Microsoft: Breakup Would Unleash Chaos

WASHINGTON (05/12/2000) - In court papers filed last week, Microsoft Corp. said a breakup of the company would be akin to unleashing a doomsday bomb: It could potentially create "chaos" and "destroy" the company while causing employees to leave "in droves."

"No one would seriously suggest that star basketball players like Michael Jordan are replaceable," said Microsoft, in its legal documents, "and no one would seriously suggest that the special chemistry that enabled the Chicago Bulls to lead the NBA for much of the 1990s would persist had the team been broken in two."

Microsoft has begun the task of trying to convince antitrust trial judge Thomas Penfield Jackson that the government's plan to break the company apart and separate the Windows operating system from its applications is not only wrongheaded but also a threat to the economy. Last week, Microsoft asked the judge to dismiss that plan.

Jackson ruled last month that Microsoft violated antitrust law by using anticompetitive practices to tilt the market scales in its favor.

"Not only is the breakup an unprecedented remedy in the 110-year history of the Sherman Act, it is also an entirely unwarranted remedy," said Bill Neukom, Microsoft's executive vice president for law and corporate affairs. "Breaking up this company would be a punitive proposal that would fundamentally harm consumers, the industry and the American economy."

Government officials aren't buying that argument. "I think Microsoft is in denial: It continues to deny doing anything wrong and is offering nothing new," said Connecticut Attorney General Richard Blumenthal, one of the state attorneys in the lawsuit filed against Microsoft by 19 states and the U.S.

Department of Justice.

Some legal experts said it may be too late for Microsoft to influence Jackson.

"The game is basically over. And Microsoft knows that the appellate court is its only real shot," said Hillard Sterling, an attorney at Gordon & Glickson LLC in Chicago. "Judge Jackson is on the verge of ordering a breakup, almost regardless of what Microsoft says."

The government is expected to respond Wednesday to Microsoft's request for a dismissal. It's also expected to counter Microsoft's proposal, which outlines a series of conduct remedies that would broadly affect its licensing and pricing arrangements with PC makers. The plan also ensures timely access to technical information for independent software developers.

Microsoft is also arguing that it's a unique company far different from AT&T Corp. and Standard Oil Co. - which were broken up years ago - especially where its intellectual property is concerned. Its greatest asset is its employees, who may leave "in droves" if the breakup goes through, the company said.

History's Lessons

But Microsoft isn't the first company involved in an antitrust case to warn of dire economic consequences that could result from a breakup, said William Kovacic, a law professor at George Washington University in Washington.

"Standard Oil told the Supreme Court that a breakup would have calamitous effects throughout the economy in 1911," said Kovacic. "[AT&T] said that the U.S. would pay a terrible penalty, in reduced innovation and poor telephone service." Those "catastrophes" didn't happen, he noted.

But Yee Wah Chin, an antitrust lawyer at Squadron, Ellenoff, Plesent & Sheinfeld LLP in New York, said she believes that Microsoft can raise doubts about the breakup's impact by arguing that some of its core products were developed internally and not acquired, unlike in the case of Standard Oil.

Rich Gray, an antitrust attorney in Menlo Park, California, said the Microsoft briefs may help the company fight a breakup plan on appeal, should the judge impose it.

One argument is based on Jackson's own finding that the government didn't prove that the illegal acts prevented Sun Microsystems Inc. or Netscape Communications Corp. from being able to compete with Windows, said Gray.

"Overall, I think Microsoft has made a very strong argument against a breakup, stronger than I expected," said Gray. "I'm not sure that it will convince Judge Jackson, but I think it will play very well at the appellate level."

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