Report: Microsoft approached DOJ to discuss settlement

Microsoft last week approached a top official at the U.S. Department of Justice (DOJ) with a proposal to launch a new round of settlement talks, according to an article in Monday's Wall Street Journal.

A Microsoft spokesman said the company "would not comment on anything related to potential settlement efforts." A DOJ spokesperson could not be reached for comment.

According to the article, Microsoft telephoned Charles James, the Justice Department's recently appointed assistant attorney general for the antitrust division, shortly before it announced plans on Wednesday to loosen restrictions on hardware manufacturers regarding the Windows desktop. The software company said it will no longer require PC makers to preserve the Internet Explorer icon on the desktops of Windows-based PCs that they ship to customers, and it will allow them to show the icons of third-party software applications.

Microsoft had acknowledged that it changed its policy in reaction to a recent Appeals Court ruling that found such action to be part of the company's monopoly maintenance practices.

In terms of resolving the antitrust case that the government has brought against Microsoft, each side currently has three options: to settle; to take the case to the U.S. Supreme Court; or to follow the Appeals Court order that the case be returned to the District Court where a new judge would consider what remedy to impose on Microsoft. The Appeals Court in June upheld the District Court's ruling that Microsoft illegally used monopoly power to maintain dominance of the desktop operating system market, but it overturned the order to break the company in two.

In addition to the DOJ, which led the antitrust lawsuit in trial, Microsoft has to contend with the 18 states and the District of Columbia, which joined the DOJ as plaintiffs. New Mexico last Thursday settled its antitrust claims against Microsoft Corp., the first of 19 state attorneys general to withdraw from the legal battle since last year's District Court ruling that Microsoft broke antitrust laws. Connecticut Attorney General Richard Blumenthal said Monday that he would not comment on any potential settlement negotiations.

Some observers see settlement emerging as the likely course of action. That scenario is supported by Microsoft's reported contact with James last week, and by the Justice Department's statement on Friday that it does not intent to bring the case before the Supreme Court.

"I think (settling) is a very reasonable thing for Microsoft to do -- to try and control their own destiny and not simply put their fate in the hands of the District Court," said Mark Schechter, partner at law firm Howrey Simon Arnold & White LLP in Washington, D.C.

Schechter added that both Microsoft and the DOJ would be more flexible in settlement talks now than they have been in the past. There's less to lose now, he explained; in past settlement talks, the Justice Department wanted to pursue structural remedies -- meaning Microsoft would be broken up -- while Microsoft was confident an appeals court would not find it in violation of antitrust law. Now, following the Appeals Court ruling, things have changed. "Structural relief has largely been taken off the table, and Microsoft's prospect of being absolved of (antitrust law) violation is gone, too," Schechter said. "It narrows the space between them."

Microsoft may be more interested in settlement this time around since the company would be negotiating with DOJ officials appointed by a Republican administration, said Bob Schneider, attorney at Chapman and Cutler law firm in Chicago.

"One thing Microsoft has hoped to do was to drag everything out until a Republican administration was in place so they could extract a more favorable settlement. Now you've got a situation where the Bush administration is not as hostile as the former Democratic administration," he said. "I think there's a possibility they will be able to get closer to agreement." Schneider added that Microsoft is appearing to be more flexible, and pointed to the modification it made to its licensing agreements with computer manufacturers as an example.

Both sides will continue to prepare for alternative scenarios -- a return to District Court is more likely than escalation to the Supreme Court -- as illustrated by the Justice Department's request of the Appeals Court to speed up sending the case back to the District Court. Yet one important reason for continuing on many fronts for both the government and Microsoft is to secure a better negotiating position if and when settlement talks do occur. If one side appears to be heading down a path other than settlement, it may pressure the other side into capitulating on sticking points.

"That's always the positioning any group of attorneys will do on either side of a case," Schneider said.

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