A bruising antitrust hearing in Brussels two weeks ago has left Microsoft and its agents expressing even more interest in a settlement, but it's difficult to see how the company - notoriously and self-righteously intransigent in these and so many other situations - can bring itself to offer enough for the European Commission to call off its dogs. Significantly, this morning's Wall Street Journal carries an item attributing a desire to cut a deal to sources on both sides. One should however bear in mind that the Commission is by definition in favour of a settlement - it has told Microsoft what it wants, and it is Microsoft's role to either fight or agree. So it's not hard to find readiness to talk on the Commission side.

We at The Register would therefore read the 'deal' noises as indicating that Microsoft is now at the sweet reason 'we want to talk' phase of the antitrust loop. We've seen it before, and from Microsoft's perspective it worked splendidly in the US antitrust action, and indeed all those years ago when Microsoft used the consent decree to steal the DoJ's lunch. It may not, however, work this time.

This month's hearing was Microsoft's final opportunity to explain itself prior to Europe moving on to remedies. The Commission issued its final statement of objections in August, saying that it proposed to compel Microsoft to open up its server interfaces and unbundle Media Player from Windows. The hearing gave Microsoft an opportunity to argue against these measures, but testimony from, among other, RealNetworks, Novell and Sun made the situation worse rather than better, holing the company's case in several key areas.

RealNetworks mounted a demonstration showing Windows XP Embedded running perfectly happily on a laptop without Windows Media Player, and also showed how its own Real One player could be used with XP Embedded. At this point in the classic Microsoft integration process this is not in itself a remarkable thing to demonstrate - WMP 9 might be something you can't get off once you've installed it, but it most certainly did not ship with the original XP - but it did provide a signpost for regulators showing how simple it would be for Microsoft to produce a version of XP without Media Player.

Microsoft's counter-argument here is that computers are evolving into digital jukeboxes and that, for example, it's only doing what Apple is doing with the Mac. This argument however fails to differentiate between the need for a modern operating system to provide music playing facilities (which is surely a reasonable thing to require of it) and Microsoft's use of such base facilities as a jumping-off point for selling other services.

The Media Player issue is the easier one for regulators to get their heads around, but the question of what to do about Microsoft's activities in the server arena is far more important, and far trickier, for the Commission. The current case was initiated by a Sun complaint that Microsoft was using its control of the client in order to establish a similarly dominant position in servers. Microsoft argued in the hearing that having to reveal more information about its interfaces than it does already would amount to "forced divestiture", but it came under more pressure over what it does with the 'IP crown jewels' it keeps to itself.

Novell, for example, showed how Microsoft had effectively locked its NDS single sign-on system out of the Windows client platform with the introduction of a set of new 'stability' features in Windows 2000. We're sure you all remember, but here's Microsoft VP Brian Valentine describing them at WinHEC 99:

"Another thing we've done is System 32 lock down. You can lock it down, you can say applications cannot go and mess with my system files. And, in fact, if somebody goes and overrides a DLL, we have signed DLLs that are system files, and system DLLs are now signed DLLs, so when the system reboots, we will actually see that a DLL is trying to be loaded as a system DLL, it's not a signed version, we will actually go get the signed version from DLL cache we have on the system. If it's not there, we will get it off the CD or some server based install location."

This early instance of Microsoft's move into self-repairing systems had from Novell's point of view the unfortunate side-effect of making DLLs that were key to the company's single sign on product 'off-base.' They were cryptographically signed, and could only be accessed using a private key which was held by Microsoft. Effectively, Microsoft had extended the security fence within which third party developers could not go far enough to kill Novell's product.

Alongside this, the hearing heard evidence of Microsoft's slowness or outright failure in sharing information necessary for interoperability, and was presented with further examples of the 'bait and switch' tactics exposed in the Bristol Software antitrust case.

What happens next is the €64,000 question. Microsoft clearly has not been able to provide the Commission with many convincing reasons why its objections should not stand, and therefore the Commission now moves towards the construction of remedies while Microsoft attempts to negotiate. It is The Register's understanding that several companies have been approached to produce proposals for these. That does not mean that the Commission will automatically accept these proposals, but the odds are in favour - all other things being equal - of it coming up with a far, far tougher set of measures than were implemented in the US.

Consider where the baseline is - if the Commission were prepared to accept Microsoft's contention that the remedies implemented in the US were perfectly adequate, then it would have accepted them by now, and it has not. So we are likely to be looking at some form of unbundling of Media Player, with the associated consequence of Microsoft being forced to curtail further integration activities at this kind of level. And given that something considerably more dramatic has to be done in terms of server interfaces, Microsoft is likely to be made subject to broad-ranging disclosure requirements (as opposed to the bijou and not-much-loved licensing scheme in the US) that will be policed ruthlessly by Sun and its agents. That likelihood, incidentally, could turn out to be one of the more crucial differences between the US and EU remedies. In the US Microsoft remains in control of the disclosure process, with its adversaries complaining to little obvious effect. In Europe Sun et al will not as such be in the driving seat, but Microsoft is far more likely to face the rules being written externally on an ongoing basis.

But a little earlier we suggested Europe would be tougher "all other things being equal", and this may not turn out to be the case. A comparatively tough settlement in Europe, with Microsoft claiming "forced divestiture" of its IP and markedly different versions of the Windows client shipping in Europe would surely cause political problems. Historically the European and US antitrust authorities have avoided having to contradict one another too hard, and have thus avoided a complete breakdown of the relationship, and any trade wars deriving from such a breakdown. The possibility of this happening now, however, will be a factor in the Commission's decision-making, whether or not Microsoft decides to howl 'unfair' and call Washington. A little DoJ sabre-rattling from last year makes it clear this could be a live one. ®