Two states seek tougher penalties

Two U.S. states have asked a federal appeals court to push for tougher behavioral restrictions against Microsoft, arguing that terms of a settlement reached in its antitrust case with the U.S. government do little to redress the company’s anticompetitive behavior.

Massachusetts and West Virginia, the two states that so far have refused to settle the case against Microsoft, argued in court papers Monday that sanctions agreed to in November by the Department of Justice, 17 states and Microsoft are inadequate to restore competition in the software industry and correct the effects of Microsoft illegal behavior.

The states urged the appeals court to direct the district court to impose tougher remedies than those agreed to in the settlement.

“The flaws in the remedy adopted by the district court are profound. It does not fulfill even the most basic mission of stopping all of the practices (the appeals court) found unlawful,” the states argued in their court brief, submitted to the U.S. Court of Appeals, District of Columbia Circuit.

“The district court’s remedy will not restore competition, deny Microsoft the fruits of its illegal conduct or otherwise satisfy (the appeals court’s) remedial objectives,” the states wrote.

A Microsoft spokesman defended the settlement and said the software maker looked forward to responding to the states’ brief in court papers that it is due to file next month.

“The District Court thoroughly reviewed these issues last year and issued comprehensive rulings as a result of that process. The Court’s rulings represent a fair resolution of this case,” Microsoft spokesman Jim Desler wrote Monday in an e-mail.

“Those decisions have been agreed to by the Justice Department and virtually all of the states that filed lawsuits against Microsoft,” Desler wrote. “Only two of 21 states and a couple of groups of Microsoft competitors are continuing with their efforts to impose overreaching and punitive terms that the District Court has already determined would harm not just Microsoft, but the software industry and the economy as well.”

District Court Judge Colleen Kollar-Kotelly approved the terms of the settlement in November, which had been agreed to by the Justice Department, Microsoft and nine of the U.S. states suing the company.

The settlement imposed certain business restrictions on Microsoft, such as barring it from punishing PC makers who promote software that competes with Microsoft products, but it largely ignored far tougher measures that had been proposed by nine “nonsettling” states. They included forcing Microsoft to port its Office applications suite to other operating systems and making its Internet Explorer browser open source.

Seven of the nine “hold-out” states eventually agreed to the Justice Department’s settlement, leaving Massachusetts and West Virginia. Those two states are asking the Columbia appeals court to decide whether Kollar-Kotelly erred in approving the settlement.

In Monday’s court brief, which runs more than 60 pages, the two states argued that the district court failed in its “most basic goal” of preventing Microsoft from carrying on with behavior that had been ruled unlawful during the course of the trial. For example, Microsoft was found to have maintained its monopoly unlawfully by, among other things, “commingling” software code for Internet Explorer with its Windows operating system, making it hard to remove its browser without also damaging Windows.

Instead of forcing Microsoft to let customers remove Internet Explorer without damaging Windows, however, the settlement required only that the company allow PC makers and others to remove the icons and short cuts for the browser, rather than the application itself.

“The path to an effective remedy here has not been an easy or a quick one,” the states wrote in their conclusion, “but that is no reason to abandon (the appeals court’s) remedial goals, or to let the passage of time preclude a grant of meaningful relief in a case of this importance.”