Microsoft Settlement Talks Break Down

Despite widespread optimism last week that Microsoft and the U.S. Department of Justice (DOJ) were on the brink of settling the antitrust case against the software titan, the U.S. government has reportedly rejected the company’s last-ditch proposal.

Unless unexpected progress is made today, U.S. District Judge Thomas Penfield Jackson will issue a ruling Tuesday that many industry insiders believe will come down hard on the software giant. Although government lawyers pored over the company’s offer throughout the weekend, the DOJ is evidently not convinced that Microsoft is willing to go far enough to restore competition to the marketplace for personal computer operating systems.

Microsoft’s offer, submitted on Friday, reportedly would allow computer makers to embed competitors’ software in its Windows operating system. One of the key concessions included in Friday’s offer would allow PC and software makers to change source code in Windows to accommodate competitors’ products, including Internet browsers or media players.

Additionally, Microsoft would market an alternative version of Windows that does not include its Internet software.

Too Little, Too Late?

While government officials are reportedly divided on the proposal — with some even praising Microsoft for the extent of its concessions — many insiders say it does not go far enough to show good faith in encouraging competition. Even if the Justice Department were willing to accept the offer, many of the 19 states that have filed suits against the software maker would want more.

In fact, lawyers for several states involved were so unmoved by Friday’s proposal that they chose not to travel to Chicago, Illinois to resume negotiations for a settlement. Circuit Judge Richard Posner has been mediating top-secret settlement talks there.

Several states have already indicated a firm desire for a federal judge’s verdict in the case, citing the need for decisive action on the part of the government.

Jackson has already ruled that the company is operating as a monopoly to harm or inhibit competition. Tomorrow’s ruling would clarify whether antitrust laws have been broken.

The portion of Microsoft’s offer that would allow incorporation of other companies’ products into Microsoft’s operating system is a clear plea to Jackson not to rule against the company regarding antitrust. Jackson already ruled that Microsoft delayed providing source code to quash competition from its chief rival in browsers, Netscape Communications. The fact that Microsoft has come in at the eleventh hour with a full reversal of its earlier corporate behavior has likely hurt its credibility in the eyes of some DOJ officials.

What Microsoft Could Have Done

Some industry observers believe that Microsoft has taken a posture throughout the proceedings that displays too much corporate arrogance.

These experts believe the software maker would have been able to avoid a ruling from Jackson by taking a few additional steps in its settlement proposal. One such plan might have been to offer computer makers a predictable, nondiscriminatory price for Windows that would ensure that Microsoft would not be able to use its monopoly to financially punish companies that did not do what it wanted them to do.

If Microsoft had simply made it possible for other companies to have a fighting chance to aggressively market their products without interference from the software company, the Justice Department and the 19 states may not have decided to play hardball.

However, according to reports, Friday’s proposal was so complex that the Justice Department had to call in its top technical experts to decipher it. The inscrutability of the document led some of the interested parties to conclude that Microsoft is still not fully cooperating or showing enough willingness to reach an acceptable compromise.

Commenting on the apparent deadlock, former U.S. district court of appeals judge Robert Bork said the DOJ’s antitrust people think Microsoft has been “ruthless and endlessly predatory and they [Microsoft officials] don’t see themselves that way.”

Bork, who has kept a keen eye on these proceedings, said he believes a settlement is “probably unlikely.”