Microsoft Settlement Talks End in Failure
A frustrated federal mediator on Saturday ended a four-month effort to settle the antitrust case between Microsoft Corp. and the U.S. Justice Department, saying the positions of the two sides were “too deep-seated” to resolve.
“The quest has proved fruitless,” Judge Richard Posner said in a statement. “I regret to announce the end of my efforts to mediate the Microsoft antitrust case.”
The move by Posner thrusts what is widely viewed as the biggest business case since the 1911 breakup of Standard Oil Co. back into the hands of U.S. District Judge Thomas Penfield Jackson in Washington.
Jackson, who presided over a nine-month trial of the software giant, has indicated he will issue a verdict as early as Monday on whether Microsoft violated antitrust laws. In November, the judge issued preliminary findings against Microsoft, calling the company a monopoly.
“It’s unfortunate that a settlement wasn’t possible,” Microsoft Chairman Bill Gates said in a conference call. “Microsoft certainly went the extra mile.”
Gates said the Microsoft mediation team had devoted more than 3,000 hours to the settlement effort during the talks and that the company had offered “significant concessions.”
The Justice Department issued a statement late Saturday saying it too would have preferred a settlement over continued litigation. “But settlement for settlement’s sake would be pointless,” said Joel I. Klein, the assistant attorney general in charge of the Justice Department’s antitrust division.
The government nevertheless vowed that if Jackson rules against Microsoft, “we will seek a remedy that prevents Microsoft from using its monopoly in the future to stifle competition, hamper innovation and limit consumer choice.”
The government and Microsoft appeared to be making progress, drafting about 20 settlement accords, according to Posner, before negotiations broke down Friday.
“I believed when I undertook this assignment that it was in the national interest that the case be settled, and I believe it even more strongly today,” said Posner, a U.S. appeals court judge in Chicago. He blamed the failure of negotiations, in part, on the failure of the parties to keep negotiations confidential.
The failure of settlement negotiations increases the prospect that the antitrust dispute will drag out for years on appeal to higher courts.
That prospect will complicate the task of any jurist resolving the dispute, since rapid changes in the fast-moving technology industry will make the issues raised in the case even more irrelevant, experts say.
Microsoft has cited some of the industry changes, pointing to the purchase of its archrival Netscape Communications Corp. by America Online Inc. last year as evidence that competition is alive and well. Indeed, Microsoft has used its $13-billion cash kitty to storm into numerous technology markets in the last two years, making more than 60 investments and buying a dozen companies outright.
“Now was probably the most precipitous time for a settlement, but the chasm was just too great,” said Steven D. Houck, a former New York state assistant attorney general who represented the states in the Microsoft trial. “This thing will probably be appealed for years.”
One state attorney general said the settlement talks had not been pushing for a breakup of Microsoft, but the states had been pressuring the company to release its software code to rivals. “This has been about getting enough cooperation from Microsoft to allow the software companies to compete,” the attorney general said. “We were not even close” to reaching that agreement, he said.
The attorney general added that Microsoft “is clearly playing for time,” figuring that appeals might take four or five years to be resolved.
Asked if Microsoft were delaying a settlement in hopes that a Republican administration might be more amenable to its case, he said, “That’s a possible element of the scenario.”
The Justice Department, 19 states and the District of Columbia sued Microsoft in May 1998, alleging that the company was using its flagship Windows software to crush rivals and extend Microsoft’s software dominance into emerging Internet and computer technologies.
Microsoft spent nine months battling the charges during a bitter trial that alienated even some of its industry allies, such as the Software and Industry Information Assn.
“We are very pleased to see that Justice and the states refused to accept the settlement that wouldn’t effectively curb Microsoft’s use of monopoly power,” said Ken Wasch, president of the trade association, from which Microsoft resigned a few months ago after the group sided with the government in the antitrust case.
Throughout the trial, Microsoft resisted the punishment sought by the Justice Department and the states, including breaking up the company or imposing strict guidelines on its behavior.
After the trial ended, Microsoft made a significant--albeit late--stab at settling the case in recent weeks.
Addressing one of the central issues of the case, the software giant offered to remove its Internet Explorer Web browser from some current and future versions of Windows, which runs more than 90% of all personal computers.
Microsoft also offered to give rival computer makers some control over the Windows start-up process and end price discrimination in licensing Windows. The software giant has been accused of charging higher license fees for Windows to PC makers such as IBM, which offered competing products.
But last week, Microsoft and the government reached an impasse amid an outbreak of accusations that each side was not compromising enough.
“We believe we’ve put more on the table than the judicial process would ultimately provide, even if we lost the case,” Microsoft President Steve Ballmer wrote in an e-mail sent to Microsoft employees late last month.
Gates, unaccustomed to high-stakes negotiations in which his billions of dollars in corporate profits and ubiquitous Windows software offered him no advantage, has widely been blamed for dooming any chance of settlement. Almost from the start, the brilliant software mogul misjudged the case, acting uncharacteristically forgetful and uninvolved during an out-of-court deposition and making claims that personal computers would remain the dominant platform for information technology, while his lawyers were in court arguing just the opposite.
Posner, who was appointed by Jackson to mediate an out-of-court settlement, indicated in his statement Saturday that the door remained open for an agreement.
In 207 pages of findings of fact issued in November, Jackson sided with most of the government’s claims and concluded that Microsoft has used its software dominance to crush rivals and extend its power into emerging technology markets for Internet software.
Jackson’s findings were so damning that most experts expect the jurist to find Microsoft illegally maintained a monopoly and engaged in agreements in restraint of trade in violation of the Sherman Antitrust Act.
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Times staff writer Joseph Menn in San Francisco contributed to this story.
