The Justice Department announced Thursday that it will not seek a breakup of Microsoft Corp., sharply contrasting with the Clinton administration and handing the software giant a win in its ongoing battle with the government.
A federal judge last year concluded a lengthy antitrust case by ordering Microsoft split into two companies. But an appeals court had sent the case back for further arguments, and Thursday’s announcement heartened those who hoped the Bush administration’s pro-business views would prompt a gentler approach to the company.
The Justice Department also dropped claims that Microsoft had illegally “tied” its Web browser to its dominant Windows operating system, thereby foisting the product on consumers. Some considered the tying claim to be among the government’s weakest allegations.
Justice Department officials said in a statement that the breakup and tying issues would simply have dragged out the case and that dropping them will enable the sides to reach a quick solution benefiting computer users. Others, however, were skeptical that Microsoft will now be more conciliatory.
“The department is taking these steps in an effort to obtain prompt, effective and certain relief for consumers,” the government’s statement said. “The department is seeking to streamline the case with the goal of securing an effective remedy as quickly as possible.”
Department officials said that despite dropping the goal of a breakup, they would try to force Microsoft to change its behavior through other remedies. For example, it may try to force Microsoft to abandon exclusive deals with certain partners.
It is unclear how the Justice Department’s actions will affect settlement talks. Some predicted the new situation would speed up negotiations, while others argued Microsoft would simply be emboldened to dig in and resist any compromise.
Microsoft shares fell $1.72, to $56.02, caught up in a stock market generally depressed by heavy selling during a day of mixed retail sales figures and uninspiring economic news.
Though the Justice Department’s announcement brought good news in terms of keeping the software giant intact, it’s still unclear whether penalties to come will affect October’s scheduled release of Windows XP, the much-anticipated update of Microsoft’s signature operating system. The Justice Department apparently will not seek to halt its distribution, but said it would review developments in the industry.
Microsoft’s critics were bitterly disappointed with the Justice Department’s moves, saying the department was capitulating just two months after winning a resounding court victory in the U.S. Court of Appeals. Although that decision had put the breakup on hold, the court also unanimously found Microsoft had acted illegally to preserve its monopoly.
“They won huge,” said Edward Black, president of the Computer and Communications Industry Association. “This is like the allies in World War II on the outskirts of Berlin saying, `We are going to go back and camp out in Britain.'”
The Justice Department’s decision enabled Microsoft to avoid what would have been in essence a corporate death penalty–Judge Thomas Penfield Jackson’s June 2000 order that the softwaremaker should be split in two. One company would make operating systems, and the other would develop Microsoft’s remaining software and Internet products.
Battle has raged 4 years
The antitrust case, filed four years ago, was a classic battle between government and business. It pitted crusading government lawyers, led by former Atty. Gen. Janet Reno, against the company that epitomized the computer revolution and founder Bill Gates.
In contrast with the Clinton administration’s zealous pursuit of Microsoft, the Bush White House has been more supportive of business and hostile to litigation.
Despite the boost the new development gives Microsoft, the company responded tersely. Spokesman Jim Desler would say only, “We remain committed to resolving the outstanding issues in this case.”
After a long trial in which Microsoft made many missteps, Jackson last year accepted virtually every recommendation of the Justice Department and the 18 states that remain in the lawsuit. Jackson said Microsoft had broken the law, refused to acknowledge it, and “has proved untrustworthy in the past.”
That near-total government victory was put on hold in June, however, when a seven-member appeals court blasted Jackson for improperly discussing the case with reporters. They upheld Jackson’s finding that Microsoft had broken antitrust laws and abused its monopolistic powers, but sent back the portion of the case that sets remedies, ordering that it be supervised by another judge.
The Justice Department’s decision to abandon the breakup comes as that new judge, Colleen Kollar-Kotelly, is preparing to hear arguments.
Other remedies on table
U.S. officials said they would continue to press other remedies. Those could include forcing Microsoft to license Windows to all computer-makers on equal terms and to allow them to alter the computer’s “desktop” screens to include icons from Microsoft competitors. The company could also be forced to give other softwaremakers wider access to the underlying Windows operating code.
The state attorneys general who had joined the suit against Microsoft supported the Justice Department’s action Thursday, including some who had taken a relatively hard line. “This decision, while difficult, was driven by a realistic, clear-sighted view of the clock,” said Connecticut’s Richard Blumenthal.
Illinois Atty. Gen. Jim Ryan held a news conference to add his support, saying the important thing is to change Microsoft’s conduct.
“I think this will frankly serve our purposes,” Ryan said. “The attorney general’s office in Illinois doesn’t want more litigation; we want compliance. Microsoft has done a lot of good things, but Microsoft has to comply with the law.”
An immediate question is whether the Justice Department’s decision will affect the Oct. 25 release of Windows XP.
“I think they release XP at their own peril,” said Steven Newborn, a former member of the Federal Trade Commission. “The very things they are doing with XP are the things a district court judge could find are illegal.” But others disagreed.
The varied reactions to the Justice Department actions reflect analysts’ different opinions on whether restricting Microsoft’s behavior, as opposed to dismantling the company, is enough to change the conduct of a company that grew through aggressive tactics but is now an established corporate citizen.
“Nobody should kid themselves that the broad problems of XP, or the broad problems of the misuse of monopoly, are going to be solved by this action,” said the computer association’s Black. “This company is too big, too powerful, too unrepentant and too persistent.”
