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DOJ allows some Microsoft changes to breakup proposal

The government will concede to some of the changes the software giant requested but will likely oppose others on concern the judge might have considered adopting them without reasonable input.

The government this morning will respond to the latest proposal to split Microsoft as the antitrust case slowly draws to a close.

The government will concede to some of the changes requested last week by Microsoft but is likely to oppose others on concern that U.S. District Judge Thomas Penfield Jackson might consider adopting them without reasonable input.

The government filing is yet another unexpected twist in the two-year antitrust saga, which pits the Justice Department (DOJ) and 19 states against Redmond, Wash.-based Microsoft. Jackson could rule at any time following Microsoft's response, expected Wednesday morning.

Many of the most serious changes proposed by Microsoft deal with the case's time elements. The software giant, for example, would like 12 months instead of four after Jackson's ruling to give a detailed breakup plan. While the government is asking Jackson to break Microsoft into separate operating systems and software applications companies, it has left the finer details of how to enact the split to Microsoft.

Sources familiar with the matter said the government Friday had been considering granting more time to Microsoft, which had argued that, with operations in 75 countries, it could not meet the deadline.

But the DOJ and states are expected to object to another proposed change that would allow the separated Microsoft companies to re-merge after four years, as opposed to the 10 dictated by the government's plan.

On May 26, the government filed its revised final judgment in the case, which asked for the two-way breakup and a number of restrictions of Microsoft's business practices. Microsoft's response struck a nerve with government lawyers.

Rather than combat the government's filing with its usual rhetoric and citations from other cases, "Microsoft for the first time took the government's proposal seriously," said University of Baltimore Law School professor Bob Lande.

Microsoft made many small clarifications throughout the government's plan, "some of which were very reasonable," Lande said. But other changes subtly weakened the proposal's clout, "and the government clearly wanted to keep Microsoft from pulling the wool over the judge's eyes," Lande added.

Legal experts also anticipate the government will use some of Microsoft's proposed changes against the software giant to justify imposing the harsh remedy.

"In some instances Microsoft outsmarted itself," said Rich Gray, an intellectual property attorney with Outside General Counsel Silicon Valley in Menlo Park, Calif. "There are repeated references to the value of being able to work with a single vendor that supplies both the operating system and the software applications."

The references reinforce Jackson's findings of fact and the government's overall contention that there exists what is called an applications barrier to entry protecting Microsoft's operating system monopoly, Gray said. By closely tying the operating system to other applications, such as Office or Excel, Microsoft Breaking the giant: Special Coverage can use its monopoly power to prevent new entrants from going to market. The government's breakup plan seeks to prevent this from happening, thus creating more competition.

Jackson had been expected to issue his final judgment as early as last Thursday. But in an eleventh-hour request from government lawyers, Jackson last week authorized one more round of legal briefs. The government's filing is expected by noon ET.

According to court transcripts, DOJ lead attorney David Boies made it clear the government was not looking for a chance to attack Microsoft but "just to deal with what they did, properly in some instances."

Jackson made it clear that after Microsoft's response Wednesday, he wanted to finally wrap up the remedy portion of the case.

"Will that bring it to a close?" Jackson asked Boies regarding the unexpected filings.

"That will bring it to a close, your honor," Boies responded.

Jackson on April 3 ruled that Microsoft violated two sections of the 1890 Sherman Antitrust Act. He is expected in his final judgment to accept the government's breakup proposal but is likely to stay, or hold back, such action during the appeals process. Other restrictions, which would limit Microsoft's business conduct, would go into effect 90 days later.

Microsoft is expected to appeal such actions, which could give an early indication about the trial's eventual outcome on appeal.