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Government Defends Microsoft Breakup

The Justice Department late Wednesday came out swinging at Microsoft Corp. with a brief rebutting the software giant's proposed solution to the antitrust suit brought against it by the federal government and more than a dozen states.

In a court filing submitted to U.S. District Judge Thomas Penfield Jackson, the Justice Department and 17 attorneys general defended their proposal to split Microsoft into two distinct companies -- one with rights to the Windows operating system and another with rights to everything else, including Microsoft's lucrative Office applications and Internet Explorer browser.

"The proposed remedy will undo the harm to competition caused by Microsoft's illegal conduct without creating the costly inefficiencies of more burdensome regulation or as [the government's] experts explained, risking material harm to Microsoft's shareholders," the memo said.

Arguing in favor of the spin-off, the government said:

  • Separating of Microsoft's operating systems and applications businesses will undo the artificial preservation and enhancement of the applications barrier to entry caused by Microsoft's illegal conduct;

  • Separation will reduce Microsoft's incentive and opportunity to manipulate the boundaries between applications and the operating system in order to prevent the development of cross-platform middleware;

  • Separation will permit each business to compete with each other, both through internal development and through alliances; and

  • There is no alternative that would restore competitive conditions without significantly greater burdens and potential inefficiencies.

The Justice Department also criticized Microsoft's proposed solution, saying it did not seriously address the software giant's anticompetitive practices.

"In proposing a remedy to this Court, (Microsoft) was required to make a proposal that addressed the violations the court found," the government wrote. "It did nothing of the sort. Instead, it offered a cosmetic remedy that would have virtually no significance: It would neither undo the harm that Microsoft inflicted on competition nor prevent Microsoft from illegally using its monopoly power to inflict harm in the future."

The brief filed by the Justice Department and the attorneys general was the last written filing before Judge Jackson opens penalty hearings on Wednesday. It was a response to a brief filed by Microsoft last week, proposing several changes to existing business practices, including allowing computer makers to delete the Internet Explorer icon from the Windows desktop and start menu and giving independent software vendors timely access to Windows application programming interfaces (APIs) necessary for writing software for Windows .

But the government argued that Microsoft's solution missed the point of the sweeping antitrust probe, and did "not address some of the most important violations found by the court."

"Microsoft focuses on the wrong target; it proceeds as if the issue in the case were whether Microsoft had illegally obtained its monopoly in the operating system market," the brief said. "In fact, however, the central violation proven at trial and found by this court was that Microsoft illegally maintained its monopoly by obliterating middleware threats posed by Netscape Navigator, Java and Intel's platform software initiatives and thereby increased entry barriers into the operating system market."

The brief pointed out that a Sherman Act remedy to anticompetitive practices must serve three goals: ending the illegal conduct, preventing its recurrence, and healing the competitive harm to the marketplace. The government said Microsoft's solution ignored the last goal and only groped toward the first two.

In addition, the government attempted to refute Mi