With Microsoft Breakup Out of Picture, DOJ to Focus on Remedies

Microsoft Corp. may have scored a victory in the governments decision this week not to pursue the breakup of the company, but the companys legal battles are far from over.

The focus now shifts to finding a behavioral remedy that addresses Microsofts past misconduct in the desktop operating system market and prevents the company from repeating such behavior in the future.

While antitrust experts and lawyers do not expect the government to try to delay the Oct. 25 release of Microsofts Windows XP operating system, they noted that the ultimate behavioral remedy will have far-reaching implications for XP and other Microsoft operating systems going forward.

They also said that the government had thrown away one of its strongest bargaining chips by deciding not to pursue a structural remedy.

"I am completely confounded by the governments move not to keep the threat of a structural remedy on the table and am dumbfounded by its decision to publicly announce this move. In my view, it completely weakens their hand," said Dana Hayer, an antitrust expert at Fenwick & West LLP, in San Francisco, who worked in the Department of Justices antitrust division and was involved in the Microsoft case. "One of the worst possible negotiating tactics is to make a concession without getting anything back. I cannot see how this in any way helps the government get a stronger behavioral remedy."

Donald Faulk, an antitrust expert at Meyer, Brown & Platt in Palo Alto, Calif., agreed. "I am puzzled by this public announcement, particularly as settlement negotiations are ongoing. It certainly takes a big bargaining chip off the table going forward," he said.

The Justice Department also informed Microsoft this week that it would not pursue the tying issue-essentially whether the integrating of Microsofts Internet Explorer browser to the Windows 95 and 98 operating systems was illegal. The DOJ said in a statement that it was taking these steps "in an effort to obtain prompt, effective and certain relief for consumers."

The 18 state attorneys general who are pursuing the case along with the Justice Department support the move. Bob Brammer, a spokesman for Iowa Attorney General Tom Miller, who leads the 18-state Microsoft Working Group, said, "We have a strong and unanimous ruling from the Court of Appeals and are pushing to move to a speedy remedy."

Microsoft was subdued in its response. Spokesman Jim Desler said the Redmond, Wash., company remains committed to resolving the outstanding issues in the case. He also confirmed Microsofts interest in settlement talks.

But Stewart Gerson, a partner at law firm Epstein, Becker and Green in Washington, said that while the government may have lost its leverage around a possible structural remedy, its greatest weapon remains how it will deal with Microsofts operating system monopoly in the behavioral remedy.

Since the D.C. Appeals Court upheld the District Court finding recently that Microsoft employed anti-competitive means to maintain its operating system monopoly, the government still has a strong hand, Gerson said. "By completely focusing on a conduct remedy, the Justice Department brings the Windows XP operating system to the fore, and this gives it enormous leverage," he said.

The software companys greatest asset is its computer code and ability to innovate on it, he said, so the DOJ should focus its efforts there. "I think they will want Microsoft to allow third-party developers equal footing and insist that they be allowed to add features to the proprietary Windows operating system rather than just develop those that run on top of it," he said.

Meyer, Browns Faulk agreed that the conduct remedies would undoubtedly focus on the tying of products into the core operating system. "Windows XP is far from off the table, and there are still significant issues relating to it out there," Faulk said. "I expect the Justice Department to start looking at the conduct provisions in Judge [Thomas Penfield] Jacksons remedy and work from there. They are also sure to look at the high-pressure licensing and sales techniques Microsoft imposes on buyers of its products--not just its OEM partners but also those large corporate clients who buy direct under its myriad of licensing schemes."