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Microsoft drafts response
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May 9, 2000: 8:58 p.m. ET
Software maker to submit response to gov't proposal on Wednesday
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NEW YORK (CNNfn) - Microsoft's lawyers were putting the finishing touches Tuesday on a proposal aimed at preventing the government from breaking up the software giant.
The recommendation, which is due Wednesday, will reportedly contain both a carrot and a stick. While Microsoft may be willing to offer concessions about the company's business practices, it will also strongly deny that it violated the nation's antitrust laws. The company plans to submit its reply late Wednesday afternoon EDT.
In April, U.S. District Court Judge Thomas Penfield Jackson found Microsoft guilty of acting as a monopoly in its business practices in the PC operating systems market and also of attempting to control the Web browser market.
 Two weeks ago, the Justice Department and state attorneys general from 17 of the 19 states suing Microsoft submitted their remedy proposal to Jackson, recommending that the company be split into two separate entities.
Joel
Klein, who heads the Justice Department's antitrust division,
vigorously defended its plan Tuesday, as "the most effective and efficient means of protecting and preserving competition." Klein also said in a roundtable discussion at the University of California-Berkeley that a breakup of Microsoft "would produce substantial innovation and competition in the software business."
Microsoft maintains that it has done nothing wrong but at the same time the company has until Wednesday to submit its counter-proposal to Judge Jackson. After Judge Jackson receives Microsoft's response, the government will have a chance to submit its reply on May 17. Judge Jackson then will hold a hearing May 24 and issue his findings for the court-imposed remedy.
"Our position is that we will address the violations that the court found, that's what we'll do tomorrow," Microsoft spokesman Jim Cullinan told CNNfn.com. "There's several things that are being filed tomorrow, not just a proposed remedy. This isn't just about the proposed remedy, it's about the process of moving ahead, it's about our objections to the government's proposal."
Is a delay in the works?
According to published reports, Microsoft may also ask for anywhere from a few weeks to six more months to prepare its case.
However, Cullinan said it is too early to know if Microsoft will need more time for further preparation in this phase of the proceedings.
"Everything was predicated on what the government filed," he said. "[Microsoft said] if they do something extraordinarily unusual, then we will have to assess the process. Well, not only did they do something extraordinary or unusual, it's something completely out of the scope of this trial and the issue to the trial, so we will propose and offer the court what we think is a process of moving head."
"They're [the media] assuming something has been set in stone and that's just not the case," Cullinan said. "We'll file what we're supposed to file tomorrow and then the process moving ahead will be decided by court. It's unclear - these placeholders --- what the 24th will be in terms of a hearing or whatever," said Cullinan.
Microsoft stock slips again
Wall Street weighed in with its own forecast ahead of the courtroom showdown. In afternoon trading Tuesday, Microsoft shares were under pressure, falling 1-7/16, or 2 percent, to 68-3/8.
ING Barings analyst George Godfrey painted a favorable picture of Microsoft in a research note Tuesday, maintaining his "strong buy" rating with a 12-month price target of $135.
"We expect Microsoft's proposal to fall far short of what the government would be willing to accept and what the government will ask the court to impose on Microsoft," Godfrey said. "Despite the third fiscal quarter shortfall, we believe now, more than ever, would be the wrong time to sell shares of MSFT."
An article in Sunday's Washington Post outlined a draft of Microsoft's supposed version of its own remedies that place restrictions on its business practices, but do not break the company up.
Microsoft, according to the newspaper, is set to recommend:
- that Microsoft be required to provide
software developers with the information they need to build their
products in a timely way;
- that Microsoft allow computer makers to
alter the computer desktop screen when users run Windows;
- that computer makers should be allowed to
hide access to Microsoft's Internet Explorer Web browser;
- that Microsoft refrain from making restrictive agreements that cause other companies to promote its products over those of others.
Commenting on the remedies Microsoft will reportedly submit, a government official said it would be "backward looking and ineffective to stimulate competition because they would not stop the company from using monopoly power in the future to crush competition, likely leading to continuing government oversight of Microsoft's business."
Playing the waiting game...
Political economist Greg Valliere of Charles Schwab's Washington research group told CNNfn that Microsoft may want to slow down the proceedings until after the November Presidential elections in the hope that the Democrats lose.
"I think Microsoft would like to wait until after the election, and maybe if (Republican Texas Governor) George W. Bush wins, they could get treated better by a Bush Justice Department. I think they're delusional if they think that's going to get them out of their problem, but I wouldn't be surprised if that's in the backs of their minds," Valliere said.
"Bush said in the state of Washington, right before the Washington primary, that he had problems with the suit. He indicated he didn't necessarily favor a breakup. The next day he sort of retracted the comments, but he is on record as saying that he really opposes a breakup. So, I think the company would like to wait until after the election," said Valliere.
Lobbyists for Microsoft met with members of Congress last week and outlined their response to the breakup plan, according to the Washington Post.
In papers presented by lobbyists, Microsoft argued that a breakup will curb innovation and force the two entities to produce incompatible products, the newspaper reported.
"The DOJ plan bans the addition of any significant new end user features to Windows for up to 10 years," one of the Microsoft lobbying documents said, according to the Post. "The DOJ plan would effectively reduce Windows to a small core of low-level functionality that performs only the most basic operations."
Commenting on the reported Microsoft papers, Justice Department spokeswoman Gina Talamona said that they were "filled with false statements and inaccuracies."
--From staff and wire reports 
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