nation’s hard-hit technology industry.

But an informal poll of school technology leaders across the country revealed a mix of opinions that leaves educators as sharply divided over the settlement as the states’ attorneys general who joined the government’s landmark suit.

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.

However, only two-thirds of the 18 states that joined the federal government to sue Microsoft for antitrust violations are willing to accept the proposed settlement. The others are determined to go to trial.

Six states expressed support for the proposed settlement struck last month between JD and the software giant to end the monopoly case, and at least six others successfully negotiated new concessions with Microsoft that moved them closer to a deal.

Those changes broadened disclosures Microsoft must make to rivals about the operation of its powerful server software. By adding the phrase “or the internet” to one section, lawyers for the states explicitly required Microsoft to reveal technical details about servers other than just those used for office networks.

That slight change could broaden the settlement to cover Microsoft’s future business strategies of providing internet services. The states also negotiated to establish a separate oversight committee, so the states can ensure compliance.

Philip Beck, a lawyer for JD, described the new provisions as “clarifications, not substantial changes” and suggested the federal government wouldn’t object.

The proposed settlement

Terms of the settlement were closely guarded, and people close to the talks cautioned that precise language on important provisions was still being written.

The settlement would impose some restrictions on Microsoft during the next five years and could be extended two more years—until 2008—if the company violates terms of the deal, according to one person familiar with the agreement. A three-person panel would monitor Microsoft’s compliance.

The current antitrust case is rooted in allegations that Microsoft violated a related 1995 agreement with the Justice Department.

The prospective settlement would not require complete disclosures by Microsoft of the “source code” blueprints for its monopoly Windows operating system, the underpinnings of its multibillion-dollar business, according to business analyst David Readerman of Thomas Weisel Partners in San Francisco. But portions of the Internet Explorer web browser would be disclosed.

Microsoft would have to offer a version of Windows without extra features side-by-side with versions that “bundle” those features. The settlement also would prohibit restrictive contracts between Microsoft and computer makers that would discourage them from buying the slimmed-down version, Readerman and other sources said. But it would permit Microsoft to continue to offer financial incentives, such as price discounts, to entice computer makers to sell the fatter Windows.

Other concessions by Microsoft include allowing customers to remove portions of Windows via an icon on the desktop; in current Windows versions, that icon is harder to find. The company also would continue to offer previous versions of Windows for a fixed period of time.

The settlement offer is closely modeled on penalties imposed by a federal judge last year. Under that language, while Microsoft would have to offer an “unbundled” version of Windows, the extra features would still be within the program—just hidden from view. Software makers could continue writing software that takes advantage of those features.

Educators’ reactions

Some educators find the proposed settlement to be unacceptable, while others welcome a resolution to the legal struggle.

“We believe the settlement didn’t go far enough in curbing the monopolistic practices of Microsoft. The settlement will still allow Microsoft to control the technology made available to everyone,” said Alan Whitworth, technology director at Jefferson County School District in Kentucky.

Kyle Hutson, technology director at Rock Creek Schools in Kansas, agrees that the proposed settlement doesn’t impose enough penalties or restrictions.

“What penalties and restrictions? The consent decree amounts to ‘don’t do it again,’ which is precisely what [JD] said to Microsoft in 1995,” said Hutson.

“Microsoft broke that one, and I predict they will break this one as well. After all, their penalty for breaking it will be another two years of supervision. If I was on probation for breaking a law, I highly doubt my penalty for breaking probation would be an additional two years of probation,” he added.

Sheryl Abshire, district administrative technology coordinator for the Calcasieu Parish Public School System in Louisiana, had a different opinion.

“Continuing the discussions and stretching out the decision does nothing but further undermine consumer confidence in this segment of our economy,” Abshire said.

“Our school district has enjoyed a good working relationship with Microsoft, and they have aggressively provided very competitive educational pricing that meets our needs for their products. I believe it is time to settle the ongoing dispute and move on with enhancing the image of the technology industry.”

States divided, too

The states’ Nov. 5 discussions about whether to accept the proposed settlement reflected their many divergent views and different levels of commitment throughout the case, as well as the effort by the coalition leaders—including Iowa and Connecticut—to keep the states together.

After all-night negotiations, Microsoft hinted it was finished negotiating and was willing to continue the fight in court with those states that don’t sign the settlement.

Eric Green, the mediator, said attorneys general in some states remained very troubled despite the additional provisions sought by their colleagues. He did not identify them.

Other states indicated they would sign the settlement as JD negotiated it. Those states included North Carolina, Ohio, Illinois, Michigan, Kentucky, and New York, a person close to the discussions said.

Massachusetts Attorney General Thomas F. Reilly said the settlement has too many loopholes and refused to agree without major changes.

“Microsoft will use this agreement to crush competition,” Reilly said. “Every definition is riddled with exceptions.”

In Illinois, Attorney General Jim Ryan said he is inclined to sign the agreement.

“I am pleased that the Microsoft case appears headed for resolution and that Illinois consumers will have gained a freer and more competitive marketplace as a result,” Ryan said.


Microsoft Corp.

U.S. Department of Justice

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