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Microsoft, DOJ may be closer to settling antitrust suit

The government backs away from demands that the software giant be broken up, while Microsoft is now more willing to accept restrictions on how it manages its business.

WASHINGTON--Microsoft and the government may be closer to settling their landmark antitrust case amid word that the trial judge could rule as early as tomorrow, legal experts say.

U.S. District Judge Thomas Penfield Jackson on Tuesday called representatives from the government and the software giant to his chambers to see how far settlement talks have progressed, according to reports in The Wall Street Journal and The Washington Post today.

Legal experts have long speculated that Jackson would call both sides together shortly before his ruling to determine how far settlement talks had progressed. The judge's call would likely spur the parties involved to make a decision, if they were close enough indeed to settle.

Reports indicate that both sides have softened their respective positions for a possible settlement. The government has backed away from demands that the software giant be broken up, while Microsoft is now more willing to accept restrictions on how it manages its business.

Microsoft shares soared on the news. The stock was one of the most heavily traded issues on the Nasdaq market, gaining more than 6 percent in early trading.

J.P. Morgan analyst Willam Epifanio told Bloomberg News that if a settlement is reached, the company's stock could "go through the roof. I've been telling investors to hold onto their stock. If (Microsoft) settles, it could easily go to $150."

Legal experts said Tuesday's meeting may have been a precursor to a potential ruling in the case. University of Baltimore School of Law professor Bob Lande expected Jackson to "hint to (both parties) when their absolute last chance to settle is before he issues the ruling, or to at least ask them if they are close enough to save him the trouble of issuing a ruling."

Word of an imminent ruling would likely accelerate talks if both sides are serious about settling, Lande said.

"It would not be inconceivable (that) the judge would rule on Friday," he added.

Many legal experts did not expect settlement talks to continue this long. Microsoft's day in court "There comes a point where the judge says, 'This train is ready to leave the station,'" said Bill Kovacic, a professor at George Washington University Law School.

Earlier this month, financial analysts warned that a settlement in the landmark case was close. Days before final oral arguments on Feb. 22, both sides also appeared close to bringing an end to the case.

Regardless, sources close to the talks indicate they continue at a brisk pace, especially since a possible ruling could be around the corner. Many legal experts have said they expect Jackson to rule against Microsoft, which would fuel the software maker's desire to settle.

Yet legal experts have warned that listening to second-hand reports concerning settlement talks may not be reliable. Proposals change constantly and talks on the verge of breakthrough can just as easily collapse, they say.

"The negotiation table is the one place where lawyers are allowed to lie," said Rich Gray, an intellectual property attorney with Outside General Counsel Silicon Valley in Menlo Park, Calif. "And I?m sure both sides are lying to each other."

How close the two sides are to settling is a point of contention. That the Assistant Attorney General Joel Klein government now does not support a Microsoft breakup would seem to contradict certain statements Assistant Attorney General Joel Klein made to a congressional committee yesterday.

Any penalty would have to be commensurate with practices found by Jackson on Nov. 5, Klein said. The government, until now, has taken a hard line on breaking up Microsoft.

"Whoever is making these kinds of statements is engaged in a public relations effort that should not be taken seriously," Justice Department spokeswoman Gina Talamona said.

While the government has had its share of leaks in the case, some legal experts believe Microsoft is anticipating the possible breakdown of negotiations and is planning a counterstrike against the government.

"I expect if the talks collapse, Microsoft will leak their very reasonable offers to cast the DOJ as rigidly committed to breakup," Lande said.

But Microsoft spokesman Jim Cullinan said Microsoft has not leaked information on the status of the talks, and the company is negotiating in good faith by sticking to the judge's non-disclosure orders.

Judge Richard Posner, the chief justice of the U.S. Court of Appeals for Judge Richard Posner the 7th Circuit in Chicago, has been mediating the negotiations.

Posner's task has been a difficult one. In the early stages of the talks, he met on Mondays with the government and Tuesdays with Microsoft. But prior to final closing arguments, the meetings occurred more frequently, without a fixed schedule.

"The challenge this mediator has is bringing these two sides together that are very, very far apart," Gartner Group analyst Michael Gartenberg said. "I think Microsoft would like to settle this case and the government would like to settle this case."

Both sides staked out their positions early. While the government pushed for a total breakup of the software maker, Microsoft fought fiercely against any positions that would affect its ability to compete in the marketplace.

Gartenberg said Microsoft has put a lot on the table, "but it goes back to this issue of being able to integrate new technologies into their products to go after new markets."

Microsoft's trump card could be opening the Windows source code, something chairman Bill Gates has said he would be willing to do if it would help settle the antitrust case.

The software maker has made other concessions, including a proposal for standard licensing fees, rather than the current practice of offering different prices to different PC makers, said a source familiar with the negotiations. During the trial, the government argued Microsoft used pricing as a means of getting PC manufacturers to favor Internet Explorer over Netscape Communicator.

For its part, the government has focused on restricting how Microsoft develops its products. In one early proposal, government negotiators asked Microsoft to develop Office 2000 for competing operating systems, such as Linux. The government had contended Microsoft's lock on software developers kept new applications from being developed for competing operating systems. Offering Office on Linux would help foster the Windows competitor, the government argued.

"The question is, can these two parties that are so far apart come together," Gartenberg said. "And from Microsoft's perspective, if the government comes to them with something onerous or potentially damaging to their business, they're going to say they would rather roll their dice with the judge and take it up on appeal."