Microsoft shares fell $15.38 to $90.88 at the close of regular trading, following Saturday's collapse in settlement talks. Shares have traded as high as $119.93 and as low as $73.53 in the past 52 weeks.
Surprisingly, shares rebounded somewhat in after-hours trading, gaining back about $2 after U.S. District Judge Thomas Penfield Jackson issued his largely negative ruling, which stated that Microsoft had engaged in significant violations of U.S. antitrust law.
Today's expected ruling did not recommend a punishment for the software maker, however. That decision isn't expected for several months following the antitrust ruling.
On Saturday, Judge Richard Posner, who heads the 7th U.S. Circuit Court of Appeals in Chicago, announced the settlement talks had reached an impasse and ended his role as mediator.
Earlier today, the company's shares dropped 9 percent in European trading as word spread that talks had collapsed and that a ruling was expected soon. Investors apparently are concerned that the failed settlement talks could lead to a devastating ruling against the Redmond, Wash.-based software maker.
Rumors less than two weeks ago that the government and Microsoft might settle sent the software maker's stock up nearly $10.
Sources close to the negotiations blamed several of the 19 states, which brought the case along with the Justice Department (DOJ), for unreasonable demands that doomed the talks. For its part, Microsoft in recent days bristled at the prospect of states' resistance and on Friday "delivered an inadequate counterproposal," said one source familiar with the talks.
Bob Lande, senior research scholar at the American Anti-Trust Institute, talks to CNET Radio about what to expect in today's ruling
While Jackson's Nov. 5 findings of fact delivered the government a near assurance of victory, it did not guarantee Jackson would issue a decisive ruling that would allow the government to successfully lobby for breakup or sustain such action on appeal.
"Judge Jackson's concern must be how will the Court of Appeals respond to his ruling," said George Washington University Law School professor Bill Kovacic. "He must craft it in such a way it stands on appeal."
The likely scenario is that Jackson will rule decidedly in favor of the government, but maybe on only four or five of its major arguments, Kovacic said. "If you take away another one or two on appeal, you may no longer be able to sustain divestiture," he added.
University of Baltimore School of Law professor Bob Lande also expressed doubts the government will be able to break up Microsoft.
"You're down to about a 25 percent chance of a structural remedy," Lande said.
Microsoft's bigger problem is not potential breakup but the threat of spurious litigation. Lawyers have filed more than 115 class-action suits against Microsoft since Jackson issued his stinging findings of fact.
Lande noted that many of these civil suits "are not sustainable" because few states have laws in place that would let third parties sue Microsoft. Because the software maker predominately sold Windows to PC makers, they--not consumers who bought systems with Windows 95 or 98--would have to file the suits. So far, none have done so.
"But the effects of fighting these civil lawsuits could still be devastating," he said. Such suits could tie up Microsoft's resources for years and force some settlements to cut its losses, he added.
Several sources close to the talks expressed frustration about their collapse and leveled blame on the states.
"There is no question in my mind that if this had been a negotiation solely with Microsoft and the Justice Department, there long ago would have been a settlement," said a source familiar with the negotiations.
In a written statement, Posner expressed his own frustration, while praising the DOJ and Microsoft for their efforts. Nowhere did he mention the states.
"I particularly want to emphasize that the collapse of the mediation is not due to any lack of skill, flexibility, energy, determination, or professionalism on the part of the Department of Justice and Microsoft Corporation," Posner wrote in his statement.
Over the course of four months, the parties reviewed more than 20 possible drafts of a consent decree before talks collapsed Friday night.
"This result is disappointing not only because of the amount of time that so many busy professionals, officials, and executives have devoted to the mediation, but also because the public interest would be served by avoiding further litigation, with its potential for unsettling a key industry in the global economy," Posner wrote in his statement.
This makes sense, Lande said. "Have a consent order with the Justice Department, while the states are trying to break them up? That would be lunacy from their point of view."
Despite the collapse of negotiations, settlement is still possible, said Rich Gray, an intellectual property attorney with Outside General Counsel Silicon Valley of Menlo Park, Calif.
"This may have been the obvious and sensible time to reach a settlement agreement, but settlement can happen at anytime," he said. Gray, who has settled more than 100 cases, said settlement is still possible until Jackson issues his final ruling, likely in early summer.
Jackson's ruling--depending on its tone and legal foundation--could also compel both sides to reconsider settlement talks, Gray said.