With the weekend collapse of settlement talks in its federal antitrust case, Microsoft finds itself facing a harsh legal road ahead that threatens to embolden private litigants, depress the company's stock price and erode its dominant influence in computing, according to industry analysts.
"Microsoft is now back in the legal quagmire, and nothing good is going to happen to the company anytime soon," said David Readerman, a managing director at Thomas Weisel Partners, a technology investment firm in San Francisco.
Yet at Microsoft's corporate campus in Redmond, Wash., no panic is evident. Its executive team, led by Bill Gates, the chairman, is taking the long view, planning to battle the antitrust case in the courts through appeals for years, if necessary.
"We absolutely believe that the judicial system will ultimately rule in our favor," Gates said yesterday. And for Microsoft, the risks of that course clearly seemed preferable to offering further concessions in the mediation efforts abandoned Saturday.
Microsoft's plight could also be altered by this year's presidential election. A Republican administration and a new set of political appointees heading the Justice Department could take a different view of the case. Texas Gov. George W. Bush, the GOP contender, has said he believes antitrust enforcement should be confined mainly to combat price-fixing.
Microsoft has had its reputation tarnished repeatedly during the long-running antitrust suit, filed in May 1998, which alleges that the software maker is a bullying monopolist that has stifled competition. In his findings of fact last November, Judge Thomas Penfield Jackson largely agreed with the case presented by the Justice Department and 19 states.
Yet the more indelible legal blow will come within days, as Jackson makes his finding of legal liability. The judge's conclusions of law will likely find that Microsoft violated the nation's antitrust laws, though it remains uncertain how sweeping his ruling will be.
If the sides had reached an out-of-court settlement, Jackson's strongly worded findings of fact could have been pulled off the table. But a legal verdict cannot -- and both it and the findings of fact become a permanent part of the legal record of the case.
That legal record -- a finding of monopoly power and abuse of that power -- would make it easier for companies and class-action lawyers to bring cases against Microsoft. Already, dozens of class-action suits have been filed against the company.
"Microsoft is in for a bumpy ride over the next several months, as it will face an energized group of private litigants," said William Kovacic, a professor at the George Washington University law school.
After Jackson rules, he will move to consider what sanctions, or remedial steps, should be ordered. The suggested remedies range from forcing Microsoft to alter its business practices to breaking up the company.
The judge can ask for papers from experts and call witnesses. The court-ordered remedies and Jackson's final order might not be filed until the end of the summer. Until then, in theory, the sides could still settle, a possibility that seems remote.
Microsoft will almost certainly appeal in federal appeals court, and possibly to the Supreme Court. Those appeals could take two years.
The uncertainty surrounding the outcome of the case, industry experts say, could slow Microsoft, as the center of gravity in computing is increasingly moving beyond the personal computer, Microsoft's stronghold, and toward the Internet, where the company faces more competition.
In the Internet arena, Microsoft is forging partnerships with companies in many industries, from cable television to telecommunications, to ensure that its software is used on a widening array of Internet-connected devices. But those efforts could be hampered if potential partners have questions about Microsoft's future.
As the settlement talks between Microsoft and the government foundered, so it seemed did the relationship between the Department of Justice and the 19 state attorneys general who together filed antitrust suits against the software giant almost two years ago. Yesterday, though, they were trying to make up, because they knew they had no choice.
Several attorneys general are known to favor structural remedies, such as breaking up the company. Others, including the attorneys general of Ohio and Maryland, have said they oppose structural remedies. Several state officials said the hawks would likely come round if it turned out that their opinions were in the minority.
Throughout the mediation process, the two sides have never sat down together to work out a comprehensive joint proposal.