ARTICLE 1
Prosecutors Seeking to Break the Grip of Windows System
Final Decision Is Judge's, but Recent Finding Emboldens Plaintiffs to Talk
Tough
By JOEL BRINKLEY
The New York Times
November 10, 1999

WASHINGTON -- The state and federal officials prosecuting the Microsoft
antitrust case now say that their goal in any settlement, or court-imposed
remedy, will be to break the company's monopoly in personal computer
operating systems, or limit its ability to wield such monopoly power.
The Justice Department officials and state attorneys general have not
decided how that should be done. Several proposals are on the table, from
forcing the Microsoft Corporation to publish the proprietary code for the
Windows operating system to breaking up the company.

In the end, Federal District Judge Thomas Penfield Jackson, who oversaw the
trial, will be the one to approve a settlement or select a remedy, after
receiving recommendations from the plaintiffs. But even before a final
verdict, which is expected in February, the plaintiffs have been emboldened
by the judge's findings on Friday that Microsoft used its operating-system
monopoly to stifle innovation, reduce competition and harm consumers.
The officials say that their goal is to create competition in the
operating-system market -- or to put sharp limits on Microsoft's ability to
exercise monopoly power.

"We are now in a position to get a rather dramatic remedy," said Eliot L.
Spitzer, the Attorney General of New York, the lead plaintiff of the 19
states in the case. "It's an overwhelming opinion now that it has to
address their monopoly in operating systems."

In the 18 months since the Justice Department and the states filed suit
against Microsoft, much of the talk about the case has involved Internet
browsers and Microsoft's decision to build its browser into Windows. But
Judge Jackson's findings made explicit what was implicit before: The case
is really about the operating-system monopoly and Microsoft's use of it to
promote other products.

"When we started this case, we had nowhere near as specific and clear an
idea how serious and far-reaching the evidence of this abuse of their
monopoly would be," said Richard Blumenthal, the Attorney General of
Connecticut.

He added: "The case showed that Microsoft's abuse of its power in the
operating-system market is endemic to its conduct, and any remedy has to
deal with that."

James E. Doyle, the Attorney General of Illinois, agreed, saying, "Any
remedy has to talk about the operating system monopoly."

Pre-eminent among the judge's findings was Microsoft's abuse of its
monopoly, a finding that swept some of the softer remedies -- like forcing
it to revise some contracts with other companies -- from consideration.

One professor noted that "breaking up" a company is not such an extreme
concept for the federal government.
When Judge Jackson released his preliminary verdict on Friday, Joel Klein,
the assistant United States attorney general who heads the antitrust
division, said that any settlement or remedy would have to "fully and
properly address" the problems cited by the judge, though he has not
elaborated on how he hopes to accomplish that.
Before Friday, the state attorneys general seemed to take a tougher line
than the Justice Department. For months, they have called for restructuring
Microsoft or its products, though they were not necessarily focused on the
operating system.

Now they are unified in the position that the problem is the Windows
monopoly, and they say that the Justice Department has joined them in that
view.

"The judge's findings have moved the states from rabid hawks to
mainstream," said Wayne Klein, head of the antitrust division in the Utah
attorney general's office.

Mark Murray, a spokesman for Microsoft, said, "We believe it is premature
for anyone to be talking about regulatory steps before the court actually
issues a ruling."

Herbert Hovenkamp, a professor at the University of Iowa College of Law who
is advising the states, said: "If the findings show significant abuse of
monopoly power, then the appropriate remedy is to break up the monopoly --
not to hobble the company or try to regulate it."

He noted that "breaking up" a company is not such an extreme concept for
the federal government. Quite often recently, the government has required
companies to spin off units to win approval for a merger.

But splitting up Microsoft is hardly the only proposal under discussion.
Lockyer said he believed it was possible to compel Microsoft to live within
the law with its current structure, though he said he worried about the
effectiveness of any agreements that were limited to changing the company's
conduct, like Microsoft's 1995 consent decree with the Justice Department
to end an earlier antitrust investigation.

"It may be that we could devise conduct guarantees that are more
enforceable than in the past," he said.
Some other state attorneys general disagree, saying that such guarantees
would not be effective.
Among the conduct guarantees under discussion are proposals to force
Microsoft to charge every computer maker the same price for Windows, so
that it could not impose higher prices to punish rivals or those that do
business with them.

Such a proposal would also have to include clear guidelines on what
Microsoft products and services it could build into Windows, government
officials say. But those ideas would require constant regulatory scrutiny
that many government officials oppose. The Justice Department and the
states have not said how they will resolve these issues.

The officials say four other remedies are under discussion, though each
could be applied in a variety of ways and might be combined with elements
of others. Not surprisingly, Microsoft said it opposed all of them.
One idea would be to force Microsoft to publish the secret, proprietary
source code that makes up the Windows operating system. The goal would be
to let other software developers design competing operating systems that
are compatible with Windows and the many thousands of programs that are
written for it.

In the early 1990's, when IBM was trying to sell OS/2, its operating
system, the company said it was stymied because software companies were
unwilling to rewrite their programs for OS/2. Without access to the Windows
source code, IBM could not make OS/2 compatible with the existing library
of programs written for Windows.
Another idea long favored by the states would be to force Microsoft to
auction the Windows source code so that two or three other companies could
sell competing systems. In that case, Hovenkamp noted, the competing
companies would have to set up a "joint venture for compatibility
standards" so that computers and software would work equally well with each
system.

In addition, the officials are reviewing two proposals for breaking up
Microsoft. One would split it into several equal parts; each new company
would hold all the software code and intellectual property from Microsoft
products. But they would begin competing with each other.

A final alternative is breaking Microsoft into three companies, one
controlling its operating system; one its applications programs, like Word
and Excel; and the third its Internet and related businesses.

The problem with this idea is that one company would retain an operating
system monopoly. And even if this company's business were limited to
selling operating systems, it could still bundle other products with the
operating system -- the very problem that initiated Microsoft's current
problems with the government. Monitoring that would also require continuing
government involvement, something no one in state or federal governments want.

Should the judge find Microsoft guilty and impose a remedy, the company
will certainly appeal. But the plaintiffs -- the states and the federal
government -- also have to right to appeal, should they be unhappy with the
judge's decision.

---------------------------
ARTICLE 2
Europeans Have Deferred to U.S. in Microsoft Litigation
By EDMUND L. ANDREWS
The New York Times
November 10, 1999

FRANKFURT -- It is almost impossible to walk into an office in Europe and
not bump into desktop computers that run Windows 95 and other Microsoft
programs like Word and Excel.

So it was hardly surprising that the scathing appraisal issued in the
Microsoft case by Judge Thomas Penfield Jackson last Friday has been
front-page news across the Continent.

"Bill Gates has had it now," Die Tageszeitung, an irreverent left-of-center
paper in Berlin, asserted. The conservative daily Die Welt predicted that
"the giant will pull its head out of the noose."

European competitiveness officials have not been shy about challenging
Microsoft -- five years ago they cooperated with American regulatory
authorities in an antitrust investigation that the company settled by
changing contracts with personal computer manufacturers and eliminating
some restrictions on software makers.

In addition, the competitiveness office of the European Commission, the
European Union's executive body, is investigating at least two formal
antitrust complaints against Microsoft, one from a personal computer maker
and the other from a software maker, a spokesman, Michael Tscherny said. He
would not identify either company but said their complaints concerned
Microsoft's operating systems for personal computers and for the larger
machines called servers.

Over the last year, Europe's competition officials, who are based in
Brussels, have deferred to American prosecutors pursuing their antitrust
case against Microsoft. The Europeans hoped to avoid a long and expensive
investigation of their own.

Referring to Judge Jackson's finding of fact, Tscherny said on Monday that
officials would "study the judgment" and carefully monitor how the case is
finally resolved.

Such a strategy makes sense because Microsoft might be expected in Europe
to duplicate any changes in its policies or its structure that were imposed
or negotiated in the United States.

The Europeans have been aggressive about challenging other American
companies. Karel van Miert, who recently stepped down as head of the
competition directorate, forced the Boeing Company to abandon some of its
long-term contracts with major airlines before he signed off on Boeing's
acquisition of McDonnell Douglas. Though both aerospace companies were
American, they needed European approval to do business here.
But in that case, American antitrust officials took a much more benign view
of Boeing's practices than the Europeans did. European officials were
concerned with protecting the big Continental rival of Boeing, Airbus
Industrie. By contrast, Microsoft's most prominent critics are United
States companies like America Online and Sun Microsystems, with European
software companies largely on the sidelines.

But too tolerant a settlement could prompt initiatives.

That could change. If Microsoft and the Justice Department settle the
antitrust charges with measures that the European authorities consider too
mild, the competitiveness agency could initiate its own proceedings based
on evidence that has come up in American court proceedings.

But the European regulators are already straining under other pressures.
They oversee hundreds of routine merger approvals a year and mount dozens
of more intensive investigations. These officials have also acted against
alliances in European digital television, charged car makers with trying to
hinder cross-border transactions and recently opened an investigation into
the pricing of Internet access services by European telephone companies.

Given all that, the competitiveness authorities in Brussels have chosen to
generally steer clear of questions involving Microsoft.

But Microsoft has hardly avoided Europe. As it has in the United States,
the software giant has been looking for deals with European cable
television operators and mobile phone companies, which are rolling out
wireless Internet services.

Microsoft reached an agreement to acquire 29.7 percent of Telewest, the
British cable TV operator, from Mediaone. It has also held discussions with
Bertelsmann and Deutsche Bank, both of which have been interested in buying
cable television systems from Deutsche Telekom.

None of that is expected to be much affected by the outcome of Microsoft's
court battle in Washington with the Justice Department.

Copyright 1999 The New York Times Company
--------------------------------------------------------
He that lives on Hope, dies farting
     -- Benjamin Franklin, Poor Richard's Almanack, 1763
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Gregory J. Rosmaita <[log in to unmask]>
   WebMaster and Minister of Propaganda, VICUG NYC
        <http://www.hicom.net/~oedipus/vicug/index.html>
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