Microsofts Breakup Nixed; Behavioral Remedy On Deck

Microsoft Corp. may have scored a victory in the government's decision last week not to pursue the breakup of the company, but its legal battles are not over.

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

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

While antitrust experts and attorneys do not expect the government to try to delay the Oct. 25 release of the Windows XP operating system, they said the behavioral remedy will have implications for XP and other Microsoft operating systems going forward.

They also said 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 dumfounded 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 previously worked in the DOJs antitrust division and was involved in the Microsoft case.

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 takes a big bargaining chip off the table going forward," Faulk said.

The Justice Department also informed Microsoft, of Redmond, Wash., last week that it will not pursue the tying issue—essentially whether the integrating of its Internet Explorer browser with the Windows 95 and Windows 98 operating systems was illegal. The department 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 company remains committed to resolving the outstanding issues in the case. Desley also confirmed Microsofts interest in settlement talks.

But Stewart Gerson, a partner at the law firm Epstein, Becker and Green P.C., 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 Appeals Court for the District of Columbia Circuit 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, Gerson said, so the Justice Department should focus its efforts there.