Two -thirds of states that sued Microsoft to accept settlement

Associated Press WriterWASHINGTON (AP) -- The coalition of 18 states that sued Microsoft for antitrust violations splintered Tuesday, with two-thirds poised to settle the case and the others determined to go to trial.

U.S. District Judge Colleen Kollar-Kotelly consulted with the court-appointed mediator after getting an update on the negotiations. Lawyers struggled to salvage the tentative settlement struck last week in the landmark monopoly case.

The deal to settle the 4-year-old antitrust charges was reached between the Justice Department and Microsoft, but the states asked they be given until Tuesday to evaluate the terms. Six of the states negotiated some additional terms.

Microsoft expressed frustration that the federal government's state partners could not agree.

"The issues in this case have been beaten to death and they have been beaten to death by people who are worn out," Microsoft lawyer John Warden said.

Microsoft is particularly skeptical about continuing negotiations with one-third of states that want to proceed to trial, Warden said.

Brendan Sullivan, a lawyer for the 18 states, told the court the coalition had splintered into three groups.

He said roughly one-third of the states was prepared to accept the terms negotiated by the Justice Department and another third had reached a supplemental agreement with the company that could allow them to accept the settlement.

But Sullivan told the judge the remaining states were unwilling to accept the terms and wanted to proceed to trial.

Sullivan didn't identify which states were willing to settle and which were holding out. But several attorneys general hinted at their plans Monday.

California and Massachusetts indicated they were prepared to reject the settlement as inadequate; New York and Illinois were inclined to settle.

Phil Beck, a lawyer for the Justice Department, said the agency had received the supplemental agreement reached by some of the states early Tuesday and was reviewing it. He described the changes as "clarifications, not substantive changes to the agreement.

"It does not appear to us that we'll have any objections," Beck said.

The rift in the coalition grew Monday during intense lobbying over how to proceed. Trying to preserve the fragile negotiations, the court-appointed mediator, Eric Green of Boston, met with officials from New York, Ohio, Connecticut, California, Iowa and Massachusetts.

Negotiations continued Tuesday until moments before the hearing, resulting in the supplemental agreement with a third of the states.

The changes to the negotiated agreement include some that would affect Microsoft's business-level server computers.

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 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.

California Attorney General Bill Lockyer, whose state is home to Silicon Valley, emerged as one of the harshest critics of the settlement, and charged that the last-minute lobbying campaign had "devolved from policy into finger pointing."

Lockyer added that his resolve was hardened after listening over the weekend to advice from technical experts and officials from Microsoft's competitors, such as IBM, AOL Time Warner Inc., Sun Microsystems Inc. and Novell Inc.

Likewise, Sen. Orrin Hatch of Utah, senior Republican on the Senate Judiciary Committee, promised to study the settlement closely. "I have both heard and read much criticism," said Hatch, an outspoken Microsoft critic.

Massachusetts Attorney General Thomas Reilly opposed the settlement. "You can't use your power and dominance to crush the competition," he said.

But the states braced to suffer high-profile defections. New York, which organized other states against Microsoft early in the case, sought additional sanctions in private negotiations with the company Monday but was rebuffed, according to people close to those talks. The attorney general there, Eliot Spitzer, still planned to settle, the sources said.

Illinois, another leading member of the states, also prepared to settle. Its attorney general, James Ryan, hinted the case "appears headed for resolution." Insiders also said Ohio was leaning toward settling and that North Carolina probably would, also. Microsoft last year expanded an important support facility in Charlotte, N.C., with more than 1,000 employees.