December 7, 1999 12:40 PM PST

Government filing may give clues on antitrust outcome

A breakup of Microsoft has so far been seen as the ultimate punishment that the government could impose in the antitrust battle--but now it could be turning into a strong bargaining chip for the company.

A possible turn in how a potential breakup of the company could effect the legal dispute between Microsoft and the Department of Justice largely revolves around the strength of the legal arguments filed yesterday by the DOJ and the 19 states pursuing antitrust claims against the software giant. Microsoft trial -
Conclusions of Law

Although the DOJ established some strong arguments, there are enough weak points in the government's proposed conclusions of law to diminish the likelihood that higher courts will someday support the breakup of Microsoft, legal experts said today. Unfortunately, the alternate remedies have largely been seen as problematic and difficult to enforce.

So rather than stonewall, Microsoft--although it has been adamantly opposed to "structural" remedies such as a breakup--could now use an offer to break itself up as a powerful bargaining chip that could quickly bring the case to settlement, legal experts said.

"I am now convinced this case will be settled and it will be with the breakup of Microsoft," Rich Gray, an intellectual property attorney with Outside General Counsel Silicon Valley.

Other agreed.

"The government would have a hard time rejecting an offer to break up," said George Washington University Law School professor Bill Kovacic.

In separate 71- and 42-page briefs on conclusions of law, the U.S. Justice Department and 19 states portrayed Microsoft as a monopoly that used illegal means to preserve its Windows franchise and to extend it into the Web browser market.

Microsoft's day in court Meanwhile, settlement talks continued yesterday. Unconfirmed reports had both parties meeting in Chicago with Judge Richard Posner, who there heads the U.S. Court of Appeals for the Seventh Circuit. Both sides first met with Posner on Nov. 30 at the request of U.S. District Judge Thomas Penfield Jackson, who oversees the case.

The papers filed yesterday essentially gave Microsoft its clearest picture of the government's case yet.

"It does help frame settlement negotiations somewhat in it helps make more clear what the government believes to be the high legal ground of its case," Kovacic said. "The government has now revealed every high legal card it has. That helps Microsoft decide how strong the government's hand is. In that sense it makes settlement more concrete and reveals exactly what the government thinks its case is worth."

For its part, the government made no glaring mistakes in its conclusions of law that Microsoft could seize onto during negotiations, but it also gained no significant advantage over the software maker, said University of Baltimore School of Law professor Bob Lande.

The government struck several blows in its brief that will likely put Microsoft on the defensive. Two of the best arguments: that the company used improper tactics against competing technologies--such as Netscape's browsers, Sun's Java, and Intel's Native Signal Processing-- to maintain a monopoly in existing markets and that it imposed contractual terms on ISPs and computer makers that led to restraint of trade, namely by limiting the ability of these parties to deal with Netscape effectively.

But the government stuck with other weak arguments: that Microsoft illegally tied Internet Explorer to Windows and attempted to extend its operating system monopoly into the browser market.

The "tying" argument runs throughout all of the government's arguments, but it works better in some applications than others. Overall, the government will have a difficult time in proving that incorporating the browser into the OS constituted a breach of antitrust law. On the other hand, contractual terms that effectively forced computer makers to adopt Explorer could well be proven to be violations of the law.

Showing integration constitutes a violation if the government wants a harsh remedy, such as breaking up Microsoft. That the government retained investment firm Greenhill & Co. indicates "the government will eventually ask the judge for a structural remedy," Kovacic said.

While it is not surprising the government would pursue both these arguments, the antitrust precedents it cited to support them could be a problem for the government, during negotiations and, later, on appeal.

"A number of these theories are hotly debated," he said. Microsoft will likely use that during negotiations and in its conclusions of law due Jan. 17.

Still, how Microsoft may actually act remains in the realm of speculation.

"We know as much today as we did last Thursday about their position on remedies," Stanton said. "If you're trying to read some tea leaves on what's going on in mediation, that could be significant. There is nothing in these filings to indicate the government has taken any particular remedy off the table or that there is any particular remedy they are insisting on. That is significant."

 

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