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Microsoft proposal derided as "neither serious nor sensible"

The Justice Department says Microsoft's proposal to keep the company intact while accepting restrictions on its business practices would not prevent the company from abusing its monopoly.

Microsoft's proposal to keep the company intact while accepting restrictions on its business practices would not prevent the company from abusing its monopoly, the government said today.

Gartner analysts Michael Gartenberg and Neil MacDonald say the stage is set in the Microsoft antitrust case for nothing more than the continuance of the status quo.

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In a sharply worded filing with the judge overseeing the historic antitrust case, the Justice Department (DOJ) and 19 states disagreed with Microsoft's contention its antitrust misconduct does not warrant a breakup of the company.

"Microsoft attempts to elude the need for structural relief by pretending, contrary to the evidence at trial and this court's findings, that its conduct had no effect on competition," government lawyers wrote. The evidence showed "Microsoft's illegal conduct eliminated the serious threat that the (Netscape) browser and Java posed" to Windows.

"What remedy does Microsoft propose to undo the damage to competition caused by its past illegal conduct? Nothing."

The government's response relied heavily on Microsoft's statements during the trial and publicly that the breakup is destructive and unwarranted.

Following U.S. District Judge Thomas Penfield Jackson's April 3 ruling that Microsoft abused its monopoly in the operating system market to thwart competition in other markets, the government proposed breaking the software giant into two companies: one that sells operating systems and another that develops applications.

Microsoft responded by Redmond's own remedy: Special Coverage proposing business restrictions it would be willing to immediately accept so the case could move quickly to the appellate court. Among other things, Microsoft offered to sell a version of Windows 98 with Internet Explorer hidden from users and to give PC makers more freedom to customize the initial screen when a computer starts. It also offered to refrain from contracts compelling computer manufacturers and Internet service providers to favor Microsoft products.

But Microsoft would only be willing to accept these restrictions if Jackson threw out the government's breakup proposal and certain conduct remedies the software maker claims violate its intellectual property and copyright rights. Otherwise, the Redmond, Wash.-based software giant wants until December to review the government's recommendation, examine the documents and depose the experts trustbusters used in preparing their proposal.

The government concluded Microsoft's see full text: Read the government's rebuttal to Microsoft proposal would not eliminate the kind of dangerous tying of products that allowed it to effectively destroy Netscape as a competitor.

The government faulted Microsoft's reasoning regarding how its proposal resolved violations found by Jackson. Trustbusters attacked each of Microsoft's proposed conduct restrictions, arguing none went far enough.

The government also restated why breakup is warranted and in the best interest of consumers. "The restructuring will redress the harm to competition because it will put Office and Microsoft's other valuable non-operating-system products in a different company, so that they will be used in the future to benefit consumers and maximize their own profits, rather than strategically, at the sacrifice of profits, to protect the operating system monopoly," according to the filing.

While the government did not offer a timetable for concluding the remedy proceeding, it did attack Microsoft's plan as "a transparent effort to delay the determination and implementation of a remedy for its illegal acts as long as possible."

Government lawyers also used Microsoft's own arguments in court to deflect its contention that certain applications and the operating system could not work together without being integrated. In today's brief, government lawyers pointed out that throughout the trial and in public, Microsoft has argued that it treats independent software developers and its own application developers equally.

Government lawyers argued Breaking the giant: Special Coverage that Microsoft's organization into separate product groups is consistent with the breakup remedy proposed by federal and state trustbusters.

"It's unfortunate, but not surprising, that the government is trying to defend its extreme remedy proposal," said Microsoft spokesperson Jim Cullinan. "We don't believe there is any basis for these kinds of excessive actions, which would harm consumers, the high-tech industry and the economy."

"Apparently, Microsoft is still in denial," said Iowa attorney general Tom Miller. "It has yet to face up to the harm it has done, and it willfully misunderstands what the remedy is for. The purpose of the remedy is to restore to the marketplace the competitive dynamic that Microsoft has suppressed."

Microsoft's plan also failed to woo legal and industry experts, who questioned whether Microsoft could truly live up to the spirit of the restrictions or whether they would prevent future antitrust violations.

The government today took a similar view, arguing its breakup proposal would restore competition in the operating system market without subjecting Microsoft to years of intrusive supervision and regulation.

Glenn Manishin, an antitrust attorney with Patton Boggs in McLean, Va., said the government's plan "was the least intrusive approach available." Other industry proposals would have divided Microsoft into "baby Bills"--three companies with equal stakes in Windows, Office and other applications--or four operations broken off from distinct product groups.

The real drama may unfold next Wednesday, when Jackson holds a remedy hearing. The judge had indicated he wants to wrap up the proceeding then, but the severity of the government's proposal and Microsoft's request for more time changes that, say legal experts.

Jackson had wanted to fast-track the remedy proceeding, keeping it under 60 days. That could have meant a final ruling before June 1.

Dana Hayter, an intellectual property attorney with Fenwick & West in Palo Alto, Calif., said Jackson will likely grant Microsoft time to further review the government's remedy proposal. "But the request for six months is excessive, and I don't see the judge accepting it."

Hayter predicted the case would extend through the summer with a final ruling possibly around Sept. 1. "It's important, particularly for the appeals court, for Jackson to allow enough time for due process."

In his ruling, Jackson determined that Microsoft violated antitrust laws by leveraging its monopoly position in operating systems to capture the market for Web browsers. "The court concludes that Microsoft maintained its monopoly power by anti-competitive means and attempted to monopolize the Web browser market," Jackson wrote.

In its remedy proposal, the government asked for restrictions that exceed the case's evidence and affect products, such as Office, not covered in the trial. George Washington University Law School professor Bill Kovacic said Jackson has discretion under antitrust law to go beyond the browser if that is the best way to restore competition.

"But for the appeals court, the judge must show he gave adequate process," he said. "The further Jackson moves from the record, the less deference the appellate court owes him."

If Jackson gives Microsoft some of the extra time it wants, a grueling process would follow, say legal experts. The software giant would use every means possible to show the government's process for reaching its breakup recommendation was flawed and the proposal unwarranted.

Even if Jackson ultimately rules to break up Microsoft, he would likely stay--or put on hold--the penalty until the appeals process is completed, Manishin said. "But that would not prevent Jackson from imposing some kind of temporary relief."

The government is expected to eventually request temporary restrictions on Microsoft's business practices it believes are essential to restoring competition. The reasoning: the case would not likely reach the Supreme Court for another 24 months.