Microsoft To Rebut Breakup Plan

Wednesday, May 10th 2000, 12:00 am

By: News On 6

WASHINGTON (AP) â€” As Microsoft Corp. attorneys finished up their response to a government plan that would split the company in two, the Justice Department's chief antitrust official defended the proposal as the best way of preserving competition in the computer software industry.

Assistant Attorney General Joel Klein, speaking just hours in advance of today's deadline for Microsoft's counterproposal, said the Microsoft case resembles the government's case against another high-tech company, AT&T.

At the time â€” the early 1980s â€” the Justice department was criticized for ``challenging a technology leader and a critical part of the information structure,'' Klein said of the landmark antitrust case that resulted in the breakup of the old Bell System.

``We now know, of course, that the divestiture in the AT&T case, far from making things worse, has unleashed unprecedented competition, innovation and consumer benefit,'' Klein said, referring to an explosive growth in wireless communications, broadband services and fiber optics.

``We believe that the proposed divestiture in the Microsoft case similarly would produce substantial innovation and competition in the software business,'' he said during a round-table discussion Tuesday with high-tech executives and professors from the University of California, Berkeley, business school.

Microsoft spokesman Jim Cullinan said he wasn't surprised by the timing of remarks.

``It's certainly understandable that the Justice Department has to attempt to defend what is a far-reaching and regulatory proposal that would do significant harm to innovation, the high-tech industry and consumers,'' Cullinan said.

Last month, the Justice Department and 17 states submitted a plan to break Microsoft into two companies â€” one that would sell its dominant Windows computer operating system, and the other selling virtually everything else Microsoft produces.

The plan was submitted to U.S. District Judge Thomas Penfield Jackson, who on April 3 found Microsoft to be a monopoly with business practices that violated antitrust law. The company, which plans to appeal the ruling, was required to file its response to the government today after the close of financial markets.

Microsoft's response to the government proposal will include its objections to the plan, as well as its own proposed remedies. Cullinan refused to address specifics in the proposal.

Sources told The Associated Press last week, however, that Microsoft may ask the judge to simply scrap most of the government plan because it is improperly based on evidence that wasn't presented during trial. Although the proposal was 17 pages long, the government submitted a 167-page supplement that included findings by five experts.

According to various reports, Microsoft's proposed remedies may mirror offers made during recent settlement talks. Among them were opening up the company's pricing, contracts and technical information to clients and competitors. Microsoft reportedly also may offer to strip its Web browser, called Internet Explorer, out of future versions of Windows and give computer makers more freedom to make changes to the operating system.

Any remedy proposal, regardless of how modest the relief, would be to Microsoft's advantage in the eyes of the court, a legal observer said.

``Microsoft has some concerns that they not appear arrogant or unwilling to address the issue. If they simply go before Judge Jackson and say, 'No remedy is appropriate,' then there's a greater likelihood that Jackson would write off their position as unreasonable,'' said Warren Grimes, an antitrust expert at Southwestern University School of Law in Los Angeles. ``I think by coming in and saying, 'Here's what's appropriate,' they give the judge and the government something to focus on.''

The government has until May 17 to counter Microsoft's response, and Jackson has scheduled a May 24 hearing to consider the issue. Microsoft has made it clear, however, that it needs more time to gather depositions and evidence to combat the government's proposal.

Even if the government's plan is eventually accepted by Jackson, it is unlikely to implemented for years because of challenges it faces on appeal.