Microsoft Blasts DOJ in Final Brief

Attorneys for Microsoft Corp. (Nasdaq: MSFT) railed against the U.S. government in a Wednesday court hearing, labeling its proposal to split the company in two as "vague" and "ambiguous."

Microsoft told U.S. District Judge Thomas Penfield Jackson that the company needs more time to revamp its corporate strategy, and suggested that if a breakup is unavoidable, one of the two companies should be shielded from the watchful eye of the Department of Justice (DOJ).

The government has proposed splitting the company into two separate entities, one that would manufacture the Windows operating system and another that would focus on Microsoft's software applications, including the Internet Explorer Web browser.

The government plan would allow Microsoft co-founder Paul Allen and CEO Steve Ballmer to own shares of both the proposed new companies, while Microsoft co-founder and chairman Bill Gates would be allowed to own stock in one or the other.

Eleventh Hour Nitpicking?

Filing its final brief in the case, Microsoft asked for inclusion of a number of specific definitions in the court's ruling, including the term "Internet browser," saying there is "no indication what the government is referring to."

Additionally, attorneys for Microsoft said any plan to split the company should be officially referred to as a "divestiture" rather than a "reorganization."

The change is necessary, according to Microsoft, because "under the government's revised proposed final judgment, Microsoft is not being 'reorganized' in any meaningful sense of that term. The government is demanding that Microsoft 'separate,' that is, divest, major parts of its integrated operations. The language of the final judgment should reflect that reality."

Some critics claim that Microsoft was splitting hairs in an attempt to buy time.

Line by Line Response

Microsoft's brief attacked the government's proposal line by line. One of the requirements Microsoft wants removed is the stipulation that all internal e-mails be stored by one of the proposed new companies.

The company's filing said, "Given the enormous volume of e-mail sent at Microsoft every day, the hundreds of servers on which such e-mail is stored, and the fact that the e-mail of literally thousands of Microsoft employees would be covered, this provision is over-broad and unduly burdensome."

Internal e-mails were key evidence in the government's case against the company in the 78-day trial.

Microsoft's lawyers suggested numerous changes to the government's proposal:

• Responding to restrictions the government would impose on the company's conduct if the firm is not broken up, Microsoft proposed reducing the duration of the remedies from ten years to four years.

• Microsoft wants extensions in the deadlines, citing the time-consuming process of gaining approval for the changes from up to 75 foreign governments.

• Microsoft proposed charging companies to look at its source code, which the government wants made available to the company's rivals to restore healthy competition in the marketplace.

• Microsoft said it sees no reason why it should have to publish its prices on the Internet, as the government has proposed.

• The company also suggested that if a split occurs, the arm that governs Microsoft Office and other software applications should not be subject to government oversight.

"We are offering these edits with the obvious caveat that we do not believe that such an extreme and damaging remedy would be sustained by the appellate process," Microsoft spokesman Jim Cullinan said. "Still, we may have to live with this in some form or another, and we want it to be as clear as possible."

The Justice Department issued a statement Wednesday night calling the Microsoft brief "another effort to posture for appeal."

The statement said, "The filing does not come to grips with the fact that Microsoft has been found to have repeatedly engaged in serious legal violations and serious remedies are required to restore competition and prevent similar violations in the future."

Microsoft's Aggressive Stance

Microsoft critics say the company's reactions to the court case have been overly aggressive and inflexible.

Although Judge Jackson has already indicated that he will order a breakup of the company, Microsoft defiantly said the government's plan "defies comprehension" in Wednesday's 44-page filing. Observers believe such language and continual abrasive posturing will work against the company in the long run.

The software maker also referred to the government's breakup proposal as "defective," and said that the company has been denied "due process." Legal analysts say that such language is designed to lay the groundwork for Microsoft's inevitable appeals.

Direct to Supreme Court?

At this juncture, a ruling from Judge Jackson could be imminent. He could immediately sign the government proposal or incorporate his own line-by-line amendments to the plan, among other options.

Once the ruling is issued, it will likely be set aside while Microsoft appeals -- which it has repeatedly vowed to do. It is possible the appeal could go directly to the Supreme Court under a law designed to settle major antitrust cases as soon as possible.