WASHINGTON – The Justice Department is expected to stick with its plan to
split Microsoft in half rather than adopt a suggestion by anti-Microsoft
industry groups to divide the company into three parts, a source close to
the antitrust case said Thursday.
The proposal for a three-way split, instead of the two-way breakup suggested
by the Justice Department, came unexpectedly in a packed courtroom. Company
lawyers flinched and observers looked on in amazement as U.S. District Judge
Thomas Penfield Jackson expressed his admiration for the industry groups’
friend-of-the-court brief.
The Justice Department’s next card will be played Friday, with its revised
breakup plan due in Jackson’s court. Government attorneys are expected to
make few structural changes to their original plan, the source said.
Whatever the government’s proposal, Jackson still has the final say on how a
breakup would work.
The initial Justice Department plan called for the breakup of Microsoft into
two pieces — one governing the Windows operating systems for personal
computers and large corporate servers, and the other governing the popular
Microsoft Office suite, the Internet Explorer Web browser and Microsoft’s
various Internet properties.
The two industry groups, the Software and Information Industry Association
and the Computer and Communications Industry Association, supported the
government’s breakup plan, but suggested the judge go one step further by
spinning off Internet Explorer into a third company. The groups noted that
Jackson had found Internet Explorer was a key in Microsoft’s crushing of its
competitors. The judge ruled April 3 that Microsoft violated antitrust laws.
Alternatively, the industry groups said, Microsoft’s Internet Explorer
browser could remain with the applications company, but the computer source
code used to create the browser should be made “open source,” meaning it
would be part of the public domain for anyone to use and alter as they see
fit.
“To allow a Microsoft successor to use the browser as a point of leverage
(or a means of protection) for its dominant applications suite would reward
Microsoft for its illegal conduct, even if the benefits did not accrue to
the operating systems business,” the groups said in their brief.
Jackson took both sides by surprise on Wednesday when he cut off further
debate on remedies against Microsoft. He asked the Justice Department to
provide a revised version of its plan, taking into account issues brought up
in court, by Friday afternoon.
Microsoft stock fell 6 percent, or by $4.06 1/4, to a 52-week low of $61.50
a share at the close of regular trading Thursday on the Nasdaq Stock Market.
Last month, Jackson found Microsoft committed several violations of the
Sherman Act, the primary federal antitrust law, through anticompetitive acts
designed to maintain its monopoly over operating systems, the software used
to run the basic functions of personal computers.
The Justice Department doesn’t have to include the three-way breakup option
in its revised plan, and DOJ officials would not comment on what revisions
they would make.
However, the judge can make any changes he sees fit after the department
submits its plan. Microsoft has until Tuesday to respond to the revisions,
after which Jackson could issue a final order in the case at any time.
Herb Hovenkamp, law professor at the University of Iowa and a leading
antitrust authority, said Jackson could make substantial changes in the
government’s remedy proposal, including a wholly different breakup plan.
“There is some Supreme Court case law that suggests that all the judge has
to do in the initial stage is order a breakup and state in fairly rough
terms what that breakup is going to be like and not worry about the
details,” Hovenkamp said. “Then as you go through the appeals process, and
if the breakup, in principle, is affirmed, then the details can be worked
out later.”
Microsoft, however, is betting that the U.S. Court of Appeals will be a far
more favorable venue. Microsoft attorneys said that Jackson’s refusal to
allow additional testimony on the breakup plan is simply one more weapon in
its appeals arsenal.
“This case will now be decided at the court of appeals, and we will be
raising issues of procedure in our appeal, as well as issues of fact and
law,” said William Neukom, Microsoft’s general counsel. Microsoft has
promised to appeal the case as soon as Jackson issues his final order.
The two industry groups that proposed the three-way breakup have been a
strong voice for Microsoft’s competitors. Members of the SIIA include
Microsoft archrivals America Online Inc., Apple Computer Inc., Oracle Corp.
and Sun Microsystems Inc. It also includes Microsoft partners such as Compaq
Computer Corp. and IBM Corp. Microsoft quit the SIIA in March due to the
group’s stance on the antitrust case.
CCIA’s membership includes AOL subsidiary Netscape Communications Corp.,
Intuit Inc., AT&T Corp. and Yahoo! Inc., along with Oracle and Sun.
Microsoft was never a member of this group.
Microsoft has often accused the government of serving the interests of its
competitors, most notably Netscape, AOL and Sun. Representatives of all
three companies either testified or gave depositions in support of the
government’s case.
