The Justice Department is looking favourably on a settlement proposal in its landmark antitrust case against Microsoft, according to reports. But as a court-imposed deadline to deal nears, will it be able to gather the support it needs?

Microsoft and the Justice Department reportedly have made significant headway toward settling the landmark antitrust case before a court-imposed Friday deadline.

Officials at the US Justice Department met state attorneys general in the case to discuss a settlement that would allow computer manufacturers wider latitude to load non-Microsoft software on the machines they sell and give other software companies greater access to the code behind Microsoft's Windows dominant personal computer operating system, Reuters reported.

Justice department officials were said to be comfortable with the settlement terms, according to Reuters, but over the next two days they will have to persuade the 18 state attorneys general, many of whom have been pressing for more drastic remedies against Microsoft.

But reaching a final agreement could depend on whether both sides can agree on minute details that would restrict Microsoft's business practices in the consent decree that must be approved by US District Judge Colleen Kollar-Kotelly.

The 18 states, which brought the case with the Justice Department, also would have to sign off on the agreement. Rumblings from within the states' camp indicate they might not be in agreement with the proposal, said sources familiar with the matter.

In fact, the Justice Department and Microsoft may have largely worked out the tentative agreement without the states, which apparently are reviewing the proposal.

Both sides were mum on any possible agreement, tentative or final. "We don't have anything to say today," said Bob Brammer, spokesmen for Iowa Attorney General Tom Miller and one of the leaders of the states coalition. "I can't comment on any developments."

The Justice Department could not be reached for comment. "We're working very hard in the settlement process, but we're not going to comment on any aspect of the discussions," said Microsoft spokesman Vivek Varma.

The Department of Justice and 19 state attorneys general sued Microsoft in 1998, charging it with abusing its monopoly in the OS market to crush rival Netscape Communications in the emerging browser market.

In April 2000, Judge Thomas Penfield Jackson ruled that Microsoft violated two sections of the 1890 Sherman Act. Two months later, Jackson ordered that Microsoft be broken into separate operating system and software application companies. A federal appeals court vacated that order in June.

The number of states in the suit was reduced by one when New Mexico dropped out in July.

Legal experts cautioned that settlement discussions can collapse at any time and that the current proposal is likely one of many examined by the government. Leaks about settlement so close to a court-imposed deadline also could indicate the parties may be divided, with some participants hoping to sabotage the discussions.

This wouldn't be the first time settlement appeared within reach only to later collapse unexpectedly. Negotiations mediated by esteemed federal Judge Richard Posner collapsed in April 2000 with a Microsoft settlement offer on the table.

A series of leaks about the discussions later attributed to the states preceded the collapse of settlement talks. Eric Green, a law professor from Boston University is mediating the current round of discussions.

"This mediator, knowing full well the prior mediation collapsed at least in part because of the dissatisfaction of the states to the proposed will work very hard to keep that from happening again," said Rich Gray, a Silicon Valley-based attorney closing following the case.

But keeping the states in line may be difficult, particularly if the Justice Department is ready to settle on its own, legal experts warned. In September, the Justice Department unexpectedly took breakup and the tying claim--whether Microsoft illegally integrated Internet Explorer into Windows 95 and 98--off the table. Sources close to several of the states said they were not consulted beforehand.

Days later, California and New York issued a joint press release warning they would independently continue the case. Any or all of the states could continue to pursue the case even if the Justice Department and Microsoft reach an agreement later approved by Kollar-Kotelly.

Last week, the states hired Brendan Sullivan, with the law firm of Williams & Connolly here, to lead their portion of the case.

"The hiring of Brendan Sullivan is interesting timing, particularly if the feds have reached a settlement," Gray said. "That strengthens the states hand in a settlement and the option they could go it alone."

In a statement announcing the states had hired Sullivan, California Attorney General Bill Lockyer reiterated the states were prepared to go to trial if necessary to protect consumers and businesses.

Should federal or state trustbusters reach a settlement with Microsoft, Kollar-Kotelly would have to review the agreement under the Tuney Act. Sullivan would represent the states during that hearing.

"If some or all of the states are not in agreement with the Justice Department and Microsoft, "The states will say that this is a sellout and wimpy settlement," said Bob Lande, an antitrust professor with the University of Baltimore School of Law.

Kollar-Kotelly's inexperience with the case could work to the advantage of settlement, Lande warned.

"You have a judge that doesn't know the facts of the case yet and who said in the strongest possible terms, 'Please, please, please settle,'" he explained. "Forgetting the merits of the case, it would be easy for her to rubber stamp whatever the DOJ and Microsoft comes up with. If the states want to howl, well, too bad."

Kollar-Kotelly took on the landmark antitrust case in late August. In its June ruling upholding eight separate antitrust claims against Microsoft, a federal appeals court removed US District Judge Thomas Penfield Jackson from the case.

Ultimately, Lande believes a Microsoft-Justice Department settlement could be approved even without the states.

"The easy way out is to rubber stamp, and I'm afraid the judge just might do that," he said. The states must be thinking the same thing, too, so this puts a lot a pressure on them, particularly the states that aren't as gung ho. So we may see some states dropping out."

In the event some states continue without the Justice Department, there is no settlement reached or no agreement is approved by Kollar-Kotelly a remedy hearing would likely follow. One is tentatively scheduled for March.

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