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In recent months, Joel I. Klein, head of the Justice Dept.'s Antitrust Div., has overcome nearly universal skepticism and mounted a case that Microsoft should be broken up. Now, Klein has his work cut out for him in getting Judge Thomas Penfield Jackson, appellate judges, and the public at large to agree that he has crafted the perfect solution to the software giant's monopolistic practices. With his remedies, filed in Jackson's courtroom on Apr. 28, Klein tries to walk a fine line between keeping the government out of the business of regulating the software industry while ensuring real competition in the market.
Here's how it would work: In one thundering blow, he would sever Microsoft's operating system from its suite of applications, then leave the two companies pretty much to their own devices. This, he argues, is government at its best: policing, but not regulating. "Neither the heavy hand of ongoing government regulation nor the self-interest of an entrenched monopolist will decide what is in the best interests of consumers," Klein says.
But whether this is such a clean split still remains to be seen, say industry analysts and antitrust experts. Some critics question the finality of the solution, because the operating-system unit would still be the only such company serving the desktop market. It could develop -- or purchase -- applications software to reassemble a bundled package like Microsoft had before the split.
LAUNDRY LIST.
To get around this problem, Justice should have created multiple operating-system companies to compete with each other, argues Klein's former antitrust colleague Robert Litan. But Litan says Justice accepted the argument that multiple operating systems would create a chaotic marketplace of noncompatible products -- an argument that was rejected in the split-up of AT&T. "There's a lot here that resembles the 'one-big-black-phone' argument," Litan says.
Similar questions surround whether government would be able to walk away so cleanly if Jackson were to accept the Justice plan. Klein's 17-page proposal includes a laundry list of behavior restrictions. The great majority of these are stopgap measures used only until the spilt occurs. But some would remain after the split. The two companies, for instance, would be prohibited from entering into any licensing or distribution agreements with each other. They would be barred from selling products to each other at more favorable terms than those offered to other companies. And they would be barred from sharing any private technical information with each other regarding the interfaces that link operating system to applications.
All of these measures, say experts, will take some form of ongoing oversight. Even California Attorney General Bill Lockyer, who joined in the case, admits: "There would have to be some method for enforcing the decision."
COMPETING SYSTEMS?
Klein, however, doesn't see much reason to worry about government intrusion in the marketplace until that bridge has to be crossed. And if the operating-system company develops or acquires applications, great, he argues. It can compete with other applications companies that will probably go out and develop products that run on other operating systems, such as Linux and Unix.
"Think about the implications of that strategy for the applications company, and you begin to see the wisdom of the remedy," says Klein. "Because the applications company is thinking, 'Now, the operating company is broadening its horizons, how are we going to respond?' It's precisely that dynamic that I think makes this a very powerful, procompetitive remedy."
Will all this happen? Lots of things would have to fall into place just right for it to work. But given Klein's success in taking a breakup as far he has, it's hard to bet against him.
Dan Carney in Washington EDITED BY DOUGLAS HARBRECHT
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