U.S. Abandons Microsoft Breakup Effort
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dailynews.yahoo.com
By Peter Kaplan
WASHINGTON (Reuters) - The Bush administration shifted strategy in the landmark Microsoft Corp. (Nasdaq:MSFT - news) antitrust case on Thursday, dropping the push to break up the company in order to get other sanctions against the software giant ``as quickly as possible.''
In abandoning the previous administration's line of attack in the three-year-old case, the U.S. Justice Department (news - web sites) also said it would not pursue an unresolved claim that Microsoft Corp. illegally tied its Internet Explorer browser to its Windows operating system.
``The Department is seeking to streamline the case with the goal of securing an effective remedy as quickly as possible,'' the agency said in a statement.
Analysts say they now expect the two sides to settle the legal wrangling.
Rather than break up the software powerhouse, the government said it will ask for restrictions on Microsoft's business tactics that would be modeled after a set of interim sanctions handed down last year by the trial court judge in the case, U.S. District Court Judge Thomas Penfield Jackson.
That remedy, among other things, would ban Microsoft from threatening or intimidating PC manufacturers who support rival software and requires the company to give outside software developers greater access to the Windows source code, the basic programming instructions for its software.
It also would ban Microsoft from bolting so-called middleware into Windows unless it is made removable from the operating system. Middleware is software that connects two otherwise separate applications.
The remedy also requires Microsoft to license Windows under uniform terms to all personal computer makers and give them flexibility to modify the initial ``boot-up'' sequence of the operating system.
Justice Department officials declined to elaborate further on exactly what sanctions they will be seeking. And the government was silent on the issue of Microsoft's plans to launch its new operating system, Windows XP (news - web sites), to consumers on Oct. 25.
``The change to a more pro-business Bush administration made a breakup unlikely,'' said Brendan Barnicle, an analyst at Pacific Crest Securities. ``The reality of a settlement becomes more likely without the threat of a breakup hanging over the company's head.''
White House spokesman Scott McClellan said Bush was informed of the Microsoft decision on Wednesday and played no role in it. ``It was a legal matter handled by the Justice Department,'' said McClellan.
FEARS STILL ABOUND
But Microsoft's critics in the software industry privately expressed skepticism about the decision to ``unilaterally disarm,'' as one put it. They said Judge Jackson's interim remedies will not restore competition.
``Those as the final solution would not be acceptable,'' one Microsoft critic said.
But Steve Houck, a former state prosecutor on the Microsoft case, said the company is far from off the hook.
``In many ways this is more problematic for Microsoft than breaking up the company,'' said Houck, who argued the case for New York Attorney General Elliot Spitzer before leaving for private practice. ``They're going to have to live one way or the other with 18 states and DOJ looking over their shoulder.''
After an initial boost, Microsoft stock fell as the market digested the news, falling $1.50, or about 2.5 percent, to $56.24 in active afternoon trade on the Nasdaq.
Microsoft Chief Financial Officer John Connors, appearing at a conference on Wall Street on Thursday, said company executives ``are anxious to move forward to a fair and expeditious settlement.''
``We have said for some time that we are looking forward to a fair and expeditious resolution and that's what we continue to strive for,'' Connors said.
Since its 1975 founding, Microsoft has grown to become the world's most valuable software company, with annual revenues of over $25 billion a year. It has made co-founder and Chairman Bill Gates (news - web sites) one of the world's richest men and helped keep the United States at the forefront of the digital age.
COURT FIGHTS AHEAD
The U.S. Court of Appeals for the District of Columbia in June upheld Jackson's ruling that Microsoft holds a monopoly in the PC operating systems market and used illegal tactics to defend it.
However, the appeals court reversed his order that Microsoft be split in two as an appropriate remedy for the violations. The court sent the case back to a different district court judge to sort out several remaining issues.
Judge Colleen Kollar-Kotelly will hold hearings to decide what sanctions to impose on the software giant to prevent future abuse of its monopoly.
She had also been set to consider whether the company violated the law by tying its Internet Explorer browser into the Windows operating system, a fight the Bush administration said it would no longer wage.
The Justice Department said on Thursday that pursuing that claim ``would only prolong proceedings and delay the imposition of relief that would benefit consumers.''
Government attorneys are expected to argue that the Windows XP upgrade, packed with new features, is further evidence that Microsoft continues to illegally use its monopoly power. But government sources have said the Justice Department has no plans to seek an injunction halting the release of the long-awaited upgrade.
Thursday's announcement came as the two sides were complying with an order to work out a proposal on how further proceedings should be structured, with a report due to Kollar-Kotelly by Sept. 14.
The new judge has scheduled a meeting on the status of the case for Sept. 21.
``In view of the Court of Appeals' unanimous decision that Microsoft illegally maintained its monopoly over PC-based operating systems -- the core allegation in the case -- 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.
The 18 states' attorneys general also suing Microsoft supported the government's decision.
``Since the court of appeals decision, the states and the Department of Justice (news - web sites) have directed their efforts to one objective -- the quickest and most effective remedy possible,'' Iowa Attorney General Tom Miller said in a statement.
One antitrust expert said the Clinton administration probably would have made a similar decision.
``When you're faced with wanting to get on with the world and getting a remedy in place, you go with your strong punch,'' said one antitrust lawyer familiar with the case ``It's a cost-benefit analysis. Delay is the enemy.''
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