Legal Experts Scrambling Before Microsoft Hearing

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May 22, 2000 (3:33 PM EDT)

Legal Experts Scrambling Before Microsoft Hearing

By Mary Mosquera,

The remedies hearing looming Wednesday has set off a flurry of last-minute court activity in the antitrust case against Microsoft.

Microsoft (stock: MSFT) filed a surprise brief Monday -- again arguing against a proposed breakup of the company -- and last week, the Association for Competitive Technology filed a brief in support of the embattled software empire.

Two other industry groups, the Computer and Communications Industry Association and the Software and Information Industry Association, filed briefs late Friday backing the government's breakup remedy.

"There is little dispute that this is the most important antitrust case of our generation, the case that will determine whether the structure of software markets -- and the progress of the 21st century economy -- will be based on competition or monopoly," said Ed Black, president of the Computer and Communications Industry Association, and Ken Wasch, president of the Software and Information Industry Association.

The Justice Department and 17 states proposed splitting Microsoft into an operating system company and applications company to encourage competition for Windows. It also outlined conduct prohibitions.

U.S. District Judge Thomas Penfield Jackson convenes the players on Wednesday in a remedies hearing.

The government's plan "provides a measured but effective way of dealing with these problems, and does so without the delay and administrative intrusion occasioned by a remedy that relies on conduct restraints alone," Black and Wasch said.

The groups supporting a breakup said that after more than a decade of antitrust enforcement scrutiny, Microsoft continues to use illegal means to short-circuit competitive challenges to its dominance. Behavioral requirements cannot contain Microsoft's exploitation of its applications barrier to entry -- its most effective weapon -- they said.

"Microsoft has shown remarkable inventiveness in devising new ways to leverage its market power to foreclose competition," the legal filing said.

Microsoft would use conduct restraints and subsequent proceedings as an opportunity for gamesmanship and obstruction, "annexing additional markets to its monopoly in the meantime, as it has done while the 1995 consent decree has been in force," the industry groups said.

The Association for Competitive Technology (ACT) said in its brief that a Microsoft breakup will harm business and customers. The industry group asked that information technology companies participate in the remedy phase because they are directly affected by what solution the judge imposes.

The government's structural remedy appears fairly simple at first blush, said Stanley Liebowitz, University of Texas economist, for ACT.

"As is often the case, however, the devil is in the details, and the details of the allocation of products, along with behavioral restrictions between the two companies, add up to a crushing remedy, with consumers shouldering some of the punishment," Liebowitz said.

Dividing the company would result in higher prices for products than are charged by Microsoft as a single entity, and the split would lead to the development of inferior application programs and operating systems as a result of the lost synergies found in a single company, he said.

"The government's proposed remedy is reckless in that it doesn't attempt to carefully compare costs and benefits," Liebowitz said.