Microsoft Bid to Settle Case Seen as Inadequate

Microsoft Corp. has submitted a settlement offer to the government in hopes of ending its long-running antitrust case. But the proposal was described by California Atty. Gen. Bill Lockyer as inadequate and is unlikely to immediately end the biggest antitrust case since the breakup of the Bell telephone monopoly in the mid-1980s.

Through a spokesman, Lockyer declined to disclose details of the settlement offer, which was discussed informally by some state officials Wednesday after Microsoft gave the proposal to Iowa Atty. Gen. Tom Miller.

Miller, who heads an executive committee of state attorneys general involved in the antitrust case, would not comment. But he plans to discuss the proposal today with attorneys from the 18 other states that have joined Iowa and the Justice Department in bringing the action against Microsoft.

The government contends that Microsoft has used its ubiquitous Windows operating system--which runs 90% of the world’s personal computers--to dominate popular software industry segments such as Internet browsers as well as emerging technologies that can deliver video and audio over the Internet.

The antitrust trial remains in recess for four to six more weeks, giving lawyers ample opportunity to negotiate. But sources close to Microsoft and the government said the two sides remain far apart on how to end their dispute, despite coming under intense pressure from Judge Thomas Penfield Jackson to settle their case.

The only area in which Microsoft has expressed a willingness to give ground is its Windows licensing arrangements with computer makers and Internet service providers.

Sensing that Microsoft has lost courtroom momentum and public support, states have become increasingly vocal about exacting significant concessions from the Redmond, Wash.-based software giant. Some states are now calling for multimillion-dollar fines against Microsoft or at least an admission that it holds a monopoly in personal computer operating systems.

Such an admission would boost the ability of consumers in several states, including California, to bring class-action antitrust lawsuits against Microsoft and collect up to three times the amount they were overcharged for products, said John S. Wiley Jr., a UCLA law professor and antitrust expert.

Despite the potentially large financial risks, Microsoft Chairman Bill Gates said he is standing firm against the government’s charges. While he is open to negotiations, he said, he has not changed his position that Microsoft should have the freedom to integrate new technology into Windows.

Microsoft’s settlement offer comes as Gates visits Washington, D.C., today, presenting a speech at Georgetown University to promote his new book, “Business @ the Speed of Thought.” State government sources speculated that Gates or his lawyers may meet with Justice Department officials during the visit to discuss the settlement offer.

At an investor conference in New York on Wednesday, Gates told interviewer David Frost that Microsoft was holding “ongoing discussions” with the government. Gates said he would not “speculate as to the probabilities or anything, but I hope [the case] does get settled.”

Gates added that any settlement would have to preserve Microsoft’s “ability to innovate Windows, the ability to maintain the integrity of Windows as a fully designed product. As long as we can keep those intact, it would be great to settle the thing,” Gates said at the investor conference.

When reached Wednesday, Microsoft spokesman Bill Cullinan would not comment on the nature of any settlement proposals by Microsoft.

A source close to the government said the states are insisting that Microsoft either license its flagship Windows software to competitors--thereby relinquishing its dominance in PC operating systems--or offer consumers and PC makers a choice of buying Windows without programs--such at the Internet Explorer browser--that are now bundled with the operating system.

“Despite Microsoft’s offer, I give this case no better than a 50-50 chance of settlement,” said the source. “Microsoft is starting to realize that its potential financial exposure is astronomical” but that “may not be enough to persuade Gates” to end his company’s legal battle.