Microsoft offers remedy proposal, asks judge to throw out breakup

On Wednesday, Microsoft Corporation urged Judge Thomas Penfield Jackson to dismiss the U.S. government's proposal to breakup the company as a result antitrust violations. And the company offered up its own remedy proposal, a less dramatic solution that would curb its business practices rather than split Microsoft into separate entities. And Microsoft even promised to begin implementing the requirements of its own proposal with 45 days, if the judge throws out the government's proposal. What's bizarre about this whole thing, of course, is that Microsoft still maintains its innocence and has repeatedly stated that it will appeal whatever verdict Jackson hands down. However, in the interest of meeting the required deadline set forth by Judge Jackson, Microsoft has released its own remedy proposal, one that answers the specific violations against the company found by the Court last month.

"We are working to try to resolve this case as quickly as possible, in a fair and reasonable manner," said Microsoft chairman Bill Gates. "We believe there is no basis in this case for the government's unprecedented breakup proposal, and we are hopeful that the Court will dismiss this excessive demand immediately so that the case can move forward much more rapidly. Even without the extreme breakup proposal, many elements of the government's proposed regulations are unwarranted, outside the scope of this case, and very damaging to consumers. The government's proposals would take away Microsoft's property by forcing us to disclose the source code for our products, even though Microsoft spent hundreds of millions of dollars to develop these products. The government also seeks to interfere with the design of Microsoft's products."

So instead, the company offers a conduct remedy, which was rejected by the government because it would require constant and diligent oversight of the company for an indefinite period of time. Specifically, Microsoft offers to address the following violations:

OEM flexibility - Microsoft would be required to allow PC makers to delete the Internet Explorer icon from the Windows desktop and Start menu, offer their own Internet sign-up process during the initial Windows boot sequence (the so-called "out of box experience," or OOBE), display icons for non-Microsoft platform software products on the Windows desktop, and configure a competing Web browser, such as Netscape, as the default browser if desired. This is meant to respond to Jackson's ruling that IE and Windows were illegally combined but, of course, it doesn't address this issue at all. In the Microsoft proposal, IE could simply be hidden, but not removed. Microsoft argues that removing IE from Windows is "impossible" because they are too closely tied together. Of course, this has been proven otherwise outside of Microsoft. Contracts - Microsoft would be prevented from entering into contracts that would promote any product or service through Windows that would require the other company to limit distribution of non-Microsoft platform software. Note Microsoft's use of the phrase "platform software" here: This is exactly the sort of language that makes agreements like this impossible to enforce. If Microsoft sought to prevent, IBM from bundling Lotus SmartSuite in Windows, for example, the company might argue that SmartSuite is not "platform" software and therefore does not fall under the terms of this agreement. The company used a similar tactic to violate its 1995 consent decree, which was the impetus for the antitrust trial.

Access to APIs - Microsoft would be prevented from denying any third party software developer timely and complete access to the technical information Microsoft makes available to the software development community at large. The company would also be prevented from conditioning the release of information on a developer's agreement not to support a non-Microsoft platform.

Release of products for non-Microsoft platforms - Microsoft would be prevented from withholding the release of any software product designed to run on a non-Microsoft platform that is ready for commercial release in order to urge the vendor of the platform to limit the development, manufacture, distribution or promotion of a platform software product that competes with Microsoft. This one goes right to the heart of the Microsoft/Apple agreement from 1998, where Microsoft agreed to continue development of Mac Office--critical to the continued success of the Macintosh--only when Apple agreed to promote Internet Explorer.

Predecessor operating systems - Whenever Microsoft releases a major Windows operating system such as Windows 95 or Windows 98, the company would be required to make the predecessor operating system available to computer manufacturers at a royalty no higher than the existing royalty. When Windows 98 was released, Microsoft raised the fee for Windows 95 to force PC makers to move to the new OS as quickly as possible. This artificially creates demand for newer products, making them seem more attractive than they might otherwise appear. Typically, companies lower the prices of older products as newer versions are released.

Additionally, Microsoft's proposal suggests that it would pay the attorney's fees and other costs for the 19 states that are allied with the U.S. government against the company. Microsoft says that it will implement the practices set forth within the proposal within 45 days and that it would remain in effect until July 2004. The company would provide the government with continuous access to its records to prove that it is complying with the terms of the proposal. And of course, Microsoft also reserves the right to appeal the case, even if the judge sides with the company and chooses to implement the terms of this proposal.

As controversial as this is, Microsoft's timetable requests also pose an interesting dilemma. If the judge were to accept the government's breakup proposal, the company asks Jackson to give it six months for discovery, depositions, preparation, and pre-trial motions, with a remedies trial start date of December 4, 2000. That's a lot later than Jackson is likely to want, as he's repeatedly stated that he wants this trial to proceed quickly, and not be bogged down for years. Microsoft, however, counters that such a dramatic outcome would require time to counter. The government has asked the Court to break Microsoft up and then actively regulate the two resulting companies, impairing their ability to develop new products for consumers in the highly competitive software industry," reads Microsoft's proposal. "Should the Court not summarily reject such draconian structural relief, then substantial discovery, adequate time for preparation and a lengthy evidentiary hearing will be required."

"There’s never been a company that’s grown through its own efforts that’s been broken up in this country," says Microsoft president Steve Ballmer. "It would be a little like breaking up Michael Jordan and Scottie Pippen because they won some titles, or breaking up John Lennon and Paul McCartney because they had too many number one hits. I don’t think consumers would be very well served at all by that kind of action. Microsoft is making a proposal to the Judge at his request for a set of remedies that we think are proportionate to his own Conclusions of Law. And while we respectfully disagree with those Conclusions of Law, we have made a proposal today that we think is responsive to the issues that this Judge has found and would allow our industry to move forward in the kind of aggressive, positive way that it has in the past."

Microsoft's biggest problem may not be Judge Jackson or the U.S. government; it may be its own hubris. Indeed, throughout the process, the company has had a hard time keeping its arrogance from rising to the top, despite repeated internal admissions that it needed to tone down the rhetoric. As recently as yesterday, Microsoft president Steve Ballmer, speaking at a National Cable Television Association meeting in New Orleans, confidently stated, "Microsoft will not be broken up. It will not happen." The company might be better served keeping such comments to itself. At this point, a little humility might go a long way

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