9 states continue fight with Microsoft

Posted: Thursday, November 08, 2001

WASHINGTON -- Antitrust enforcers in the nine states that rejected the settlement with Microsoft Corp. say they will have enough money for a sustained courtroom fight without the resources of the Justice Department and other former partners in the case.

''I'm confident the resources will be available to continue our prosecution of this case as effectively as in the past,'' Connecticut Attorney General Richard Blumenthal said Wednesday. A spokesman for Iowa's attorney general said officials there also were confident of ''ample resources for this ongoing litigation.''

California's attorney general, Bill Lockyer, estimated that the states together spent roughly $20 million in the three-year case against Microsoft; he also estimated that Microsoft, which has $31.6 billion in cash reserves, spent more than $100 million on private lawyers.

Microsoft Chairman Bill Gates hasn't specified how much his firm spent in legal fees, but he joked earlier this year during a law school dedication that, ''I became the biggest client of my dad's law firm.''

The Justice Department has said previously that its antitrust division spent $11.7 million against Microsoft from 1995 to mid-2000.

Microsoft is still working out agreements to reimburse the other nine states in the case, which negotiated a final settlement this week along with the Justice Department. A company spokesman, Jim Desler, called those reimbursements ''an open issue that we will work to resolve.'' Under federal law, the Justice Department is not entitled to any reimbursement in antitrust cases it wins.

States, however, can charge a vanquished defendant for legal fees and costs to hire expert witnesses. They typically charge hourly rates for attorneys, even if government lawyers are paid a salary.

Microsoft agreed earlier this year to reimburse New Mexico for about $100,000 after it reached a separate settlement.

''The normal practice is that defendants will pay for all legal fees and expenses,'' said James Tierney, Maine's former attorney general and a consultant to the states suing Microsoft. ''They come out ahead because they're charging hourly rates more than what is paid by the taxpayers.''

Yet many legal experts expressed astonishment that nine states would sign a settlement with Microsoft that did not include explicit promises to repay millions of dollars in lawyers' fees and other costs. ''That's pretty unusual,'' said George Cary, a Washington antitrust lawyer.

''It is surprising they would have given up their bargaining chip,'' said another expert, Andrew Gavil of Howard University. ''I guess it depends on whether they think Microsoft can be trusted.''

Nine states, including New York and Wisconsin, announced a settlement with Microsoft and the Justice Department after the company agreed to new provisions aimed at ensuring that competitors can build software products that work seamlessly with the monopoly Windows operating system.

As many as nine other states said they will begin collecting evidence soon to decide the most appropriate penalties for Microsoft. A federal judge already has determined the software maker is guilty of illegally using its influence in the technology industry to undermine rivals.

California, home to Silicon Valley and some of Microsoft's toughest rivals, is expected to pay the lion's share of the remaining trial costs, since that state is among the largest and wealthiest of the nine left in the case. Lockyer received $3.7 million in extra funding last spring for antitrust enforcement, nearly doubling his budget for that purpose, and much of that is available for the Microsoft case.

Microsoft's competitors lobbied California lawmakers and Gov. Gray Davis to approve the extra $3.7 million for antitrust enforcement, though Lockyer denied ''any extensive effort by private-sector leaders.'' He also noted that Microsoft unsuccessfully pressed Congress two years ago -- in the midst of its antitrust trial -- to cut the Justice Department's antitrust budget by $9 million.

Lockyer, who earlier hired a powerful Washington trial lawyer, Brendan Sullivan, on behalf of the states, said officials are willing to pay to hire ''some of the best attorneys in the country to fight this.''

He also predicted that Microsoft ultimately will be obliged to reimburse all the states. ''At some point there will be claims of reimbursement ... that I'm sure will be honored,'' Lockyer said.

Some legal experts wondered whether Microsoft jumped this week from a frying pan of secret negotiations into a potential fire in federal court. Instead of a unified battle against Justice and 18 states, Microsoft's lawyers must now wage fights simultaneously on disparate fronts: convincing the judge in one set of hearings that its concessions are tough enough even as some states press in other hearings for much harsher sanctions.

Microsoft asked U.S. District Judge Colleen Kollar-Kotelly to delay any court proceedings until she decides whether the settlement is in the best interest of consumers. But she refused Microsoft's request and set an aggressive schedule to move forward on both issues.

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