Microsoft: Let's Make A Deal

March 24, 1999 / 9:31 PM EST / AP

Microsoft submitted a formal offer Wednesday for settling its antitrust case. One state attorney general dismissed it as "a small offer" that wasn't adequate.

In New York, Microsoft's billionaire chairman, Bill Gates, said he wants to reach a compromise, but claimed it was "a little hard to speculate" whether a deal is likely.

"We'd love to settle the thing," said Gates, who travels Thursday to Washington to promote his new book. "If there's any reasonable way to settle this thing that preserves our ability to make Windows a better product, to keep supporting the Internet more and more, then we'd love to do that."

California Attorney General Bill Lockyer, who discussed Microsoft's proposal with Iowa Attorney General Tom Miller, described it as "a minimalist opening offer. It was far from what anyone in our group would expect to be adequate." Lockyer hasn't yet read the settlement himself, and a spokesman for Miller declined to comment.

The Justice Department also declined to comment on Microsoft's proposal, which, according to sources close to the case, was sent to both the federal government and the 19 states suing the software giant.

Antitrust experts believe any settlement is unlikely because the sides remain far apart on core issues after almost five months of acrimonious courtroom fighting. The trial is tentatively scheduled to resume April 12, but both sides consider themselves under orders from the judge to explore a settlement.

The government faces genuine risks as it sits across the table from the technology industry's most famous titan. Gates, who played chess on some of the earliest computers in middle-school, was thinking moves ahead of government lawyers in a previous court fight years ago.

Microsoft then proposed agreeing to never require customers of its popular Windows software to also buy any of its other products. But the company's lawyers also considered adding a provision that Microsoft would never be blocked from "developing integrated products which offer technological advantages."

Gates bristled after reviewing a draft the night before negotiations resumed. He ordered his lawyers to remove the last four words, a subtle change that would return to haunt the government.

Justice accepted the provision as part of a 1995 consent decree, and Microsoft later claimed the language allowed it to bundle its Internet software into its Windows operating system - a core complaint in the government's current antitrust case.

"He signed one consent decree with the government, he thought he had negotiated a loophole and all of a sudden the government is suing him over it," Marc Schildkraut, a former Federal Trade Commission official who negotiated with Microsoft in the early 1990s, said of Gates. "His experience with the government probably from his perspective isn't a good one."

Microsoft, whose software rus roughly 90 percent of the world's personal computers, has indicated that it would consider changing some of its most controversial agreements with the nation's computer makers and Internet providers.

But it won't accept restrictions on what new features it can add to its Windows software, echoing Gates' insistence during the 1994 negotiations.

The government alleges that Microsoft uses its market dominance to maintain its monopoly power and to extend its influence into emerging areas of technology. It established the popularity of its Internet browser after bundling it with Windows.

"There are a few key principles at stake," Gates said Wednesday. "Our ability to innovate our product, our ability to support the Internet in the right way and to have integrity in our Windows product."

An effort to reach a compromise last May broke down, and Microsoft already has started to formulate plans to appeal a trial verdict.

"The problem is, once you've gone to war, it's hard to call a truce and walk away," said Robert Litan, a former senior Justice official who helped negotiate the 1995 consent decree.

Past talks offer some insight: The atmosphere is typically civil, although Gates' infamous temper has been known to flare.

In meetings years ago with the FTC, Gates told Commissioner Dennis Yao that his ideas were communistic. When he met with Mary Lou Steptoe, then head of the FTC's Bureau of Competition, he called her "stupid."

Microsoft's top lawyer, William Neukom, usually leads the negotiations. But Gates isn't far off.

"Gates will be very much plugged into the negotiations, either directly by phone or with Microsoft attorneys preparing to another room and conversing with Gates and coming back," Litan said.

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