Microsoft Said to Profit From Accord

Far from being hobbled by its pending antitrust settlement with the Justice Department, Microsoft Corp. is already profiting from it by imposing new conditions on computer companies, a Microsoft executive admitted in court papers filed late Tuesday.

In a sworn interview conducted this month by attorneys fighting for harsher penalties, Microsoft Senior Vice President Richard Fade conceded that the software giant is taking in as much revenue from licensing the Windows operating system as before, while insisting that computer makers waive more of their rights to prevent Microsoft from using the computer firms’ technology.

Asked if the consent decree’s “net result is positive for Microsoft,” Fade said the conclusion was “correct.” And he said all of Microsoft’s top 20 customers believe they’ve been hurt by the settlement that Justice Department officials had said would protect them.

Excerpts of the deposition, along with computer makers’ complaints to Microsoft about the intellectual property issue, were filed by California and eight other states opposed to the controversial Justice Department settlement. The states asked U.S. District Judge Colleen Kollar-Kotelly to consider Fade’s testimony in a fairness hearing next month on the proposed deal.

The new evidence is strong enough that it could make a difference in whether Kollar-Kotelly blesses the pact, said antitrust law professor Robert Lande of the University of Baltimore.

“This certainly makes it less likely that the judge is going to approve it,” Lande said. “You’ve got a Microsoft executive admitting that the proposed settlement actually improves their bargaining position. It’s what some of the critics have been saying all along, but it’s the proof.

“It’s a mind-boggling document,” Lande said.

In their filing, the states wrote, “Years of litigation, millions of dollars of expense, and victories in the District Court and Court of Appeals should not result in a net gain for the violator and harm to the victims.” The appeals court held that Microsoft illegally maintained its monopoly on the operating systems for personal computers, leaving it to the lower court to pick a punishment.

Microsoft was able to insist on the new intellectual property clause because of similar wording in the consent decree and that decree’s requirement that computer makers get essentially the same terms. That was intended to bar Microsoft from playing favorites.

The uniformity means that “inevitably, some [manufacturers] who had gained unique concessions would be unhappy with particular terms under the new decree-mandated ‘one size fits all’ approach,” Microsoft said. It denied that it had profited from the settlement.

Though more complex than Windows pricing, the patent issue is an important one for the computer companies. At Hewlett-Packard Co., talks with Microsoft on patent enforceability took six months before they were resolved in a licensing agreement last summer.

After Microsoft began following the consent decree in December, it threw out that agreement and told HP it would to have to waive more of its rights. In a letter to Fade sent last month, HP complained that the new requirement “amounts to one-half of a patent cross-license flowing from HP to Microsoft, without compensation and without reciprocity.”

Fade’s admissions prompted the states to change their minds and ask to participate in the fairness hearing next month, which is required under the Tunney Act. Previously, they had planned to save their fire for a trial scheduled later in March on their own proposed remedies, which would include forcing Microsoft to license versions of Office software for other operating systems and releasing the source code for the Internet Explorer Web browser to the public.

In an unrelated victory for the states, Kollar-Kotelly ruled that Microsoft must turn over its source code for Windows to opposing attorneys.

The states asked for the code because Microsoft is arguing that it would have to redesign it entirely to comply with another of the states’ proposed remedies, that it offer stripped-down versions of Windows without browsers, media players and other add-ons.

Microsoft shares rose 97 cents to $59.90 Wednesday on Nasdaq.