The Feds’ proposal clearly awakened any lingering Microsoft dozers Friday night; you could practically feel the blast from Redmond, Wash., when company brass held a press conference in response to the Department of Justice’s filing. Again and again, Gates & Co. spoke of the destruction such a proposal would wreak upon consumers. The government’s plan wouldn’t just break up Microsoft; it would break it. Do that and watch the stock markets tank more than they already have, doubly punishing consumers. “This [plan] was not developed by anyone who knows anything about the software business,” said Gates, who called the proposal “really out of bounds, out of touch.” Steve Ballmer, Microsoft’s tirelessly upbeat CEO, was downbeat: “I’m disappointed beyond belief that the interests of consumers and the health of the American economy don’t seem to be evident in this proposal.”
After years of investigation, 78 days in court, four months of go-nowhere settlement talks, the proposed breakup of Microsoft would seem to set the stage for the dismantling of one of the country’s most successful companies, possibly America’s first court- ordered breakup in the last 30 years. After the government’s big wins with Judge Thomas Penfield Jackson–and the Feds’ lingering frustration at their past inability to cage Microsoft–it should come as no surprise that DOJ asked for a breakup. Whether it ever gets it is another question. Christmas may have come early for Microsoft’s foes in Silicon Valley, but many antitrust observers think it’s unlikely Microsoft will be snapped in two.
Judge Jackson or appellate courts could rely on several arguments to stop short of splitting Microsoft. First, a breakup could have unintended consequences, for the company or consumers or both. Judges “should be wary about making major market changes because it’s not their job and it’s not their expertise,” says Eleanor Fox, a professor at New York University Law School. Then too, an appeals court might find Microsoft’s violations of the law less sweeping than Jackson did. If the Feds’ victory is narrowed, a breakup could seem out of proportion to the offense. “Not enough of the legal victory will survive appeals to support the breakup,” predicts William Kovacic, a law professor at George Washington University. Experts also say there’s little historical precedent for carving up a company like Microsoft that didn’t built its monopoly through acquisitions. Andrew Gavil, a law professor at Howard University, notes that the judge could put behavioral restraints on Microsoft and split the company later if those restrictions fail–an option that two dissenting state attorneys general preferred. But a breakup? “I’ve had my doubts for a while,” says Gavil.
Antitrust chief Klein told NEWSWEEK that after people closely review the government’s proposal “they will understand why this is the best proposal for the economy and for consumers.” Under the plan, Microsoft’s Windows operating systems would be bunched in one company, the “Ops Co.” Everything else, such as applications like Office, would make up the “Apps Co.” As an independent company, the government argues, Apps Co would develop software for rival operating systems such as Linux and make those rivals stronger alternatives to Windows. At the same time, Ops Co would be deprived of some of the tools Microsoft used to limit competition.
Even if the government’s plan prevails, a Microsoft split would be years away. In the meantime the Feds proposed immediate restrictions to keep Microsoft from bullying rivals. The restrictions would be in place for three years after a breakup. Among other things, Microsoft couldn’t retaliate against computer makers who favored software that rivals Microsoft’s, and computer makers must be able to modify Windows. The Justice Department also wants Microsoft to devise the details of its own breakup; Redmond execs liken this to being told to carry out your own “death sentence.”
The government pushed for a breakup for two main reasons. The Feds and 17 states argue that it’s the least intrusive way to level the playing field, avoiding long-term federal policing of Microsoft’s every move. And the government also suspects that the company would work its way around any special rules governing its behavior. Said one government lawyer, “Relying on their sense of social responsibility didn’t seem a promising way to go.” What happens next? Microsoft has until May 10 to file its own proposed remedies (think wrist slap). The government will reply a week later, and the two sides will face off in a remedy hearing scheduled for May 24. Jackson could hand down a ruling this summer. But Microsoft has already warned that the company will seek additional time. The continuing legal battle, some observers suspect, might produce the kind of “conduct remedies” the two sides gabbed about during their failed settlement talks–“except it will take 30 months to get there through the courts,” says Kovacic.
An equally rancorous battle will be waged in the court of public opinion. Expect Microsoft to try to mobilize the two-thirds majority of Americans who have opposed the government’s antitrust actions. On Sunday the company started running new ads, featuring Ballmer talking about the company and technology’s contribution to the economy. The Justice Department and the state attorneys general will bark back that their plan “is a very measured middle-ground proposal,” as Connecticut A.G. Richard Blumenthal said last week. Both sides will engage in enough spin to put the planet in reverse. It’s hard to imagine that’s what consumers want.
