How far will Microsoft go to make its legal woes go away...

Scott Hillis

SEATTLE: How far will Microsoft Corp. go to make its legal woes go away?

Will it simply write billion-dollar checks, or will it agree to curb its

aggressive instincts in hopes of convincing courts and critics that it can play

nicely with others?

A day after an appeals court handed both Microsoft and the federal government

victories by reversing a lower court order to split the top software maker but

agreeing it holds a monopoly in personal computer operating systems, analysts

speculated on Friday what any settlement might look like.

The Redmond, Washington-based company, which landed in legal hot water over

tying its Windows operating system to its Internet browser program, is clearly

interested in settling.

Microsoft chairman Bill Gates on Friday reiterated his hopes of pulling up a

chair at the bargaining table, a clear sign, analysts said, that he would like

nothing more than to settle the antitrust issues that threaten to bog his

company down for years to come.

"Microsoft, as we have been throughout the case, is very open to the

idea of settlement. We don't think extensive litigation and the resources that

involves are really good for anyone," Gates told ABC's "Good Morning

America" show.

But the question is what exactly the company will bring to the table, and how

it will stack up against what the US Department of Justice (DOJ) and the 19

states that joined the suit want.

"Microsoft will clearly be interested in conduct remedies, like on how

it writes contracts and sets license terms, or it may be willing to pay fines,

which it has plenty of cash to do," said Dwight Davis, an analyst with

technology research firm Summit Strategies.

Damage control



Microsoft has said it is too early to speculate on what it might be willing to
offer to settle. Analysts said the company hinted it was ready to bargain when -

spurred on by the court's finding that some of its past deals with computer

makers and software vendors were illegal - it offered to review its licensing

arrangements.

But, because the court sent the issue of tying new features to Windows back

to a lower court, Microsoft might give more to avoid another trial, in which new

evidence could be presented.

"They are in damage-control mode. They are going to negotiate hard, but

they are going to understand that exposure is pretty high going through the

trial process," said Rob Enderle, an analyst with Giga Information Group, a

technology consultancy.

The Justice Department, under the hands-off administration of President

George W. Bush, may also be willing to settle for a set of curbs, analysts said.

"The DOJ will want to see a set of controls that see, at very least,

that Microsoft will not exhibit the behavior that the appellate court called out

in the judgment," Enderle said. But some states are seen holding out for

tougher controls or even a new trial to seek a breakup.

"We expect two of the states (Iowa and Connecticut in particular) to be

hard-line about upcoming new capabilities including Web services and integrated

messaging," Rick Sherlund, an influential software analyst for Goldman

Sachs, wrote in a research note.

Get out the checkbook?



Enderle forecasts one of the most drastic scenarios, saying the company would be
forced to adopt a huge array of internal checks that would eventually turn it

into an ossified bureaucracy.

"To protect themselves against future lawsuits and future government

action, Microsoft will have to implement a set of internal policies to change

from the aggressive firm it is now to something more closely aligned to a

government entity or a utility," Enderle said.

"If they don't do that they'll just end up in the courts all the

time," Enderle said.

That said, analysts saw a limit as to how much Microsoft will give to put the

lawsuit behind it. Most said it would draw the line at making drastic changes to

Windows XP, the upcoming version of the operating system due out in October, or

to its .NET strategy to roll out Web-based services.

"If it is pushed to make product design changes in a way that Microsoft

would deem onerous, that would be a sticking point in negotiations," Davis

said. Many are wondering if Microsoft can buy its way out of legal trouble by

opening its fat checkbook, which is backed by $30 billion in cash and short-term

investments.

"Fine them $10 billion and that would hurt them and they'd think twice

about doing this, and that's something they might consider," said David

Smith, an analyst with Gartner Group, a market research firm.

Others were skeptical.

"Given how the appellate court has ruled, I don't think that would fly

even with a Republican administration. (A settlement) is going to have to

include behavioral restrictions," Enderle said.

Even if it can somehow settle the current lawsuit, the appeals court left

open the door to a potential flood of private lawsuits by leaving intact the

finding that Microsoft is in fact a monopoly, analysts said. "There is no

end to lawsuits against Microsoft until the day when Microsoft is no longer the

dominant force in the industry," Davis said.

(C) Reuters Limited 2001.