Settlement possible in Microsoft case

If the government and Microsoft can't hammer out a settlement soon, a new U.S. District Court judge will be assigned to the antitrust case next month and charged with proposing remedies.

If the government and Microsoft can't hammer out a settlement soon, a new U.S. District Court judge will be assigned to the antitrust case next month and charged with proposing remedies

The operative word is "if."

To hear Bill Gates tell it, Microsoft is eager to settle. Immediately after the split decision on the case June 28, Gates said the company will work to resolve the case "without continued need for litigation."

Settlement talks failed before, but the times have changed now that a federal appeals court rejected the trial court's breakup order.

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"I think that a settlement is possible, so long as the breakup option is not on the table," said Richard A. Epstein, interim dean at the University of Chicago Law School. "Right now [a breakup order] looks like a long shot for the government, so that the range of options is circumscribed. If I were Microsoft, I would yield on some of the complaints about the foreclosure of competition by exclusive dealing practices, and allow for their invalidation."

But one point Microsoft doesn't seem willing to budge on is its plan to bundle new technologies within its monopoly-making operating system (OS). Windows XP, due Oct. 25, will include a variety of new stand-alone applications that represent money-making markets for other developers, including instant messaging (IM) and digital audio and video playback.

The bundling, or tying, of new technologies into its OS is one of the issues - the other is remedies - that the appeals court sent back to a lower court for review. A new judge will be appointed in Washington, D.C.

A key question is who will challenge Microsoft on bundling in Windows XP? The companies with the most to lose enjoy market success today. Although America Online has complained to Washington lawmakers that XP may be anticompetitive, AOL is the leading provider of IM software and online services. RealNetworks, which declined to comment on XP, claims its digital audio and media player far surpasses Microsoft's competitive Windows Media technology.

"No one has come forward to really challenge XP yet, because the condition for action is that Microsoft is harming consumers, not that a competitor has been damaged," said Rob Enderle, research fellow at the Giga Information Group. "If you talk to AOL, RealNetworks and Musicmatch, they'll tell you they're doing just fine against Microsoft in the market."

Musicmatch, which claims its music jukebox is the most widely used software for playing MP3 and other audio files, is optimistic. "We've been in this business for four years, and we've been competing against RealNetworks and Microsoft," said company spokesman Gary Brotman. "We're still the consumer favorite, and there's nothing to indicate that changes at all."

Still, it's no surprise that Microsoft's software competitors are concerned.

"Bundling, in and of itself, is not innovation," Enderle said. "But it might be considered an innovative business practice, and that's what Microsoft is - a business practice innovator, not a technology innovator, per se. They've been better at taking ideas and concepts, and putting them into products, and then finding the market to move them."

But where do you draw the line between innovation and exploitation of a monopoly? That's what the lower court may decide - if a settlement can't be reached.

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