DOJ to brief White House on Microsoft breakup plans

Top officials from the U.S. Department of Justice (DOJ) will brief the White House Wednesday on their proposal to breakup Microsoft Corporation into at least two separate companies. According to White House spokespeople, the briefing is "informational" only and it's unlikely that the president will advise the DOJ one way or the other. This dramatic news comes only a day after plans for the breakup were leaked to the press, and while many have grown accustomed to downplaying such leaks, it was clear from the beginning that this one was for real. And with today's corroboration from the White House and an unusually tight-lipped response from the DOJ, it's apparent that the government will indeed request that the software giant be broken up. Previously, it was believed that a conduct remedy would be proposed, but the weight of Microsoft's transgressions and its inability to adhere to previous conduct remedies have caused the government to seek the most drastic penalty available.

As I noted this week in a Windows 2000 Magazine UPDATE editorial (http://www.win2000mag.com/update), Microsoft's fate may be buoyed somewhat by timing: As the deadline for the government's proposed remedy nears, Wall Street is gripped by an unprecedented market drop-off, which was largely precipitated by Microsoft's legal woes. The current administration has presided over a record-breaking economic boom that is now in danger of ending due to the current market conditions, and a breakup of Microsoft could only make matters worse, especially in the short term. It's likely that the Clinton administration will want to ensure that the DOJ is acting in an economically responsible fashion. Treasury Secretary Lawrence Summers, National Economic Council Director Gene Sperling, Chairman of the Council of Economic Advisers Martin Baily, and a group of lawyers representing the White House will meet with DOJ antitrust chief Joel Klein, who has directed the Microsoft case. Neither president Bill Clinton nor vice president Al Gore, who is currently mounting his own campaign for the presidency, will attend.

In the ever-changing proposal, Microsoft would now be split into only two companies, one that would sell Windows, and one that would sell the remainder of Microsoft's products, largely application software. The Office/applications company would command about 60% of the current company's value, with the Windows company taking the remainder. The DOJ believes that a standalone Microsoft Office company would create its applications for platforms other than Windows, including rivals such as Linux and the Be OS. Microsoft already makes a version of Office for the Apple Macintosh and is expected to announce a new version, Office 2001, Macintosh Edition, soon. According to attorneys for the 19 states that are allied with the DOJ against Microsoft, the breakup proposal is a recent development that the DOJ's Klein originally opposed. Last Thursday, however, Klein informed the states that a breakup was the only logical choice and he bolstered his argument with supporting documentation over the weekend. Interestingly, both of the proposed companies would get access to Internet Explorer and its underlying code, but only once: After the initial release, each company would have to separately develop its own Internet code. This also has the side effect of requiring the Microsoft Office company to sell a standalone version of Internet Explorer, a demand the current company has refused.

People close to the case say that the proposed breakup scheme specifically leaves the operating system intact, so that incompatible, rival versions of the software don't appear, fragmenting the market. But the current plan also leaves Microsoft's two monopolies in place, making some wonder whether two monopolists would be any better for the marketplace than the current one. But the government has other reasons for this plan, not least among them that it would not require them to monitor Microsoft on an ongoing basis, a long-term and largely impossible task that they would face if a conduct remedy was imposed. So while some of the details of the plan may be modified before the Friday remedy deadline, it's unlikely that the overall goal--a structural remedy resulting in the breakup of Microsoft--will change. Assuming that the judge agrees to the DOJ plan, Microsoft will then have until May 10 to respond to the proposal, and on May 24th, a hearing will begin to establish his final decision.

Unsurprisingly, Microsoft violently opposes the breakup, stating that the trial didn't unearth any information that would require such a remedy. "It’s a very radical and extreme proposal," a Microsoft spokesperson said this week. But a Microsoft breakup wasn't the harshest remedy floated by the DOJ: Under an earlier proposal, Microsoft would have been split into at least three companies, and the underlying code to Windows and Office would have been given to at least three companies each, providing them with the insider technology needed to effectively compete with the software giant. However, the DOJ eventually came to the conclusion that this split would eventually "balkanize" the software industry, as Windows followed the UNIX road to fragmentation. Microsoft promises to drag this process forward as long as possible, especially if a breakup is presented as the official government remedy. "If the government goes beyond the scope of this trial with the issues they raise in their filing, we're going to need an appropriate amount of time to respond," a Microsoft spokesperson said Monday. A trip to the Supreme Court, it seems, is inevitable

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