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Sun, 07 Feb 1999, 3:59am EST
Microsoft Trial Setbacks Could Lead U.S. to Seek Tougher Anti-Trust Fixes
Microsoft Trial Setbacks Could Lead U.S. to Seek Tougher Fixes
(Repeating story that moved late yesterday.)
Washington, Feb. 6 (Bloomberg) -- The U.S. Justice Department, emboldened by Microsoft's missteps in defending against antitrust charges, is considering seeking tougher remedies than those contemplated at the trial's outset, said people familiar with the government's strategy.
A break-up of the world's largest software company, similar to the fate met by Standard Oil Trust and AT&T Corp., is one remedy government lawyers might seek if U.S. District Judge Thomas Penfield Jackson rules that Microsoft used illegal tactics to protect its Windows monopoly, the people said.
Since Microsoft began its defense three weeks ago, Jackson has questioned the testimony of Microsoft's three most important witnesses. That will ''undoubtedly embolden the Justice Department to seek broader remedial relief from Judge Jackson,'' said Washington antitrust attorney Lewis Noonberg.
Antitrust chief Joel Klein and other Justice Department lawyers are discussing with economists and technology experts a range of possible remedies, the people said. And while corporate dismemberment isn't seen as the most likely outcome, it's a possibility depending on the severity of a ruling by Jackson on Microsoft's culpability, they said.
Should the judge find only marginal violations of antitrust law, a limited remedy such as barring the company from entering exclusive contracts with computer makers could result. A finding of more serious breaches would likely bring the government to consider asking for more drastic fixes such as forcing Microsoft to provide open access to Windows software code -- or breaking up the company.
Microsoft's rivals support draconian measures to limit Microsoft's power in the $100 billion software industry.
'Very Troubling'
Microsoft witnesses have been forced by Justice Department lead attorney David Boies to concede important points. In one instance, Microsoft introduced a videotape to show that the company's Windows 98 operating system benefits consumers by offering an Internet browser.
The government contends that Microsoft melded the products in an effort to crush competition from Netscape Communications Corp.'s Navigator browser.
Boies, though, turned the videotape on its creators, highlighting discrepancies Jackson found ''very troubling.''
After rising to a high of 175 15/16 on Feb. 1 after the company announced a stock split, Microsoft's stock dropped 7.5 percent to 160 in the last week, falling farther than the Nasdaq Composite Index and the Standard & Poor's computer software segment. Both fell 6.4 percent.
Antitrust experts say any sanction should reflect a public- policy consideration -- that a court should not hobble the computer industry. Jackson likely will hold separate hearings on remedies after rendering an opinion on whether the company is guilty. The case began Oct. 19; Microsoft still has eight witnesses to call.
On Appeal
Microsoft officials are braced for a negative ruling. In an earlier case over Microsoft's bundling of the Internet Explorer browser and Windows, Jackson ruled against the company, ordering a tougher remedy than the government had sought.
Company officials, though, hope that a Washington-based appeals court would overturn an unfavorable Jackson decision -- as the appeals panel did in the previous case.
Miscues in Microsoft's defense now make a successful appeal less likely, experts say. While appellate judges will ensure Jackson properly applied antitrust laws, they can't overrule his factual conclusions. ''Those are findings, if he makes them, that the Court of Appeals cannot disagree with because they have not seen these witnesses and haven't seen how they react to the unraveling of the testimony,'' said Washington antitrust attorney Jim Loftis.
An appeals court ''can't second guess the demeanor, veracity, credibility and reliability of evidence; that's why Microsoft's defense is doomed,'' he said.
The Defense
Microsoft executives contend its legal defenses remain intact. ''The government is working very hard to create a mood or a perception in the courtroom,'' said Microsoft spokesman Mark Murray. ''Microsoft is focused on creating a record and we think we're winning the dry, legal and factual issues hands-down.''
Still, antitrust experts suggest Microsoft made a mistake relying on nine self-interested company executives to bolster its defense.
Microsoft promised its witnesses would explain the true meaning of company e-mails and memoranda that the government said showed the company's bad intent. In context, the company argues, the government's allegations about the messages don't fly.
Microsoft's three keystone witnesses -- Massachusetts Institute of Technology economist Richard Schmalensee and Microsoft executives Paul Maritz and James Allchin -- haven't sealed the company's defense.
Boies pounced on Schmalensee as soon as the Dean of MIT's Sloan School of Management took the stand. Within an hour, Schmalensee conceded that personal-computer makers don't have a viable alternative to Windows, which powers nine out of 10 personal computers.
Roll Video
Then came Maritz, who conceded Microsoft officials met with Netscape executives in June 1995 to convince the smaller company not to compete against them.
Maritz's answers, at times obtuse, brought Jackson to say, ''This witness is awfully difficult to get an answer from.''
Neither of those confrontations prepared Microsoft for this week's events.
Allchin's testimony began with three hours of videotape intended to undercut the claim that Microsoft illegally bundled Internet Explorer into Windows. Microsoft denies the integration of the products was an illegal ''tying.''
Almost as soon as the videotape stopped, though, Boies attacked. On Monday, he grilled Allchin about Microsoft's claim that combining the browser and the operating system produces 19 specific benefits.
After playing a clip touting each purported benefit, Boies paused the tape. He asked Allchin: ''If you took a Windows 95 machine without any Internet Explorer technologies and added a browser that you got off the Internet, you'd get the same rich experience you got here, right?''
Allchin said yes, as he did each time Boies queried him.
Inaccuracies
Then, Tuesday, Boies forced Allchin to admit the video contained inaccuracies.
Wednesday, when a second discrepancy in the video was found, Jackson shook his head, declaring it was ''very troubling'' and ''casts doubt'' on the tape's reliability.
Wednesday night, Microsoft taped experiments to support its claim that removing the browser from Windows hurt the operating system. Thursday, the company's lawyers acknowledged the new tests didn't fully support its contentions.
Wow ... this soap opera beats all soap operas. |
