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No Microsoft breakup: U.S.
September 6, 2001: 4:39 p.m. ET

Justice Department says it is open to an alternative remedy
By Staff Writer Richard Richtmyer
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NEW YORK (CNNfn) - The U.S. Justice Department said Thursday it will not ask that Microsoft be broken in two during the next phase of its landmark antitrust case, choosing instead to seek court-ordered changes to the way the software maker conducts business.

The U.S. Court of Appeals for the District of Columbia in late June had overturned a lower court's order by U.S. District Court Judge Thomas Penfield Jackson that Microsoft be broken into two companies as a remedy for anticompetitive practices.

At the same time, it upheld the lower court's conclusion that Microsoft has a monopoly in the market for computer operating systems and maintains that monopoly power by anticompetitive means in violation of U.S. antitrust laws.

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Late last month, the case was sent back to U.S. District Court in Washington for reconsideration of the remedy as well as other aspects of the original order -- including whether Microsoft acted illegally by tying the software code for its Internet Explorer Web browser to its dominant Windows operating system.

The Justice Department said Thursday it will not pursue a breakup, nor will it pursue further proceedings on the tying count of the original complaint. Instead, it said it wants to investigate developments in the industry since the trial concluded and evaluate whether additional conduct-related provisions are necessary, especially in the absence of a breakup.

In a statement issued Thursday morning, the Justice Department said it had taken these positions in an effort to "streamline the case with the goal of securing an effective remedy as quickly as possible."

Instead of a breakup, the Justice Department said it will ask that Microsoft have certain restrictions placed on its conduct modeled on those the original trial judge imposed on the company in June 2000 but were postponed pending the appeal.

In his original order, Judge Jackson imposed a series of restrictions on Microsoft's business practices which were to be effective as the company moved to split its business in two.

Among the conduct remedies Judge Jackson originally imposed were: prohibiting Microsoft from punishing hardware and software companies working on competing products; prohibiting it from favoring computer companies and software developers that helped Microsoft exclude competitors; requiring Microsoft to license Windows to PC makers under uniform prices and terms according to a publicly available schedule; and barring Microsoft from interfering with the way PC makers set up startup screens, the Windows desktop, preferences, and Internet connection wizards.

Since the appeals court first handed down its ruling in the case, Microsoft repeatedly has expressed its willingness to settle the case out of court. And while none of the parties involved has acknowledged them, there reportedly have been discussions toward that end.

Microsoft's newest operating system, Windows XP, also has come under scrutiny since the appeals court's ruling. Due for full release on Oct. 25, Windows XP incorporates features such as instant messaging, streaming media and digital imaging capabilities into the operating system. It has been targeted by Microsoft's foes, as well as some government officials, who say it demonstrates further anticompetitive practices.

Among the most vocal critics of Windows XP have been the attorneys general from Connecticut and Iowa, two of the states that joined the Justice Department in the antitrust case, which originally was brought in October 1997. Both of them stood by the Justice Department's decision Thursday.

"This decision, while difficult, was driven by a realistic, clear-sighted view of the clock," said Connecticut's Richard Blumenthal. "The result needs to be right but prompt, and this course seems the best realistic strategy to secure a remedy that is timely, effective, and certain."

Iowa's Tom Miller said the Justice Department and the states all along have directed their efforts toward finding the quickest and most effective remedy possible. "This decision is consistent with that objective," Miller said.

Spencer Waller, director of the Institute for Consumer Anti-Trust Studies at Loyola Law School, said the latest development in the case make the prospect of a settlement far more likely.

"They're already implementing some of [the conduct remedies], and my guess is that they are prepared to negotiate about almost all of the rest," Waller said. "If you're not talking about a breakup of the company, it's very likely this case will settle if the states agree with the position that the DOJ is taking."

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The Justice Department recently pointed to the pending release of Windows XP as a reason for a swift resolution of the case. In a briefing in Washington, senior justice department officials said they had no plans to block the release of Microsoft XP, which many PC makers are hoping will be a catalyst for flagging sales.

At the same time, they warned that all of Microsoft's practices and policies are subject to review and anything that smacks of being anti-competitive will be challenged in court.

Microsoft had very little to say about Thursday's developments. "We remain committed to resolving the remaining issues in the case," said spokesman Vivek Varma.

Varma said that the Justice Department notified Microsoft of its decision not to seek a breakup or pursue the browser-tying issue earlier Thursday and that both sides have been working together on a joint status report on the case, which they will present to U.S. District Judge Colleen Kollar-Kotelly on Sept. 14.

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Kollar-Kotelly was named as a replacement for Judge Jackson, who was barred from further proceedings in the case after the appeals court found that he had violated judicial ethical standards by making certain public comments about it.

Attorneys for Microsoft and the Justice Department are to appear in court Sept. 21 to begin the new proceedings in the now four-year-old case.

Microsoft has also requested a Supreme Court review of the case, arguing that Judge Jackson's conduct is grounds to vacate his entire decision. A decision on whether the High Court will consider the matter is not expected until next month at the earliest.

Shares of Microsoft (MSFT: up $0.32 to $56.34, Research, Estimates) fell nearly three percent Thursday on Nasdaq. graphic