Breaking up will be hard to do, Microsoft argues

By T.K. MALOY, UPI Deputy Business Editor

WASHINGTON, Feb. 27 -- Lawyers for Microsoft and the Justice Department argued Tuesday in a federal appeals court over the question of breaking up the company as part of an ongoing antitrust suit.

Government lawyer David Frederick argued that, in antitrust lawsuits, any relief remedy must serve to restore competition, and the remedy in this case is a breakup of Microsoft. Steven Holley, representing Microsoft, said that Department of Justice was trying to "punish" the company.


The U.S Court of Appeals for the District of Columbia took the case after U.S. District Court Judge Thomas Penfield Jackson issued a judgment last June that the company should be broken into two separate entities -- including an operating systems company and an applications software company -- as a relief remedy to its antitrust violations.

Jackson's breakup judgment followed his November 1999 finding that Microsoft had illegally sought to drive its competitors out of the marketplace. It also came after four months of unsuccessful mediation between Microsoft and the Department of Justice, during which Richard Posner, Chief Judge of the Seventh Circuit Court of Appeals, acted as the appointed mediator.


Microsoft argued Tuesday for a reversal of Jackson's June 7, 2000 decision.

"Microsoft believes that the District Court's relief is unsustainable," said Holley of the government's case. "It was a clear abuse of discretion. No account was taken of the grievous harm that this would do to Microsoft and to the consumer."

Holley said that government had no "basis for determining if relief is in the public interest" and was "operating on an illegitimate desire to punish Microsoft."

"The breakup is punitive because it is out of proportion to any antitrust violations," Holley said.

For the government side, Frederick argued that breaking up the world's largest software company was necessary to restore competition and counter Microsoft's monopoly on computer operating systems, saying that it would definitively end the company's "unlawful conduct."

"The purpose of the remedy is to stop violations and restore competitive conditions," Frederick said.

Frederick emphasized for the court that the "reason the United States brought this case was to protect the competitive process." A process, which he said, had been circumvented by Microsoft's paying of bounties, its threats to cancel software licenses with partner companies, and its bundling of application technologies with the Windows operating system in such a way as to prevent other software from running on the system.


At the heart of arguments over the last several days is whether Microsoft illegally maintained the monopoly of its Windows operating system by anti-competitive attempts to crush rival company Netscape Communications, during the "browser wars" of the mid-to-late-1990s.

The company has argued that its business conduct toward Netscape and that company's Netscape Navigator browser was all part of standard competition, while the government has argued that Microsoft was trying to use its monopoly power to stifle the smaller rival.

While Netscape's share of the browser market has dropped markedly in the last several years, the company still exists and is now a division of AOL Time Warner.

Depending on what the appeals court decides, the earlier ruling by Judge Jackson could be reversed in total or in part, or upheld, in which case, the company would probably take the case to the Supreme Court. If Microsoft wins in the appeals court, the government can appeal to the Supreme Court; whether to do so would of course be a matter for the Attorney General John Ashcroft.

The company has also asked that the case be overturned because statements made by U.S. District Judge Thomas Penfield Jackson, who ruled that the company should be split, showed "bias" against the company.


In a Jan. 8 issue of the New Yorker magazine, Judge Jackson told journalist Ken Auletta that he thought Microsoft head Bill Gates " has a Napoleonic concept of himself and his company, an arrogance that derives from power and unalloyed success, with no leavening hard experience, no reverses."

At issue, however, is whether various statements made after or during the trial in which Judge Jackson presided indicate a bias against the company prior to the trial, in which case a judge would normally recuse himself from hearing the case.NEWLN:

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