Klein Spells Out Government's Proposed Remedy

WASHINGTON (04/28/2000) - Pulling Microsoft Corp. apart at its seams, with the operating system in one business and applications in another, will revitalize competition in the browser market and in the market for desktop PC operating systems to the benefit of U.S. consumers, the government's top antitrust lawyer said today.

The proposed structural remedies in the landmark antitrust case create the right market incentives so that the two new companies can create robust rivalry, said Joel Klein, assistant attorney general and the head of the department's antitrust division. Klein, who spelled out the remedies at a briefing shortly after the department filed its proposal in U.S. District Court, said the proposed remedies might also lay the foundation for the evolution of Office as a computing platform, Klein said.

Under the proposal, Microsoft's Windows operating system business would be the responsibility of one company, while Microsoft's applications, including Office, Internet Explorer, development tools, Microsoft Network and its Internet content and consumer hardware businesses, would be the realm of another.

The operating system business would receive a license to distribute the existing Internet Explorer code, but would have to develop its own browser to compete with Explorer, Klein said.

"After the separation, the two companies will be barred from colluding with one another or distributing each other's products, but both businesses will be entirely free to compete with each other in all lines of business," Klein said.

"Each company will have the incentive to compete vigorously through developing and licensing products that compete with the other company's core businesses."

Separating the applications from the operating system would create an incentive for broader development of Office, including versions that could run on competing platforms, Klein said. Office could become a "cross platform middleware threat" to the dominance of Windows.

"Because Office is an enormously popular product with over 100 million [m] copies in use around the world, its availability on other operating systems would give those operating systems a real opportunity to compete with Windows.

As these other computing platforms grow and proliferate the operating system business will face real competition for the first time."

Microsoft will have an opportunity to file a response with the court to the government's proposed remedies. It already has announced plans to appeal.

Klein also said the government wants U.S. District Judge Thomas Penfield Jackson to immediately implement a number of restrictions on Microsoft's business practices that would be phased out three years after the reorganization plan is completed. The restrictions speak to the conduct that Jackson found Microsoft violated and are necessary to allow the structural remedy sufficient time to take hold.

[See, "UPDATE 2 - U.S. Proposes Microsoft Breakup," posted April 28.]Klein said the decree would not limit Microsoft's ability to add new features to its products or to innovate.

"By turning loose the power of competition in the operating systems business, this decree will stimulate innovation throughout the software industry, in operating systems, applications and computing devices," Klein said. "The American consumer will benefit enormously from this proposed remedy."

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