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Microsoft gets in last word before penalty hearing

In an unexpected court filing, the software giant reiterates its position against a proposal to split the company in two.

In an unexpected court filing today, Microsoft reiterated its position against a proposal to split the company in two.

The legal brief follows Wednesday's scheduled government filing, in which trustbusters ripped into Microsoft's May 10 statement that a breakup is unwarranted.

Today's filing could give Microsoft the last word before U.S. District Judge Thomas Penfield Jackson meets with both sides Wednesday, legal experts said.

"The government's response to Microsoft was thoughtful and well-reasoned--better than I expected," said University of Baltimore School of Law professor Bob Lande. "Maybe Microsoft didn't want to give the government the last word."

In today's brief, Microsoft argued that rather than looking at the best interests of consumers, the government is seeking to punish the Redmond, Wash.-based software maker for its actions against competitors. Microsoft contends that based on comments during a legal proceeding five years ago, the government is well aware that breakup would be harmful to consumers and the software company.

Specifically, Microsoft argued that in January 1995, during the Tunney Act proceedings for its 1994 consent decree, the government told the court that breaking up Microsoft was not in the government's interest and could be potentially damaging to the economy. The software maker says this is inconsistent with the breakup proposal and that the government's previous position is the correct one.

"Microsoft's filing relies on statements made before Microsoft had engaged in the numerous, illegal acts found by the court in the pending case," a government source replied. "That Microsoft repeatedly violated the law after the earlier proceeding demonstrates why structural relief is necessary."

Microsoft also argued that the government failed to cite any case in which a company was forced to split. Rather, the government relied on cases where breakup was voluntary after a judge ruled the company violated antitrust law. Microsoft heavily attacked the government's use of the AT&T case, in which the communications giant was split, arguing that the goal there was to remove government regulation rather than add to it, as the proposed Microsoft split would do.

see full text: Read the government's rebuttal to Microsoft Microsoft also attacked as "insulting" the government's contention that the company could not be trusted to obey conduct remedies that restrict its business practices. Last week, the government argued that Microsoft is in denial over the case. Microsoft lobbed back with its own accusation of denial, faulting the government for ignoring a June 1998 appeals court decision that cleared the way for tying Internet Explorer with Windows 95 and 98

In its May 10 response to the government's proposal, Microsoft filed six documents, including one filing that asked the court to dismiss the government's breakup request. Today's filing reiterates that request.

Microsoft previously proposed restrictions on its conduct, such as agreeing to give PC makers more freedom to customize the first screen when a computer starts, selling a version of Windows with Internet Explorer hidden, and refraining from contracts that compelled PC makers and Internet service providers to favor Microsoft products.

But the government argued that anything less than a breakup isn't enough.

"Microsoft contends that there was not a proven connection between its illegal acts and its continued market dominance in operating systems and, thus, that the 'only appropriate remedy' is a narrow, backward-looking order that would enjoin certain aspects of the illegal conduct in which it engaged in the past," government lawyers wrote last week.

Redmond's own remedy: Special Coverage The issue of monopoly maintenance weighed heavily in Microsoft's argument today. The software giant says that because it did not illegally obtain its monopoly, breakup is excessive.

"That the monopoly position was gained legally has nothing to do whether the breakup remedy is warranted or not," said Rich Gray, an intellectual property attorney with Outside General Counsel Silicon Valley in Menlo Park, Calif. "It's a legal monopoly as long as you do nothing illegal with it or illegal to maintain it. There is a clear and unequivocal separate violation, which is the illegal maintenance of monopoly."

Gray called Microsoft's argument a red herring and said he did not expect Jackson to wholesale throw out the breakup recommendation.

Lande also predicted that Jackson would reject Microsoft's request for the breakup proposal to be dismissed.

Other arguments also did not ring true, Lande added. "The consent proceeding has nothing to do with this case, and Microsoft must know that," Lande said. "So much time has passed between the proceedings, and there is a whole new record before the court."

Legal experts both praised and faulted Microsoft for today's filing. "I don't blame them for hitting it as many ways as they can, but procedurally, trying to single out that particular remedy is more of a PR ploy than a legal tactic," Gray said.

In addition to its proposal to break up Microsoft, the government has proposed restrictions on the company's business practices.

Breaking the giant: Special Coverage On Wednesday, the government and Microsoft are scheduled to meet before Jackson for the first time since he told both sides he wanted to fast-track the remedy portion of the case and issue his ruling by June 1. Wednesday's hearing had been tentatively planned as the last in the case, but Jackson is now expected to grant Microsoft's request for more time to review the government's remedy proposal.

That could extend the case well into the summer, with varying predictions on a final judgment. Glenn Manishin, an antitrust attorney with Patton Boggs in McLean, Va., predicted that Jackson would rule by July 4. But George Washington University Law School professor Bill Kovacic said Sept. 1 is more likely.

Wednesday's hearing is expected to reveal much about Jackson's thoughts on the case. The more time he gives Microsoft to review the government's proposal, the more likely he is to go for breakup rather than restrictions on Microsoft's business practices, Kovacic said.

Lande bets that Jackson, who is a Reagan appointee, "will not go for breakup. I just don't see the judge doing this."

Even if Jackson ultimately ruled that Microsoft should be broken up, he likely would delay implementing such action until after the case is appealed.