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U.S., Gates talks halted; Mediator abandons settlement attempt with government, Microsoft; Differences 'too deep-seated'; Judge may rule in days in antitrust suit against computer giant


WASHINGTON -- After four months, mediation efforts between Microsoft and the government were abandoned yesterday, making it likely that the presiding judge in the trial will issue his decision in the long-running antitrust case within the next few days.

The announcement came from the court-appointed mediator, Richard A. Posner, chief judge of the U.S. Court of Appeals in Chicago, who said in a statement, "I regret to announce the end of my efforts to mediate the Microsoft antitrust case.

"After more than four months," he added, "it is apparent that the disagreements among the parties concerning the likely course, outcome, and consequences of continued litigation, as well as the implications and ramifications of alternative terms of settlement, are too deep-seated to be bridged."

Last Tuesday, the trial judge, Thomas Penfield Jackson, postponed a decision in the case to give the parties one more week to reach a settlement. In his findings of fact in the case, issued in November, Jackson found that Microsoft had used its monopoly power to threaten and bully allies and competitors, stifling innovation and competition in the software industry.

Because those findings were weighted so heavily against Microsoft, Jackson is widely expected to find the company in violation of antitrust laws.

The judge will consider court-ordered remedies, probably after holding hearings and receiving a recommendation from the plaintiffs.

Last night, Microsoft Chairman Bill Gates said he had spent "hundreds of hours" on the settlement negotiations, adding: "We went the extra mile to resolve this case, but the government would not agree to a fair and reasonable settlement that would have resolved this case in the best interests of consumers and the industry."

He added: "Ultimately, 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 that go far beyond the issues raised in the lawsuit."

The Justice Department, in a statement, said: "We would have preferred an effective settlement to continued litigation. But settlement for settlement's sake would be pointless. We could agree only to a remedy that effectively solves the competitive problems detailed in the court's findings of fact."

Proposals exchanged

Microsoft and the government had been exchanging proposals and counterproposals during the past week, under a schedule set by Posner. The Justice Department sent its latest proposal to Posner late in the week, and the judge passed it on to Microsoft. A lawyer close to the talks said Microsoft would not agree to the government's latest demands.

When Posner saw Microsoft's counterproposal, he declared the talks dead.

The 19 state attorneys general who are partners in the suit were unhappy both with Microsoft's offer and with the Justice Department's response.

Yesterday, before Posner's announcement, one official said that the "views of some attorneys general differ" from those of Joel I. Klein, the assistant attorney general in charge of the Justice Department antitrust division.

Several attorneys general, this official said, "have severe misgivings about some of the concessions Microsoft has convinced Judge Posner that the governments ought to make."

On Friday, the state attorneys general sent Posner their set of additional and separate demands, including what they said were stronger terms for enforcing the proposed agreements. Although other participants in the talks disagreed, Microsoft said the additional demands from the states were the death blow to the negotiations.

"The hard-liners won," one Microsoft executive said.

The company and the Justice Department, he added, had reached agreement on a number of elements in a possible settlement, though further negotiations were needed.

But after the states weighed in with new demands, he said, it became clear that the gap between Microsoft and the plaintiffs was too wide to be bridged.

Posner noted in his statement: "I particularly want to emphasize that the collapse of the mediation is not due to any lack of skill, flexibility, energy, determination, or professionalism on the part of the Department of Justice and Microsoft Corporation."

Nowhere did he make mention of the states.

Unsatisfactory response

One person involved in the talks said Microsoft's response Friday was "not even close" to the Justice Department proposal. Microsoft, this participant said, insisted on its unrestricted freedom to bundle software -- such as Internet browsing software -- with its industry-standard Windows operating system, an issue that was a key element in the case.

Computer industry leaders expressed relief at the news that the talks had broken down. For the preceding two days, they had been pressing the Justice Department to toughen its proposed sanctions, which they said would have done little to restrain Microsoft from abusing its market power. The Justice Department, in response, had been telling these executives that they did not fully understand the government's position.

Last night, Ken Wasch, president of the Software and Information Industry Association, a trade group, said he and other executives preferred that the case go back to court, where a finding that Microsoft violated the nation's antitrust laws is expected.

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