Bankers may have overreacted when Microsoft Corp. announced plans last year to purchase the manufacturer of the Quicken personal finance software program.

At the time, bankers were abuzz with speculation that Microsoft wanted to use Quicken, plus an on-line service that will debut later this year, to dominate the home banking market.

But banking lawyers said Microsoft's announcement Saturday that it was dropping the $2.3 billion transaction was expected. They said they always doubted that the deal would go through.

These same reservations might stymie any move by Microsoft into the home banking arena, attorneys said.

"Regardless of what Microsoft saw as the merits, they were going to have a hard time," said V. Gerald Comizio, a partner at Thacher, Proffitt & Wood. "Their lawyers were telling them this could be a long, drawn-out seven- or nine-year matter."

Similar antitrust battles against IBM and AT&T lasted almost a decade each, he said.

Microsoft's problem was the Justice Department, which appeared intent on keeping the giant from becoming the only player in the financial software market.

"Once the government gives its view that it will not support the merger, it gets ugly," said Mr. Comizio, who handles antitrust work.

Microsoft chairman Bill Gates conceded as much, telling reporters, "Progress toward realizing our goals could not wait until the government's lawsuit was resolved."

So just what gave the Justice Department so much ammunition in this battle?

Antitrust lawyers said the Clayton Act establishes a four-step process for evaluating the competitive effect of all mergers and acquisitions. At least two of those steps appeared to work against the deal.

First, both sides had to define the relevant market. That was the major stumbling block.

Justice had to prove that the relevant market was personal finance software. Microsoft, for its part, had to show that the market was broader, antitrust experts said. Rather than looking at personal finance software, the courts should examine the market for home banking services.

Justice appeared to have the upper hand in this dispute. Quicken controls 70% of the market already, and with Microsoft's help it could become the only game in town.

Also, alternative programs become irrelevant if every computer comes with Quicken installed as part of Microsoft Windows, the dominate operating system.

Second, the government had to determine the geographic boundaries for the product's market. In this case, that would be nationwide, a fact that neither hurt nor helped Microsoft's case.

Third, Justice uses a simple formula to compute market share. First, you take the market share of the company before the merger and square it. Then, you take the market share after the merger and square it. If the second number exceeds 1,800 and the difference between the two figures is more than 50, then Justice will raise anticompetitive objections.

Microsoft would break both those rules just in terms of home finance programs. Its score shoots up nearly 8,000 points to 8,464.

Finally, and this is where the two sides also would have haggled, lawyers must determine if there were any "offsets" that could affect the companies' actual domination of the market.

For example, the government wouldn't care if one company dominated a market if the barriers to entry were so low that others would move in if that company charged unreasonable prices.

That could have been Microsoft's saving grace, if it wanted to push the deal. The company could have argued that anyone can cheaply distribute home banking software that bypasses Quicken and Microsoft completely.

"So even if Microsoft tends to dominate service for someone who wants the entire package, that wouldn't stop a Citibank from coming up with its own, cheaper alternative," said Mike Greenspan, an antitrust lawyer at Thompson & Mitchell.

While Justice might have had the upper hand, Mr. Greenspan said he was "shocked" that Microsoft settled before next month's preliminary hearing. After that hearing, the software company could have better assessed its chance of winning, he said. "I'm very surprised Mr. Gates dropped it at this stage," he said.

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