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Microsoft deal in trouble
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November 6, 2001: 2:02 p.m. ET
One-third of states involved reject settlement with federal regulators.
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NEW YORK (CNNmoney) - Microsoft Corp.'s pact to settle its antitrust case with the federal government was rejected Tuesday by a third of the 18 states party to the lawsuit, according to one of the states' attorneys.
However, by mid-afternoon three additional states that had been on the fence decided to sign the settlement, according to New York Attorney General Eliot Spitzer's office. That evens the split 50-50 between the states on whether to sign the agreement.
Microsoft (MSFT: down $0.73 to $62.54, Research, Estimates) shares were down 53 cents in midday trading Tuesday ahead of the 2 p.m. ET court session.
Just before the states reconvened in court, Spitzer said that New York and two other states would join in voting for the settlement worked out between Microsoft and the federal government, bringing the total number of states in agreement to nine. The other states include Illinois, North Carolina, Kentucky, Michigan, Louisiana, Maryland, Ohio and Wisconsin.
The states' ultimate decision puts the proposed settlement at risk and raises the level of uncertainty surrounding the dominant maker of personal computer software. The states are expected to make an announcement following the scheduled 2 p.m. court hearing to review a revised draft of the settlement proposal.
The rest of the states are willing to sign the proposed settlement agreement, according to the states' attorney Brendan Sullivan.
Microsoft attorney John Warden said the company would consider settlement talks ended as of 1:00 p.m. ET Tuesday, saying the issues in the case have been "beaten to death," particularly after negotiations with some of the states that he said lasted all night.
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CNNfn's Steve Young reports on the split over the Microsoft case.
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Officials from the 18 states held a conference call before an early morning hearing before U.S. District Judge Colleen Kollar-Kotelly, the judge overseeing the case, who will ultimately decide whether to approve the settlement reached last week. The states' decision to balk at the settlement could require her to spend months reviewing it.
The Justice Department is also reviewing the changes to the settlement agreed to by Microsoft and six of the states, but department lawyer Phil Beck said the changes didn't appear substantial, and he didn't foresee the department objecting to them.
On Monday, Massachusetts Attorney General Tom Reilly became the first attorney general to come out on the record opposed to the deal, which would end a four-year ordeal for the Redmond, Wash.-based company.
"The agreement reached by the U.S. Department of Justice and Microsoft is fundamentally flawed," he said in a statement Monday. "It has enormous loopholes and may prove to be more harmful than helpful to competition and to consumers."
Several other states, including California, Connecticut, and Wisconsin, were expected to join the opposition, according to published reports. Among the states apparently willing to settle the case were New York, Illinois, Ohio, and North Carolina.
The Justice Department said last week the proposed settlement would address Microsoft's anti-competitive practices by allowing personal computer makers the ability to install non-Microsoft software on new products.
It would also prohibit retaliation against firms that use competitors' applications and require Microsoft to disclose technical information so that other companies could design products that work with its Windows operating system.
But critics object to a clause in the settlement that allows Microsoft to restore after 14 days any changes made to Windows by computer makers. It also lets Microsoft maintain the secrecy of any technical details of its anti-piracy, security, anti-virus or encryption technology.
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Meanwhile, the ongoing case with the states is not Microsoft's only legal problem. The software maker also faces a European probe. The European Commission said Monday its investigation of Microsoft was continuing despite the settlement announced in the U.S. last week. 
-- from staff and wire reports
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