Microsoft To Rebut Breakup Plan
By EUN-KYUNG KIM
WASHINGTON (AP) - Microsoft is about to get its chance to rebut a government's proposal to rip the company in two.
On Wednesday, Microsoft will respond to the proposal made last month by the Justice Department and 17 state attorneys to split it into one company that sells the dominant Windows operating system and another selling virtually everything else.
The plan was submitted to U.S. District Judge Thomas Penfield Jackson, who on April 3 found Microsoft to be a monopoly with business practices in wide violation of antitrust law. The company said it will appeal the ruling.
The Justice Department official who championed the breakup vigorously defended the plan Tuesday, the eve of the company's deadline to respond, as ``the most effective and efficient means of protecting and preserving competition.''
Joel Klein, who heads the department's antitrust division, dismissed criticism against the breakup proposal, saying similar arguments were made more than two decades ago in the breakup of AT&T's national phone system.
``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,'' Klein said, referring to an explosive growth in wireless communications, broadband services and fiber optics.
``We believe that the proposed divestiture in the Microsoft case similarly would produce substantial innovation and competition in the software business,'' he said during a round-table discussion Tuesday with high-tech executives and professors from the University of California at Berkeley's business school.
Microsoft spokesman Jim Cullinan said he wasn't surprised by the timing of Klein's speech.
``It's certainly understandable that the Justice Department has to attempt to defend what is a far-reaching and regulatory proposal that would do significant harm to innovation, the high tech industry and consumers,'' Cullinan said.
But the executives gathered for the discussion at the Portola Valley, Calif., mansion of financier Walter Shorenstein praised Klein and the Justice Department for taking tough measures.
``There are people who criticize change; there are people who drive change. He is driving change,'' said Eric Schmidt, chief executive of Novell Inc., a software company.
After his speech, Klein also defended the government's proposed restrictions on anti-competitive behavior by Microsoft while the company challenges a breakup in court. ``They are imperfect remedies, but they're better than nothing,'' Klein said.
Microsoft's response to the government proposal will include its objections to the plan, as well as its own proposed remedies. Cullinan refused to address specifics in the proposal, but sources have told The Associated Press that Microsoft may ask Judge Jackson to simply scrap most of the government plan, claiming it's improperly based on evidence that wasn't presented during trial. Although the proposal was 17 pages long, the government submitted a 167-page supplement that included findings by five experts.
The company could also directly address the remedies proposed by the Justice Department.
According to various reports, Microsoft could offer remedy proposals similar to offers made during recent settlement talks, among them - opening up the company's pricing, contracts and technical information to clients and competitors. Microsoft reportedly also may offer to strip its Web browser, Internet Explorer, out of future versions of Windows and give computer makers more freedom to make changes to the operating system.
Any remedy proposal, regardless of how modest the relief, would be to Microsoft's advantage in the eyes of the court.
``Microsoft has some concerns that they not appear arrogant or unwilling to address the issue. If they simply go before Judge Jackson and say, 'No remedy is appropriate,' then there's a greater likelihood that Jackson would write off their position as unreasonable,'' said Warren Grimes, an antitrust expert at Southwestern University School of Law in Los Angeles. ``I think by coming in and saying, 'Here's what's appropriate,' they give the judge and the government something to focus on.''
Microsoft officials say the filing ``will address the specific concerns voiced in the judge's rulings,'' but have repeatedly refused to comment on specifics.
While the government has until May 17 to counter Microsoft's response, and Jackson has scheduled a May 24 hearing to consider the issue, Microsoft has made it clear that its attorneys need more time to gather depositions and evidence to combat the government's proposal. At the very least, Microsoft wants the chance to cross-examine government experts as well as gather testimony from its own.
Even if the government's plan is eventually accepted by Jackson, it is unlikely to be implemented for years because of challenges it faces on appeal.
AP-NY-05-09-00 2231EDT
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