Microsoft wins extra time to reach settlement

At the eleventh hour, Microsoft won additional time this week to reach a negotiated settlement of the antitrust suit filed against the company by the US Department of Justice and 19 states.

US District Judge Thomas Penfield Jackson had been expected to issue a verdict in the long-running case on Tuesday, unless sufficient progress was made towards a settlement. However, Microsoft had failed to put forward a proposal of interest to the plaintiffs in the four months since Judge Jackson set aside time for such negotiations.

But a last-minute proposal faxed by Microsoft last Friday has apparently sparked enough interest for negotiations to resume.

According to reports in the Wall Street Journal, Microsoft faxed over a detailed proposal for settlement late Friday, barely in advance of Judge Jackson's looming Tuesday deadline. Initial indications over the weekend were that the plaintiffs had snubbed the overture.

None of the negotiators for the 19 states considered the proposal strong enough to warrant a trip to Chicago, where settlement talks are taking place, according to several media reports. But by Monday, Judge Jackson had indicated he would delay a decision pending the outcome of discussions on the Friday proposal.

Leaked details of the proposal seem to indicate Microsoft has backed down from many of its key defences during the trial. According to media reports, Microsoft's offer would allow competitor companies to modify the code, or basic design, of Windows software to embed their own, competing technologies.

Reports also said that Microsoft now was willing to separate its Web browser, Internet Explorer, from the Windows operating system. This issue was central to a preliminary hearing in the antitrust trial two years ago and the notion of whether the browser is an intrinsic, inseparable part of Windows remains a core part of the current trial.

The government and states are arguing that by bundling the browser with the nearly-ubiquitous operating system Windows, Microsoft unfairly squashed Netscape, its main competitor in the browser market.

Judge Jackson had indicated that he would rule strongly against Microsoft in his highly critical Findings of Fact, a preliminary document issued last November that considered the evidence submitted during the trial.

In the document, the judge accepted nearly all the US government's arguments alleging Microsoft was a monopoly engaged in anti-competitive behaviour. Following a verdict, the judge could decide to impose harsh fines or to split the company in pieces, says Dr Declan Walsh, lecturer in antitrust law at University College Cork.

Dr Walsh notes that the European Commission also has been investigating antitrust allegations against Microsoft and will be watching the outcome of the American case closely. The EU would be more likely to pursue its case following a ruling against Microsoft and could impose "staggeringly high" fines against Microsoft, he said.

A formal ruling against Microsoft would also pave the way to additional suits from other companies or individuals by establishing a legal precedent on which such cases could be built.

But observers widely believe Judge Jackson has hinted at his support of a negotiated settlement by appointing widely-respected federal appeals judge Richard Posner as the co-ordinator of settlement talks. Judge Posner is considered to be pro-business and to support a light-regulation approach to industry.

As a business, Microsoft is now in a difficult position, says Dr Andrew Deegan of the Michael Smurfit School of Business at UCD and chair of UCD's management information systems department. "Their dominant position is very much under threat," he says. At the moment, signs indicate that either through settlement or through a court ruling, Microsoft "would have to give away pieces of the business to competitors". On the other hand, he says, the market clearly indicates it would like to see the case settled. Microsoft's share price has swung back and forth during recent weeks, following reports that settlement hopes were growing.

The market wants "certainty and closure" on the case to allow Microsoft to get on with business, says Dr Deegan.

Microsoft initially indicated it would pursue the case through the courts if Judge Jackson ruled against the company. But Microsoft's early aggression seems to have been tempered by the crushing language of the Findings of Fact and the market's thumbs-up to settlement rumours.

If, however, Microsoft does pursue the case - perhaps to the final arbiters in the US, the Supreme Court - the court actions could drag out for years both in the US and Europe. "Antitrust actions have a history of running for a long time," says Dr Walsh.

He believes the trial will be highly significant, helping to define the role of governments, companies, and competition in the new, high-speed, technology-based economy. "It's a warning to all companies that if you engage in collusive behaviour or if you're very powerful within your market, then you can't write off competition and antitrust law," he says. "It will certainly lay down a marker in the States."

Judge Jackson is now expected to wait at least 10 days while the parties to the trial talk. He must also decide which federal laws Microsoft has violated by its alleged actions. If settlement is not reached, then he is likely to issue financial or structural sanctions against Microsoft after further hearings in late spring or early summer.