Microsoft Proposes Settlement With U.S.
In a last-ditch attempt to stave off a verdict by a federal judge, Microsoft Corp. on Friday proposed a wide-ranging settlement in the government’s landmark antitrust case against it.
Sources say the proposal includes the unbundling of Internet Explorer, Microsoft’s Web browser, from some versions of its Windows operating system--addressing one of the central issues in the lawsuit. But sources say any viable settlement will have to go further to constrain Microsoft’s business practices that U.S. District Judge Thomas Penfield Jackson has already found to be monopolistic.
The settlement offer--which recalls an unsuccessful last-minute overture Microsoft made a year ago to end its battle with the government--came after an impatient Jackson threatened to issue a verdict Tuesday if the government and the world’s most powerful computer software maker had not moved toward settlement.
A source close to the negotiations said Microsoft’s offer to untie its Internet Explorer Web browser is part of a proposal that made several other concessions, including reiterating Microsoft’s previous offer to modify its software licensing agreements and giving PC makers more freedom to customize Windows, which runs more than 90% of the world’s personal computers.
Another government source, who has seen the Microsoft proposal, said that it was so complicated and technical that it was not easy to decide whether it’s a reasonable proposal. “We’re pulling in the geeks” to dissect the offer, he said.
Microsoft spokesman Jim Cullinan would not comment on the company’s latest offer or even acknowledge that any proposal had been sent to the government.
But the source said Microsoft did not propose a breakup of the company or agree to release the underlying Windows software code, which would allow other software makers to market competing versions of Microsoft’s flagship product. The source disputed characterizations of Microsoft’s proposal as “detailed” but said there were enough specifics that lawyers would likely “spend several hours” if not most of the evening sifting through it.
Jackson’s threat to issue a verdict touched off a flurry of rumors about revived settlement talks and a possible meeting this weekend in Chicago between Microsoft Chief Executive Officer Steve Ballmer and Joel Klein, head of the U.S. Justice Department antitrust division.
But as of late Friday afternoon, neither the Justice Department nor Microsoft would confirm whether any new mediation talks were scheduled.
“We are not commenting,” said Justice spokeswoman Gina Talamona. “I’ve seen so many things in the press today about what has changed . . . it’s just amazing.”
In Friday’s trading on Nasdaq, Microsoft’s stock jumped as high as $115 a share before closing at $111.69, down 19 cents. Shares were rising again in after-hours trading as investors grew hopeful again that a settlement was at hand.
The Justice Department has reportedly eased off its quest for significant structural sanctions against Microsoft, such as a breakup of the company. But some state attorneys general remain deeply distrustful of the software giant, given the company’s conduct after a 1994 antitrust accord Microsoft reached with the Justice Department. Many view that agreement, which placed restrictions on the way Microsoft could license Windows, as too vague. As a result, some of the 19 attorneys general who joined the suit against Microsoft might resist any deal that did not impose so-called structural sanctions on the company.
“I think some people look at the shortcomings of the 1994 consent decree and believe a conduct remedy might” produce similarly unsatisfying results, California Atty. Gen. Bill Lockyer said in an interview.
Marc Schildkraut, a Washington lawyer who headed up the Federal Trade Commission’s antitrust investigation of Microsoft in the early 1990s, was also dubious.
“I’m skeptical of a deal,” he said. “When the government had this conduct relief [against Microsoft] before it didn’t work.”
Computer Industry’s Landscape Changes
The latest settlement attempt comes against a business backdrop that has radically changed since the government filed its lawsuit in 1998.
Many in the software industry believe that Microsoft’s dominance of the desktop computer operating system--the key to its ability to extend its marketing power over a wide range of other products--may be increasingly irrelevant. That’s because personal computing appears to be migrating rapidly to a wide range of devices on which Windows is less of a factor.
These include wireless phones, which are increasingly capable of receiving e-mail, stock quotes, weather reports, and even Web sites, and portable computers like the Palm, which millions of people use to keep address books and business schedules. Versions of these devices already on the market are even capable of receiving and displaying video clips by wireless transmission.
Although a version of Windows is employed on some of these devices, it is far from dominant. That means that Microsoft is less able to parlay its power over desktop computers into commensurate power over the evolving marketplace than it was only a year ago.
The company’s offer to unbundle its browser from Windows may be especially inconsequential. Its leading rival in the browser market, Netscape Navigator, is steadily falling behind in market share and has lost numerous major clients in recent months, in part because Netscape’s research and development has lagged since its acquisition by America Online one year ago.
The uncertainty of a settlement was reflected on Wall Street, where shares of Microsoft gyrated up and down all day Friday as investors speculated on the prospects for a final deal.
“The game is not over yet,” said Jonathan Haller, a market analyst at Current Analysis in Sterling, Va. “If you think Microsoft is worth more split up, you are going to be bummed about a possible settlement.”
Both Sides Still Split
Although lawyers for Microsoft and the government were making plans Friday to discuss Microsoft’s proposal, the two sides remain deeply divided, said a source close to the case who had not seen details of Microsoft’s latest settlement offer.
While some reports indicate that the government might consider less draconian remedies than breaking up the company, it is not clear how far Microsoft is willing to back away from company chairman Bill Gates’ vow to “never” accept any government interference in the way the software giant designs and markets its software products.
The Justice Department, 19 states and the District of Columbia alleged that Microsoft has used its Windows software product to extend the company’s dominance to other computer technologies and crush rivals, such as browser maker Netscape Communications.
The government sued Microsoft in May 1998 under the Sherman Antitrust Act of 1890, which makes the possession of monopoly power and the maintenance of a monopoly through anti-competitive actions an antitrust violation. The law has been used to topple some of the most formidable corporate giants in America, including Standard Oil in 1911.
Microsoft has acknowledged that its business practices are aggressive but says they do not run afoul of the law. It contends that the computer industry remains highly competitive, and that even in the PC operating software market, it faces stiff competition from such companies as IBM Corp., Apple Computer Co., and developers of the low-cost, open-source operating software Linux.
But most conduct remedies the government is said to be considering--such as forcing Microsoft to charge all computer makers the same price for its flagship Windows software and to give software developers equal access to technical information--would require a considerable amount of ongoing regulatory oversight of Microsoft’s software development business. Many antitrust experts don’t think such an arrangement would be acceptable to either side.
However, James R. Loftis, who has served as chairman of the American Bar Assn.’s section on antitrust law and has represented some of Microsoft’s staunchest industry critics, takes a different view.
“If you were the ultimate strategist at DOJ and you decided what you wanted to have was a meaningful remedy . . . a breakup is not the way to go,” Loftis said.
Times staff writer Joe Menn contributed to this story
