BUSINESSWEEK ONLINE : MARCH 22, 1999 ISSUE
NEWS: ANALYSIS & COMMENTARY

Will Trustbusters Try to Force Windows Open?


What happens if Microsoft loses its antitrust suit--or winds up settling with the government before Judge Thomas Penfield Jackson rules? Experts from the Justice Dept. and from the offices of 19 state attorneys general are feverishly trying to devise appropriate remedies. While no final decisions have been made, the proposal that's generating the most buzz is a so-called mandatory licensing plan. It would require Microsoft Corp. (MSFT) to auction off the Windows source code--the underlying software commands that make the product work--to two or three other companies that would then create their own versions of the operating system.

The theory behind this approach is that it would eliminate the monopoly that Windows enjoys among desktop computers and would create a new competitive market in operating systems. At the same time, it would not be as complex as breaking up the company.

BABY BILLS. That's one reason trustbusters are unlikely to support a proposal floated last month by the Software & Information Industry Assn. (SII)--to divide Microsoft horizontally into three companies: one with the operating system, one in applications, and the third in Internet products and services. Additionally, ''it would still leave an operating system monopoly that we have to worry about,'' says a lawyer for one of the states. Another alternative--a ''vertical'' breakup into three ''Baby Bills,'' would curb the monopoly but could harm consumers by spawning incompatible versions of Windows.

And given the genesis of the Justice suit--it arose after Microsoft allegedly violated an earlier consent decree--trustbusters don't want a remedy that Microsoft can wriggle out of. ''There's a real feeling that Microsoft is perhaps not as ready to follow the rules as other companies,'' says Iowa Attorney General Tom Miller.

That's what makes mandatory licensing appealing. According to two attorneys on the committee that is studying the issue of remedies for the AGs, mandatory licensing is now favored by most of the states. An array of respected academics also endorse the idea, including University of Iowa antitrust expert Herbert J. Hovenkamp, Georgetown University's Steven C. Salop, and the John F. Kennedy School of Government's F.M. Scherer. Justice and its antitrust chief, Joel I. Klein, are not ready to sign on. But the department has a remedies team that is currently considering the idea as one of several options.

But mandatory licensing has some practical problems. Like the Baby Bills approach, it could fracture the Windows standard and make the market less efficient. That's the main reason SII and the Association for Competitive Technology (ACT) put out position papers opposing mandatory licensing.

''EVERY SECRET.'' Then there's the potentially fatal flaw to the mandatory licensing scheme: What if nobody wants to license Windows and go into competition with Microsoft to sell the operating system and develop upgrades? That would require ''a massive development and distribution system to compete with Microsoft--which already has a smoothly running machine and knows every secret about Windows,'' says Palo Alto (Calif.) attorney Gary Reback.

That does not take away the allure of mandatory licensing for trustbusters who see it as a far simpler approach than trying to dismantle Microsoft. And, proponents say, the issue of keeping a single Windows standard intact could be addressed by forcing Microsoft and its licensees to work together in a group that would set standards. Perhaps. Now, all they've got to do is find companies willing to play that game with Microsoft.

By Mike France, with Steve Hamm, in New York

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