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Microsoft preps final argument in antitrust case

The software giant responds to the government for the last time before a federal judge rules in the landmark antitrust trial.

WASHINGTON--Microsoft today responds to the government for the last time before a federal judge rules in the landmark antitrust trial.

That ruling, which could come as early as tomorrow, sets the stage for a potentially drawn-out appeal and brings the two-year trial to an abrupt end.

The Redmond, Wash.-based software giant is expected to once again argue a government breakup proposal is extreme and excessive based on the evidence presented in court. Microsoft also is expected to claim U.S. District Judge Thomas Penfield Jackson failed to give the company "due process" when he refused a request granting more time to review the government's breakup proposal.

The legal brief is due today and could be submitted after U.S. stock markets close at 1 p.m. PT.

On Friday, the government filed its final remedy plan, or revised proposed final judgment. The Justice Department and 17 of 19 states would like to break the software giant into two companies--one controlling the company's Windows operating systems, the other software applications--and impose additional restrictions on the Windows operation's business practices.

Assuming Microsoft, as expected, appeals the case, Jackson would likely stay--or delay--breakup during the appellate process. But the government would like additional conduct remedies imposed within 90 days.

Jackson could issue his final judgment as early as tomorrow, 60 days from his ruling and the arbitrary period he set up for concluding the remedy process. Many legal experts and, privately, Microsoft and government sources anticipate a ruling this week.

The government's proposal is ready to sign, if Jackson so wishes, and to be entered as the final judgment in the case. Glenn Manishin, an antitrust attorney with Patton Boggs in McLean, Va., last week predicted the judge would wait so he could write an opinion to accompany the final judgment.

"But I now think the judge will sign the order and put nothing else in the record" that could be used by Microsoft on appeal, he said.

Microsoft is so certain Jackson could rule, it postponed Forum 2000, the long-anticipated event where chairman Bill Gates had been slated to unveil the company's Next Generation Windows Services (NGWS) strategy.

Breaking the giant: Special Coverage While Microsoft rescheduled Forum 2000 to June 22 from June 1, the event's future is uncertain. Gates had been expected to detail how NGWS would take Windows 2000 to the "PC-plus" era, laying out a strategy for non-PC devices and tighter operating system integration with other Internet products and services.

"But the plan may have to be scrapped or radically changed," said International Data Corp. analyst Roger Kay.

While the two-way split could have a devastating effect on NGWS, Jackson during a court hearing last week opened the door to a harsher three-way breakup, after probing government lawyers about a proposal submitted by two Washington-based trade groups.

Privately, government sources are ecstatic over the courtroom exchange, which makes their proposal appear moderate compared to the three-way split plan.

By the end of the proceeding, Jackson's intentions, while subtly delivered, were clear. In requesting a "clean copy" of the government's remedy proposal, he asked for changes in form, not substance. The message was not lost on government lawyers, who chose to stick with a two-way split.

The distinction is important because Jackson ended Wednesday's hearing suddenly, cutting off a Microsoft request for time to review the government's proposal with "I'm not contemplating any further processes."

If the government were to have come back with a radically new proposal without adequate time for Microsoft to respond, the software company could have had a stronger claim on appeal that Jackson did not give it due process in reviewing the government's breakup plan, Manishin said.

Still, Microsoft plans to add "due process" to its appeal, said Microsoft general counsel William Neukom outside a Washington courthouse last week. "At the end of the process, we are confident that we will prevail," he predicted.

Microsoft had asked for as much as six months to review government documents used in preparing the breakup proposal as well as depose government expert witnesses to bring to court for additional testimony.

"Essentially, they wanted to retry the case, and the judge had heard enough," said Rich Gray, an intellectual property attorney with Outside General Counsel Silicon Valley in Menlo Park, Calif.

Jackson's refusing to grant Microsoft more time stunned both sides, but the software maker had prepared for the possibility. Just after Jackson announced that there would be no more proceedings in the case, Microsoft filed an "Offer of Proof" contesting it was not given enough time to address the government's remedy proposal and covering what issues it would have addressed in an extended remedy proceeding.

The government attacked the action in its Friday filing. Microsoft's "eleventh-hour Offer of Proof appears to be just a cynical play calculated to raise diversionary issues on appeal," wrote government lawyers, who also faulted Microsoft for withholding information from the court about what it would seek in an extended remedy proceeding and what witnesses it might call.

But George Washington University School of Law professor Bill Kovacic believes Microsoft already has a strong due process claim on appeal.

"I think Judge Jackson is taking a serious risk here," he said. "To not even give the company the chance to depose government witnesses that provided affidavits or present additional witness from its own experts, to not engage in a serious discussion on the merits of breaking up one of the world's largest and most significant commercial enterprises, to say, 'I don't want to hear any more about it,' is very risky."