Possibility Of Microsoft Settlement Improves

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January 19, 2000 (9:41 AM EST)

Possibility Of Microsoft Settlement Improves

By Mary Mosquera,

The possibility of settlement in the Microsoft antitrust suit has improved despite speculation that the government is calling for a breakup of the software giant, antitrust case watchers said Tuesday.

Rumors were rife last week that the Department of Justice and 19 states had agreed to break up the company as a condition to settle. The DOJ hedged, Microsoft was indignant.

"Such a strategy enhances settlement," said Hillard Sterling, an antitrust attorney at Gordon & Glickson in Chicago. "It's a solid strategy to begin with pie-in-the-sky demands and then negotiate downward."

Continued discussions suggest progress, and settlement chances will increase as the final court date draws closer. Attorneys for the DOJ and Microsoft are set to argue their conclusions of law before U.S. District Judge Thomas Penfield Jackson on Feb. 22.

The DOJ and 19 states filed formal charges last month that Microsoft abused its monopoly by erecting barriers to potential competitors, tying its Internet browser to Windows, imposing exclusionary contracts on PC makers and Internet providers, and obstructing Netscape's access to consumers to distribute and market its browser.

Microsoft filed its reply to the government's conclusion of law on Tuesday, citing previous legal cases to demonstrate that its business behavior was aggressive, but within the law.

The parties have continued their efforts to settle the antitrust case since Jackson named Judge Richard Posner, chief of the U.S. Court of Appeals for the Seventh Circuit in Chicago, as a federal mediator in November. Microsoft and the government have refused to directly comment on the talks.

The key question is whether the government sees a breakup as a nonnegotiable minimum or a starting point for further discussion, said William Kovacic, law professor at George Washington University in Washington, D.C. If it's nonnegotiable, there is no chance of settlement, he said.

"You don't get settlement until you have mutual agreement about what are the vulnerabilities of each party, where they are weak or exposed," Kovacic said, adding that's what Posner is most likely attempting. "If they don't recognize there are weaknesses that could be damaging to the other, then there's no solution in the middle."

Each side faces risks from the continuing dynamism in the market, Kovacic said. For Microsoft, the inability to move as quickly as they like, for the DOJ, the possibility that industry developments may simply outrun their case and make the remedy phase completely problematic.

"If settlement occurs, it will involve some reshifting of Microsoft business strategies without the extreme measure of corporate restructuring," Sterling said.

Microsoft would probably agree to some additional conduct requirements, but will stop short at any mandate that alters its product base significantly, he said.

"Microsoft would then be better off at rolling the dice on appeal instead of accepting such a settlement," Sterling said.

Significant market developments have made this case less relevant for both Microsoft and the plaintiffs. The real issue is competition on the Internet, Sterling said.

"The browser war is increasingly tangential to this larger competitive background," he said. "Microsoft needs to shed this case and enhance its business prospect on the Internet. This litigation is a drain of time, energy, money, and focus."