Feds Must Rework Microsoft Plan

Thursday, May 25th 2000, 12:00 am

By: News On 6

WASHINGTON (AP) â€” Signaling a willingness to slice Microsoft Corp. into two pieces, perhaps even three, a federal judge ordered the Justice Department to revise its plan to break up the world's leading computer software maker and submit the new version by Friday.

The company's stock fell today on the news.

U.S. District Judge Thomas Penfield Jackson finished a daylong hearing Wednesday on possible remedies intended to address Microsoft's alleged antitrust violations by giving the Justice Department 48 hours to turn in the revised breakup proposal, one ``that would reflect the proceedings here today.''

He said he did not plan to hold further hearings on the issue.

``This case has been pending for two years now,'' Jackson snapped as he rejected Microsoft's pleas for more time to hold further hearings and develop a defense against any breakup plan.

Attorneys for the company, which will have the holiday weekend to respond to the revised proposal, argued they were denied their right to due process.

``We sought to have our day in court and the district court has decided not to grant us that process,'' William Neukom, Microsoft's general counsel, said outside the courtroom after the hearing's conclusion.

Had Microsoft been granted additional time to hold hearings, the company said it would have called as witnesses its billionaire founder and chairman, Bill Gates, as well as chief executive officer Steve Ballmer and various experts from universities and Wall Street investment banks.

At 10 a.m. EDT today, Microsoft shares were down $1.81 1/4 , or 2.8 percent, at $63.75 on the Nasdaq Stock Market.

Jackson's order indicates a final order on the case could come soon. His failure to give Microsoft at least another day to debate the merits of the government's plan was a ``serious miscalculation,'' one that could provide fertile ground for appeal, said William Kovacic, an antitrust expert at George Washington University.

``To order the breakup of one of the world's most important commercial enterprises without a serious discussion and debate of that measure is a breathtaking risk,'' he said.

The government says a breakup is necessary to restore competition to the high-tech industry.

Jackson clearly indicated ``a keen sense to wrap this up and that he is emphasizing speed over process,'' said Kovacic. A Microsoft breakup, however, would be one of the most significant corporate restructurings in the nation's history, he added. ``Isn't it worth taking a couple of months to get it right? And he seems to be saying, no, I know everything I need to know.''

The Justice Department, along with 17 states, proposed dividing Microsoft into two parts: One business would sell Microsoft's dominant Windows computer operating system and the other would develop everything else, including Microsoft's lucrative Office software products and Internet properties.

But during Wednesday's hearing, Jackson expressed interest in the possibility of breaking Microsoft into a third component, one focused on the company's Internet browser. The suggestion was posed by two industry groups and submitted in a legal document that Jackson called ``an excellent brief.''

The judge questioned whether dividing Microsoft in two, as proposed by the government, would ``simply create two monopolies.''

Jackson ruled last month that Microsoft violated federal antitrust law by using illegal methods to protect its monopoly in computer operating systems. He also found the company tried to expand its dominance into the market for Internet browsers.

Microsoft insists that breaking up the company as a remedy for its behavior would be ``extreme'' and unprecedented. Such a plan also would be extremely destructive to the company and the high-tech industry, where it has played a crucial role in stimulating the market.

``It will go a long way to ensure that Microsoft is the one company in the world that won't win â€” can't win â€” the next round of competition in the market,'' said Microsoft's lead attorney, John Warden.

The company has said it would appeal the case.

After the hearing, company attorneys said Jackson's order put the case ``very near the appellate phase.''

Microsoft views the U.S. Court of Appeals in the District of Columbia as a friendlier venue because of a favorable 1998 ruling in a related case.

While defending their breakup proposal, government attorneys Wednesday introduced two new e-mails aimed at showing Microsoft's continued efforts to dominate the software market.

In a note from Gates, managers were urged to make changes in the company's Outlook e-mail program to aid the adoption of Microsoft's line of handheld computers instead of the popular Palm Computing Inc. models.

``We really need to demonstrate ... why our PDA (personal digital assistants) will connect to Office in a better way than other PDAs, even that means changing how we do flexible schema in Outlook and how we tie some of our audio and video advanced work to only run on our PDAs,'' Gates wrote.

Government attorney David Boies said the e-mail â€” dated July 11, 1999, after testimony in the antitrust trial wrapped up â€” proved Microsoft planned to use its monopoly power to promote new products at the expense of competitors.

Microsoft argued the e-mail was taken out of context.

``It certainly doesn't tell the whole story,'' said Rick Rule, a former Justice Department antitrust chief who now works as a consultant for Microsoft.