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Rumours of MS settlement hype from shareholders

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The rumours of settlement talks between the DoJ and Microsoft are just that: Microsoft does not have the slightest intention of settling at the moment, but it is pretending to be willing to settle so that it can get the best possible result in the District Court from Judge Jackson. Lawyers from both sides had been advised by the judge to use their time wisely during the recess – implying to conduct settlement talks. The current rumours were started by those with most to lose – institutions holding large amounts of Microsoft stock – according to sources. And where better to start the rumour than in the Wall Street Journal? Microsoft was caught on one foot by this investor pressure, so that its anonymised statement (by Mark Murray no doubt) was intended to make it seem more authoritative and as though Microsoft was trying. Murray himself has lost credibility as a result of his absurd daily black-is-white statements after Microsoft had been roughed up in court. This is the third time there have been rumours about settlement. The first, in May 1998 shortly before the DoJ Complaint was issued, were never intended to be anything other than gamesmanship by Microsoft. The second rumour was started on 8 March by the Seattle Times, but on behalf of Microsoft employees rather than investors this time. There are great fears in Seattle of a serious decline in the local economy if Microsoft is hammered. A few days ago the Seattle Times effectively admitted this by turning its story into an editorial suggesting that Microsoft should settle the case. The only hard news this week was when Joel Klein, the DOJ antitrust chief, said that "We have not received any settlement proposal from Microsoft". The DoJ is duty bound to be "open to a settlement", so it was non-news when the wire services tried to make something of this. Any settlement proposal has to come from Microsoft. Faced with this rather convincing denial, the WSJ decided to keep the rumour warm with a suggestion carried by Dow Jones, its wire service, from a "Microsoft insider" that the two sides were "talking about talking". This allowed Microsoft to chip in that it was making a "good-faith effort" to resolve the case. Microsoft could not resist inserting its claim that "any settlement must preserve Microsoft's ability to innovate and add new features to our products." Of course Microsoft is not an innovator, and "adding new features" was thoroughly exposed during the trial as a way of garotting Netscape. Microsoft's present strategy is to keep the case going as long as possible, so that at the bitter end the result has no influence on Microsoft's then-situation. It expects to lose in the District Court, but as the case will very likely end up in the Supreme Court, any final decision will not be made until 2002 or later. By that time, NT will have more than 50 million buggy lines of code that will have further suppressed the independent software industry. When the Microsoft did agree a consent decree in July 1994, it did so because Ann Bingaman, the then DoJ antitrust chief, saw it as a career-enhancing move, and tried to perpetuate the fiction that it was best settlement that the DoJ could obtain. The industry was rightly extremely critical, and indeed subsequent events have turned the fears into reality. This time, Klein will not allow a feeble consent decree, as Microsoft well knows. Klein himself wants to be attorney general, and it may only be a short time now before present incumbent Janet Reno steps down because of an illness to which she has bravely admitted. The 29 March date that has been mentioned in some rumours for breaking apart Microsoft is just an attempt to put pressure on Microsoft, and was probably started by the gnomes of Wall Street. As Scott McNealy explained in his exclusive interview with The Register, break-up is only appropriate for monopolies like AT&T (as was), and not where there are still some remnants of a real software industry. Meanwhile the gnomes in Redmond, are evidently in some disarray. There are probably serious differences of opinion about the delayed management structure that was expected to be announced a week ago. Morale is low, and it is probable that there will be a mass exodus of Microsoft VPs whose shares have vested. Brad Silverberg had enough, and it is now likely that CTO Nathan Myhrvold will quit too: he has achieved almost nothing in R&D during his tenure, although his budget is not in the billions as Microsoft would like people to think, since most of Microsoft's R&D is surely spent on bug fixing. Microsoft's external lawyers will not really be wanting a settlement, since their massive fees depend on the case going on for ever. The big power play will be between VP for law and corporate affairs Bill Neukom, Microsoft's head lawyer, and general counsel (a recent promotion) Brad Smith, who joined Microsoft some years ago after a stint looking after Microsoft's interests very enthusiastically when he worked for the Business Software Alliance in Europe. Smith has always wanted the top job at Microsoft, and he could be the leader of a putsch to overthrow Neukom. The big question is now whether Gates will resign. He has relatively little to do with the running of Microsoft. He doesn't really understand the technical issues any longer, and cannot contribute any insight. His sole role is as a figurehead, making sales calls at head-of-government level because of the vanity of politicians to be photographed with him. As Tevye remarked in Fiddler on the Roof, "When you're rich, they think you know." If Gates goes, then there is a real chance of a settlement – but it should be remembered that Microsoft's aggressiveness is now in the second layer of Microsoft management and moving down to the third layer. Any settlement would be easier to achieve after his departure, but on humbling terms for Microsoft. It seems that a decision has been taken that Gates will not be a rebuttal witness, or the Microsoft propaganda machine would have been building a suitable image. These are very tense times for Microsoft, so some major moves are very likely – but not a quick settlement unless Gates goes and takes the blame. Any Gates exit decision could well turn on pressure from Mrs Gates. ®

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