Microsoft Strikes Back

May 10, 2000 at 12:00 AM EDT

MARGARET WARNER: Microsoft tells the judge breaking up is hard to do. Gwen Ifill has the latest.

GWEN IFILL: Two weeks ago, the Justice Department asked the judge in the Microsoft antitrust trial to split the software giant into two separate companies. The goal, according to the government: to break up an illegal monopoly. Late today, Microsoft submitted its response, rejecting the breakup plan, and instead proposing its own less onerous set of restrictions on its business practices. CEO Steve Ballmer spoke a short while ago in a video statement released at Microsoft headquarters.

STEVE BALLMER: Microsoft has made a proposal that responds to the court’s concerns and its conclusions of law. We think the proposal that we have made is reasonable and appropriate, unlike the extreme proposal the government has made to break up the company and to regulate the surviving companies in a way that would literally, I think, set back the high-technology industry and the American consumer years and years and years. While we may respectfully disagree with the court’s conclusions of law, I think we have clearly shown that even accepting them, there’s an appropriate response and remedy even if you accept those conclusions of law. There’s never been a company that has grown through its own efforts that has been broken up in this country. It would be like breaking up Michael Jordan and Scottie Pippen or breaking up John Lennon and John McCartney. They’ve had too many number one hits. I don’t think consumers would be very well served at all by that kind of action.

GWEN IFILL: Microsoft as the Beatles. Joining us again, as he has throughout the Microsoft trial, is William Kovacic, an antitrust professor at the George Washington university law school. Can you Professor Kovacic, walk us through what the Microsoft proposal was today — counterproposal was today?

WILLIAM KOVACIC: Microsoft today said first that the judge ought to simply strike the government’s motion to obtain a breakup, should simply cast it aside completely. By way of their own affirmative suggestions about what might be done, Microsoft offered to limit its freedom to control the ability of computer manufacturers to determine what consumers see when they turn on the computer, including allowing them to mask the Internet Explorer icon or take it off of the desktop completely. Microsoft also said that it would agree to limit its efforts in the future to intimidate its customers into dealing only with Microsoft products to the exclusion of competing products — to say to its customers that if you want to develop a rival type of software, we won’t condition the availability of our products and our cooperation on your willingness to abandon that.

Has Microsoft admitted wrongdoing?

GWEN IFILL: Now, this is an awkward situation for Microsoft. On one hand they were trying to make the point again that they felt they had done absolutely nothing wrong and that this entire case, especially the breakup provision should be just thrown out. At the same time they also had to propose remedies, which would concede if the judge accepted them they did something that was untoward.

WILLIAM KOVACIC: It is very awkward, on the one hand, to be saying we’ve done nothing wrong, we think the law supports us completely. But, oh, by the way, if we have done something wrong here’s a suitable set of punishments. I think it was important for the company to do more than simply be a nay sayer, that it was important to offer a set of counterproposals if for no other purpose than to shift the judge’s gaze away from the breakup side of the remedy menu, and to focus it on conduct possibilities.

GWEN IFILL: And part of what they were also doing was taking apart the government’s case again, especially the parts that weren’t presented in court by outside experts, saying that the government’s proposal was — a punishment was greater than the crime that they were accused of.

WILLIAM KOVACIC: Part of what they were arguing is that the government rests its case for divestiture on the possibility that Microsoft’s market power will migrate into other product areas, including some that did not attract a great deal of attention during the trial itself. Microsoft is saying at a minimum if you want to move into those areas, you have to allow us a relatively elaborate opportunity to probe the assumptions on which those requests are based.

GWEN IFILL: Microsoft also said that the government’s conclusions were based on an unsettled set of legal standards. What are they talking about?

WILLIAM KOVACIC: They’re pointing to the fact that a number of existing areas of antitrust doctrine are somewhat turbulent — that you can point to competing strains — some of them very permissive, some of them more restrictive. They’re arguing in effect that they’ve been caught in the work between those and shouldn’t be held to a drastic remedy because no firm reasonably could have predicted how those competing views of the law would be resolved.

Past antitrust cases

GWEN IFILL: There area lot of competition between what is happening here in the antitrust case with Microsoft and what happened to AT&T and Standard oil. Microsoft argues that this is not the same case at all.

WILLIAM KOVACIC: There have been 34 occasions since 1890 when the government has achieved a breakup of some type. Microsoft is arguing that in the 24 or so cases in which a court mandated the breakup, that the core basis for the assembly and maintenance of monopoly power was a merger or a conspiracy. They’re arguing that no court has ever engaged in a breakup where the firm did not grow and remain big through those means, that its means are curable simply by controlling the bad conduct, not simply dissolving the result of a merger.

GWEN IFILL: Let’s take a look at the remedies that Microsoft is proposing. For instance, you mentioned taking off that icon when you turn on your screen, the very first thing you see is their browser. Is that significant, these kinds of proposals that they came up with today?

WILLIAM KOVACIC: In one respect it seems to address a concern that Judge Jackson did mention several times during the trial. On several occasions he posed the question: Why can’t you offer a version of Windows that does not tack the Internet Explorer into the Windows operating system? I think a question that will certainly be raised as the government response to this document a week from now is whether or not the tactic that was used, in fact, might be replicated in other areas and does that dictate a broader approach with the remedy?

GWEN IFILL: Could Microsoft have gotten away in this case with proposing no remedies at all, just sticking their heels in the sand and saying no?

WILLIAM KOVACIC: I think that would have been a very risky approach. It would have seemed to the outside world and to the judge to have been unreasonable. Again it does serve the purpose by offering their own affirmative agenda of directing the judge’s attention to conduct rather than structure.

GWEN IFILL: How about the timetable? A great big part of this proposal was about what happens when, if this happens and that happens. And ultimately they’re talking about it’s conceivable this could still be going on into December.

WILLIAM KOVACIC: The company has given the judge a menu of options. They basically said if the government’s full package of remedies including divestiture is to receive serious attention, we want a process that runs through the early part of December to resolve this matter. The shorter alternatives involve casting divestiture aside, throwing aside some of the information disclosure remedies the government wishes. The fastest timetable along that line would bring things to an end in early August. Microsoft has also said if the judge is willing to embrace its package of conduct controls immediately and allow an appeal to progress, Microsoft would accept that right now and allow Judge Jackson to contemplate other remedies in greater detail.

Steve Ballmer says a breakup will never happen

GWEN IFILL: But the one thing that Microsoft seems unwilling to suggest and Steve Ballmer said it again today was that a breakup will never happen. He’s been reassuring his employees about that. Does he have basis to be so optimistic?

WILLIAM KOVACIC: I think part of the basis for optimism is that historically it’s been rare to order a divestiture in a matter of this sort. It’s an extremely sobering matter for a judge or a collection of judges to undertake. And enough of the law that we referred to before, the uncertainties, may break Microsoft’s way on appeal but what has to make the company a bit nervous is that the Supreme Court’s declarations, especially in the late ’40s and early ’50s about the scope of the government’s remedial requests and the district court’s power are exceedingly broad.

GWEN IFILL: Still some very strong language in this counterproposal today from Microsoft. They talked about the breakup proposal being like the Sword of Damocles hanging over there head. Do you see any sign in the language or in the way this was proposed that sounds like they were really in the business of finding compromise now?

WILLIAM KOVACIC: I think in some of the specific proposals there’s a mix of the language in the document. Some of it is conciliatory, but when you go to the core question of divestiture and the integrity of the company, I think you see more than simply sheer lawyers’ advocacy there. I think you see the deeply held view of the company that this is simply unacceptable.

GWEN IFILL: So what happens next? This now goes to the judge. Today was Microsoft’s deadline. What happens after that?

WILLIAM KOVACIC: One week from today the government will issue its response to Microsoft’s filings today. Judge Jackson has scheduled a hearing for May 24th. I think originally Judge Jackson thought that might be the day that wraps everything up and puts it aside and we have a final decision sometime in June.

GWEN IFILL: Maybe he was dreaming at that point.

WILLIAM KOVACIC: I think it was a hopeful view of the world. I think realistically what the 24th is likely to turn out to be is a debate between the two sides about what type of process to resolve the remedy is necessary from here on out; Judge Jackson is likely to listen to those arguments and perhaps a short time afterward offer his own view about where we go from here.

GWEN IFILL: Okay. Well, we’ll be keeping an eye on that. Bill Kovacic, we’ll talk to you again.


GWEN IFILL: Thank you.