MS Counter: Small Changes for Bad Behavior

SAN FRANCISCO (05/10/2000) - What a shock! Microsoft Corp. has a different idea of justice than the United States government has.

Answering the Justice Department's recommendation that Microsoft be split in two, the software giant has proposed significantly different remedies for its violation of antitrust laws.

As its proposed remedy, Microsoft offers to be more open and lenient in licensing Windows. The company will let system vendors promote non-Microsoft products and remove the Internet Explorer icon to offer another browser as the default.

But for every proposal there's a catch: that the vendor not go too far in its changes to Windows.

None of the vendors' changes can "limit Microsoft's ability to develop and license operating systems that invoke Web browsing functionality," Microsoft's rebuttal reads. Nor can system vendors promote third-party products on the Windows desktop, Microsoft says.

The company offers to give software developers "timely and complete access" to technical information so long as the vendors don't write platform software that competes with Microsoft products.

Microsoft cannot refuse to license Windows to any vendor as punishment for the vendor shipping or promoting a non-Microsoft OS. Nor could the company prohibit hardware vendors from displaying icons for non-Microsoft platform software on the desktop so long as the icons don't completely cover up Microsoft icons.

Microsoft offers to pay the plaintiffs' attorneys fees--no small sum--and suggests the remedies be in effect for four years. The government can check on Microsoft's compliance and look at documents during normal business hours only, the company suggests--a variation on the DOJ's proposal to monitor the company's compliance.

The DOJ had proposed Microsoft be broken up for at least ten years, and the other remedies would be in effect for three years.

Microsoft says it would comply within 45 days, and when it ships a new version of Windows, it will support and ship the predecessor edition for three years.

On April 18, the Justice Department and 17 states proposed Microsoft be split into two companies: a Windows operating system company and an applications company centered on Microsoft Office. They also say Microsoft must not force bundling or cut deals with vendors that restrict competing software. Microsoft must offer uniform terms for licensing Windows to vendors and allow those vendors to change the splash screen. Also, Microsoft must not knowingly implement any OS technology that interferes with competing applications.

Presiding Judge Thomas Penfield Jackson has ruled in findings of fact that Microsoft is a monopoly that illegally used its power to squash competition, which harmed consumers.

How Harsh Is a Split?

With its counterproposal, Microsoft clearly considers the government's remedies too harsh. But many industry experts think the DOJ was gentle--possibly too lenient.

"What [the DOJ] proposed is as narrow as possible in terms of reorganizing Microsoft," says Glenn Manishim, a former DOJ antitrust division attorney. "It doesn't get into the game of regulating the software industry."

In a letter floating around Capital Hill this week, Microsoft expressed fears that a breakup would prohibit improvements and new features to Windows, and restrict development of Internet support for Windows.

But the Software and Information Industry Association (SIIA) maintains the government's proposal would not restrict software products or lines of business. SIIA has dubbed the proposed companies Microsoft Operating Systems Company (OSCo) and Applications Systems Company (the Apps Co).

"Windows could make a new Office suite, and Office could make a new Windows," says Ken Wasch, president of SIIA. "They just couldn't buy each other back."

And the OSCo could no longer bind middleware applications to Windows, Wasch adds. "Users will be able to actually make a choice, and that choice would not be thwarted by OSCo."

As for Microsoft's claim that the government's proposal would ban developments in its games devices and handhelds, the SIAA scoffs. The DOJ plan places no restrictions for either the OSCo or the Apps Co on these and other new technologies, Wasch says. But he adds that only one of the companies is likely to develop them.

Could've Been Worse

Despite Microsoft's retort that a breakup is extreme, other remedies the DOJ considered were much more severe, Manishim says.

"The government rejected a Baby Bills divestiture and a slice-and-dice one in favor of the most limited reorganization of Microsoft," he says.

The DOJ isn't out to get large companies like Microsoft, says Joel Klein, assistant attorney general with the DOJ's antitrust division. The DOJ aims to stop the illegal ways of gaining that power that "deter innovation and restrict consumer choice," Klein says.

"Divestiture in the AT&T case has unleashed unprecedented competition, innovation, and consumer benefit," Klein says. It even helped the growth of technologies including the Internet and broadband services, he adds.

In Microsoft's case, separating Office from Windows would enable more competition in the operating systems market, Klein says. Microsoft Office applications could be optimized for rival platforms such as Macintosh or the open-source Linux.

"As these other computing platforms grow and proliferate, moreover, we would expect the Windows operating system's business to face real competition for the first time," Klein adds.

Clare Haney of IDG News Service contributed to this report.

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