DOJ explores curbs on Microsoft

The Justice Department's investigation of Microsoft is turning away from gathering evidence that establishes anticompetitive practices and is now focusing on possible legal remedies, sources said today.

Microsoft stock fell slightly on the news, dipping 2-13/16, to 90-3/16.

It was not immediately clear whether the shift indicates that regulators are satisfied that the department has finished building its case against Microsoft, which has repeatedly denied any wrongdoing. But those familiar with the investigation said regulators have been examining what reparations the department should seek if it decides to file a broader lawsuit under the Sherman Antitrust Act.

"The DOJ is no longer in a debate about whether or not there are anticompetitive practices, but now is at a stage to determine what is meaningful relief," said a source familiar with the investigation who works for a Microsoft competitor. The department's "chief economist [Dan Rubinfeld] and [antitrust division head] Joel Klein are traveling around the country reaching out for advice," the source said.

Outside legal analysts say the department would be wise to think long and hard about remedies for possible anticompetitive practices. Critics have denounced Klein's predecessor, Anne Bingaman, for negotiating the 1995 consent decree at the heart of the current dispute between Microsoft and the Justice Department, saying that the agreement has done little to rein in the Redmond, Washington-based software company.

Klein "is aware of criticism of his predecessor that the Justice Department too often tended to accept consent agreements that were relatively trivial," said William Kovacic, a professor specializing in antitrust at George Mason University's school of law. "Many people who have urged the Justice Department to step in, I think, have slighted the difficulty of devising effective remedies."

Legal experts said remedies could come in two forms: one-time, "structural" options that require some sort of divestiture, or "conduct" remedies that prohibit or require certain practices. For years, Microsoft critics have advocated separating the company's software applications operations from its operating system arm. But Kovacic said that concerns about innovation and political fallout will make the government extremely reluctant to break up Microsoft in that manner.

"That's seen as a troublesome answer, because it's believed there are genuine benefits in having applications integrated into the platform," Kovacic said. "If you force them to split those apart, there will be serious potential losses in product quality."

Microsoft competitors have no shortage of ideas about what remedies they would like to have put in place. Indeed, a number of the competitors recently have been discussing possible reparations among themselves. While divestiture usually tops the list, they cite other steps that they say would help smaller companies compete against Microsoft. Those remedies include:

Requiring Microsoft to provide equal access to technical information about its operating system. Critics have charged that Microsoft applications developers get an unfair advantage by having full access to information about the system while competitors do not.

Prohibiting predatory pricing. Critics say that Microsoft's deep pockets allow it to subsidize struggling products in a way smaller competitors cannot. One possible remedy is to prevent Microsoft from giving products away, except during brief, promotional periods.

Permitting original equipment manufacturers to interrupt the boot sequence of Microsoft's operating systems. Current contractual terms prevent computer makers from controlling the opening screen of Windows 95, giving Microsoft significant influence over what Web sites, Internet service providers, and applications are used.

Prohibiting the bundling of Microsoft software with other products and services.

Prohibiting preannouncements of products more than six months in advance. So-called vaporware announcements, critics said, are designed to thwart efforts by Microsoft competitors to bring new products to market.

The establishment of a body to monitor Microsoft's compliance with antitrust principles. Critics argue that the current system, which requires the Justice Department to take Microsoft to court each time it unearths what it believes is an anticompetitive practice, is too burdensome and lengthy to be effective.

But Rich Gray, an antitrust attorney at Bergeson, Eliopoulos, Grady & Gray, said that none of these measures goes far enough. He argued that "it's very hard to put fences around" Microsoft's monopoly in the desktop operating system market.

In addition, Gray said, a broader suit against Microsoft that does not seek to break up the company would be a waste of taxpayer dollars. "Klein is on record as saying that Microsoft has a monopoly," he added. "For [the Justice Department] to file a lawsuit and not to break up Microsoft is a seal of approval from the DOJ that Microsoft is using its monopoly power only in appropriate and lawful ways."