Microsoft is in the digital version of the last chance saloon. Over the weekend the judge mediating between the Seattle-based colossus and the US government confessed that differences between the two sides over how to break its monopoly grip "were too deep-seated to be bridged". Unless Microsoft offers much deeper concessions then nemesis will follow: the company will either have severe legal constraints put on it or else be broken up into smaller legal entities or "Baby Bills".

Microsoft is a brilliantly successful company and most of its customers seem happy with the way it popularised desktop computing and established de facto standards both on operating systems (of which it has over 90% of the world market) and popular software like Word and Excel where its market share is similar. But it is also a monopoly and has, as the Justice department has found, exploited its position to attempt to snuff out competition - as when it struck exclusive agreements with internet service providers to display only Microsoft's browser. Mainly as a result of this, rival Netscape's market share (once 80%) has slumped to under 27% and Microsoft's has soared to 77%. Microsoft has offered some concessions - like allowing other software makers to see more of its key Windows code - but the mediator has rightly rejected them. Meanwhile Microsoft turned down overtures from the justice department for Microsoft to develop a version of its Office software for the (free) Linux operating system.

Unless - which is possible - there is an eleventh hour agreement, Microsoft is likely to appeal against the verdict thereby keeping it in the courts for another few years while business goes on as usual. But if Microsoft is guilty of monopoly abuse then one consequence is that its prices - and therefore profits - have been far too high. (It makes a net 40% return on sales.) These "excess" profits have financed strategic investments in key areas like cable television and wireless. Without that money, Microsoft's strategy might have been more modest, leaving more opportunities for competitors. In natural justice it surely ought to "repay" profits earned from an abuse of its monopoly power. It may prove too difficult to backdate any restitution. But, if Microsoft were told that from now on excess profits will be paid back with heavy interest, it might concentrate its mind most singularly. We might even get a settlement by Friday.