BOSTON (04/28/2000) - Microsoft Corp. could be the biggest benefactor of a company breakup, some legal experts predicted today after the release of the government's proposed remedies in the historic antitrust case against the software maker.
"I don't think this is necessarily the best solution because this split will just create two huge behemoths that each will have the monopolist position in their respective fields," said Bob Schneider, head of the intellectual property department at the Chicago law firm Chapman and Cutler. He echoed the sentiment of others interviewed for their reactions today to the government's recommendation that Microsoft be split into two companies, with one focused on operating systems and the other on applications, including the Internet Explorer browser.
In the view of Marc Schildkraut the remedy "is not terribly well connected to the violation that was proven" in court. Schildkraut is a partner in the Washington, D.C., firm of Howrey & Simon and he was in charge of the government's first antitrust investigation of Microsoft.
The government proposal, he said, is an indirect approach to stopping Microsoft's monopolistic and anticompetitive behavior. He also thinks that it's likely that the breakup proposal would lead to two monopolies instead of one.
The U.S. Department of Justice (DOJ) and 17 state attorneys general recommended that Microsoft be split in two. Attorneys general in Ohio and Illinois, who also are plaintiffs in the case, dissented when it came to asking for a breakup and have asked the court to impose conduct remedies.
The DOJ and 17 states also proposed behavioral remedies to restrict Microsoft's anticompetitive business practices for three years. Those remedies would take effect soon, while the breakup would not happen until after all legal appeals had been exhausted by Microsoft, which also will file a response to the government's proposal. Microsoft's response is expected to include alternative remedies.
After the responses are filed with the U.S. District Court hearing the case, oral arguments will be presented to Judge Thomas Penfield Jackson, who is presiding over the lawsuit. He previously ruled that Microsoft is an operating system monopoly and followed that this month with a ruling that the company illegally used that power in an attempt to stamp out competition and dominate the Internet browser market as well.
Predictably, the breakup proposal -- though possibly years in the offing -- garnered the most interest today with behavioral remedies eliciting less comment. One exception was Charles Goetz, a law professor at the University of Virginia, who referred to Microsoft's violation of a 1994 previous consent decree in a separate but related lawsuit filed by the government. The consent decree was intended to stop anticompetitive behavior on the part of Microsoft.
Because of that history, Goetz said he "is not as optimistic as Microsoft's management and as a lot of people commenting in the press are" that the company will be successful on appeal. "The government had a bad experience under the last consent decree. Microsoft out-lawyered them on the last go-around, and the lesson is that it's difficult to restrain their behavior with some contractual rules," he said.
"I don't think Microsoft has helped their case on appeals by insisting they did nothing wrong," he said.
David Niemi, president of Tux.org, a Reston, Virginia based group that promotes open-source software, agreed.
"Instead of listening to their own stockholders and customers, they are pulling out all the stops to convince the public, Wall Street, and politicians that they are, despite the entire court record, blameless innovators, and it is all the fault of an unreasonable government and some whining competitors," Niemi said in e-mail comments regarding the proposed remedy. "But it isn't going to work. ...The sooner Microsoft's management gets out of denial, the sooner they can get their past behavior behind them and get on with business, and everyone will be better off."
"Everyone" could well include Microsoft competitors, said David Smith, vice president at market researcher Gartner Group Inc., in Stamford, Connecticut.
Companies like Oracle Corp., Novell Inc., Sun Microsystems Inc. and IBM Corp. all could benefit because they offer alternative software to Microsoft products.
"The plan at Microsoft was to make profits on the server side, using integration with Windows 2000 was the linchpin in that," Smith said. "This remedy throws a wrench in that plan."
Jackson's ruling earlier this month that Microsoft violated federal antitrust laws threw a wrench into the stock market, putting the technology-laden Nasdaq on a roller coaster ride. Microsoft shares had been up and down for months, but plunged from trading at about US$115 per share into the $60 to $70 range.
Market reaction leading up to today's filing, made just after the close of the U.S. market, was muted with Microsoft shares trading down by only 6 cents, ending the day at $69.75 per share.
Reaction outside of the U.S. also is likely to be muted with the May 1 holiday weekend in swing. But an IDG Sweden online poll of 2,063 respondents found 53 percent support a breakup of Microsoft and 47 percent are against such a remedy.
(Juan Carlos Perez in Fort Lauderdale, Florida, Margret Johnson in Washington, D.C., Terho Uimonen in Stockholm, and Elizabeth Heichler and Marc Ferranti in Boston contributed to this report.)