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Microsoft talks head to Chicago

Judge Richard Posner faces the daunting task of brokering a settlement between Microsoft, the Justice Department and 19 states as talks begin in Chicago.

Representatives for Microsoft, the Justice Department and 19 states are slated to meet in Chicago today with appeals court judge Richard Posner to begin the process of brokering a possible settlement in the landmark antitrust trial.

Posner, who heads the U.S. Court of Appeals for the 7th Circuit, is acting in a private capacity. He faces the daunting proposition of helping not two but three sides reach a compromise in the case.

The Justice Department and states apparently are divided over exactly what to do about Microsoft, with local trustbusters reportedly seeking harsher consequences for the software maker than their federal counterpart.

These "divergent views" so concerned presiding trial judge Thomas Penfield Jackson that he picked Posner to mediate a settlement after hearing reports "the plaintiffs are proceeding on 'parallel tracks.'"

Antitrust experts who examined a court transcript of a Nov. 18 hearing, when Jackson broached the mediation issue, told CNET News.com the divided government camp worried the judge.

"I almost had the sense of a man watching the beginning of a runaway train," said George Washington University Law School professor Bill Kovacic. "It's as if he's saying, 'Uh-oh, I want a brakeman to get on in there and slow this down, and that brakeman is Dick Posner.'"

Other experts agreed.

"These reports of division have been around from the beginning, but it's clear the judge now believes them," said Bob Lande, an antitrust professor with the University of Baltimore School of Law.

Jackson on Nov. 5 issued his findings of fact, which, though not a ruling, harshly criticized Microsoft as a monopoly and accused it of wielding its power illegally to protect its Windows franchise.

"It didn't matter before because they were so far from discussing remedies," Lande said. "But with such a strong document in hand, things are different now and differences [between the states and the DOJ] are emerging over what to do next."

Microsoft's day in court The states in particular, sensing a favorable ruling, are seeking more extreme measures to restore competition, according to sources close to the government. That could mean anything from breaking up Microsoft to giving away the Windows source code.

On the side of the states, two figures capable of creating consensus with the Justice Department could emerge.

Kevin O'Connor, Wisconsin assistant attorney general, has taken an increasingly prominent role since the departure of Stephen Houck from the New York attorney general's office. Houck represented the states alongside lead government attorney David Boies.

O'Connor, who is regarded as a moderate, has been handling the issue of remedies since the case started, according to sources close to the assistant attorney general who asked not to be named.

He also is educated in economics, which will be important as the government sifts through remedies for restoring competition. O'Connor is known among associates for being levelheaded, which stands to play an important role during negotiations.

Iowa attorney general Tom Miller also will play a key role, as will Connecticut attorney general Richard Blumenthal, in that both have emerged as leaders in the suit. Miller, who has been tight-lipped about settlement and possible remedies against Microsoft, is a strong believer in mediation, according to sources close to him.

If Miller is willing to accept Posner's direction, that would carry great weight with the 19 states, sources said.

That could be important, as some states look unfavorably at Posner as mediator, sources said. Posner, a respected but highly conservative antitrust jurist, might lean away from breaking up Microsoft, a solution advocated strongly by some parts of the government camp, said Dana Hayter, an antitrust and intellectual property attorney with Fenwick & West in San Francisco.

No matter how either party feels about Posner, his position as a leading appeals court judge gives him a unique viewpoint valuable to both sides.

"Posner can say, 'I can tell you with a reasonable confidence what the reviewing courts are going to do with your case. I'm a pretty reliable source on that because I think like a lot of those folks do,'" Kovacic said.

If the case proceeds without settlement, it will almost certainly go on to D.C. Circuit Court of Appeals as early as summer and possibly to the Supreme Court within two years, antitrust experts have said.

Boies and Microsoft lead attorney John Warden are expected to proceed cautiously. Boies knows he is dealing with a strong hand, but must answer to two masters: U.S. assistant attorney general Joel Klein and the states.

Posner also will be watching for signs Boies and Warden don't agree with their clients on some issues, something not uncommon in any case, said Rich Gray, an intellectual property attorney with Outside General Counsel Silicon Valley.

Microsoft's true position on settlement, for example, is still unclear. Although the software maker has been sending signals for weeks it could be ready to settle, how far it would go remains unclear. Kovacic, Lande and others suggested Microsoft attorneys almost certainly are recommending settlement.

Once Jackson issues his ruling, the findings of fact would be admissible in civil class-action suits, of which about a half dozen are pending. What seems reasonable to a lawyer may not seem so to a client, "especially in this case where you're talking about something that is considered almost as a beloved child" by Microsoft chairman Bill Gates, Kovacic said. Gates' willingness to settle or appeal carries more weight than the lawyers' opinions, Kovacic said.

This could be an important issue if Posner is willing to broker a breakup of Microsoft. While many legal experts believe Posner would not do this, others disagree. Posner cofounded a conservative branch of antitrust law called the "Chicago School" in the late 1970s and 1980s, which measures the sole goal of antitrust protection as consumer welfare, attorney Hayter said in an earlier interview.

Gray noted former U.S. assistant attorney general William Baxter, who oversaw the AT&T breakup, also belongs to the Chicago School.

"When it comes to monopolies that step over the line, I think Posner is in the same camp as Baxter was, which is when the competitive process is threatened, something needs to be done," Gray said.

"It's simplistic to say that just because Posner applies Chicago School analysis to the antitrust law that he would not be in favor of structural remedy," Gray said. "It really depends on whether he believes in what Jackson is selling."

No matter what happens, expect long negotiations with all sides initially staking out extreme positions, but softening as each subsequent court briefing or hearing approaches, said legal experts. The government next files briefs on conclusions of law on Dec. 6 and Microsoft on Jan. 17.

"These things don't normally settle until there is a major deadline looming over the participants," Gray said. "If Posner can settle this thing before Jan. 15, it just means both sides were ready to settle."