The collapse of settlement talks in the Microsoft case has depressed the company's stock and set the stage for a starkly pro-government ruling by the presiding judge on Monday.
If U.S. District Judge Thomas Penfield Jackson releases a decision that condemns the software maker in the same uncompromising terms as nearly everyone expects, it is certain to embolden rivals and encourage a new spate of antitrust lawsuits by private litigants.
So why didn't Microsoft (MSFT) chairman Bill Gates settle this case and relieve his ongoing antitrust migraine?
The mostly likely reason: Gates has been there before. It didn't work.
An earlier settlement Microsoft had with the Justice Department backfired.
The 1994 deal lured Microsoft into a false sense of security. According to one lawyer close to the company, Microsoft's legal department truly believed it had ended its antitrust troubles for good.
But Department of Justice lawyers saw it differently, and sued the Redmond, Washington-based firm in late 1997 for allegedly violating the consent agreement.
Jackson agreed, and his preliminary ruling was strongly anti-Microsoft. That DOJ effort ended in failure, though, after an appeals court unceremoniously overturned Jackson's ruling.
"In antitrust law, from which this whole proceeding springs, the courts have recognized the limits of their institutional competence, and have on that ground rejected theories of 'technological tying,'" the court said.
In fact, the panel ruled, courts should be "deferential to entrepreneurs' product design choices."
Microsoft clearly is hoping the same appeals judges – Republican appointees still command a slender majority on the DC Circuit Court of Appeals – will see things its way again.
"We absolutely believe that the judicial system will ultimately rule in our favor," Gates told the New York Times on Sunday.
The abrupt end of settlement talks before Judge Richard Posner, who is acting in a private capacity, should come as little surprise.
Every day during the trial's lunch recess, Microsoft general counsel William Neukom descended the courthouse steps to tell reporters that the Windows operating system represented the company's "crown jewels" and the company would not accept any deal that would tarnish them.
An internal Microsoft memo leaked to the press last spring was even more direct.
"Remember that press coverage was quite negative in connection with both of our prior antitrust cases," it said. "In both cases, however, we won in court, and did so by unanimous decisions of the Court of Appeals."
A similar sequence of events happened in a private antitrust suit against Intel Corp.
The lawsuit began in November 1997 when Intergraph Corp, a Huntsville, Alabama maker of graphics workstations, sued Intel for alleged violations of antitrust law.
The suit claims the microprocessor giant wielded its monopoly to pressure Intergraph into settling a patent dispute. "Intel abused its monopoly power by engaging in a series of illegal coercive actions intended to force Intergraph to give Intel access to the patents," Intergraph claimed.
The surprise was that the tiny workstation manufacturer won. Their lawyers managed to convince Judge Edwin Nelson of Intel malfeasance, and he sided against the mammoth chipmaker in an April 1998 opinion.
Whoops. The celebration turned out to be premature. The appeals court overturned the lower court's verdict.
It lifted the injunction and said that Intergraph probably wouldn't win its suit in the end. Federal law "does not convert all harsh commercial actions into antitrust violations," the judges ruled. "Unilateral conduct that may adversely affect another's business situation, but is not intended to monopolize that business, does not violate" the law.
