Microsoft may settle US suit


With the trial of the US government's antitrust action against Microsoft in recess after 64 days of testimony, commentators say that the software giant's near-disastrous defence has made the prospect of a settlement increasingly likely.

The government and Microsoft publicly reject the notion that they are interested in negotiating. But both sides - while vowing to appeal any decision against them all the way to the US Supreme Court - are under pressure to talk as the six-week recess allows them to assess their options and prepare for the trial's endgame.

Legal experts and officials close to both sides say it is in the both parties' interests to negotiate. It seems increasingly likely, they say, that US District Judge Thomas Penfield Jackson will uphold at least some of the antitrust charges - something that could expose Microsoft to costly private antitrust lawsuits dragging on for years.

But despite the unflattering email messages, witness-stand backtracking and tactical missteps that have characterised Microsoft's defence, the company may still have one trump card: free Internet browsers.

Since the proceedings began in October, the government has presented reams of evidence alleging that the company illegally bullied rivals in an effort to hang on to its Windows near-monopoly of the operating systems and to extend that monopoly into the browser market.

But when it comes to showing that the company actually injured consumers, many commentators say that the government case is less convincing. In two months of defence testimony that ended a week ago, Microsoft argued strongly that however rough its tactics against Netscape Communications might seem, they resulted in both companies giving away millions of browsers.

Consumer welfare is supposed to be what this trial is all about. Under the law, anti-competitive tactics are bad mainly because they harm ordinary people, in the form of higher prices, less choice or poorer service. If that harm is not found, there is little to censure a company for.

"It's one of the weakest elements of the government's case and one of the strongest elements of Microsoft's defence," said William E. Kovacic, a former Federal Trade Commission lawyer who now teaches at George Washington University. "The government has not introduced that much evidence to demonstrate that consumers are suffering grievous harm today at the hands of Microsoft."

The issue of consumer harm appears to be on the mind of Judge Jackson. In the last week of the trial so far he took the unusual step of asking a witness, Microsoft executive Joachim Kempin, to explain why he thought the integration of browsing software into Windows 98 - a practice targeted as illegal by the government - has "assisted the consumer."

Kempin had a ready answer: "We really simplified . . . the usage of the system for the consumer."

The government, of course, contends it has presented strong evidence of consumer harm. Microsoft's conduct, the government argues, has limited people's choices of software on PCs and hindered technological innovation. It does not claim that Microsoft might try to charge for browsers in the future, but says that the company has steadily increased the price it charges PC makers for Windows. Those increases, a government economist said, have been passed along to consumers.

"Microsoft has raised prices, restricted choice and stifled innovation to the detriment of consumers," government attorney David Boies said.

US consumer groups have not been paying great attention to the case, they generally have allied themselves with the government. The Consumer Federation of America, for example, says that Microsoft has amassed billions of dollars in excess profit through monopolistic overcharging.

Unsurprisingly, the leader of Microsoft's legal team, William H. Neukom, says the opposite: that Microsoft's business practices are a boon to computer users; browsers are not only free, but ever-more capable; Windows is still one of the least expensive components of a PC.

To bolster its consumer harm arguments, the government is considering summoning Ted Waitt, chief executive of PC maker Gateway. Waitt, who rejected government overtures to appear as a witness earlier in the trial, would be asked to testify about how Microsoft's contractual restrictions affect the products which Gateway sells to consumers, sources close to the government team said.

Ultimately, an agreed settlement could put this argument to one side.

Even ardent Microsoft supporters - such as University of Virginia economist David Mills - say the company has suffered "embarrassing events" in court that could push it to the negotiating table. "It's always possible that somebody will come up with an exit strategy that will be agreeable," Mills said, adding such an outcome would be preferable to a ruling that places draconian restrictions on Microsoft.

"I think there's going to be some kind of compromise because right now the cards look stacked against Microsoft," said Jonathan Haller, a technology industry expert with the consultancy Current Analyst. "They are going to have to pay a fine or give competitors access to their code and back off on their aggressive industry practices" to placate the government.

Judge Jackson has also stepped up pressure on the parties to settle, offering an allegory which he said was unrelated to Microsoft but relevant to "our work" as lawyers. "When you discover you are riding a dead horse," the judge told a bemused courtroom audience, "the best strategy is to dismount."

The parties remain glued to their saddles - for now.