Justice Dept. downshifts in Microsoft caseBy Joe Wilcox
Staff Writer, CNET News.com
September 6, 2001, 12:10 p.m. PT
http://news.cnet.com/news/0-1003-200-7076177.html?tag=prntfr
In a bid to "streamline" the next phase in the Microsoft antitrust case, the
government on Thursday said that it would not seek
to break up the software giant.
The Justice Department also will not seek a rehearing on the tying
claim--that Microsoft illegally integrated its Internet Explorer
Web browser with Windows 95 and 98. The agency said in a statement Thursday
that it is "taking these steps in an effort to
obtain prompt, effective and certain relief for consumers."
Even as the agency removed those issues from consideration, however, it
opened the door for others, saying it wants the court
"to investigate developments in the industry since the trial
concluded"--which could include the forthcoming Windows XP
operating system.
The announcement also could be part of settlement discussions or an effort
to bring Microsoft to the negotiating table as a new
judge gets set to resume hearings in the case.
The government might have agreed to publicly take a breakup off the table,
"if Microsoft was willing to (accept) restrictions on
XP and other operating systems," said Andy Gavil, an antitrust professor at
the Howard University School of Law. But, he
cautioned, "this could easily mean there are no serious discussions going
on."
Microsoft, the Justice Department and 18 states are scheduled to meet over
the next two weeks with U.S. District Judge
Colleen Kollar-Kotelly. The U.S. Court of Appeals for the District of
Columbia Circuit last month ordered the case returned to
the district level, upholding an earlier ruling that Microsoft had engaged
in anti-competitive business practices but requesting
reconsideration of the remedies imposed, which included breaking the company
into separate operating systems and
applications businesses.
"I'm not really surprised the new administration (of President George W.
Bush) would drop the breakup," Gavil said.
"Philosophically, it was not their bag, and the Court of Appeals made it
clear it would be difficult if they would continue to press
for it."
The abandonment of the tying claim is more of a surprise, but probably stems
from the government's quest for speed.
"What I think is they thought the new judge was going to have protracted
proceedings before any further trial on remedy on the
tying," said Emmett Stanton, an antitrust attorney with Fenwick & West in
Palo Alto, Calif. "They probably calculated the
remedy they could get in two years would be no more severe than the remedy
they could get quickly."
By removing breakup and tying, Stanton said, "the government has made it
more unlikely for Microsoft to turn this into a
protracted process."
Thursday's announcement marks a turning away from the government's saber
rattling after the appeals court's June 28 ruling
that upheld eight separate antitrust claims against Microsoft.
State attorneys general for Connecticut, Iowa and New York, among others,
earlier made it clear that a breakup was still an
option. They also raised concerns about new technologies integrated into
Windows XP. At one point, the government appeared
ready to seek an injunction against the operating system, which is expected
to appear on new PCs on Sept. 24 and at retail
on Oct. 25.
Support from the states
On Thursday, Iowa Attorney General Tom Miller said the 18 states were in
agreement with the Justice Department "and the
decision not to seek a breakup of Microsoft. Since the Court of Appeals
decision, the states and DOJ have directed their
efforts to one objective--the quickest and most effective remedy possible.
This decision is consistent with that objective."
That turnabout caught the attention of Bob Lande, an antitrust professor
with University of
Baltimore School of Law. "The states no longer asking for breakup after all
this time of being
so stiff is really surprising."
Microsoft, meanwhile, voiced its hopes for a resolution to the long-running
case.
"I'm not a legal person, but we have said for some time we look forward to a
fair and
expeditious solution, and that's what we continue to strive for," said John
Conners, chief
financial officer at the software company, who was just informed of the
ruling before a
presentation at Salomon Smith Barney's Tech 2001 Industry conference in New
York on
Thursday.
Investors apparently saw no great meaning in the Justice Department's
decision, as
Microsoft's stock shifted slightly downward for the day, keeping pace with
the Nasdaq as a
whole. At the close of the market, shares were off $1.72, or 3 percent, to
$56.02.
"I don't expect a near-term impact on the business," said Salomon Smith
Barney analyst Richard Gardner, who called the
move "a positive, since they're not going after a tie-in and they're not
going after a breakup."
In its statement on Thursday, the Justice Department said that rather than
seek a breakup of Microsoft, it would ask the
district court for an order modeled after "the interim conduct-related
provisions" issued at the time of the antitrust ruling. It also
said it would ask for "a period of expedited discovery" to consider what has
happened in the PC industry since the end of the
trial "to evaluate whether additional conduct-related provisions are
necessary."
In the June ruling, Judge Thomas Penfield Jackson imposed a number of
restrictions on Microsoft's behavior. For example, the
company would have to offer equal licensing terms to all PC makers; would
not be able to force Windows licensees to buy
other Microsoft software; could not threaten or take action against
companies making competing products by withholding
license terms, technical support or sales support; and could not lock PC
makers into agreements requiring them to promote,
distribute or use Microsoft products.
The timing of the announcement--and the fact that one had been made at
all--struck many legal specialists as unusual. The
government could have made its intentions known in a scheduled Sept. 14
court filing.
Observers said that the government could be jockeying for position, perhaps
in advance of a settlement. The backing of the
states for the Justice Department's call for a lesser remedy increases the
chances of settlement, some said.
"The announcement makes sense if they now want to start getting serious
about negotiating with Microsoft," Lande said.
"If the states are onboard, it surely means settlement is likely," Gavil
said. Microsoft's muted response to the announcement
"really does suggest they're at the table. You would expect them, to the
contrary, to be jumping up and down," he said.
"I am sure there are settlement talks going on, probably at multiple levels
and at secret back
channels," Stanton said. "But I wouldn't read much into the prospects of
settlement from this
announcement."
Rich Gray, a Silicon Valley antitrust attorney closely watching the trial,
also was skeptical.
"The only way I would do this as part of the settlement scenario is if the
damn thing is already
signed," Gray said. "But even that doesn't make sense to me as part of a
settlement
scenario."
No one just takes their two biggest bargaining chips off the table, he said.
"The government carries a special burden when it goes into court to avoid
game-playing with the court," Gray added. "If these
government attorneys had already made the determination it's not in the
public's best interest to pursue these remedies, then it
makes sense not to pretend they're going for something that they're not."
Staff writer Larry Dignan contributed to this report from New York.
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