Rift Develops Over Microsoft Punishment

Some of the states suing Microsoft Corp. for antitrust violations are seeking to submit a separate remedy proposal despite a federal judge’s admonition that they join with the U.S. Justice Department and offer a single plan to punish the software giant.

Wary of the volatile stock market and the potential negative impact on the economy, the Justice Department may take a more cautious approach than the states and not seek a breakup of Microsoft or other such severe punishment.

The split among government hard-liners and more-moderate trust busters emerged Thursday during a meeting in Chicago among lawyers for the 19 states that have joined the federal government in suing Microsoft. The states have been working furiously to hash out remedy alternatives to meet their first deadline, April 25. They still have wide areas of disagreement among themselves despite a furious exchange of conference calls, e-mails and faxes during the weekend and Monday.

But at least some states are distancing themselves from a comment made by Wisconsin Senior Assistant Atty. Gen. Kevin J. O’Connor, who told presiding U.S. District Judge Thomas Penfield Jackson on April 5 that the states hoped to file a single proposal with the Justice Department, a court transcript said. O’Connor, who recently has drafted many of the state’s court submissions, could not be reached for comment.

But any separate filing by the states would likely be welcomed by Microsoft because it would probably prolong the remedy phase of the landmark antitrust case and make the case even more irrelevant amid a fast moving technology industry and changing economy.

Indeed, several experts said Monday that a slumping stock market may have further dampened whatever antitrust enthusiasm remained for a breakup of Microsoft, whose Windows software runs more than 90% of all personal computers.

The Justice Department has been mum about what remedies it plans to seek against Microsoft and has not even indicated to the states what it might do. Among the remedies under review are requiring Microsoft to offer Windows at a uniform price, giving computer makers greater freedom to customize Windows for consumers or separating Microsoft’s Internet Explorer browser from the Windows operating system.

Nevertheless, while some lawyers dismiss any notion that the stock market might have an impact on the Microsoft case, Jackson appeared concerned about a sharp drop in the Nasdaq average when he ruled April 3 that Microsoft violated federal and state antitrust laws.

In a meeting with Microsoft and government lawyers on April 4, Jackson spoke openly about expediting resolution of the Microsoft antitrust case “because I don’t want to disrupt the economy or waste any more . . . time on a remedy if it’s going to come back here” on remand from a higher court.

What’s more, courts have, in the past, taken depressed economic conditions into consideration when assessing punishment.

In a much cited case involving Appalachian Coals during the Great Depression, the Supreme Court allowed coal companies to form a common selling agent, because of the adverse economic conditions.

“It basically amounted to a form of price fixing but the court apparently allowed it because the industry was in such distress,” said Andrew Gavil a law professor at Howard University.

Similarly, the stock slump may also provide less incentive for Jackson to consider the severest structural remedies, such as a breakup of Microsoft.

Jackson’s fast-track court calendar indicates he may be disinclined toward the company’s breakup anyway. Experts say Jackson would have to have fairly extensive remedy hearings and hear from experts to lay the groundwork for a breakup of the company.

Now, the steep drop in the value of the stock market over the past two weeks could bolster the case not only for a rapid resolution of the Microsoft antitrust case but one that will make Redmond--and Wall Street--happy.

“Even though I think it’s unwarranted, the stock market volatility may introduce some caution in fashioning a structural remedy,” said Robert E. Litan, an antitrust expert who is director of economic studies at the Brookings Institution think tank in Washington.

Rob Enderle, a senior analyst at Giga Information Group, argues that “the Microsoft case was seen as one of the triggers for this latest slide in the stock market. This whole thing has made a number of (investors) very, very nervous.”

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