MICROSOFT JUDGE NAMES MEDIATOR; SURPRISE MOVE RAISES CHANCE OF SETTLEMENT.

Byline: Ted Bridis Associated Press 

The judge in the Microsoft antitrust trial appointed a mediator on Friday to oversee settlement talks between the government and the software giant, a surprise move dramatically increasing chances for an out-of-court agreement.

U.S. District Judge Thomas Penfield Jackson appointed Richard Posner, the chief judge for the 7th U.S. Circuit Court of Appeals in Chicago, leaving it up to Posner to schedule any talks.

Microsoft called the move ``a very positive step toward resolving this case.''

Both sides indicated Friday they will work with Posner, a judge who was appointed to his post by President Reagan, as was Jackson. Microsoft spokesman Jim Cullinan said the company wants to ``reach a fair and reasonable solution.''

The Justice Department called Posner ``a highly respected jurist'' and said the department ``has always been willing to seek a settlement that would promote competition, innovations and consumer choice.''

Jackson, who ruled two weeks ago Microsoft is a monopoly that stifled competition and hurt consumers, has encouraged the two sides to settle. He structured his verdict to come in two phases, in an apparent effort to push lawyers toward the bargaining table.

In a second surprise decision Friday, Jackson also invited Harvard law professor Lawrence Lessig - whose previous courtroom involvement with Microsoft was rejected by an appeals court - to advise him.

Microsoft had successfully challenged the judge's appointment of Lessig as a ``special master'' to look into important technical issues. The company accused him of bias and cited an old e-mail in which Lessig told Netscape Communications Corp. he had ``sold my soul'' by installing Microsoft's Web browser software.

That court fight focused on Microsoft's decision to give away its browser as part of its dominant Windows software, a move the government said was an illegal move to crush demand for rival software from Netscape.

In the broader battle, Microsoft and the government have met three times in face-to-face negotiations since the trial started in October 1998. They remain far apart on crucial issues despite recent statements they are open to settlement.

In remarks this week, Microsoft Chairman Bill Gates appeared willing to negotiate some points, but government lawyers bristled at restrictions he apparently wanted to impose.

Gates said, for example, that Microsoft won't surrender its right to decide which features it can add to Windows. He also indicated his opposition to a public auction of the software code for Windows, the operating system that runs most of the world's personal computers.

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Photo: (color) POSNER