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Microsoft Case Goes Back to Judge

April 3, 2000


By LARRY MARGASAK, Associated Press Writer

WASHINGTON (AP) - With settlement talks in collapse, the Microsoft
antitrust case is returning to the judge who found the software giant was a
monopoly that stifled innovation and hurt consumers.

U.S. District Judge Thomas Penfield Jackson, who previously issued "findings of fact," could rule any day
on Microsoft's guilt, setting off a legal marathon that could last through years of appeals.

If, as expected, Jackson lays out violations of law against the company, he then would begin designing a
remedy that could range from breaking up Microsoft to restricting its conduct in the marketplace.

People familiar with the negotiations, which broke down Saturday, said government lawyers were no longer
proposing a breakup.

"Microsoft is sailing into dangerous and uncharted waters," said Rich Gray, an antitrust attorney in Menlo
Park, Calif., who has watched the case closely. "Judge Jackson has shown that he has a pretty strong bent
toward the government's case."

William Kovacic, an antitrust expert and professor at the George Washington University School of Law,
said he expects Jackson's ruling "will be a very favorable treatment of the government's views."

"There may be a consolation prize for Microsoft in that Jackson will probably choose not to agree with
every single point the government makes, but it will hurt overall," he said.

Sources familiar with the failed talks, speaking on condition of anonymity said Sunday that negotiations in
Chicago collapsed after the company insisted on its own proposal to settle the lawsuit and not because of
disputes between state and federal plaintiffs.

Even before the states made new proposals Friday, "It was clear Microsoft was rejecting the government's
proposal and insisting on their own approach," one source said. "That approach had a lot of loopholes and
would not have been effective."

Microsoft Chairman Bill Gates contended Saturday that "it became impossible to settle because the
Department of Justice and the states were not working together. Between them, they appeared to be
demanding either a breakup of our company or other extreme concessions ..."

He did not provide details of the company's offer to settle the case.

In an interview in today's Wall Street Journal, Gates said that regardless of what Jackson rules his company
will continue to integrate the Internet into its Windows software, even though that linkage is at the core of the
Justice Department lawsuit.

"The ruling is just a step in the legal process. It doesn't change any situation relative to what we do," he said.

Connecticut Attorney General Richard Blumenthal rejected Gates' claim.

"The differences between the states and the Department of Justice are minimal when compared to the
divergence between our side and Microsoft," he said.

Describing the negotiations as "very complex," Iowa Attorney General Thomas Miller said "many factors"
led to the breakdown, but "the position of the states was not the cause of the failure."

The talks were with a mediator, Chief Judge Richard A. Posner of the U.S. Court of Appeals in Chicago.
"Just because mediation didn't succeed doesn't mean that negotiations will cease. But that would be direct
negotiations," Miller said.

Microsoft officials - including Gates - negotiated with government attorneys just days before the Justice
Department filed its original complaint in 1998. An agreement appeared likely until government lawyers
complained that Gates reconsidered details in an offer he made. The deal fell through, and the government
filed suit.

Last November, Jackson ruled that Microsoft was a monopoly in the market for computer operating system
software, and that the company used its power to put the squeeze on competitors' products.

A person familiar with the government's case said Microsoft submitted what became its final offer Friday,
the same day the states made their own proposal. By that time, it was already clear the company was
rejecting the government's offer, the source said.

The government's proposal included rules on what products could be bundled with Microsoft's Windows
software. Other rules were designed to prevent Microsoft from retaliating against personal computer
manufacturers that used something other than Windows on their products or supported competing
technology.

The company proposal was described as having holes in provisions regarding the information that would be
available to developers of competing software. Microsoft did not want to give competitors access to the same
software code information that its developers have, the source said.