Court Awaits Microsoft's Remedy Proposal

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May 10, 2000 (10:19 AM EDT)

By Mary Mosquera,

Microsoft will outline the reasons it believes the government's breakup proposal is inappropriate when it files its rebuttal to the Department of Justice remedy later today.

Microsoft (stock: MSFT) was trading down 1 7/16, to 66 3/8, in early afternoon trading ahead of delivering its brief to a federal judge in Washington.

The U.S. government and 17 states urged U.S. District Judge Thomas Penfield Jackson to split Microsoft into an operating system company and an applications company in its proposed remedy April 28. The government plan runs over 10 years, with conduct restrictions for three years. Two of the 19 states involved in the case, Ohio and Illinois, said they preferred to evaluate the effectiveness of the conduct limitations after three years before deciding on a breakup.

Microsoft is expected to offer a remedy proposal reflecting offers made in the failed settlement talks. It would focus on business practice restrictions on products that were the subject of the trial.

"We will outline why we believe the government's proposal is inappropriate, overreaching, and harmful to consumers, the high-tech industry, and our economy," said Microsoft spokesman Jim Cullinan.

Microsoft, Redmond, Wash., said the government's proposal reaches far beyond the issues of the trial. Five experts backed the government proposal, saying that without a breakup, Microsoft would continue leveraging its monopoly in such areas as server and PDA products.

On Tuesday, Assistant Attorney General for Antitrust Joel Klein told an audience at the University of California-Berkeley that the fears expressed about a Microsoft breakup are no different than those expressed when AT&T was broken up in 1984.

Then as now, Klein said, the Justice Department challenged AT&T practices designed to maintain and extend its monopoly in a critical market -- telephones. The government similarly sought a structural remedy because it was the most effective and efficient means of protecting competition, he said.

"Dire predictions were made that structural relief would kill the goose that laid the golden egg," Klein said. "We now know, of course, that the divestiture in the AT&T case, far from making things worse, has unleashed unprecedented competition, innovation, and consumer benefit."

Antitrust enforcement remains focused on maintaining competition and preventing the traditional anti-competitive techniques that businesses with market power have long used to maintain and extend that power, he said.

"When it comes to antitrust enforcement, the new, new thing isn't so new after all," Klein said.

The Department of Justice will rebut Microsoft's proposed remedy on May 17. Jackson, who has said he wants a speedy remedy stage, convenes the parties in court May 24.

Microsoft will likely ask the court to extend the process to hear evidence from expert witnesses to deliberate over the government's proposal.