But now, just as Microsoft began strolling down the Green Mile that would lead to a nightmare ruling, Judge Posner’s quiet four-month crusade has actually taken the two parties to the brink of an embrace that would instantly conclude the case–without having to teach Sandra Day O’Connor the difference between a browser and an OS. Last Thursday night, Microsoft faxed the
mediator a serious settlement proposal. As of Saturday, the government was still considering it. Though the whole thing could fall apart at any moment, it’s clear for the first time the inconceivable might just come about. We’re not in Kansas anymore.
How did this happen? Back in February, “We were far apart,” said one government lawyer. But then Posner threw cold water on the Feds’ hopes, telling them that he thought the courts would not likely allow them to break up Microsoft. Faced with their own nightmare scenario–a big win eventually overturned–the Department of Justice and the 19 states allied with the case realized that they weren’t going to slay the White Whale. (Other factors: the public doesn’t want Microsoft broken up, and even Bill Gates’s competitors are reluctant to get active in demanding it.) So the prosecution agreed to drop its antitrust Ginsu knives and accept behavioral restrictions from an intact Microsoft. But only if the restrictions were significant–and so clearly outlined that Microsoft couldn’t later blow them off.
Though Microsoft kept insisting it wanted a settlement, it took a while for its proposal to come together. The government would want things like nondiscriminatory pricing for Windows, an unbundling of the browser from Windows and evenhanded access to the blueprints that help developers write Windows applications. At Microsoft, a set of top executives went into hard-core mode, working full time at fashioning what they thought would be a definitive proposal. They got an additional push last week when Judge Jackson, fed up with the logjam, threatened to rule as early as this Tuesday. Before you could say “Let’s go to the remedy phase,” Microsoft’s fax machines went into action.
That’s when the negotiations, which had previously been astonishingly publicity-free, began dribbling out into the newspapers. One thing that remained fairly buttoned up was devilish details of the settlement proposal. Though NEWSWEEK has learned that it does address the issues of pricing, code access, contracts and the ability to use other browsers with Windows, it’s tough to assess it without knowing exactly how far it goes in limiting Microsoft’s behavior. Those fine points will come into play much faster than even Microsoft suspects, because at least one major competitor has plans to notify the company, within 24 hours of a settlement, of the various ways that it may currently be violating the newly inked terms. Still, whatever the proposal contains, it has impressed at least one government attorney, who says, “They are making a much more serious effort now than they ever have before.”
The next step would be a face-to-face meeting in Posner’s chambers–perhaps including Bill Gates and antitrust czar Joel Klein–where the government would undoubtedly suggest their own amendments to Microsoft’s offer. One concern is how the government would be able to hold Microsoft to the settlement terms without setting up a virtual Office of Microsoft Gripes in the Justice Department. Some on the government side believe the task is impossible. These people think that a conduct settlement would, says one source, “be a morass and it won’t work anyway because Microsoft will find a way around it.” In particular some of the state attorneys-general are in this camp, and though some A.G.s are approaching the talks with an open mind, there are those who still believe that nothing short of a bloody breakup would atone for the sins of the billionaire nerds.
Certainly such an F2F session would be a fascinating encounter. But as of Saturday, there were no firm plans for such a hoedown. This doesn’t leave much time before Judge Jackson’s Tuesday deadline, but some observers think that even an inevitably negative ruling from Jackson might not end the settlement negotiations. After all, Microsoft is facing more than 100 possible follow-on private antitrust suits, all of which would regard such a ruling as a gift from judicial heaven. Closing the case with a settlement before a final ruling would arguably vacate Judge Jackson’s decisions. And Microsoft remains extremely eager to get all this behind it to concentrate on its current jihad, the movement toward “Next Generation Windows Services” that will move its focus to the Net. From the government’s point of view, settling the case now would put restrictions in place instantly, instead of letting Microsoft conduct business as usual while the case wends its way toward the Supremes.
No matter what happens, though, the fact that things have gotten so close to a settlement has to be a tribute to Posner. Keeping the parties away from direct negotiation to this point, he has played both good cop and bad cop. Early on, his insistence on confidentiality helped accomplish a small miracle: getting the spin-crazy adversaries to stop the leaks. Now he’s within tornado range of a much bigger miracle: ending the biggest antitrust case of our time. That’s a trick you never saw in Oz.
