Hopes dim for software giant

Microsoft settlement proposal criticized

judge could rule today


WASHINGTON -- An appointed mediator continued working feverishly last night to work out an 11th-hour settlement in the antitrust case against Microsoft. But opinions among some of the government officials who filed the suit appeared to be hardening, setting up the likelihood that the trial judge will issue a verdict as soon as today.

In interviews yesterday, some officials said they thought Microsoft's settlement proposal, offered Friday, was inadequate on its face. Others said they did not trust Microsoft to live up to its promises.

"It wasn't too long ago that Microsoft's president was saying `to heck with Janet Reno,' " one official noted. "I think Microsoft is now paying for their prior credibility problems."

Another said, "This proposal simply falls short of what the public interest demands."

Driven by reports last week that Microsoft might settle the case, the company's stock gained more than 7 percent Thursday. But yesterday it closed at $104.06, down $7.62, or 6.8 percent.

A week ago, trial judge Thomas Penfield Jackson called the litigants into his office and told them they had another week to settle the case. If they failed, he said, he would issue his verdict today -- though several officials said yesterday they believed he might hold off a few days because the talks are continuing.

Ever since Jackson's strongly worded findings of fact in November, the expectation has been that the verdict, when it comes, would find that Microsoft violated the nation's antitrust laws.

On Friday, Microsoft delivered a settlement offer with more than a dozen proposals. Among them, the company said it would provide computer makers a version of Windows that did not include access to the company's Web browser, Internet Explorer -- although how that would be accomplished remains unclear. Microsoft has argued since 1997 that Windows and Internet Explorer are one, inseparable product.

Microsoft also agreed to charge common prices for Windows so the company could not use pricing to penalize or reward computer makers for their level of cooperation. Trial evidence showed that Microsoft penalized IBM with higher prices for Windows.

The company also promised to make the program interfaces that allow software writers to link their programs to Windows freely available. Microsoft has been charged with holding those interfaces back from companies that do not cooperate on other matters.

While these proposals and others directly address some of the conclusions in Jackson's findings of fact, most government officials concluded that they were insufficient. But even those who did not hold that view said the offers included so many technical qualifiersand addendums that no one could tell whether the proposals could be carried out effectively. What is more, several officials said, the proposal offered no real detail on how the offers could be enforced.

"There are very serious enforcement concerns," one official said.

Microsoft declined to comment.

The enforcement issue is of particular concern because government officials do not want to find themselves required to monitor Microsoft's day-to-day business -- or left to wait until someone complains of a violation so that they have to file another lawsuit.

That is why, among the Justice Department officials and the 19 state attorneys general who are behind the suit, some still favor breaking up Microsoft so that, once that is accomplished, government involvement would end. Others consider that idea draconian and unlikely to withstand appeals.

As a result of the varied concerns about Microsoft's proposal, by Saturday the leading officials behind the lawsuit had decided it was inadequate. Despite the negative reaction, through the weekend and into yesterday evening, the mediator, Richard A. Posner, chief judge of the U.S. Court of Appeals in Chicago, continued sending e-mail messages to both sides, trying to bridge the divide.

If he had made significant progress, the parties would have convened in Chicago yesterday for further negotiations, but state and federal officials were in their offices. Still, several officials said the talks were alive, if barely; Microsoft was said to be clarifying some of its offers. Some officials said they would not be surprised if Posner asked Jackson to delay issuing his verdict by a few days, to give the talks every chance to succeed.

Even if Microsoft did expand or clarify its proposal enough to satisfy some of the government officials, winning agreement from the federal government and all 19 state attorneys general would be a difficult and time consuming process. The states are sharply divided on the best approach, and some of them have not followed the case closely enough to make a quick decision.

Even if the talks stall, and Jackson issues his verdict, the two sides could continue to negotiate. But at that point, the motivations for Microsoft will have changed. By settling now, it can forestall a legal ruling that the company holds a monopoly in the personal computer operating-system business. That ruling would empower lawyers to file even more private antitrust suits against Microsoft.

Jackson concluded in his findings of fact that Microsoft holds a legal monopoly. But that finding holds little if any legal force until the judge issues his final verdict.

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