Government Sticks with Remedy Proposal

BOSTON (05/26/2000) - The U.S. Department of Justice (DOJ) stuck to its guns today, making no change in its recommendation that Microsoft Corp. be split in two, despite trial Judge Thomas Penfield Jackson's not-so-subtle suggestions at a hearing Wednesday that he likes a plan to divide the company three ways.

The government filed its revised brief this afternoon in U.S. District Court in Washington, D.C. The brief didn't offer any revisions to the government's earlier proposal, made by the DOJ and 17 of 19 state attorneys general, to divide Microsoft in two, separating the operating system from applications.

But the government criticized Microsoft's last-minute plan to call six witnesses including company Chairman Bill Gates to counter the government's breakup plan.

In its brief, the government called Microsoft's plan to call new witnesses "a cynical ploy calculated to raise diversionary issues on appeal."

The judge, who earlier ruled that Microsoft violated antitrust law, stunned Microsoft attorneys at Wednesday's hearing when he said that he would not conduct any additional remedy hearings.

Judge Jackson, who gave every indication at Wednesday's hearing that he will order a breakup of Microsoft, may issue his remedy order as soon as next week.

He is not, however, obligated to follow the government's recommendation.

Microsoft has 48 hours to respond to today's final proposal recommendation from the government, although it was unclear if that time frame begins this weekend or at the start of business next week. Regardless, most observers believe the judge will quickly issue his remedy order.

At Wednesday's hearing, Jackson questioned the effectiveness of the government's plan to divide Microsoft's applications from its operating systems, and asked if such a "bisection" would "simply create two separate monopolies who may have no incentive to interfere with each other's profitability."

Wisconsin Assistant Attorney General Kevin O'Connor, arguing for the 19 states that have joined the DOJ in the antitrust suit, said in court that an independent applications company will have an incentive to develop cross-platform products, "so as not to be at the mercy of the OS monopoly, sort of like the Defense Department has an incentive to go out and not get locked into a single supplier of military hardware."

Jackson's interest in dividing the company three ways was sparked by what he described as an "excellent brief," prepared by the Computer & Communications Industry Association and the Software and Information Industry Association, which argued for separating the Internet browser business as well as the applications and operating system businesses.

When he issues his remedy ruling, Jackson's immediate role in the case will end. But an appellate court can send the case back to Jackson if it disagrees with his ruling and ask for a reconsideration of the remedy, said Rich Gray, an antitrust attorney in Menlo Park, California.

Legal experts aren't certain whether the judge's decision not to conduct a series of remedy hearings will help Microsoft's appeal.

"I was surprised," Gray said. "It was a cheap way for him to buy some insurance against the type of arguments Microsoft will now make."

Hillard Sterling, an attorney at Gordon & Glickson PC in Chicago, said that Jackson was sending a clear message to Microsoft.

"Judge Jackson is making it clear that he has lost his patience with Microsoft's requests to prolong the proceedings," Sterling said.

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