Anti-Breakup Arguments From Microsoft Win Delay From Judge
In a surprise move, the judge in the Microsoft Corp. case Thursday ordered more filings from the government and the software giant before he issues a final ruling on how Microsoft should be punished for antitrust violations.
U.S. District Judge Thomas Penfield Jackson granted an additional week of proceedings after government lawyers told Jackson during a conference call that Microsoft’s lawyers raised some legitimate questions about the government’s proposed plan to break up the company for violating state and federal antitrust laws.
“From a quick review, some number of those [issues raised by Microsoft] seem to make some sense to us, and we would like the opportunity to go through those in detail and to give the court our view on that,” said David Boies, the New York trial attorney hired by the Justice Department to lead the government’s case against Microsoft.
Jackson gave the government until Monday to file additional comments and told Microsoft it could have until Wednesday to respond.
The government’s request came after the Justice Department on Wednesday issued a categorical denunciation of Microsoft’s response to the government’s revised breakup plan submitted to Jackson on May 26. Department spokeswoman Gina Talamona declared that Microsoft’s response did “not come to grips with the facts that Microsoft has been found to have repeatedly engaged in serious legal violations.”
But after mulling over Microsoft’s analysis, which charged that the government failed to address everything from the tax consequences to foreign government regulation of Microsoft’s businesses, the Justice Department had a more sobering response Thursday.
“We believe that it was appropriate to request a short opportunity to comment on Microsoft’s specific suggested changes, both to determine if there are a few that we can accept without undermining our proposed remedies and also to offer our reasons for urging rejections of the others by the court,” Talamona said.
Although Microsoft raised dozens of issues in its response Wednesday, the government’s concern appears to focus on a handful of technical and procedural issues centering on how much time Microsoft is given to plan for a breakup. The government also appears willing to tinker with several financial and regulatory issues arising from its plan to divide Microsoft into one company that would market Windows software and a separate company that would sell all other Microsoft products.
Microsoft’s main challenges are:
* That it needs a year, not four months, after final judgment to plan for a breakup, in part because of complex tax considerations and regulatory issues in the more than 70 countries where the company operates. Experts say the government might offer Microsoft additional time.
* That it wants the operating-systems business and the applications business to be able to reunite in four years, not 10 years as the government has proposed. Microsoft also wants to allow the two businesses to license technologies from each other. Experts say the government will probably not budge on this issue.
* That the government’s bid to carry out its breakup as a “spinoff” transaction “would be impermissible” because securities law requires that stock from a spinoff be distributed to “all existing shareholders on a prorated basis.” Because the government’s plan bars large shareholders, such as Microsoft Chairman Bill Gates, from owning more than 5% of one of the split off companies, Microsoft suggested there should be an issuance of new stock. Experts say the government likely will accommodate this change.
Microsoft’s line-by-line rebuttal of the government’s breakup plan impressed even some of the company’s harshest critics, who said the analysis indicates the company is finally taking the sweeping antitrust case against it seriously.
“It looks, for the first time, like Microsoft is taking things seriously and now the government is urging [Judge] Jackson to slow down a little and consider some of their points so any judgment will hold up better on appeal,” said Robert H. Lande, a law professor at the University of Baltimore who has closely followed the case.
Microsoft spokesman Jim Cullinan said his company’s response was more a reflection of the sloppiness of the government’s proposal than any change in legal strategy.
“It’s certainly telling that the government is going through draft No. 3,” Cullinan said. “It underscores the fact that the government’s proposal was poorly thought out from the start. But even with our changes this proposal remains extreme and damaging to consumers. . . . We don’t support this remedy in any way, shape or form.”
