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U.S. says it won't seek breakup of Microsoft - Move is seen as settlement offer by Bush administration

Published 09-07-2001
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WASHINGTON - The Justice Department signaled its desire to quickly resolve the antitrust lawsuit against Microsoft Corp. on Thursday by dropping threats to dismember the company and to retry other aspects of its case.

Some analysts saw the unusual public announcement as a settlement offer from the Bush administration and the 18 remaining states that joined with the federal government in 1998 to sue Microsoft. The states quickly issued a joint statement concurring with the Justice Department's move.

"It's an important announcement the department didn't need to make, so to a significant extent it is a signal that they want a settlement," said Nicholas Economides, an economics professor at New York University's Leonard Stern School of Business.

The announcement is also expected to clear the way for Microsoft to release the latest version of its operating system software, Windows XP, which computer retailers hope will boost sales in a challenging marketplace.

A senior Justice Department official with the antitrust division, speaking to reporters on condition of anonymity, said the government wanted a "prompt, effective remedy as quickly as possible. ... We're hopeful we can bring the Microsoft case to a resolution in all of our lifetimes." The official did not give details of remedies the government might seek.

Microsoft had little to say in response: "We are committed to resolving the remaining issues in this case," company spokesman Jim Desler said.

Microsoft's competitors reacted by accusing the Bush administration of surrendering advantage to the company by abandoning the breakup threat.

"The only difference between now and when the Department of Justice originally concluded a breakup order was necessary and appropriate is that Microsoft's market share has ballooned, their monopoly strengthened and their practices are even more anti- competitive," said Ed Black, president of the Computer & Communications Industry Association.

Rulings and appeals

Last year U.S. District Court Judge Thomas Penfield Jackson ruled Microsoft used illegal business practices to keep control of more than 90 percent of computer operating systems. He ordered a corporate breakup.

A U.S. Court of Appeals upheld Judge Jackson's finding of illegal monopoly practices in June but overturned the breakup order and disqualified the judge for talking with the press.

Microsoft has appealed the verdict to the U.S. Supreme Court. Unless it prevails there, the company faces mandated changes in its business to prevent the sort of predatory practices the federal courts say it followed.

Those could involve universal pricing for all customers for Microsoft products or a ban on adverse practices directed against competitors such as exclusive contracting.

But consumers can expect to see the next generation of Windows operating software - Windows XP - on store shelves next month. The company offered consumers advance orders for Windows XP on Thursday.

Critics of the new operating system say it ties consumers to other Microsoft products, such as Windows Media Player, at the expense of competing software makers.

But the U.S. Court of Appeals ruled in June that the government had failed to prove an antitrust allegation against Microsoft for bundling Microsoft's Internet browser software with its operating systems. It ordered a retrial of the allegation, but the Justice Department abandoned that effort Thursday.

Anthony Sabino, an associate law professor at St. John's University's Peter J. Tobin College of Business in New York, said the Bush administration was giving the economy "a shot in the arm" with the Microsoft announcement.

"It's a conciliatory gesture to Microsoft allowing it to send out Windows XP," he said. "XP is already in the hands of PC makers, it will be coming out in the stores in mid-October. Looking at the precipice of recession that we're on, the Bush administration has pulled back from a case where it had little merit, and at the same time is giving the economy a shot in the arm."

Stock drops off

In any case, technology stocks fell sharply Thursday. Shares of Microsoft fell $1.72 to close at $56.02.

The senior Justice Department official said the government has no plans to seek an injunction against Microsoft's release of Windows XP.

Mr. Economides noted the Justice Department tried to win such an injunction to block the release of Windows 95 without success.

"For the Department of Justice to seek an injunction against XP, it would have lots of negative reaction, and not just from Microsoft," he said. "This is the hope of the computer industry for a recovery."

Others found political motive in the Justice Department's announcement. Common Cause, a public interest group critical of campaign finance practices, suggested Microsoft had bought a verdict by contributing more than $1 million to Republican causes in the 2000 election cycle.

"Microsoft put their bets on this horse, and now it is time to collect their winnings," said Common Cause president Scott Harshbarger.

Mr. Sabino called that allegation "nonsense" and said the Justice Department had little choice but to drop the breakup remedy in the face of the June appeals court ruling.

The senior Justice Department official said remedies for Microsoft's anti-competitive behavior would apply to any new products.

Illustrations/Photos: CHART(S): WHAT'S NEXT.

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