Microsoft critics scoff at offer
by John Hendren
Seattle Times Washington bureau
WASHINGTON - Microsoft is expected to counter the federal
government's threat to break up the company today with a
proposal to change its business practices - an offer critics called
"the antitrust equivalent of `no TV for a week.' "
Microsoft officials were still polishing the plan late yesterday, but
the punishment the nation's largest software maker is outlining for
itself is expected to give competitors greater access to the codes
that underlie the Windows computer-operating system, while
allowing computer sellers to hide access to its Web browser and
modify the "desktop" that users see on their screens.
U.S. District Judge Thomas Penfield Jackson ordered the
company to file the plan by today, 12 days after the federal
government and 17 states filed a recommendation to break
Microsoft in two.
The proposal is part of a two-pronged approach for Microsoft's
legal strategists: They're offering a remedy plan that addresses the
court's conclusion that Microsoft is guilty of federal antitrust
violations. Separately, they're preparing a legal appeal that
challenges that conclusion.
Microsoft managers have made no secret that they will continue to
defy efforts to divide the company.
"They are trying to inflict government regulation on the software
industry," spokesman Jim Cullinan said. Consumers have found
that "Microsoft products are inexpensive and provide the features
they need, whether it's at home, school or at work. We think that
the customers in the marketplace of this country and around the
world should be the ones who decide who wins and loses in the
industry - not the government."
Microsoft's court proposal mirrors its offer during failed settlement
talks. It concedes more than company lawyers say a higher court
will require, but falls far short of the AT&T-style split government
attorneys proposed on April 28.
The company's offer sounds similar to its 1995 consent
agreement, said Ken Wasch, president of the Software and
Information Industry Association. The Justice Department
launched the antitrust case, claiming Microsoft violated the
agreement.
"Microsoft is trying to turn back the clock to 1995 and say, `OK,
we can live with the consent agreement,' " said Wasch, who
supports a breakup. "It's the antitrust equivalent of `no TV for a
week.' "
As Microsoft lawyers prepared to work the courtroom over the
past week, company managers have been aggressively working
public opinion and Capitol Hill.
Microsoft Chairman Bill Gates, for instance, wrote an article in the
May 15 edition of Time magazine warning of technological perils
to come under the government's plan.
"The (Justice) plan reflects a profound hostility to Microsoft's
efforts to make products that work well with one another," Gates
wrote. "Updates to Windows and Office technologies that could,
for example, protect against attacks such as the Love Bug virus
would also be much harder for computer users to obtain."
The company also briefed Washington lawmakers last Friday
about the progress of the antitrust trial. This Friday, Microsoft
lobbyist Jack Krumholtz is scheduled to outline the company's
position for members of the Senate Judiciary Committee, who
were briefed last week by Justice officials.
Microsoft attorney John Sampson also e-mailed members of
Congress a letter by fellow corporate attorney David Heiner that
offers a point-by-point critique of the Justice Department's
proposed breakup.
The Justice plan calls for Microsoft to be divided into two
companies. One - referred to as the "OS Co." - would own the
operating-systems business. The second - "the Apps Co." -
would own the applications business, including Office business
software, Internet programs and hardware such as keyboards.
Among the problems that plan causes, according to the letter:
It "flatly bans" the operating-systems company from
improving Internet Explorer in Windows, even though the
Internet support in Windows "was developed at a cost of
hundreds of millions of dollars." Critics say the Justice plan
simply requires the applications company to come up with
its own browser after licensing Explorer on a one-time
basis.
It forbids the applications company from "working closely"
with the operating-systems company. Such a division
would result in products "that are incompatible with one
another," the letter says. Microsoft rivals say the
government plan would allow the two companies to work
together under the same "arms-length" terms Microsoft can
work with other competitors.
It assigns speech-, gesture- and handwriting-recognition
technology to the applications company. Microsoft says
this deprives the Windows company of years of basic
research.
It "outlaws" Microsoft's BackOffice program by assigning
parts of it to the two new companies. That would cause
Microsoft to shut down a product expected to bring in
more than $700 million in licensing agreements this year,
the letter said.
It "appears to prohibit" several new and revised projects
under development, including Web TV; a game console
called X-Box that would compete with Nintendo and
Sony; the Pocket PC handheld computers; and a tablet PC
device. Making them would be impossible "because these
devices draw upon both operating system and applications
technology." Microsoft critics say this is simply an
inaccurate reading of the Justice plan.
It institutes price controls that would bar Microsoft from
charging different rates to different computer makers that
put Windows on the machines they sell. Justice lawyers
argued that Microsoft used those agreements to force
computer makers to keep software from such rivals as
Netscape Communications off their computers in order to
gain favorable prices.
Microsoft isn't the only party seeking to influence legislators and
public opinion. The rival Software and Information Industry
Association issued a response letter yesterday that calls
Microsoft's complaints about the Justice proposal "phony" and the
company's counterproposal "outdated and ineffective."
Association leaders point out that most of the restrictions
suggested by the government last only three years under the
Justice Department's proposal.
"It's important to recognize that there are no limits or bans on the
business of either the Windows company or the Office company
... after the divestiture," said Ken Manashin, a former Justice
Department antitrust lawyer who now works with the association.
"The only thing they can't do is buy each other back."
The Justice Department, too, has continued to press its case. In a
19-page speech to business students at the University of
California at Berkeley, antitrust chief Joel Klein cited "authorities"
from economist Adam Smith to bank robber Willie Sutton to
folk-rock duo Simon & Garfunkel to support the government's
case.
Klein compared the Justice Department's proposed division of
Microsoft with its earlier plan to split up AT&T. In both cases,
government lawyers were accused of killing "the goose that laid
the golden egg" and harming a technological innovator, he said.
"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,
including lower prices, the Internet, wireless communications and
fiber optics.
Similarly, he said, dividing Microsoft into two companies would
allow rival operating systems to thrive.
"The result will be exciting and innovative new products, with
more choices and lower prices for consumers," Klein said.
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