Gates And The States

The attorneys meeting in the Washington offices of Fried, Frank, Harris, Shriver & Jacobson last week were running on empty. Lawyers from Microsoft and state attorneys general had been toiling through a long weekend that stretched until Tuesday, finessing an agreement that would finally end their epic three-year legal battle. As negotiators went through the 20-page document line by line, one of the lawyers fell asleep amid the piled-up pizza boxes and coffee cups; his snoring could be heard on speakerphones in state offices thousands of miles away. "It was like one of those games where the last person standing wins," says Betty Montgomery, Ohio's attorney general.

These days, that person is looking very much like Bill Gates. A year ago, his company stood on the brink of a court-ordered breakup. Then an appeals court reversed the breakup order while keeping intact much of the lower court's anti-Microsoft rulings. Two weeks ago, the Justice Department, answering to a new President and distracted by Sept. 11, hastily inked an antitrust agreement in which the monopolist basically agreed to play nice. Now, with only minor changes to that deal, nine of the 19 original litigants, including New York, Ohio and Illinois, have found they too can do business with Mr. Bill. Under the terms of the agreement, Microsoft foots their legal costs but doesn't admit any wrongdoing, although Gates did make a cryptic commitment last week to "becoming a better industry leader."

But if Microsoft has won, somebody forgot to tell California, Florida, Connecticut, Massachusetts, Iowa, Minnesota, Kansas, Utah, West Virginia and the District of Columbia. The rump of the prosecution is soldiering on, collecting evidence and preparing for new hearings sometime next year. Though tempted to settle, the dissenters decided they had been through too much to win so little. "We want real reform," says California attorney general Bill Lockyer. "Not a fig leaf." (California, like Massachusetts and Utah, is home to some of Microsoft's fiercest competitors.)

The states are not alone. "Anyone who believes the settlement would actually free manufacturers with competing technologies is living in fantasy land," says Ken Wasch, president of the Software and Information Industry Association, an industrywide lobbying group Microsoft once belonged to. His problem is that Gates has a long history of splitting legal hairs. A 1995 consent decree bound him not to bundle free software with Windows. In 1997 Netscape complained that Microsoft was doing just that with Internet Explorer. Microsoft countered--successfully--that it wasn't a bundle: Explorer was a part of Windows itself. That one provision cost the two sides years of courtroom wrangling.

Now Gates has not one but a laundry list of must-dos and can't-dos. He has to give technical details about Windows to competitors that make browsers, media players and server software. He has to let PC makers put any other company's icons on their desktop. He has to sell them Windows at a fixed price. He can't "retaliate." The states assume that Gates will go plowing for loopholes--and find fertile ground. "There are exceptions," complains Connecticut attorney general Richard Blumenthal, "that may swallow the rule."