Microsoft rebuttal may drag out antitrust trial

The software giant's 'remedy' response, slated for May 10, could force Judge Jackson to grant it extra time to mount a defense against a breakup.

By Keith Perine
The Industry Standard, 05/03/00

WASHINGTON, D. C. - Lawyers for Microsoft (MSFT) are preparing a response to the government's broad "remedy" proposed to U.S. District Judge Thomas Penfield Jackson that is widely expected to push the trial's endgame well past a scheduled May 24 courtroom hearing.

Two hours after the government formally asked Jackson on April 28 to split Microsoft into two companies - one for Windows operating systems, subject to a raft of conduct restrictions, and one for Microsoft's Office software suite and other applications - the beleaguered software giant's general counsel, William Neukom, vowed to push for "a significant expansion of the remedy process."

Microsoft is still scheduled to file its response to the government on May 10. That filing, whether it arrives as scheduled or not, will have three parts: Microsoft's direct rebuttal of the government's proposal, the company's own remedy proposal and an outline of how Microsoft wants Jackson to structure the rest of the case.

"Even the government will have to agree that an American company deserves more than 12 days to respond to a government proposal to tear apart a $400 billion company," Neukom told reporters and analysts at an April 28 press conference.

In addition to battling the government in the legal arena, Microsoft has stepped up its appeals to the court of public opinion. The company is now running folksy TV ads featuring CEO Steve Ballmer, on the heels of similar ads last month in which company Chairman and "chief software architect" Bill Gates worshipped at the altar of innovation. Microsoft also has started a national newspaper ad campaign targeted at its "customers, partners and shareholders."

Microsoft is expected to rebut the government's proposal to Jackson by telling the judge that a company breakup is an unnecessarily harsh remedy wholly unrelated to the conduct cited in the trial, and one that ominously invites the heavy hand of government regulation into the software industry. The company's lawyers also are expected to ask Jackson for broad latitude to subpoena documents used in the government's internal remedy deliberations and to depose and cross-examine government experts and consultants, perhaps in open court.

But Microsoft so far has given little public indication of how it will structure its counter-remedy proposal to Jackson. According to a source familiar with the company's strategy, Microsoft probably will go no further than to propose milder "conduct remedies," such as a stipulation that the company ship versions of its Windows operating system without first welding on its Internet Explorer Web browser or that Microsoft be constrained from entering certain kinds of contracts with computer makers and other firms. Such welding is the germ of the government's greatly expanded case against Microsoft, but distrustful observers expect any remedies proposed by Microsoft to contain ambiguous loopholes, such as the ones that riddled the company's settlement offers to government lawyers in late March.

The software giant also might tell Jackson that no remedies are needed in the case, beyond perhaps a legal pledge by Microsoft not to further violate antitrust laws. The company might argue that changes already afoot in the software industry, combined with voluntary changes in its business practices, would be enough to ensure fair-market competition. The government is scheduled to respond to Microsoft's brief on May 17, and it likely will tell Jackson that he shouldn't grant Microsoft a lengthy remedy-phase schedule or broad new discovery rights.

"He's going to have to give them more of a chance to put on a case," says Richard Donovan, an antitrust lawyer at Kelley, Drye and Warren. "They might try to argue that there's no need for a remedy, but I just have to think they've learned their lesson by now."

Jackson is expected to leave the May 24 hearing on the schedule, but because he'll still be trying to balance the competing proposals now coming in, the hearing might consist of little more than oral arguments from both sides. While it's up to Jackson to decide how fast to move, the government's bold opening gambit likely will force the judge to grant Microsoft at least some additional time - and legal tools - to mount a defense against a breakup. That means public depositions and courtroom hearings that will push the case into its third summer. For more in-depth coverage of the Internet Economy, visit The Industry Standard, a sister publication to Network World. Copyright 2000 The Industry Standard. All rights reserved.