Microsoft now must sweat the 'B' word

The unthinkable -- a breakup -- now thinkable in wake of ruling

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		Discuss: should the government break up Microsoft?

By Will Rodger, USATODAY.com

In the wake of a scathing federal court finding Friday, the nearly unthinkable has become very thinkable: A breakup of software giant Microsoft.

Microsoft’s critics themselves used to call these remedies extreme. But some legal experts now say the government has no real alternative to forcing the company to shed assets.

Even Congress has taken note. Jeanne Lopatto, spokeswoman for Senate Judiciary Chairman and Microsoft critic Orrin Hatch said Monday the committee will likely hold hearings weighing a range of remedies once Judge Thomas Penfield Jackson makes a final ruling.

"Whatever happens, our committee will take a very careful look at this," Lopatto said.

Possibilities run the gamut. The judge could:

Split Microsoft into a collection of so-called "Baby Bills," which would compete among themselves by selling rival versions of Windows.

Divide the company into three pieces -- one for the operating system, one for software applications and one for e-commerce and Internet services.

Force Microsoft to license Windows source code to its competitors, freeing them to innovate without fear that Microsoft will introduce incompatibilities that will torpedo their products.

The only other option, critics say, is long-term regulation and that would surely result in a hobbled, distracted Microsoft that would fail shareholders and consumers alike.

They draw on rulings from past corporate breakups -- AT&T Corp. in 1982, and the legendary turn-of-the-century breakup of Standard Oil -- to make their case.

"In the case of major violations where the company's behavior clearly went over the line on numerous occasions, a structural remedy is needed," University of Baltimore Professor of Law Robert Lande said Monday.

Jackson should be especially skeptical of a remedy that forbids certain conduct in lieu of a break-up. He cited the controversial 1995 consent decree under which Microsoft agreed not to bundle other applications with its operating system, except when they were "integrated" with Windows.

The Justice Department thought that language forbade Microsoft from adding its Internet Explorer to Windows. An appeals court, however, disagreed, which effectively rendered that anti-monopoly language moot.

"The lesson of the AT&T case is it started out as a divestiture but it eventually became a series of rules for regulating long-distance," said Glenn Manishin, a Washington D.C. lawyer who specializes in technology issues. "The most radical solution is actually the most conservative."

In support of Microsoft

Microsoft supporters marshal an array of objections that seem sure to weigh heavy on the mind of any judge. Yet Microsoft attorney Charles F. Rule Monday stopped short of the off-hand dismissal with which he once treated the idea of a breakup.

"I think the discussion of remedies is premature," he said. "We’re not going to know how the judge views the various claims of the government until he issues his ruling…The fact is the courts have been pretty reluctant in (similar) cases to propose dissolution or divestiture as a remedy."

AT&T and Standard Oil, Rule said, were divided up along geographical lines which reflected their growth through previous mergers. "There are no such natural dividing lines in this case."

Cato Institute Fellow Robert Levy said dividing the company along product lines would quickly bog in legal wrangling. Far from being a quick fix, he said, a break up of that type would draw Jackson in. In time, he could become a de-facto regulator as Justice Department lawyers and company officials sparred over what each company could or could not do.

Division into "Baby Bills" or forced licensing of Windows to rivals, Levy added, would "balkanize" Windows. As differing versions became more different, software producers would lose the massive economies of scale that come from writing software for one platform. That, in turn would force consumers into a wilderness of higher prices and technical incompatibilities.

Despite Friday's ruling, Microsoft officials still insist they will win the case.

"It's important to recognize that today's filing is just one step in an ongoing legal process that has many steps remaining," Microsoft Chairman Bill Gates said Friday. "We respectfully disagree with a number of the court's findings and believe the American legal system ... will affirm that Microsoft's actions and innovations were fair and legal and have brought tremendous benefits to millions of consumers."

But for Microsoft, the legal road ahead is a virtual minefield.

Come Dec. 6, government lawyers will tell Jackson why Microsoft must be punished for allegedly violating the nation's antitrust statutes. Microsoft will give its own justification for acquittal Jan. 17. The government will reply to Microsoft's statement by Jan. 24, and Microsoft to the Justice Department's by Jan. 31.

Sometime later, Jackson will tell the two sides what he thinks the law says about Microsoft's actions.  If necessary, both sides will have a chance to recommend penalties a month or more after they finish with their legal argument in January.

Government lawyers continue to rebuff questions about possible future remedies. "Premature" was the word repeatedly used by U.S. Attorney General Janet Reno, Assistant Attorney Joel Klein and Connecticut Attorney General Richard Blumenthal Friday night.

But legal experts say Friday's unexpectedly harsh and sweeping "findings of fact" have made the so-called antitrust "death penalty" more acceptable.

In a ruling that stretched for 207 pages, Jackson cited not 10 or 20 but literally hundreds of facts he determined in the course of the 67-day trial.

All but one of those 412 statements went against Microsoft or were at best neutral to its defense. Indeed, the judge adopted nearly every major point pushed by the government and dozens that appeared around the periphery.

Each side will have to weigh those words as it faces the December deadline. Although Jackson has set no date for his final ruling, legal analysts say another four to six weeks after Dec. 5 seems about right. Those "conclusions of law" will spell out in specific detail which laws -- if any -- Jackson believes Microsoft has broken, and how.

In addition to his legal conclusions, Jackson must at some point decide what penalty he will assess against Microsoft. He could do that at the same time he delivers his conclusions of law.

But Jackson will likely be as thorough in reaching conclusions of law as he was in reaching his findings of fact, Lande says. That means he will likely give both sides time to present economic arguments for and against breakup, regulation or both.

The entire process could be done with one economic witness and one set of briefs from each side. That could yield a judgment sometime in the spring. More witnesses and more briefs would push the decision off by several months or more.

From there, barring a settlement, the case will likely head to the federal appeals court in Washington, D.C., and then to the Supreme Court.