Originally created 05/15/98

Dramatic talks avert Microsoft antitrust showdown



WASHINGTON -- In down-to-the-wire negotiations, Microsoft made "major concessions" to the government Thursday and averted -- at least temporarily -- a sweeping antitrust case.

The Justice Department and at least 20 states agreed not to file lawsuits as planned against the world's most powerful software maker. Microsoft, in turn, agreed to delay shipping the latest upgrade of its popular Windows software to computer makers until Monday.

Both sides said discussions will continue over the next several days, although there were no indications that a resolution was imminent.

Government lawyers contend Microsoft, whose Windows software is used on virtually all desktop computers, has used its market domination to illegally crimp competition in booming high-tech markets.

They want Microsoft to relax many of its sales agreements with computer makers, giving them more freedom to install competitors' products over Microsoft's and to customize the versions of Windows they sell.

One source familiar with the negotiations said Microsoft made new "significant offers" to respond to government antitrust concerns, including modifying the company's agreements with Internet companies and computer makers. A source with one of the state attorneys general spoke of "major concessions."

Critics were skeptical, citing Microsoft's 1994 agreement with the Justice Department that ended an earlier round of government antitrust concerns.

"Justice now understands they were taken for fools in 1994," said Ken Wasch, president of the Software Publishers Association, one of Microsoft's toughest critics. "They're not about to let that happen again. Justice clearly isn't going to settle cheaply."

Microsoft spokesman Mark Murray said, "We think a lawsuit would be bad for consumers, bad for the industry, bad for Microsoft and bad for taxpayers."

The investigation is one of the biggest antitrust efforts since the 1984 breakup of AT&T. Microsoft is the world's most successful and influential software company.

The cases, if they were eventually filed, could profoundly affect the Redmond, Wash.-based company's legal freedom to add new features to Windows, such as the ability of computers to understand speech.

Microsoft characterized the negotiations as starting as early as May 6, the day after company chairman Bill Gates met quietly in Washington with top Justice lawyers. But a department official said Thursday that serious talks began only in "the last day or two."

Assistant U.S. Attorney General Joel I. Klein met Thursday in Washington with attorneys general Richard Blumenthal of Connecticut, Dennis Vaco of New York and Thomas Miller of Iowa. They spoke with Microsoft lawyers by telephone.

Microsoft said the brief delay in shipping Windows 98 to computer makers would have no impact on its plans to sell the software to consumers starting June 25.

"The company has taken this step so that discussions with the government ... can continue," spokesman Mark Murray said.

Microsoft's stock prices climbed 2.3 percent Thursday after news that the company was negotiating. Shares had fallen 13 percent since reaching an all-time high just three weeks ago.

The government argues, among other things, that Microsoft's decision to bundle its own Internet browser with Windows amounts to illegal "tying" under the federal Sherman Act, and hurts consumers and competitors, such as rival Netscape Communications Corp.

Some industry experts said Microsoft's decision to delay the release of Windows 98 for mere days suggested the company might offer to take its Internet browser icon off the Windows 98 desktop screen.

Such a change could be done within a short time. More dramatic changes to Windows 98, such as trying to strip part of the browser software code, would take far longer than until Monday.

Sen. Orrin Hatch, R-Utah, another frequent Microsoft critic, said the decision to negotiate "undermines any argument that Justice has no case. Microsoft would not be at the table unless it felt that Justice had a very strong case."

The states that had agreed to sue Microsoft were identified as: California, Connecticut, Florida, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, New Mexico, New York, North Carolina, Ohio, South Carolina, Utah, West Virginia and Wisconsin, plus the District of Columbia.

Texas, formerly one of the states leading the investigation, said earlier this week it will delay any action, in part because computer companies there complained about possible delays of Windows 98.

"Texas is willing to play Sir Lancelot and go out and slay the dragon to protect the damsel in distress," Ron Dusek, a spokesman for the attorney general, said. "But it appears our damsels are telling us they're not in distress."