The new trial judge in the landmark Microsoft antitrust case decided yesterday she had "broad discretion" to levy wide-ranging penalties against the company, a big setback for the software giant, which had sought to narrow the behavioural restraints that could be imposed.

In her first hearing since receiving the case last month, Judge Colleen Kollar-Kotelly also ordered Microsoft and the government to conduct a month of intense negotiations to settle the lawsuit before further trial proceedings begin. "I expect (both sides) to make all efforts, seven days a week, around the clock," Judge Kollar-Kotelly said. "It's my view that if everyone is reasonable and acts in good faith, a settlement can be reached." Microsoft had hoped a June appeals court decision which found the company guilty of abusing its monopoly position in computer-operating systems, but threw out an order breaking the company in two, and dismissed one of the charges in the case would prompt the new judge to limit the penalties the government could seek.

But Judge Kollar-Kotelly said Supreme Court precedent allowed her to consider any punishments including those that might not be directly tied to the violations of which Microsoft was found guilty. The judge said Microsoft might "chafe" at her decision, but the appeals court had given her specific guidance only on whether to impose a break-up; she had a free hand in imposing behavioural remedies.