Sat, Sep 08, 2001 page24

• US Justice Department changes tack

  ANTITRUST Microsoft's concerns about a breakup are over, but computer firms may soon feature competing software applications alongside the new WindowsXP

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  US and state antitrust enforcers said they won't seek a breakup of Microsoft Corp and instead will ask a federal judge to curb the No. 1 software company's business practices.

  The US Justice Department said the government will seek "prompt, effective and certain relief for consumers" in the wake of an appeals court ruling that Microsoft illegally defended its Windows monopoly. That might include giving computer makers more freedom to hide access to Microsoft programs on the new Windows XP system and to feature competing software.

  The announcement was mixed news for Microsoft, ending any lingering concerns about a breakup while leaving room for significant business-practice restrictions. An appeals court had all but ruled out the possibility of splitting up the company.

  

  Bill Gates laughs as he answers a question following his presentation at the conference on Computer-Human Interaction 2001 in Seattle. The George W. Bush administration, reversing the Bill Clinton White House legal strategy against Microsoft, told the software manufacturer it no longer seeks to have the company broken up.

  PHOTO: AP

  "We thought it made more sense strategically to zero in on the remedy that's possible," said Iowa Attorney General Tom Miller, leader of the 18 state attorneys general suing Microsoft.

  Antitrust enforcers said they will model their proposals on restrictions once imposed as interim steps by the original trial judge. That would require Microsoft to let computer makers install a version of Windows without the Internet Explorer browser and to provide software developers with more access to the code needed to make programs run on the operating system.

  In seeking to impose those restrictions, and possibly others, the Bush administration signaled it is taking a hard line in a case inherited from former President Bill Clinton's Justice Department, antitrust experts said. Microsoft once said the interim remedies would be "devastating." Microsoft shares fell US$1.72 to US$56.02, or 3 percent. They dropped as low as US$55.95 shortly after the Justice Department statement.

  After the appeals court decision, "Microsoft was safe from the kind of drastic relief that the Justice Department had originally considered," said Louis Kokernak, senior equity strategist at Martin Capital Advisors, which owns 30,000 Microsoft shares in its US$50 million portfolio. Nonetheless, "they may still have to pay the piper in some fashion." Microsoft spokesman Vivek Varma declined to comment except to say, "We remain committed to resolving the remaining issues in the case." Settlement talks between the two sides have stalled after one meeting.

  Antitrust officials said they don't expect to get new business practice restrictions in place until after the scheduled Oct. 25 release of Windows XP. The remedy proceedings will likely take several months and would have lasted much longer had the government sought a breakup, a senior US antitrust enforcer told reporters.

  Officials reiterated concern about the newest versions of an operating system that powers 95 percent of the world's personal computers. XP bundles a host of new applications into Windows, including instant messaging, an Internet telephone and software to download digital music and video.

  Critics argue that Microsoft is bundling these features into Windows to consolidate its monopoly, just as it included Internet Explorer in earlier versions of Windows.

  "We're very concerned about XP, very concerned that Microsoft may have repeated the kind of violations in the case right out in front of us," said Iowa's Miller.

  Microsoft is counting on XP to boost sales as the holiday season approaches.

  Miller suggested that the states might take an even harder line against Microsoft than the Justice Department. He refused to rule out the possibility the states would press other remedy proposals, such as requiring Microsoft to let several competitors license Windows and make competing operating systems.

  Such a structural remedy isn't likely to be contemplated by the Justice Department, which said it would focus on "conduct- related provisions." For the states, "the only thing off the table is a breakup of the company," Miller said. Justice Department officials predict the proceedings will last several months.

  Forced licensing of Windows could be used as a "crown-jewel provision" that would be triggered if Microsoft didn't abide by the conduct restrictions, said New York antitrust lawyer Stephen Houck, who was the state's lead counsel in the Microsoft trial.

  Still, some of Microsoft's critics weren't satisfied.

  Restricting the software giant's business practices won't curb its illegal behavior, said Ed Black, president of the Computer & Communications Industry Association, which represents companies such as AOL Time Warner Inc.

  "Microsoft has demonstrated time and again that through their sheer power and immense wealth they can easily evade behavioral remedies designed to constrain their unlawful activity," Black said.

  The government also said it will drop efforts to prove that Microsoft illegally tied its Internet Explorer Web browser to the Windows operating system. The appeals court had set aside that finding and ordered new hearings on that issue as well.

  The unanimous June ruling from the US Court of Appeals for the DC Circuit marked a turning point in the three-year-old lawsuit. The court set aside an order splitting the company in two, while upholding a trial judge's findings that Microsoft squelched competition.

  "The department believes that it has established a basis for relief that would end Microsoft's unlawful conduct, prevent its recurrence and open the operating system market to competition," the Justice Department said.

  In setting aside US District Judge Thomas Penfield Jackson's breakup order, which would have split Windows from the rest of the company, the appeals court said the trial judge hadn't provided sufficient justification. While not ruling out a breakup altogether, the court set tough standards for justifying such a split in the new remedy proceedings.

  Government antitrust enforcers studied the appeals court's guidance on when a breakup would be appropriate in deciding whether to continue to seek that step, a senior Justice Department official told reporters.

  "They are doing what one would have predicted they would do and what in fact they probably should do," said Mark Schechter, a Washington antitrust attorney who negotiated a settlement with Microsoft when he was a Justice Department attorney in 1994. The breakup "was a flier to begin with." The Justice Department said it will ask Colleen Kollar- Kotelly, the new judge in the case, for restrictions on Microsoft's conduct similar to those Jackson imposed as interim measures.

  Jackson ordered Microsoft to give computer makers a choice of installing a version of Windows that doesn't include the Internet Explorer browser. His order also included requirements that Microsoft give all software developers access to the code needed to make programs run on Windows.

  Jackson, removed from the case for talking about it with news reporters, also directed the company to tell top computer makers what it charges for Windows licenses to prevent Microsoft from discriminating between manufacturers willing to do its bidding and those who resisted its demands.

  In its statement, the Justice Department said it will seek more information from Microsoft's files "to investigate developments in the industry since the trial concluded." It will also evaluate w hether additional conduct-related provisions are needed in lieu of a breakup.
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