Article 198 of 200
Mediator kills Microsoft talks - Case reverts to judge for verdict
James V. Grimaldi
The Star-Ledger Newark, NJ
Page 001
(c) 2000. The Star-Ledger. All rights reserved.


Talks to settle the Microsoft Corp. antitrust case collapsed yesterday, dashing hopes for a speedy resolution to the case and setting the stage for years of appeals.

Analysts said they expect Microsoft stock will take a hit when the market opens tomorrow.

In a statement dripping with frustration over four months of arduous negotiations, mediator Richard Posner said last night that the differences between federal antitrust officials and Microsoft were "too deep-seated to be bridged."

Only a week earlier, Microsoft had offered concessions that raised hopes for a settlement.

''Unfortunately, the quest has proved fruitless," Posner said.

Posner's decision to declare an impasse sets the stage for U.S. District Judge Thomas Penfield Jackson to issue a verdict in the case as early as this week. The government alleges that Microsoft abused its monopoly power in personal computer operating systems with its dominant Windows software.

Jackson issued a blistering finding of fact in November agreeing with virtually all the government's assertions, and soon after appointed Posner, chief judge of the 7th U.S. Circuit Court of Appeals, to try to bring the sides together and avoid lengthy and costly litigation.

Leaving it in the hands of the court could mean one of several outcomes. After a verdict, which most observers believe will declare Microsoft guilty, the case could consider potential remedies. Those could include breaking up Microsoft or forcing it to modify its business practices.

Joel I. Klein, the assistant attorney general in charge of the Justice Department antitrust division, said, "We will seek a remedy that prevents Microsoft from using its monopoly in the future to stifle competition, hamper innovation and limit consumer choice."

Whatever the outcome in Jackson's Washington, D.C., courtroom, Microsoft could delay a resolution with years of appeals. The software giant, maker of the Windows operating system that runs most of the world's personal computers, has vowed to fight all the way to the Supreme Court.

''By that time, we'll have a new president, and there will be new negotiations with the Department of Justice of that new president," predicted Nicholas Economides , an economics professor at New York University. Breaking up Microsoft would harm the nation's high-flying economy, he added, by "reducing incentives for people to innovate."

But Microsoft is likely to win in the appellate courts, which tend to be conservative and have ruled once before for the company, said Michael Cusumano, a professor at the Massachusetts Institute of Technology.

''Unfortunately, we will see a big dip in the stock. But I think most savvy investors know Microsoft will probably do pretty well in the appellate courts," said Cusumano, author of a book about Microsoft's battle with Netscape Communications Corp.

Microsoft shares, which had rallied recently on hopes of a settlement in the case, rose on Friday 7 8 to 1061/4.

Settlement chances appeared to brighten last week when Microsoft Chief Executive Steve Ballmer pledged further "substantial" proposals.

For Microsoft, the incentive to settle was high: By removing its monopolist label, the Redmond, Wash.-based company hoped to sidestep a slew of lawsuits from competitors.

Microsoft and government officials blamed each other yesterday for the collapse of the talks.

Sources close to the government case said Microsoft refused to close loopholes in its proposals and that its "final, final offer" was "wholly inadequate" to correct the damage done to the marketplace by Microsoft's anti-competitive conduct.

Added Klein, "Settlement for settlement's sake would be pointless."

In a statement, Microsoft Chairman Bill Gates said the government demands went too far and that the Department of Justice and the 19 states that were plaintiffs in the case were so divided that "it became impossible to settle."

''We're disappointed that the government would not agree to a fair and reasonable settlement that would have resolved this case in the best interests of consumers and the industry," said Gates, who insisted the company would not lose "focus" in the wake of the impasse.

''Microsoft offered significant concessions in the interest of ending this case. Unfortunately, the government was unwilling to accept a reasonable settlement," he said.

Gates expressed frustration over having to deal with 20 plaintiffs that often seemed at odds with one another. "Between them," Gates said, "they appeared to be demanding either a breakup of our company or other extreme concessions that go far beyond the issues raised in the lawsuit."

State officials rejected the notion that they sabotaged a deal.

''We sought common ground earnestly, energetically and in good faith while adhering to the basic goals of our lawsuit, mainly to protect consumers, competition and innovation from Microsoft's monopolistic abuses," said Connecticut Attorney General Richard Blumenthal, a lead negotiator for the 19 states and chairman of a national antitrust task force for attorneys general.

Another person familiar with the government's side of the case said, "Microsoft would not close all the loopholes in its proposal, let alone address the serious issues at the heart of the case."

Those demands followed a breakthrough in the negotiations when Microsoft took a significant step forward by moving closer to the government's position than it had before in the more than two-year battle.

Microsoft reportedly had offered to split its Internet browser software from its Windows operating system, end special price breaks for favored customers and make it easier for rivals to write software for Windows.

But by yesterday morning, Posner threw in the towel.

''I believed when I undertook this assignment that it was in the national interest that the case be settled, and I believe it more strongly today," Posner said in his statement.

Although he praised both sides for their efforts, Posner asserted that attempts to maintain confidentiality were hampered by "a good deal of leaking and spinning . . . that should be heavily discounted by anyone interested in hewing to the truth."

He said these leaks spawned news reports falsely suggesting the negotiations only picked up steam two weeks ago.

''Almost 20 successive drafts of a possible consent decree, evolved over the past months, had been considered by the parties before it became clear late last night that the case would not settle, at least at this stage of the litigation," Posner said.

Details were not made public, but sources close to the case said the talks long ago abandoned a government demand to break up the company. Instead, discussions focused on reining in Microsoft's business practices.

After a verdict, the case is expected to move to a penalty phase, during which Jackson must decide how to correct any harm done to the computer software marketplace and restore the marketplace to the way it would have been if Microsoft had not engaged in anti-competitive acts.

Economides of NYU said the penalty phase could drag on for months.

The negotiations themselves were unprecedented. Never before in antitrust law had a federal judge sought the help of another federal judge to broker a deal out of court. Staff writers


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