MS plans settlement talks with DOJ

Summary:Both sides have softened since the trial's beginning, but are still miles apart.

REDMOND, Wash -- Microsoft Corp. plans to begin settlement talks with the Justice Department and 19 states, seeking to end the federal antitrust trial that has shed a harsh light on its business practices.

The two sides remain far apart on some fundamental issues, and it still is viewed as unlikely that a settlement will be reached before the trial resumes next month. But even as they continue to prepare to return to court, both sides expect talks to occur shortly -- a significant shift in the tough stance each has taken since the trial began in October.

Microsoft's (Nasdaq:MSFT) legal team, led by general counsel Bill Neukom, decided to proceed with negotiations after meetings with Chairman Bill Gates and other senior executives, a company official said. The trial is scheduled to resume April 12 in U.S. District Court in Washington for rebuttal and closing arguments, but that is now likely to be delayed.

In a conference in his chambers last month, Judge Thomas Penfield Jackson urged both sides to consider settlement talks during the recess. "We're taking the judge's suggestion seriously, to explore what's possible," a second Microsoft official said.

"We continue to believe that on the core issues in this case we've established a strong record at trial," the official said. "But it's not in our interest, the government's interest or the industry's interest for this case to drag out for two more years" through appeals and other proceedings.

Ways to adapt?
Microsoft executives maintain the company always has been willing to address issues cited by the Justice Department and the states that brought the historic lawsuit in May. "There are ways we can adapt our business practices to resolve their concerns," one executive said.

He said Microsoft has shown it is willing to alter alleged exclusionary contracts with its Internet partners and give personal-computer makers greater freedom to add features to the Windows startup screen, a major issue in the case. He also said Microsoft might accept further limits on licensing terms for its Windows operating system. In the trial, the government alleged that one way Microsoft wields power is by using Windows pricing and terms to reward or punish PC makers.

But the government and the software giant remain far apart on other issues, especially Microsoft's practice of adding new features to Windows that allegedly target potential competitors. Microsoft integrated its Internet Explorer software into Windows at no charge, triggering the antitrust case. It is now more tightly integrating audio and video software into Windows, attacking market leaders RealNetworks Inc. and Apple Computer Inc.

Strong showing for DOJ
Microsoft's right to add features to Windows is a non-negotiable issue, a company official said. Microsoft lawyers see product integration as the weakest part of the government's case; indeed, an appeals court ruling in June warned courts not to get involved in product-design decisions in technology. Microsoft also argues that adding features to Windows broadly benefits consumers and drives down prices.

During the course of the trial, though, the government has built a broader case, alleging that integration is part of a wider pattern of predatory acts by Microsoft. Company witnesses have been hurt by documents drawn from Microsoft's own files, and their credibility has been challenged in relentless cross-examination by the government's lead trial counsel, David Boies.

Government officials refused to comment on the prospect of success in any settlement talks. In an earlier round of talks, which collapsed just before the lawsuit was filed in May, federal and state officials were left convinced that Microsoft only wanted to score public-relations points and were unwilling, once private talks began, to give up any real ground; Microsoft disputes that view.

Now, with the trial near an end, the government's strong showing in court could stiffen its resolve to seek tough remedies; indeed, the co-plaintiff states are already calling for far-reaching restrictions. But senior Justice Department officials, perhaps with a more cautious view of the risks the case would face on appeal, might be more willing than the states to work out a settlement at this stage.

REDMOND, Wash -- Microsoft Corp. plans to begin settlement talks with the Justice Department and 19 states, seeking to end the federal antitrust trial that has shed a harsh light on its business practices.

The two sides remain far apart on some fundamental issues, and it still is viewed as unlikely that a settlement will be reached before the trial resumes next month. But even as they continue to prepare to return to court, both sides expect talks to occur shortly -- a significant shift in the tough stance each has taken since the trial began in October.

Microsoft's (Nasdaq:MSFT) legal team, led by general counsel Bill Neukom, decided to proceed with negotiations after meetings with Chairman Bill Gates and other senior executives, a company official said. The trial is scheduled to resume April 12 in U.S. District Court in Washington for rebuttal and closing arguments, but that is now likely to be delayed.

In a conference in his chambers last month, Judge Thomas Penfield Jackson urged both sides to consider settlement talks during the recess. "We're taking the judge's suggestion seriously, to explore what's possible," a second Microsoft official said.

"We continue to believe that on the core issues in this case we've established a strong record at trial," the official said. "But it's not in our interest, the government's interest or the industry's interest for this case to drag out for two more years" through appeals and other proceedings.

Ways to adapt?
Microsoft executives maintain the company always has been willing to address issues cited by the Justice Department and the states that brought the historic lawsuit in May. "There are ways we can adapt our business practices to resolve their concerns," one executive said.

He said Microsoft has shown it is willing to alter alleged exclusionary contracts with its Internet partners and give personal-computer makers greater freedom to add features to the Windows startup screen, a major issue in the case. He also said Microsoft might accept further limits on licensing terms for its Windows operating system. In the trial, the government alleged that one way Microsoft wields power is by using Windows pricing and terms to reward or punish PC makers.

But the government and the software giant remain far apart on other issues, especially Microsoft's practice of adding new features to Windows that allegedly target potential competitors. Microsoft integrated its Internet Explorer software into Windows at no charge, triggering the antitrust case. It is now more tightly integrating audio and video software into Windows, attacking market leaders RealNetworks Inc. and Apple Computer Inc.

Strong showing for DOJ
Microsoft's right to add features to Windows is a non-negotiable issue, a company official said. Microsoft lawyers see product integration as the weakest part of the government's case; indeed, an appeals court ruling in June warned courts not to get involved in product-design decisions in technology. Microsoft also argues that adding features to Windows broadly benefits consumers and drives down prices.

During the course of the trial, though, the government has built a broader case, alleging that integration is part of a wider pattern of predatory acts by Microsoft. Company witnesses have been hurt by documents drawn from Microsoft's own files, and their credibility has been challenged in relentless cross-examination by the government's lead trial counsel, David Boies.

Government officials refused to comment on the prospect of success in any settlement talks. In an earlier round of talks, which collapsed just before the lawsuit was filed in May, federal and state officials were left convinced that Microsoft only wanted to score public-relations points and were unwilling, once private talks began, to give up any real ground; Microsoft disputes that view.

Now, with the trial near an end, the government's strong showing in court could stiffen its resolve to seek tough remedies; indeed, the co-plaintiff states are already calling for far-reaching restrictions. But senior Justice Department officials, perhaps with a more cautious view of the risks the case would face on appeal, might be more willing than the states to work out a settlement at this stage.

Topics: Microsoft, Government, Legal, Operating Systems, Software, Windows

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