Microsoft Must Now Fight on Two Fronts

Failing to settle its landmark antitrust case with all 18 states, Microsoft now finds itself in the precarious position of complying with already negotiated sanctions while risking additional future penalties that could be imposed as early as next year.

Half of the 18 states that sued Microsoft Tuesday agreed to settle the landmark legal battle, but the rest of the parties said they would continue with the antitrust case.

Some legal experts now wonder whether Microsoft Chairman Bill Gates jumped this week from a frying pan of secret negotiations into a potential fire in federal court. Instead of a unified battle against the Justice Department 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.

Nine states, including New York and Wisconsin, announced a settlement Tuesday 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.

Some States Promise Good Fight

As many as nine other states said they will press forward in the antitrust case.

Officials in some of those nine states hinted they may eventually settle their complaints, perhaps within the week, but others took firm stands opposing settlement, including California and Massachusetts, signaling a raucous courtroom fight early next year.

West Virginia's attorney general, Darrell McGraw Jr., called Microsoft an "illegal, unlawful actor who has damaged the economy by its misconduct ... and by some curious twist of fate has taken the driver's seat in a process where the settlement legitimizes many facets of the company's misconduct.''

California Attorney General Bill Lockyer, who also has emerged among Microsoft's tougher critics, said remaining states will push for tougher sanctions than those contained in this week's deal.

Microsoft recognized its strategic risks and asked U.S. District Judge Colleen Kollar-Kotelly on Tuesday to delay any court proceedings until she decides whether the settlement is in the best interest of consumers.

But Kollar-Kotelly refused Microsoft's request and set an aggressive schedule to move forward on both issues. That dual process also raises the probability that former government partners may end up fighting each other, with the sides that settled with Microsoft opposing the arguments by some states that the deal was too lenient.

'Nobody's Ever Been Here Before'

"The hearings are going to be very interesting,'' said Donald Falk, an antitrust lawyer in California who has represented some Microsoft rivals. "Nobody's ever been here before, nobody knows how this will come out.''

Microsoft won some encouragement from an unexpected new ally. The head of the Justice Department's antitrust division, Charles James, predicted that Microsoft ultimately will face no tougher sanctions than those it already negotiated with Justice and the nine states.

James defended the agreement as "good for consumers, and we think it's good for the technology economy.'' He also noted that, even as California and others urge the judge to impose harsher penalties, those states "will get the benefit of our settlement.''

The settlement already negotiated between Microsoft and the Justice Department requires the company to provide technical details to help rivals make products compatible with its monopoly Windows operating system and to give an oversight panel full access to its books and plans for five years.

It also bans exclusive contracts with computer makers that put rival software vendors at a disadvantage.

But critics portray the 21-page agreement as rife with loopholes, such as one clause that permits Microsoft to ask consumers whether they want to restore after 14 days any changes made to Windows by computer makers.

It also allows Microsoft to maintain the secrecy of any technical details of its anti-piracy, security, anti-virus or encryption technology. In the changes negotiated by states, the government also sought to narrow cases in which Microsoft could shield that information.

Reuters and the Associated Press contributed to this report.