Settlement talks between Microsoft Corp and government antitrust enforcers are likely to run up against the same obstacles that have thwarted negotiators for much of the past seven years, legal experts say.
The world's largest software maker will sit down with state and federal officials this week for the first time since an appeals court ruled that Microsoft had violated antitrust laws, people involved in the case said. The talks may include a discussion of a framework for settlement, they said.
The talks ultimately may focus on Microsoft's plan to include a variety of new programs -- including video conference, Internet telephone service and instant messaging -- in its new Windows XP operating system, which is due in stores Oct. 25. State antitrust enforcers have expressed concern that Microsoft might use XP to extend its dominance to the Internet.
PHOTO: BLOOMBERG
"The toughest issue is what, if any, restrictions will there be on XP," said Robert Litan, a former Justice Department antitrust enforcer now at the Brookings Institution in Washington.
The question is how much leeway Microsoft will have to roll new programs into the operating system and require computer makers to take the whole package.
Microsoft spokesman Vivek Varma wouldn't comment on the talks, saying only that "we look forward to finding a way to resolve the remaining issues in the case with the government." The Justice Department declined to comment. A spokesman for Iowa Attorney General Tom Miller, who has taken the lead in the Microsoft litigation, also refused to comment.
The appeals court overturned a breakup order of Microsoft, while upholding a trial judge's conclusion that the company illegally squashed competition to Windows.
The question of integrating new features into Windows has been a central theme in the government's clashes with Microsoft.
It was at the core of a disagreement between the Justice Department and Microsoft over a 1994 antitrust settlement.
Microsoft contended the accord left it free to include an Internet browser in Windows. The Justice Department disagreed, and the two sides ended up in court in 1997.
In the current case, settlement talks broke down last year over such technical questions as how to define Windows, according to a book on the case by Ken Auletta.
Microsoft has maintained its stance over time. Spokesman Jim Cullinan previously said the appeals court decision "lets us innovate in our products." While the Redmond, Washington-based company recently said it will let computer makers offer a version of Windows XP that hides access to the Internet Explorer browser, Microsoft hasn't made any similar concessions on the other features of its newest operating system.
"They're going to follow the same strategy that they have always followed, which is using their Windows monopoly to push the sale of applications and further entrench Windows," said Steve Salop, a Georgetown University economist who consulted for some of Microsoft's competitors.
One unknown is what approach US President George W. Bush's Justice Department will take in a case inherited from the Clinton administration. Some analysts have questioned new team's commitment to the case.
"Their view is likely to be this is a Clinton-era case," Litan said. "They want to settle it." So far, however, Attorney General John Ashcroft and antitrust division chief Charles James have taken a hard line. The Justice Department said last week it retained veteran litigator Phil Beck, who represented Bush in the presidential election recount fight in Florida. Beck will lead the charge for the US when the case returns to the trial court level for hearings on remedies.
Both the US and the 18 state attorneys general in the case also have asked the Washington-based appeals court to return the dispute to the trial court level ahead of schedule.
Microsoft likewise has remained combative, saying it may appeal to the US Supreme Court and opposing the government's request to expedite the case. Microsoft also asked the appeals court to reconsider the part of its decision that faulted the company for intertwining the code of Windows and Internet Explorer.
The unanimous appeals court decision might prod the litigants toward settlement by reducing their expectations, said Mark Schechter, who helped negotiate the 1994 settlement as a Justice Department attorney.
"The outside position of each party has largely been eliminated," said Schechter, now an attorney with Howrey & Simon in Washington. "DOJ no longer has a reasonable prospect of securing structural relief," such as a breakup.
"Microsoft no longer has a reasonable prospect for getting liability reversed on appeal."
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