What's next for Microsoft?
Though a settlement is possible, the firm could take its chances on appeal
NEW YORK (CNNfn) - Although Microsoft Corp. and government lawyers are expected to engage in another round of settlement talks in the wake of a federal judge's harsh preliminary ruling against the software concern, company officials indicated the firm may hedge its bets that it would ultimately gain victory in its long-running antitrust trial on appeal.
In light of U.S. District Judge Thomas Penfield Jackson's findings of facts issued late Friday, in which he declared Microsoft (MSFT) to possess monopoly power in the PC operating systems market, trial watchers anticipate the company to meet with government officials for more settlement talks.
The Wall Street Journal reported Monday that Jackson has asked each side to meet in his chambers as early as next week for a scheduling conference that could also be used to explore the prospects for settling the case.
Spokespeople for Microsoft and the Justice Department declined comment on the matter.
Although antitrust experts weren't surprised at Jackson's findings, they were somewhat taken aback at the one-sided nature of his statements.
"I was a little surprised at the tone," said Spencer Waller, a professor at Brooklyn Law School. "It was stark, dramatic and unequivocal."
Trial watchers had long anticipated that Jackson's findings of facts -- which provide a template for his final decision -- would spark another round of settlement negotiations between Microsoft and the government.
Legal scholars expected Jackson to give both sides something to bargain for; instead, he delivered a scathing critique of Microsoft's business practices and sided with the government on the facts of nearly every issue raised during the 76-day trial.
Although the harshness of Jackson's findings suggest the Justice Department and 19 states have little incentive for negotiating, Waller said government lawyers may be even more eager to enter into another round of talks.
"It strengthens the government's hand in a settlement," he said. "As long as the government isn't seeking a breakup of the company, Microsoft has to be a little more open to different kinds of remedies."
Appeal to a higher authority
Another option for the company -- one that company officials suggested Monday -- is to let Jackson deliver his conclusions of law and take the matter to the U.S. Court of Appeals. The appellate court has, after all, overturned Jackson twice already in the ongoing Microsoft matter.
In May 1998, the appeals court ruled that a 1997 injunction preventing Microsoft from forcing PC makers to include Internet Explorer in the Windows 95 operating system "or successor versions" did not apply to its then-forthcoming Windows 98 operating system.
In June 1998, the court struck down the injunction altogether.
"Microsoft has had success on the appellate level, Jackson has had less success," Greg Maffei, Microsoft's chief financial officer, said in a conference call with financial analysts Monday. "If the case goes to the liability phase, we're likely to go through the appeals process, which is going to be lengthy."
To be resolved is whether Microsoft will be able to file an appeal immediately after Jackson renders his final decision, or whether the judge will force the company to wait until the remedy phase of the trial is completed.
The possibility that the government would seek a breakup of the company -- one that would separate Microsoft's operating systems, productivity software and Internet businesses -- now appears more realistic, considering the tone of Jackson's findings.
Analysts, however, don't believe such a structural remedy would offer much of a resolution.
"We believe this provides little to no remedy, given that the operating systems business is still a monopoly business as determined by the court," Rick Sherlund, an analyst at Goldman Sachs (GS), wrote in a research note.
Impact on investors
Sherlund also noted that investors will have to brace themselves for a long ride.
"We believe investors will need to hunker down for a potentially long process, possibly leading through appeal into 2001," Sherlund wrote. "For now, this will be a prominent issue but may become a back-burner issue during lulls in the action."
In a Securities and Exchange Commission filing disclosed Friday, Microsoft said it didn't expect the antitrust case and other pending litigation to have any material impact on its financial performance.
During its most recent quarterly earnings report, Maffei advised analysts to raise their second-quarter estimates. In Monday's analyst conference call, Maffei said he "remains comfortable" with that outlook.
Microsoft shares fell 1-5/8 to close at 89-15/16 in Monday trade.