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Judge: Key Antitrust Clause With Microsoft Not Yet Effective

Lawyers for the government and the trrial judge admit that a key part of the controversial antitrust settlement with the software vendor may not be working out as hoped.

WASHINGTON (AP) -- A key element of the antitrust settlement Microsoft Corp. negotiated with the Bush administration isn't working as effectively as hoped, the government and trial judge acknowledged Friday.

The criticism comes just weeks before a U.S. appeals court considers tougher sanctions against the world's largest software company.

U.S. District Judge Colleen Kollar-Kotelly urged government lawyers during a court hearing to investigate over the coming months why only nine companies so far have paid Microsoft to license its Windows technology for their own software products.

One of the most important provisions of the landmark settlement compels Microsoft to permit competitors to license parts of its technology to build products that seamlessly communicate with computers running Windows software.

"I think all of us had hoped for more agreements," Kollar-Kotelly said. "I am interested in finding out why we don't have more licensed products."

The judge said nine companies that already signed agreements "look like it's pretty much the heavy-hitters." But government lawyers explained it will take months to determine whether the deals will substantially ensure Microsoft can't abuse its control over Windows computers.

The judge scheduled another oversight hearing for late January.

The licensing requirement was considered central since it would prevent Microsoft from locking out rival companies developing products that compete with Microsoft's own. Under the court-approved agreement, which expires in November 2007, Microsoft must offer such licenses under "reasonable and non-discriminatory terms."

The judge urged government lawyers to interview companies that decided against licensing Microsoft's technology to determine whether the court should require changes to Microsoft's terms. She said it was unclear whether competitors were unhappy with those terms or simply not interested, adding, "there's not much we can do about that."

Microsoft expects to sell additional licenses within months, lawyer Rick Rule said. He argued that Microsoft was complying with the settlement by offering to license its software technology even if few companies sign such deals.

"Ultimately the question should be, are these potentially available," Rule said. "It shouldn't be, how many licenses are there."

Friday's oversight hearing preceded next month's arguments before the U.S. Circuit Court of Appeals by lawyers for Massachusetts, the only state to formally dispute the antitrust settlement as inadequate. They have asked the appeals court for tougher sanctions, accusing Kollar-Kotelly of a "profound misunderstanding" for approving the agreement.

"There is no objective evidence that the settlement has had any positive impact in the marketplace and the competitive landscape," said Ed Black, head of the Computer & Communications Industry Association, a trade group also contesting the antitrust settlement. "There is no change in their strategy and tactics to continue to misuse their monopoly, and it continues to work."

The day before the hearing, Microsoft reported a 28 percent surge in quarterly profits, as sales rose 6 percent to $8.22 billion. The increase drove up the company's already remarkable cash reserves to more than $51.6 billion.

To entice more companies to license its technology, Microsoft previously agreed to reduce from $100,000 to $50,000 a prepayment from rivals and reduce the price it charges so that it collects 1 percent to 5 percent of the revenues of the software that includes its technology.

Since that change, only five more companies have signed licenses with Microsoft, including the Utah-based SCO Group Inc., which has separately threatened to sue companies using the Linux operating system unless they pay a licensing fee.

The fifth new license, disclosed during the hearing, involved UTStarcom Inc. of Alameda, Calif., a 12-year-old wireless company that concentrates on markets in China. It reported quarterly income of $59.1 million on sales of $584.4 million.

The three other Microsoft licenses since July cover special-purpose products.

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