MS/DOJ - Antitrust Talks Stall

MS/DOJ - Antitrust Talks Stall

Despite a flurry of eleventh-hour negotiations between the U.S. government and Microsoft Corp., the two sides remain too far apart today to settle the historic antitrust case before Judge Thomas Penfield Jackson issues his final ruling, expected Tuesday, according to a source close to the case.

After Microsoft sent its latest settlement offer to the Department of Justice (DOJ) Friday morning, government lawyers and technical experts spent two days poring over the details before abandoning the effort last night. While the terms of Microsoft's offer remain secret, they weren't sufficiently ironclad to guarantee that Microsoft would be prevented from the same monopolistic conduct cited by Jackson in his scathing "findings of fact" issued last November. It's unclear whether the government has yet made a counteroffer to Microsoft.

Talks continue via e-mail and telephone, and they're expected to pick up steam again by tomorrow. The two sides currently have no plans to travel to Chicago, where federal appeals court judge Richard Posner has been mediating talks since Jackson asked him to do so last November. But neither are the two sides required to settle the case in Posner's presence, despite intense press speculation in recent days as to the whereabouts of key players such as Justice Department antitrust chief Joel Klein and Microsoft general counsel William Neukom. Jackson has told the attorneys that he will refrain from handing down his ruling if both sides tell him they've agreed to settlement terms.

Settlement discussions have occurred sporadically throughout the almost two-year-old case, especially since Jackson appointed Posner. But the two sides remain deadlocked, even after Jackson called them into his chambers on March 21 and bluntly told them they had just seven more days to work out a settlement. The intense activity in recent days is reminiscent of pretrial negotiations in 1998. Those talks collapsed days before the U.S. government filed suit against the software giant.

Spokespersons for both the Justice Department and Microsoft declined to comment on the ongoing talks. But both sides have ample reasons to settle. Microsoft needs to blunt its liability in the dozens of private class-action suits filed since November. It also wants to forestall potentially harsh "remedy" orders from Jackson, which could include a break-up of the company. Microsoft is heartened by a 1998 appeals court ruling that overturned a decision by Jackson in a previous case. But there's no guarantee that the appeals court will continue to look upon Microsoft favorably, especially considering Jackson's detailed 207-page findings of fact, which will likely go unchallenged by the appeals court.

The government wants to see the case resolved now, rather than fighting years of appeals that potentially wouldn't be resolved before a new presidential administration shuffles the deck at the Justice Department. Furthermore, the rapidly evolving computer industry could eventually make the government's case seem obsolete.

There has been some movement in recent weeks. The government has backed away from earlier demands that Microsoft be broken up. And Microsoft has signaled its willingness to accept some restrictions on its conduct. The settlement talks are now focusing on hashing out language on conduct restrictions that both sides can live with. Those restrictions are likely to include unbundling Microsoft's Internet Explorer Web browser from its dominant Windows operating system, and promises by the software vendor not to discriminate in Windows pricing for computer makers, or in distribution of technical codes software developers need to write Windows-compatible programs.

The government is unlikely to agree to conditions that leave any ambiguity, especially regarding whether Microsoft will commit to unbundling Internet Explorer from Windows. The company's joining of those two products is the central issue in the case. Microsoft says it welded its browser on to Windows and forbade computer makers from removing it in the interests of consumer convenience. The government contends Microsoft used the conjoined products to thwart competitive threats to Windows and stifle software innovation from a host of companies, including Netscape Communications, Sun Microsystems, and Apple.

The government remains haunted by negotiations that resulted in a 1995 consent decree requiring Microsoft to alter restrictive licensing and nondisclosure requirements for Windows. That decree didn't contain language strong enough to preclude Microsoft from integrating its browser into Windows.

If the two sides get closer to a settlement in the next 24 hours, they might decide to ask Jackson for an extension of the Tuesday deadline, which Jackson is expected to grant if persuaded that a settlement is actually within reach. Barring a settlement, Jackson will hand down "conclusions of law" that are widely expected to find Microsoft guilty of multiple violations of the Sherman Antitrust Act. In that event, Jackson will set the terms of a "remedy phase." Such a phase could be limited to new affidavits and depositions, or it could include a fresh round of courtroom arguments and testimony.

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