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Thu, May 11, 2000
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Government Said to Be Unimpressed
With Microsoft Settlement Offer

By Ted Bridis   Associated Press
WASHINGTON — Skeptical government lawyers consider an 11th-hour offer from the Microsoft Corp. to settle its antitrust trial so inadequate in important areas that there were no immediate plans to resume negotiations in Chicago, people close to the case said Saturday.

These sources did not rule out the possibility of talks resuming, and the government continued to evaluate the proposal by Microsoft to end the case before Tuesday, when the trial judge has threatened to announce his verdict.

U.S. District Judge Thomas Penfield Jackson, who has hinted he will rule strongly against Microsoft, has told lawyers in a private meeting that he will deliver his ruling that day unless there is progress in settlement talks being organized by U.S. Circuit Judge Richard Posner in Chicago.

The government on Saturday again reviewed Microsoft's latest offer, which published reports said included promises to separate the company's Internet browser software from its dominant Windows operating system. The proposal, faxed on Friday, was sufficiently complex that some of the Justice Department's top technical experts were evaluating it.

But there were new signs suggesting no deal would be struck successfully before Jackson's deadline.

Lawyers on all sides had no immediate plans to fly to Chicago for lengthy negotiations, and Microsoft already is considering its witnesses for the next stage of the trial — after the verdict when Jackson decides the company's punishment.

"I was pessimistic a while back, and I remain skeptical," said Robert Litan, a former senior Justice official who negotiated with Microsoft in an all-night session in a related 1994 case.

The Justice Department has backed off proposals to break up Microsoft to restrain what the judge has characterized as the company's abuse of its monopoly power over the technology industry.

But it was expected to demand some limits on what features Microsoft can add to Windows, out of fear the company could overwhelm smaller rivals offering some fledgling technology that threatens Microsoft's lucrative flagship Windows software.

"If they're going to be hung up on anything, it will be that tying issue," Litan said. "If Justice is insisting on some sort of future judicial determination whether a new (Windows) product includes an unlawful tie, I can't see Microsoft going for that."

The government also is restrained in seeking a negotiated settlement by expectations of a favorable ruling from Jackson. He issued the first phase of his verdict in November with blistering findings that accepted nearly all the allegations against Microsoft.

In the upcoming phase, Jackson must identify which federal laws, if any, Microsoft violated.

"The plaintiffs are a bit of a prisoner of exaggerated expectations that the process to date has created," agreed William Kovacic, an antitrust expert at George Washington University who has closely followed the trial.

Kovacic said Assistant Attorney General Joel I. Klein would "have to stand in front of a sea of microphones and cameras and explain why this solution provides suitable value for the litigation position he had acquired. He's going to have to tell people why he compromised his claim in return for this result, and I can assure you there will be many skeptics."

Litan said the Justice Department, if it were to agree to lenient terms for Microsoft, "would be susceptible to the charge of winning the battle and losing the war."

The government's negotiating position also is tainted by its past experiences. Microsoft Chairman Bill Gates, who played chess on some of the earliest computers in middle-school, was thinking moves ahead of government lawyers in a previous court fight years ago.

Microsoft proposed agreeing to never require Windows customers to also buy any of its other products. But the company's lawyers also considered adding a provision that Microsoft would never be blocked from "developing integrated products which offer technological advantages."

Gates bristled after reviewing a draft the night before negotiations resumed. He ordered his lawyers to remove the last four words, a subtle change that would return to haunt the government.

Justice accepted the provision as part of its 1995 consent decree, and Microsoft later claimed the language allowed it to bundle its Internet software into its Windows operating system — a core complaint in the government's current antitrust case.

Litan said such loaded clauses are "all they're going to be looking for" in the government's current review of Microsoft's offer. "They don't want to get snookered."

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