Justice drops breakup effort against Microsoft

The U.S. Department of Justice said Thursday that it will not seek a breakup of Microsoft Corp. in the new remedy phase of the case, and, instead, will seek a series of remedies that restrict the company's business practices. The government also said it would not pursue the allegation against the company that it had illegally tied its Internet Explorer Web browser to the Windows operating system.

In taking this action, the government was clearly shedding the legal issues that were expected to give it the most trouble -- the breakup and tying issue. But the Bush administration also opened itself up to attack from Microsoft's critics, who believe that anything less than a breakup will be ineffective in restraining the company.

In a briefing for reporters late this morning, a senior DOJ official defended the government's action.

"Is this something that we view as going light on Microsoft? Absolutely not. We believe that we can get prompt and effective relief that addresses the core monopoly maintenance claims . . . and we're going to get them soon," said the official, speaking on the condition he not be identified.

The official also said it would be a "substantial error" to view today's announcement as a concession to Microsoft.

Asked whether the decision to drop a breakup makes a settlement more likely, the official bluntly said: "I don't have a clue."

The decision to not seek a breakup is backed by the 18 states that are party to the case, the official said.

Despite today's announcement, Microsoft is not off the hook. In addition to a continuing investigation by the European Commission, it now will likely face a series of restrictions on its business practices as a result of the Appeals Court finding that Microsoft illegally maintained its monopoly.

The U.S. Court of Appeals, in its June 28 decision, rejected lower court Judge Thomas Penfield Jackson's plan to split the company in two. But the court didn't rule out the possibility that government could again ask for a breakup.

The Appeals Court said, in part, that an effective remedy has to "terminate the illegal monopoly." But the DOJ official pointed out that other sections of the decision say the remedy has to "terminate the unlawful conduct," something they believe is more applicable to a monopoly maintenance case, where the monopoly, once obtained, is illegally maintained.

In regard to the tying or bundling issue, the Appeals Court, rejected this finding but said the government could continue to pursue it under a different and tougher legal standard that required the government to look at the consumer benefits of bundling.

The DOJ official said the government dropped the tying claim because it believes it can get the remedies it needs under the monopoly maintenance charge.

The Microsoft response was low key: "We remain committed to resolving the outstanding issues in this case," said spokesman Jim Desler.

The DOJ said the actions announced Thursday would allow it to seek "prompt, effective and certain relief for consumers."

But the DOJ official said the government would not seek injunctive relief against Microsoft's soon-to-be released XP operating system.

However, the DOJ official also made it clear that the goal of the remedy will be to affect future products and actions, which could subsequently affect XP and future operating systems. "As in any antitrust case, a remedy will be prospective and will apply to any product that Microsoft sells," the official said.

The government, in a statement said: "In view of the Court of Appeals' unanimous decision that Microsoft illegally maintained its monopoly over PC-based operating systems -- the core allegation in the case -- the Department believes that it has established a basis for relief that would end Microsoft's unlawful conduct, prevent its recurrence and open the operating system market to competition."

The government said it would seek remedies modeled after the interim remedies set last year by lower court Judge Thomas Penfield Jackson.

Those interim remedies included:

-- A ban on any "adverse actions" against PC makers for supporting competing products.

-- Uniform Windows licensing and pricing terms to manufacturers.

-- Allowing PC makers flexibility in configuring Windows, including the desktop and boot sequence.

-- Disclosure of application programming interfaces to developers and others at the same time Microsoft discloses those interfaces to its own personnel.

-- Microsoft would be barred from knowingly interfering with the performance of any non-Microsoft middleware running on the operating system.

-- A ban on any exclusive dealings - agreements requiring exclusive promotion, for instance, of Microsoft platform software.

-- Establishment of a corporate antitrust compliance officer and committee to ensure the company follows antitrust laws.

A criticism against conduct remedies is that they would require ongoing supervision and review by the government or court. The DOJ official said they would craft a remedy that avoids that problem.

"We're certainly not interested in a conduct remedy that puts the antitrust division or the court in the business of regulating the software industry," the DOJ official said.

The government also plans to "investigate developments in the industry since the trial concluded" and evaluate whether additional conduct provisions are needed.

The DOJ also said that it would ask the court for "expedited discovery" to move the case along quickly.

The case was remanded to the U.S. District Court by the Appeals Court late last month and a new judge was assigned.

The new judge, Colleen Kollar-Kotelly, ordered that all parties involved appear for a status conference Sept. 21.

In a statement, the Computer and Communications Industry Association, which had backed the government's efforts to get a breakup, said it was "dismayed" by the decision. "As the District Court and the government plaintiffs originally concluded, structural remedies are the most effective solution to prevent Microsoft's continuing illegal and anticompetitive behavior," said CCIA President and CEO, Ed Black.

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