posted 11 May 2000 10:40 PM               

3:00 a.m. May. 11, 2000 PDT
Ê Ê
The chief irony in the proposed antitrust punishments Microsoft submitted to a federal judge on Wednesday is how easily the company could have avoided this step.

In two days of closed-door negotiations in May 1998 before the Justice Department filed its antitrust suit, Microsoft might have sidestepped its debilitating courtroom battle simply by agreeing to conditions such as letting PC makers modify their opening screens.

Now, two years later, Microsoft has lost every round in its trial, has learned that the government wants to break it up, and has been forced in response to suggest punishments that go far beyond mere contractual issues.

The "proposed final judgment" Microsoft submitted on Wednesday covers far more than opening screen restrictions. It restricts the kinds of deals Microsoft can enter into with third-party developers and allows computer makers to delete the Internet Explorer icon from the Windows desktop.

Microsoft even offered to pay "reasonable costs and attorneysâ fees" for the state attorneys general that brought the suit.

So why didn't Microsoft settle? They and government attorneys sure seemed close to a deal as recently as March, and earlier reports of settlement had caused Microsoft stock to jump.

During a conference call Wednesday afternoon, Microsoft Executive Vice President William Neukom evaded that question.

"We feel very strongly that we have not violated the Sherman Act," Neukom said. "We've always tried to be good listeners and open-minded and reasonable."

The most likely explanation is that Microsoft is confident that appeals courts will overturn any negative verdict from U.S. District Court Judge Thomas Penfield Jackson, who has been uniformly hostile to the company so far.

Chairman Bill Gates has pledged to continue Microsoft's fight, and previous rulings from the D.C. Circuit Court of Appeals have been generally pro-Microsoft.

Neukom stressed that Microsoft's suggested self-flagellation is just part of court procedure, and he believed that the company had not run afoul of the law.

"Microsoft is asking the district court to dismiss the government's breakup proposal immediately," Neukom said. "Not only is the breakup an unprecedented remedy in the 110-year history of the Sherman Act, it is also an entirely unwarranted remedy."

In a separate document, Microsoft urged Jackson to reject all punishment.

"No court has ever ordered significant structural relief in a contested case where the defendant obtained its leading market position through internal growth rather than through acquiring its rivals," Microsoft said.

Top government officials have compared the case to the breakup of AT&T.

"Take the phone example because I think that's perfect. Think about how we had that rotary-dial telephone. Think of the telephones we now have, the handheld phones," Joel Klein, assistant attorney general, said recently on CBS' "Face The Nation."

"That grew out of the Reagan Justice Department's decision to break up AT&T. And I think that's exactly the model that we ought to see here," Klein said. "And we'll see that kind of dynamic development."

Not so, says Microsoft, which argues AT&T and Standard Oil were conglomerate companies that could be easily carved up.

"Microsoft does not have free-standing operating units devoted to particular regions or types of products -- it has one headquarters, one set of sales and marketing subsidiaries around the world, one sales and marketing force, one product-support organization, one basic research unit, one finance department, etc.," the Microsoft brief says.

"AT&T agreed to this breakup in part to free itself of restrictions ÷- which limited AT&T to the provision of telecommunications services -- that existed by virtue of a prior consent decree entered in 1956," Microsoft says.

"The remedies proposed are inadequate," Iowa Attorney General Tom Miller said in a statement. "These measures would not have prevented the serious violations of law found by (Jackson), and they are not adequate remedies to assure that the law is not broken in the future."

Microsoft asked Jackson to hold hearings starting in December if he was going to consider the breakup plan after all. The government has until May 17 to reply, and Jackson has scheduled a hearing on May 24.