Observers See MS Proposal as Too Little, Too Late

SAN FRANCISCO (05/10/2000) - Legal experts and industry analysts for the most part offered a harsh assessment today of Microsoft Corp.'s proposed remedies in the ongoing antitrust case brought against the software maker by the U.S. government: too little, too late.

"It looks to me that Microsoft's proposed remedies are very modest and not at all in line with the nature of the harms which the judge found," said Daniel Rubenfeld, a law professor with the University of California at Berkeley.

If the software titan had offered to settle the case on similar terms before the antitrust trial began in late 1998, the judge would be more likely to accept its concessions, other experts said. As it is, Microsoft's conduct during the trial, combined with the vendor's apparent willingness to ignore a consent decree applied after an earlier antitrust investigation in 1995, have made the judge skeptical that anything short of a structural remedy will alter its behavior, the observers said.

"The problem that Microsoft is facing is that the court just doesn't trust them given their behavior under the last consent decree," said Rob Enderle, an analyst with Giga Information Group Inc., based in San Jose, California.

"Against the court's findings, the penalty Microsoft has given itself is very light," he added.

In five separate filings made today, Microsoft asked the judge to reject a U.S. government remedy proposal to split the software vendor into two separate companies. As an alternative remedy, Microsoft offered to make several concessions such as an agreement not to withhold licenses for its Windows operating systems from manufacturers who promote products from rival software firms.

The offer provides "an enormously broad amount of flexibility for (PC manufacturers) and a very considerable concession by Microsoft," Bill Neukom, Microsoft's executive vice president for law and corporate affairs, said earlier today.

"We think the proposal that we have made is reasonable and appropriate, unlike the extreme proposal the government has made to break up the company and to regulate the surviving companies in a way that would literally, I think, set back the high-technology industry and the American consumer years and years and years," Microsoft President and Chief Executive Officer Steve Ballmer said.

But some legal experts were skeptical. Microsoft's proposal recalls the behavioral remedies that the company agreed to following an earlier antitrust investigation that concluded in 1995, they said. That case ended with a consent decree in which Microsoft agreed not to "tie" applications to its Windows operating system as a way of promoting its own software.

The U.S. Department of Justice (DOJ) has accused Microsoft of arrogantly ignoring that consent decree, although the software maker maintains it has done no such thing.

"I think there have been enough concerns about Microsoft's conduct raised in this case, and concerns about the way they have run their company since the (earlier) consent decree, to raise serious questions about whether conduct remedies will be sufficient," said Richard Gilbert, an economics professor with the University of California at Berkeley.

The U.S. government's proposal to split Microsoft into two separate companies, one focussed on Windows and the other on applications, would be a more straightforward solution to implement, and one that is better suited to the conduct the software maker has been found guilty of, Gilbert said.

Microsoft might have sweetened its proposal by offering to open up its Windows operating system source code to third-party companies, Gilbert said. Under such a plan, Microsoft would retain ownership of the source code, but third-party software developers would have a much better understanding of the underlying operating system, allowing them to write better programs, he added.

"That would have provided the ability for independent software developers to understand (Windows) at a level that approaches Microsoft's understanding," thus levelling the competitive playing field, he said.

Some hardened Microsoft critics dismissed the software vendor's remedy proposal out of hand.

"Microsoft is proposing less than nothing," asserted Ken Wasch, president of the Software & Information Industry Association (SIIA), which has been against Microsoft throughout the trial. "There are just two proposals in there -- to modify their OEM (original equipment manufacturer) agreements and to modify their ISV (independent software vendor) agreements." The SIIA styles itself as the principal U.S. trade association for the software and digital content industry.

Others in the industry hurried to Microsoft's defense. The U.S. government's proposal to break up the company could be extremely harmful to the software industry, to consumers and to the economy, said Jonathan Zuck, president of the Association for Competitive Technology (ACT).

ACT, a national education and advocacy group for the technology industry, filed a court brief in support of the software maker, one of its members, at the end of January.

The total market for Windows applications and products is worth some US$500 billion, of which Microsoft is only a "$5 billion player," according to Zuck.

The government's proposed remedies will be harmful to Microsoft, and will likely mete out considerably more harm to the industry as a whole, he said.

"I think the government's proposal goes way, way too far," Zuck said.

DOJ officials maintained that anything short of breaking Microsoft into pieces won't stop the behavior it has been charged with in the case. U.S. District Court Judge Thomas Penfield Jackson, who is overseeing the case, has found Microsoft to be a "predatory monopolist" that used its dominance in the operating systems market to crush competitors and bully its way into other markets.

"Microsoft's proposal is ineffective and filled with loopholes," the DOJ said in a statement issued today. The conduct remedies Microsoft is promoting wouldn't stop "attempts to divide markets with competitors; retaliation against PC manufacturers and software developers that support non-Microsoft products; or using tying to require PC manufacturers to ship other Microsoft products with Windows," according to the DOJ.

The DOJ is due to file an official response to Microsoft's proposal with the court one week from today. A week later, on May 24, lawyers for the two sides will appear before Judge Jackson to present oral arguments in favor of their respective proposals, Microsoft's Neukom said.

Microsoft, in Redmond, Washington, can be reached at +1-425-882-8080 or http://www.microsoft.com/.

(Bob Trott of InfoWorld contributed to this story.)

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