Microsoft Submits Its Proposals in Antitrust Case

The Department of Justice thinks that Microsoft Corp. should be broken in two. Bill Gates and company have a better idea, four better ideas in fact.

Microsoft says that the break-up plan should be tossed out. In return, Microsoft would make the following concessions, which would let OEMs:

Delete the Internet Explorer icon from the desktop and Start menu.

Offer their own Internet sign-up process in the initial Windows boot sequence.

Display icons for non-Microsoft products on the Windows desktop.

Configure non-Microsoft Web browsing software as the default browserThe proposal did not allow for the separation of the operating system and the browser, a key point in the case. But the proposal did include other conduct remedies:

Microsoft could not enter into contracts to promote third-party products in Windows in exchange for the third-party's agreement to limit promotion of non-Windows products.

Microsoft would be forced to provide independent software vendors timely access to application programming interfaces.

Microsoft would be restricted from delaying release of software products designed for non-Windows platforms in order to force the vendor of that platform to limit development and deployment of products that compete with Microsoft.

After the release of a major new operating system, Microsoft could not raise the price on the older operating system in order to spur sales of the new system to computer manufacturers.

Microsoft asked the court to immediately adopt the list of remedies as the final judgment in the case and offered to pay the attorneys' fees and other costs of the 19 plaintiff states in the lawsuit. The company asked that its proposal take effect 45 days after acceptance and remain valid until July 1, 2004. The proposal includes provisions to ensure compliance.

Microsoft's proposal, which was due under order from Judge Thomas Penfield Jackson, is in response to the April 28 recommendations from the Department of Justice and 17 states to break Microsoft into two companies - one focused on the operating system and one on applications.

Microsoft submitted five documents, one outlining its proposed final judgment, a memorandum supporting that judgment, a motion to reject the government's break-up proposal, a memorandum to support that motion and a proposal to revise the scheduling of the remedies phase. The company's lawyers say the motions are designed to expedite the penalty phase of the case.

Antitrust experts say Microsoft's proposals are a very narrow interpretation of the legal conclusions already reached in the case, namely that Microsoft violated antitrust laws by using its monopoly in the operating system market to enter other markets and to squash competition.

"Microsoft divided the judge's opinion into smaller components, each of which is addressed through narrow remedies," says Hillard Sterling, senior litigator for Gordon & Glickson P.C. in Chicago. "Jackson's decision is based on larger competitive problems of which these issues are examples. They are not a full list of the legalities."

The reality of the proposal is that "Microsoft knows it will be rejected, it is aimed at the appellate court. Microsoft is trying to show the court the unreasonableness and baseless need of anything beyond mild conduct remedies," Sterling says.

However, Bill Neukom, Microsoft's executive vice president for law and corporate affairs, said, "Our submissions today make clear the dangers of government regulation of any technology industry," He was speaking at a press conference on Microsoft's Redmond, Wash., campus that was not attended by either Chairman Bill Gates or CEO Steve Ballmer.

Gates, however, did issue a statement, saying, "We are working to try to resolve this case as quickly as possible, in a fair and reasonable manner. We believe there is no basis in this case for the government's unprecedented break-up proposal." A day earlier, however, he told Network World why the government's proposal is certain to hurt consumers and what it might take to settle.

Neukom also hammered on proposals he said would damage the Windows trademark and allow the government to regulate the design of Windows products.

But he dispensed the most venom on the government's proposal to force Microsoft to disclose its APIs and technical information to its competitors.

"What this means in practical terms is that companies like IBM and Sun would receive billions of dollars worth of Microsoft proprietary intellectual property and enjoy a competitive advantage against us," Neukom said. "We would effectively be competing against ourselves."

But some say Microsoft's proposal on releasing the APIs is weak since Microsoft has been accused in the past of only exposing a subset of the interfaces that are key for developers writing applications for the Windows platform.

Microsoft's Neukom scoffed at the accusation Microsoft is not forthcoming with its APIs.

"Microsoft's conclusion that it does an acceptable job today of disclosing APIs is not realistic," says Dwight Davis, an analyst with Summit Strategies in Kirkland, Wash. Davis thinks a review committee that would ensure Microsoft is publishing all its APIs might be an effective part of any remedy. "The APIs are a core question of this break-up proposal because it says the two colluding [Microsoft's operating system and applications] are the problem that needs to be addressed."

The Justice Department is scheduled to submit its response to Microsoft's proposal on May 17 and oral arguments are scheduled before Jackson on May 24.

Jackson is likely to issue his final ruling two to three weeks after the hearing.

But Microsoft is proposing five options for changing that schedule.

The scheduling changes ask the court to:

Accept Microsoft's remedies and end the case.

Accept the remedies as part of a preliminary injunction while it considers the government's remedies.

Give Microsoft 10 weeks to prepare for a brief remedy trial to open Aug. 7 if the court rejects the government's break-up proposal and the publication of Microsoft's intellectual property but accepts its conduct remedies.

Allow four months for Microsoft to prepare for a remedies trial to open on Oct.

2 if the court rejects a breakup but requires Microsoft to turn over its intellectual property.

Provide Microsoft with six months to prepare for a remedies trial to begin Dec.

4 if the court accepts the government's entire remedy proposal.

Regardless of the court's actions, Microsoft's proposal states the company still has the right to appeal even if its own remedies are accepted by Jackson, who can reject them outright.

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