Report: Microsoft, DOJ on Brink of Settlement

The U.S government and Microsoft are reportedly close to a settlement that, contrary to conventional wisdom, would leave the giant corporation intact.

The mediations, which have been conducted by appellate judge Richard Posner, apparently have produced a plan that would require Microsoft to significantly alter its business practices. Additionally, the company would be severely restricted in its ability to wield market power over personal computer makers and other companies.

This news comes as a surprise to many observers, since 19 states and the Department of Justice (DOJ) are on record as supporting a breakup of the company. Yesterday, Assistant Attorney General Joel Klein told a congressional committee, “The findings of fact reveal a serious pattern of anti-competitive conduct. I think that a remedy ought to be commensurate with those practices.”

District Court Judge Thomas Penfield Jackson ruled last year that Microsoft abused monopoly power over the Windows operating system for personal computers, causing harm to consumers, competitors and other technology companies.

Jackson’s ruling that Microsoft has engaged in monopolistic business practices will ultimately be followed up by a decision on whether those acts broke antitrust laws. Regarding the possibility of a settlement, Klein said, “Settlement is better than litigation, but the settlement would have to be, of course, appropriate to deal with the concerns that the Court documented in its opinion.”

Guarded Optimism on Wall Street

At the moment, everyone involved is treading cautiously, with Jackson saying he will hold off on issuing his final ruling if both sides indicate that they are making substantial progress in the settlement discussions.

Some government participants are skeptical about a settlement, saying they are not convinced that any type of agreement can reverse the damage Microsoft has already done by squelching competition in the industry.

For its part, Wall Street has made it clear that it would favor a settlement. Last month, after closing arguments in the case, the Microsoft’s stock took a dive to below $90 (US$), and the price has been erratic since. Yesterday, as reports of a settlement began to spread, the stock closed at $103 1/4.

“We note that the shares have traded down sharply over the past month,” said Richard Sherlund, an analyst for Goldman Sachs. “While the risk of an adverse decision in the [Justice Department] case overhangs the stock, we are hopeful that a settlement might be reached, providing a potential catalyst for improving investor sentiment.”

Litigation Likely To Continue

Microsoft needs a settlement rather than a judgment for many reasons, not the least of which are 110 lawsuits in 28 states. Federal antitrust law says that if Jackson ends up ruling against the software maker the judgment can be used in all the other cases.

Although several attorneys on the other lawsuits claim not to need a judgment in order to proceed successfully against Microsoft, a ruling against Microsoft now would significantly jumpstart their legal actions.