Microsoft says breakup is 'too great a risk' to economy

Computer World –

Microsoft Corp. said Monday that it is no Standard Oil or AT&T Corp. and warned that a court-ordered breakup "is too great a risk to take" for the nation's economy.

Moreover, in a legal brief filed with the U.S. Court of Appeals, Microsoft said the plan to split it into two separate companies -- one to run the operating-systems business and the other to take over applications and other business lines -- would fail.

This government-created operating-systems company would have "powerful incentives" to add new functionality and features to the operating system platform, Microsoft said. In short, the operating-systems company "would behave in precisely the same way Microsoft behaves Monday because such behavior makes perfect business sense."

A Justice Department spokeswoman said the government had no comment on the latest brief.

Microsoft is appealing U.S. District Court Judge Thomas Penfield Jackson's ruling last year that the company violated antitrust law, as well as his order to break up the company. Monday's filing was the last scheduled brief before oral arguments Feb. 26 and 27.

Microsoft was also harshly critical of Jackson's recently published comments about the case and said they "demonstrate an animus toward Microsoft so strong that it inevitably infected his rulings." In particular, Microsoft cited numerous references in Ken Auletta's new book, World War 3.0: Microsoft and Its Enemies, based on interviews with Jackson, including one comparing company executives to gang members convicted of murder.

Microsoft, in this brief, defended its actions as pro-consumer. It said the company, unlike a monopoly, "must continue to improve Windows and price it attractively to give existing customers an incentive to purchase a new computer or otherwise obtain a new version of the operating system."

Microsoft also argued that it can't be compared with other targets of government antitrust action that were created through mergers, such as Standard Oil and AT&T. Standard Oil was divided through stock transfers in 1911, and AT&T was divided among existing operating companies in 1982.

"There is just no logical relationship between the alleged wrongdoing and the proposed corporate restructuring," said Hillard M. Sterling, an antitrust lawyer at Gordon & Glickson in Chicago. "The AT&T and Standard Oil breakups led directly and immediately to cures in the respective industries. You had separate companies doggedly fighting each other," he said. "But a broken Microsoft would move in the same directions it does Monday, just in two pieces."

Microsoft also warned that the antitrust attack on its company could have consequences similar to those in the United Shoe Machinery antitrust case of 1953. That company had a shoemaking-equipment monopoly and was ultimately broken up. The company subsequently went into rapid decline, said Microsoft. "That same fate should not befall the American software industry," the company wrote.

The government, in its earlier brief, argued that a breakup of Microsoft will create marketplace conditions favorable to the company's competitors. The government said the threats once posed by Netscape Navigator and Java were stymied by Microsoft's abuses of its monopoly power in operating systems.

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